Mega power projects get three more years to qualify for tax sops
The Union Cabinet on Wednesday said 10 provisional mega power projects —each with a capacity of 1,000 MW — will get an additional window of three years to comply with the requirements for availing defined tax benefits. The move will benefit GMR, Essar, Lanco and Torrent, among others. Some units that are under the insolvency resolution process could also be among the beneficiaries.
The timeline extension will enable the project developers to furnish the required documents to the tax authorities to get the tag of ‘mega’ projects, which will help them to competitively bid for future power purchase agreements (PPAs) and get tax exemptions. “The increased liquidity will boost the overall growth of the country and also ensure the revival of various stressed power assets,” an official statement said.
During this extended period, bids for firm power (combination of intermittent renewable energy, storage and conventional power) will be invited in coordination with the ministry of new & renewable energy (MNRE) and Solar Energy Corporation of India (SECI), and these mega projects will be expected to participate in such bids to secure PPAs.
The 2009 mega power policy promised exemption of customs duty on equipment and excise duty benefits to 25 power projects of 30,000 MW capacity that sign long-term power purchase deals. However, given the lack of power procurement tenders from states, the government has extended the deadline to give producers more time for compliance.
As per the policy, the timeline for these projects was to get over on March 31, 2022. After which the projects would have lost their bank guarantees.
Ashok Khurana, director general of Association of Power Producers, said the timeline extension will allow 10-12 GW of coal-based power projects to come online in the next three years when MNRE and SECI will invite tenders for hybrid (wind-solar) projects along with conventional power capacities. “There is a strong demand for power which can only be met by coal-based projects in near future unless renewable substitutes 24×7 power demand in entirety,” Khurana said. “I am hopeful these mega projects will be able to sign the PPAs in coming years,” he added.
States have not issued long-term power procurement tenders in the past decade since there has been a sharp decrease in exchange prices while long-term tariffs increased steadily. As a result, states now prefer to buy short- or medium-term power via the exchanges or competitive bidding.
Rahul Raizada, director, PwC India, said the timeline extension will help developers in getting refunds of their paid duties, which would not only help them clear dues to the banks, lowering their NPAs, but also lower tariffs for the consumers. “Also, allowing these players in the bids by SECI tenders would also increase the competition, thus, lowering the costs even further and with the focus now on RE RTC/firm RE the stranded thermal capacities can also be utilised to the fullest. This is an important step as this would ensure asset creation is not penalised but is put to use for the purpose it had been created for,” Raizada said.
However, there are also opinions that government should refrain from these high capital cost projects with environmental concerns where tarrifs cannot be less than Rs 5.50 per unit. “Discoms have surplus PPA for coal-based projects, so they prefer to pay fixed cost and buy renwable energy from the spot market. Also, given high capital cost and environmental concerns, these mega power projects will have high variable cost so the PPA rates will not be less than Rs 5.5/ unit. It is advisable to go for renewable power rather than signing PPA with these projects,” said Rupesh Sankhe, vice president and power analyst at Elara Securities.