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K.R. Srivats

New Delhi, Aug. 15 Fiscal sops have been given for equipment supplies to ultra mega power projects (UMPPs). The Finance Ministry has granted excise duty exemption to goods procured for setting up UMPPs with installed capacity of 3,960 MW or above.

This move would also help lower the import cost for equipment supplies from abroad to such projects, as there would be no countervailing duty on imports in the wake of abolition of excise duty. A lower cost on equipment could lead to reduction in overall project cost. Equipments such as boilers and turbines account for a large component of the total project cost of UMPPs.

So far, three UMPPs — Sasan, Mundra and Krishnapatnam — have been awarded to independent power producers. The Anil Dhirubhai Ambani Group company Reliance Power is implementing UMPPs at Sasan and Krishnapatnam. The Mundra project was awarded to Tata Power.

Only foreign suppliers have bagged the contract for installation of equipment like turbine and boilers in Sasan (Shanghai Electric of China) and Mundra (Doosan of South Korea). For Krishnapatnam project too, indications are that the contract for installation of equipment will go to a foreign supplier

In July this year, Reliance Infrastructure, part of the ADAG Group, had signed a framework agreement for long-term co-operation with Shanghai Electric Corporation (SEC) of China for various identified areas in the power sector. SEC now has most-favoured supplier status for the power plants being developed by Reliance Power.

The Finance Ministry’s excise exemption decision would apply not only to equipment supplies to UMPPs, but also to all other goods such as cement and steel procured for setting up the project. The revenue department has, however, prescribed certain conditions for obtaining the benefit of the exemption that became effective from August 14.

The fiscal reliefs have come on the heels of the Prime Minister’s Economic Advisory Council’s (EAC) report that called for “special urgency” to step up the pace of capacity creation — in both generation and distribution — and to complete the process of commercial reform in the power sector, including incentivising efficiency of generation, distribution and consumption.

The ‘Economic Outlook for 2008-09’ report of the outgoing EAC Chairman, Dr C. Rangarajan, has noted that power generation has not kept pace with commissioned capacity.

In the first quarter (April to June) of 2008-09, power generation has increased by a mere 2.3 per cent compared to the programmed 12 per cent plus growth. This anomalous situation needs to be rectified, the report has said.

In order to sustain higher rates of growth, the order of increase in generating and distribution capacity will have to be higher still. It is also imperative that normal economic conditions are restored in the sector by reforming the distribution end and making distribution companies financially solvent, the report added.

In 2007-08, the total increase in power generating capacity was 9,732 MW, about 8 per cent more than the 9,042 MW commissioned in 2006-07. This compares well with the average of 4,810 MW in the previous four-year period, according to the EAC.

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