The Hindu Business Line : Call for dilution of inter-State criteria for mega power status

Sources said here that the dilution was essential to ensure that large projects being implemented by State utilities and generating companies were in a position to benefit from the tax concessions available for mega projects. Among the tax concessions available under the current mega project policy include complete customs and excise duty waivers. Currently, these benefits are available only to the Central generating stations and for projects with a minimum capacity of 1,000 MW. This is because only Central generating companies and a small number of private sector independent power producers conform to the inter-State criteria. Moves to dilute the capacity criteria have already been initiated and it is expected that the threshold would be brought down to 500 MW.

Among the States that have approached the Ministry of Power for dilution of the inter-State criteria include Andhra Pradesh, Maharashtra and Karnataka. In all these States, some of the new projects being undertaken have power purchase agreements only with their respective transmission or distribution companies.

They have pointed out that the application of the inter-State criteria for mega status would imply that the generating companies would have to rework some of their power purchase agreements or sign separate power purchase agreements with the Power Trading Corporation or with some of the neighbouring States for firm off-take.

Sources said that the dilution of the criteria would pave the way for lower power tariffs, especially for some of the new projects planned.

Customs and excise duties are currently treated as part of the fixed costs, and tariff loading as a result is anywhere between five and ten paise a unit.

In addition, the States have also offered to provide greater sales tax concessions or exemptions for new projects. Such concessions would in turn have a further tariff impact of at least three paise per unit.

Already some of the State projects have managed to bring down costs. But this is more due to low interest rates and the consequent reduction in debt financing costs. Project debt finance is currently available at rates as low as 7.5 per cent, especially where there is a bankable agreement in place. Almost all the new projects now being set up by unbundled entities in the States have irrevocable letter of credit in place.

Besides, the shift in criteria from normative plant load factor of 68.5 per cent to 80 per cent and the reduction in incentive due to regulatory intervention have also helped in keeping the lid on fixed component of power tariffs down.

Already for some of the new thermal projects coming up in the States, the effective tariffs are estimated to be anywhere between Rs 2 and Rs 2.20 per unit. Extension of the mega power status to these projects, the sources said would bring the tariffs down below Rs 2 a unit, even lower than some of the Central utilities.