New Delhi: In a move that could increase the country’s power generating capacity and, simultaneously, benefit companies such as Mukesh Ambani’s Reliance Industries Ltd, or RIL, and Anil Agarwal-owned Vedanta Resources Plc.’s Sterlite Industries (India) Ltd, the power ministry is pushing for so-called mega power project status to captive plants that can generate 1,000MW and above.
The move faces opposition from other government arms, including the Planning Commission, amid concern that it would only favour large companies and result in inequalities in the captive power generation segment.
Captive power plants, set up by a company to generate electricity exclusively for its own use, are at present not eligible for the mega project status, which would entitle them to fiscal incentives, including a waiver of customs duty on equipment imports and a 10-year tax holiday.
RIL plans to set up two projects of 2,000MW each at its special economic zones, or SEZs, in Haryana and Maharashtra. It also wants to set up captive power capacity of around 4,000MW to supply electricity to the thousands of outlets its unit Reliance Retail Ltd plans to open, as reported by Mint on 9 August 2007.
Sterlite, through its unit Bharat Aluminium Co. Ltd, or Balco, is setting up a 1,215MW captive power plant in Jharsuguda, Orissa, and a 1,200MW project in Korba, Chhattisgarh.
Mint couldn’t immediately ascertain the names of other companies that propose to set up captive power projects of more than 1,000MW capacity.
An RIL spokesperson declined to comment while a Sterlite spokesperson didn’t respond to emailed questions.
“This is being done to benefit large companies,” a senior government official, who is part of the policy revision exercise and didn’t wish to be named, said. “The principle of mega power policy is to lower power tariffs and bring relief to consumers. How will the end-consumer benefit by giving these benefits to captive power projects? The power ministry is driving this case.”
The proposal to award mega power project status for captive projects has faced opposition from the departments of revenue, public enterprises, industrial policy and promotion; the National Manufacturing Competitiveness Council, the Planning Commission and the ministry of heavy industries during inter-ministerial consultations, this official said.
Union power secretary Anil Razdan defended the proposal. “We believe that big power-generation capacity of any ownership should be encouraged because there is a power shortage in the country,” he said. “It will help in bringing more power to the market as there is no openly traded power in the market. There is a demand-supply gap. If you don’t make investing in the power sector attractive, such investments will go elsewhere.”
To be sure, the power ministry’s move could encourage more companies to develop captive power plants and improve the country’s track record in terms of adding generating capacity. In the five years to 2007, the country saw the addition of only 20,950MW against a target of 41,110MW. In the five years to 2012, it has a target of 78,577MW but according to a report in Mint on 28 August 2007, India could miss this by 60% because of shortage of equipment.
For a thermal project to be awarded mega power project status, it has to have a generation capacity of at least 1,000MW, sell power generated from the project to more than one state and be located in a state that has begun privatizing power distribution in cities with a population of at least one million. In the case of hydropower projects, the threshold capacity is 500MW.
In Jammu and Kashmir and the North-East, the threshold power generation capacities to be eligible for mega power project status are 700MW for thermal projects and 350MW for hydropower projects.
Rupesh Sankhe, equity research analyst at Mumbai-based Centrum Broking Pvt. Ltd, said setting up large-capacity captive plants of 1,000MW and above was only within the reach of big firms . “This revised policy will only lead to inequalities in the captive?(power?generation) space.”
India has an installed power generation capacity of 143,000MW and plans to add 78,577MW by 2012. In addition, the country has a captive capacity of 45,000MW with an additional 10,000MW expected to be commissioned by 2012.