Mega power policy may retain interstate sale

Mega power policy may retain interstate sale

New Delhi: Despite objections from private power projectdevelopers, the revised mega power policy may not only retain a mandatory clause binding producers to sell the generated power to more than one state, but expand the policy to even projectsunder 1,000MW.

The policy revision is being done to make investments more attractive and make it easier for the government to achieve the proposed target of creating power generation capacities of 78,000MW at a cost of Rs10.31 trillion by 2012.

A senior power ministry official, who did not wish to be identified, confirmed the development, saying: “We plan to shortly take the policy for the cabinet’s approval."

Government officials, however, were unilling to confirm the new production capacity benchmark for power projects to be eligible for mega power status, which entitles projects to fiscal incentives, including a complete waiver from customs duty on equipment imports and a 10-year tax holiday.

Currently, for a project to be awarded the mega power status, it has to have a generation capacity of at least 1,000MW, give 15% price preference for domestic suppliers of power equipment, sell power generated from the project to more than one state and be located in a state that has initiated privatization of power distribution in cities with a population of at least one million.

Developers have been lobbying to get the interstate sale of power criteria removed, claiming that it is economically unviable for smaller projects. “It makes no sense for retaining the interstate power sale criteria on one hand and reducing the power project size on the other as for small projects it will not be economically feasible for selling it outside the state," said one such developer who didn’t want to be identified.

A power sector analyst, who did not wish to be identified due to the sensitive nature of the subject, said: “Mega power status is primarily a duty reduction measure. Interstate sale of power is unviable for small projects as their transaction costs goes up."

The power ministry, while not willing to bend on the issue of interstate power sales, is considering extending the policy to merchant and captive power projects and dropping the 15% price preference clause for domestic suppliers of power equipment. It’s also mulling relaxing the policy to make locations even in states that are yet to initiate electricity reforms, eligible for such projects. India currently has a power generation capacity of 135,006MW.