NEW DELHI: The government on Wednesday raised the customs duty on sale of power from plants located in special economic zones (SEZs) to the rest of the country in order to give a level playing field to power producers located outside these export hubs.
The move is likely to impact the cost competitiveness of power sales from Adani Power Ltd’s Mundra SEZ and Essar Power’s SEZ in Hazira, which would affect the cost of power purchase by state utilities in Gujarat.
Units in SEZs, which are set up with the purpose of increasing the country’s exports and earning foreign exchange, are allowed to import raw materials and equipment duty free and are eligible for income tax relief for 15 years.
These benefits give these units a cost advantage if they sell their output in the domestic market. The government’s idea is to reduce this cost advantage, which power producers outside these tax free enclaves consider unfair.
Wednesday’s notification issued by the Central Board of Excise and Customs (CBEC) raised the customs duty on sale of power from plants in SEZs which use cheaper imported coal from 10 paise per kilowatt hour (kwh) to 40 paise, and imposed afresh a 65 paise duty on power sale by those using domestic coal.
“The government’s intent seems to be to give a level playing field between power producers within SEZs, who can import inputs and equipment duty-free, and those generation units outside these zones,” said Kalpana Jain, senior director at Deloitte in India. Coal import attracts a 2.5% customs duty for power producers outside SEZs.
Where plants in these export hubs use a mix of domestic natural gas and cheaper imported natural gas (LNG), 59 paise per unit customs duty is imposed.
If the entire power is generated from LNG, then the duty applicable is 89 paise per unit. Earlier, domestic gas-based plants in SEZs had attracted a customs duty of 11 paise per unit on power sales to outside customers. However, with the scarcity of natural gas, many producers started using a mix of imported LNG and domestic gas.
The notification also raises the duty applicable on smaller power plants of less than 1000 mega watt which were licensed before 27 February, 2009.
Adani Power runs a 4,620 megawatt (MW) power plant in Mundra, which is able to supply to the states of Gujarat and Haryana at a competitive rate compared to other producers, according to the company’s 2015 annual report. Essar Power has a 515 MW plant near its steel plant at Hazira in Gujarat.
To facilitate Indian companies setting up power generation capacity in neighbouring countries with local partners with the idea of selling power to Indian customers, the government also said that no import duty will be levied on power imports from Nepal and Bhutan.
