Checking power points

ONE of the most strategic industries in the infrastructure sector is power, and every government has tried to give in an extra bit to get this sector going. But despite the pushes, the industry still needs to go a long way, and policy makers are ready to do their bit.
For one, the forthcoming budget is expected to declare a policy by which the ‘mega power policy’ would be expanded and fiscal sops be offered to a larger number of projects. The power ministry has sought introduction of tax-free power bonds to raise funds for power projects. This will provide for cheaper funds, which will indirectly reduce the cost of developing power plants.
The proposal for the expansion of the mega power policy is expected to cover all the thermal power projects with a capacity of 1,000 MW and above and all the hydel projects with a capacity of 500 MW and above. The earlier policy, framed eight years ago, was restricted to eight projects, of which only one — NTPC’s Simhadri project — has started construction. The move to expand the policy is aimed at facilitating more capacity addition at lower costs. The mega power policy status would provide for a complete waiver on customs and excise duty on all project imports for the plant.
The power ministry has also requested state governments to relax sales tax on such projects. Government sources said the mega power policy could be effective only if a large number of projects can avail of the tax sops. Announced almost four years back, the policy failed to take off because it was restricted to a select few delaying projects. Incidentally, the government has also proposed a similar status for the Dabhol plant in its reworked package to reduce the costs.
Tax waivers have a major impact on tariffs. The tax exemptions will reduce capital costs by 15%.
At current market rates, the fixed cost element in the tariff is around Re 1.30 per unit. Rates could be lowered by 20 paise per unit under the mega power policy.
In a bid to promote energy conservation, the power ministry has suggested that customs duty rates be reduced for importing equipment or capital goods for energy conservation projects.