Tax incentives on cards for hydropower projects?

Siddhartha P. Saikia New Delhi | Updated on October 19, 2013 Published on October 19, 2013

Power Ministry seeks cut in service tax, zero Customs levy

In order to boost hydropower generation in the country, the Power Ministry has pitched for cuts in tax rates for such projects.

“The Ministry has sought exemption of customs duty and cut in service tax for equipment used in hydro power projects. However, it is to be seen if the Finance Ministry agrees to the proposal,” a senior Power Ministry official told Business Line.

If the proposal is accepted it will help power developers such as NTPC, NHPC, GMR and Jaiprakash Associates.

Currently, equipment for hydropower projects attract basic customs duty of 5 per cent, countervailing duty (CVD) of 12 per cent, and special additional duty of 4 per cent, which sums up to 23.08 per cent levied on the cost of imported gear. For equipment manufactured by domestic companies, an excise duty of 23.08 per cent is levied. The Power Ministry feels that such move would help in setting up of 10,897 MW fresh hydropower capacity during the 12th Plan. The Government targets to add 88,537 MW of new capacities from all sources during the current Plan.

Till June 2013, additional hydropower capacity of 132 MW has been commissioned. This is below the target of around 1,200 MW, according to Central Electricity Authority.

Private players

“Private companies were initially interested in hydropower projects. However, because of execution issues, the interest in such projects has dried up. Tax exemption may not be a big push, unless execution hiccups are cleared,” said Salil Garg, Director (Corporates), India Ratings & Research.

According to the Power Ministry, more than 90 hydropower projects accounting for 40,000 MW are stuck due to some or the other regulatory hurdle.

“The proposed duty can bring down electricity tariff from hydro projects by 20 paise a unit,” said the Power Ministry official.

For new hydro projects, tariffs can go as high as Rs 3-4 a unit. Electricity from some old hydro projects such as those run by Bhakra Beas Management Board (BBMB) costs less than one rupee a unit.

For hydro projects, fixed cost is high; but operations and maintenance costs are minimal.

“To set up one megawatt of hydropower may cost Rs 8-9 crore, while it costs about Rs 5-6 crore for each megawatt of thermal power,” Garg explained.


Published on October 19, 2013
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