The import duty hike on power equipment for large power projects will not impact the power capacity addition during the 12th five-year Plan and even part of the 13th Plan. The Cabinet Committee on Economic Affairs, CCEA, is expected to discuss the proposal for power capacity addition soon.

A senior Government official told Business Line, “Since the new proposal is likely to exclude orders already placed but yet to be delivered, this is going to benefit the requirement of power sector during 12{+t}{+h} Plan.” The 12{+t}{+h} five-year Plan which began in April this year will continue till March 31, 2017.

However, during this period, if any project is shelved or order cancelled, then new order for import will attract increased duty, the official clarified. The initial estimate for the 12{+t}{+h} Plan talks about capacity creation of 78,000 MW, while order has already been placed for capacity of nearly 1 lakh MW. “The Planning Commission is expected to finalise the capacity creation by September. Even if it is raised to 90,000 MW, this will not have any impact as far as import duty issue is concerned,” the official added.

The proposal for import duty on power equipment for large projects was revived after the Prime Minister’s Office (PMO) directed the Power Ministry on Wednesday to send a note to the CCEA within 15 days.

The proposal talks about basic Custom Duty of 5 per cent, Counter Veiling Duty of 12 per cent (CVD levied in lieu of Central Excise Duty on same kind of domestic products) and Special Additional Duty (SAD) of 4 per cent, taking it to a total of 21 per cent.

Basic custom duty

At present, power equipment for projects with capacity of less than 1,000 MW attracts basic custom duty of 5 per cent. However, it is exempted for projects with capacity of more than 1,000 MW. This was done at a time when there is not enough capacity for ultra mega power projects (project with minimum capacity of 4,000 MW). This boosted cheap imports, especially from China.

The official said now there is more than required capacity available in the domestic market. At present, BHEL and private producers such as L&T have capacity of around 25,000 MW which is expected to grow to 35,000 MW at the end of this financial year, after the commissioning of new capacity by Bharat Forge and other private players.

With this calculation and to provide a level playing field, the proposal is being readied to support the domestic players.

“Heavy Machinery giant BHEL needs to have an order of 30,000-35,000 every year otherwise its capacity will be idle,” the official added.

(This article was published on June 21, 2012)
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