Cap likely on merchant power price

NEW DELHI: Power projects that claim tax sops may see a cap on the price they charge for electricity sold in open market, a power ministry official said.

The change will be incorporated in the mega power policy and is aimed at preventing companies from making windfall gains while enjoying tax benefits, the official said. ���The cap could be Rs 5-7 a unit,��� he added, requesting anonymity.
With a shortage of power across the country, merchant sale commands a premium as high as Rs 15 per unit while pre-determined rates are at Rs 1.20-3.50 per unit.

The change would hurt projects that do not tie up their entire output under long-term power purchase agreements (PPAs) with state utilities and trading entities.

Power companies have firm commitments with states and trading firms to sell 60-85% of generation at pre-determined rates and can sell balance output in the open market. While thermal power plants can sell 15% output, hydel plants are allowed to sell 40% of the power they generate.

���The finance ministry and Planning Commission are opposed to extending tax sops to merchant sale of power,��� the power ministry official said.

The ministry is likely to include the cap on price in the final draft of the new mega power policy. A committee of secretaries approved the draft policy early this month and the final draft will be tabled before the Cabinet soon.

In its current form, the mega power policy provides tax benefits to thermal projects with over 1,000 mw capacity and hydel projects with over 500 mw capacity that have tied their entire capacity under long-term PPAs with state utilities and trading entities.

The policy provides an exemption from Customs duty on import of capital goods and deemed export benefit, in the form of excise duty waiver, for supplies by domestic bidders. The projects also get income-tax holiday under Section 80-IA.

���The proposed changes in the policy would be made only for conventional power projects where only a small portion of the capacity is kept outside PPAs. Mega power benefits would not be available for 100% merchant power plants and captive units,��� a Planning Commission official said.

The new policy is also expected to give exemption from mandatory privatisation of distribution in power purchasing states, constitution of state electricity regulatory commissions and inter-state sale of power.