Its All About Power Sector

The Mega Power Policy was introduced in November 1995 for providing impetus to development of large size power projects in the country and deriving benefit from economies of scale and quick capacity addition. Under Mega policy, fiscal benefits in the form of zero duty imports, income tax waiver etc. are extended to the certified Mega power projects.

The Mega Power Policy was amended in 2009 to make it liberal and operationally more effective. Amended Mega Policy allowed the developers to tie up all power to even one state and as per National Electricity Policy they could also sell power upto 15% outside the long term PPA. Thus, the policy stipulates that the private power companies must tie up only 85% of power of the plant with Discoms / State designated agencies through tariff based competitive bidding.

Based on the representation from the industry that there has been delays in signing of PPA through competitive bidding (which is mandatory for grant of mega power status), MoP in consultation with Department of Revenue, issued guidelines for issuance of Provisional Mega Certificate where the projects undertake to sign long term PPA of at least 85% of plant capacity within 36 months from the date of issuance of such Provisional Mega certificate, to enable the developers to continue with the execution of the project and tie up PPAs in that three year period with an undertaking to that effect backed by bank guarantee.

Developers have also represented that even if they commissions the plant they are unable to get the benefits of Mega Policy as they are unable to tie up 85% power through competitive bidding because not many States are calling bids for procurement of power and some of them are taking too long for finalizing the bids that are received. The developers have requested that any power project tying up the long term PPA of their part capacity be given Mega benefits proportionately. In other words, if any developer is able to achieve less than 85% power tie up, they can be extended mega benefits in the proportion of the tied up PPA.

The salient features of the Mega Power Projects is minimum plant capacity size of 1000 MW for Thermal Power Project in normal areas and of 700 MW for North Eastern States and J&K. So the mega benefits cannot be extended unless the projects achieve this threshold capacity of commissioning as they would fail to meet the definition of Mega Projects as per the Mega Power Policy.

It is proposed to extend the Mega Policy benefits in proportion to the extent of signed PPAs as provided in Tariff Policy 2006 once the threshold capacity of the Provisional Mega project gets commissioned and also extend the time period for Provisional Mega projects to get final Mega Status from the present 36 months to 60 months as adequate bids were not forthcoming from Discoms for procurement of power.

It was recently approved by the cabinet that Custom Duty @5%, CVD @12% (as applicable and equal to  excise duty on domestic industry from time to time) & SAD @  4% to  be uniformly applicable to the imported equipments of all categories of Power generation projects, viz., Mega Power Projects (including  UMPPs) and non-Mega Power Projects. All projects certified as mega power project and provisional mega projects before the date of Cabinet decision will be exempted from the duty structure proposed in the above and they will continue to get all the benefits available under Mega Power Policy.

With the above decision, at present only provisional Mega projects are to be given final Mega certificates and no new power project can be accorded Mega Status.  Thus the duty free imports of equipments are no longer available to any new power project except certified mega projects and provisional Mega projects.

This decision was arrived based on the following:
To avail the benefits under Mega Policy, the developer must tie up at least 65% of installed capacity/ net capacity through competitive bidding and up to 35% of installed capacity/ net capacity under regulated tariff as per specific host state policy and approved by the respective regulators under long term PPA with Discoms / State designated Agency. This dispensation would be one time and limited to the 15 projects which are located in the States having mandatory host State power tie up policy of PPAs under regulated tariff.

Allow propotional Mega policy benefit to the developer (25 projects) in proportion of the long term PPAs tied up as permitted under the Mega Power Policy, once the threshold capacity of the projects gets commissioned.

Extend the maximum time period to 60 months instead of 36 months from the date of Importation for provisional Mega projects (25 projects), for furnishing the final Mega certificates to the Tax authorities.

Source: Cerebral Business research Pvt. Ltd.