End of mega power benefits to yield little for Indian parts cos.

NEW DELHI: The government’s move to levy duty on import of power equipment by scrapping mega power policy may also lead to 10% duty on manufacturing of local power parts. Under the rules for mega power projects, thermal projects of 1,000 mw and more and hydel plants of more than 500 mw are exempt from excise and Customs duty. Non-mega power projects are, however, subject to 5% excise and Customs levy.

“The government’s exercise to provide a level playing field to domestic industry through a set of fiscal measures will only provide partial benefit to the industry,“ Bhel CMD BP Rao says.

The power ministry has moved a Cabinet note that has proposed about 20% duty on imported power equipment — 5% Customs duty, 10% countervailing duty (CVD) and 4% special additional duty (SAD).

With the 10% countervailing duty being offset by the imposition of an equivalent excise duty on locally produced machinery, the effective protection to domestic manufacturers will be much less.

“The price difference between Indian and Chinese equipment is as high as 35-40 %. A 5-10 % duty protection will not be enough,“ said Sanjeev Aggarawal, managing director, Amplus Infrastructure Developer, a private sector power operator. Mr Rao, however, felt that the new tax structure will not have any adverse impact of power tariff. The move threatens to make electricity costly by increasing the cost of setting up big power projects with even local machinery. “Equipment cost has a mere 2-3 % weightage on electricity tariff and the proposed duty structure may not result in tariff going up by more than 3-4 paise per unit,“ he said.

Power producers also feel the duty rejig is a half-baked approach that does not significantly incentivise domestic production.

“Government should reduce plethora of domestic levies that make domestic companies less competitive in terms of price,” says Mr Aggarawal.

The Arun Maira committee, set up by the government to recommend measures to encourage domestic manufacturing of power equipment, had calculated the incidence of local levies and other costs at about 14% of cost of equipment. This included octroi/entry tax (5-6 %), higher financing cost (2.4-3 .2%), lower customs duty on foreign competitors and sales tax/VAT.

A committee of secretaries (CoS) had, therefore, suggested 10% basic Customs duty and an addition 4% duty on imports to bridge this differential . Apart from Bhel and L&T , which have established equipment manufacturing in the country, Toshiba and JSW Group combine; Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises and Alstom-Bharat Forge combine have also proposed setting up main plant equipment facilities in the country.

Work on about 50,000 mw of power generation capacity is currently in different stages of execution.

HEAVY DUTY

Power producers feel the duty rejig is a half-baked approach that does not significantly incentivise domestic production The price difference between Indian and Chinese parts is as high as 35-40 %. A 5-10 % duty protection will not be enough Power ministry has moved a Cabinet note that has proposed about 20% duty on imported power equipment — 5% customs duty, 10% CVD and 4% SAD

Source : economictimes.indiatimes.com