Import duty on gear to make super critical equipment may be waived

Import duty on gear to make super critical equipment may be waived

New Delhi: As part of efforts to step up domestic power generation equipment manufacturing in the country and reduce emissions, the Central Electricity Authority (CEA), India’s apex power sector planning body, has recommended the waiving of import duty on machinery that will used to make super-critical equipment.

Such equipment, having a capacity of 660MW and above, helps in higher plant efficiencies and economies of scale, besides being environment-friendly. Such a waiver will benefit private joint venture companies such as Toshiba Corp. of Japan along with JSW Group; Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises Pvt. Ltd; Larsen and Toubro Ltd (L&T) and Mitsubishi Heavy Industries Ltd (MHI) of Japan, and Alstom SA of France and Bharat Forge Ltd, which have plans of setting up domestic manufacturing facilities. Of these, L&T-MHI is at an advanced stage of setting up manufacturing facilities and actively pursuing orders.

Currently, the custom duty rate for equipment is 7.5%, followed by an additional 8% countervailing duty and 4% additional customs duty, all of which is topped up with an education cess, which finally aggregates close to 22% of the cost of the equipment. Setting up 1MW of equipment manufacturing requires an investment of around Rs1.5 crore.

The proposal reviewed by Mint is part of India’s attempt to launch a super-critical power programme along the lines of similar efforts in the US, Japan, Germany, South Korea and Russia. “The recommendations have been made," said a senior CEA official, who did not want to be identified as he is involved in the process.

With India producing around 67% of its electricity by burning coal, the power sector is the biggest consumer of the fuel, absorbing nearly 78% of the output. This leads to it being the largest contributor to greenhouse gas emissions in the country.

“High technology and capital intensive manufacturing requires significant and expensive imports, and the customs duty cost adds significantly to the overall project cost," said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors. “This often ends up as a deterrent to the economics of the project, since these projects are often not evaluated on wage efficiency but on efficient capital deployment."

Currently, Bharat Heavy Electricals Ltd has a capacity of 10,000MW, which is not sufficient to meet the growing equipment demand.

“For long-term development of critical energy infrastructure, the government has in the past provided waiver of custom duty for refineries, pipelines, and mega power plants," Chaudhri said. “It is now equally critical to extend this rationalization to the development of the capital goods industry, which is a key component for building generation capacity of power in India."

A Toshiba spokesperson welcomed the development in an email reply.

“We expect that such a policy would facilitate foreign companies to invest and advance into the Indian market much easier," said Sunil Chaturvedi, chief operating officer, capital goods division, Bharat Forge. “Any benefits provided by the government that help reduce the cost of power generation equipment being made by Indian entities will give a competitive advantage over those entities offering equipment from abroad and who may resort to under-pricing of their equipment."

“The joint venture between Alstom and Bharat Forge is likely to be located in an SEZ (special economic zone)," Chaturvedi said. “The project will hence enjoy all benefits being provided by the government to power generation equipment manufacturing entities in SEZs, which also includes exemption of customs duty for import of machinery."

Questions emailed to JSW Group, Ansaldo, GB Engineering and L&T remained unanswered.