Budget 2012: Private companies look to tap ECB route for resources

NEW DELHI: Private power companies are bullish on tapping more foreign currency loans now, as the withholding tax on such debt has been reduced from 20 per cent to 5 per cent.

"Budget proposals are very good, the reduction of tax on ECB would definitely mean that the quantum of loans would also increase," GMR Energy CEO Raaj Kumar said.

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ECB has been permitted to part re-finance the rupee debt on power plants, in the Budget.

Withholding tax -- a deduction of tax at source on payments made to non-residents -- on External Commercial Borrowing (ECB) has been reduced from 20 per cent to 5 per cent for three years (i.e. uptil 2015). This would reduce the overall cost of debt, Finance Minister Pranab Mukherjee said while announcing the budgetary proposals for 2012-13.

"It is a very positive and right move, with resource constraints in the country, it will make ECB funding more attractive and competitive," L Rajagopal, CEO Lanco Power Ltd said.

He added that the sector would witness increase in ECBs in the coming years.

Tax-free bond limit for the power sector has also been increased from Rs 5,000 crore to Rs 10,000 crore.

Full basic duty exemptions would be given to power plant fuels such as natural gas and Liquefied Natural Gas (LNG) etc. At present, imported coal attracts a customs levy of around five per cent.

This proposal is going to bring cheer to the companies who are financing their projects through ECBs.

"This proposal would definitely increase ECBs in the sector and those who have already got foreign debt can reduce the capital cost," Ashok Khurana, Director General, Association of Power Producers said.