New Delhi: The government is set to extend by up to five years the benefits of the Mega Power Policy which promised customs and excise duty benefits to power projects of 1,000 megawatt (MW) or more capacity that sign long-term power purchase deals.
The move will provide about Rs10,000 crore of benefits to two dozen projects with about 32,000 MW capacity and help ease the stress some of them inflict on the banking sector. Only 11,000 MW of these projects are commissioned, while the remaining are under various stages of implementation. Generally, 70% of the project cost is financed through debt. The total cost of these projects is estimated to be about Rs1.5 trillion.
The proposal for extending the mega power policy scheme is likely to be taken up by the Union cabinet chaired by Prime Minister Narendra Modi shortly, a person privy to the development said on condition of anonymity.
Most of these projects could not sign power purchase deals with distribution firms as shortage of domestic coal and high import price for the fuel during the commodity boom in the early years of this decade kept generation cost high, which discouraged utilities from signing long-term purchase pacts. Extending the mega power policy is the latest in a series of steps being taken to revive the electricity sector including coal linkage rationalisation and debt restructure of distribution firms.
“Revival of these projects will bring benefits to the banking system and the overall economy. Since new plants would be efficient, it will also enable lowering of the power tariff for the distribution firms and the consumers,” explained the person. Reviving these high performance projects with lesser emissions will also improve investments into the power sector, the person said further.
Under the Mega Power Policy of 2009, 25 projects have been given provisional mega power project status. But to avail incentives such as lower customs duty and excise duty exemption for equipment, they are required to sign long-term power purchase agreements of eight years for 85% of the power generated, for which they were given five years from the date of the import of equipment. However, only projects accounting for 1,320 MW managed to achieve this. Extending extra time will enable the remaining projects too to take advantage of the scheme.
Anil Razdan, former power secretary, said, “It is extremely necessary to support these projects in view of factors like energy requirement for the Make in India drive, village electrification and increase in power demand resulting from reforms in the distribution sector. Going forward, I expect power demand to go further up from greater use of electric vehicles”.
GMR Chhattisgarh Energy Ltd, Monnet Power Corp. Ltd, Lanco Power Ltd, Essar Power Jharkhand Ltd, Jindal India Thermal Power Ltd, Hinduja National Power Corp. Ltd, IL&FS Tamil Nadu Power Co. Ltd and Torrent Energy Ltd are among companies that are eligible for the benefits.
While the proposal currently being discussed among ministries is to give extra five years to projects for meeting the requirement, a call on this will be taken by the cabinet.