Trade Articles

The finance ministry has decided to allow central excise duty abolition on ultra mega power projects (UMPPs) for procurement of goods. Such waiver is granted for settlement of UMPPs of 3,960 MW or above of it. 'The exemption is applicable to goods procured for projects, which are being set up under government initiative and have an installed capacity of 3,960 MW or above', government release clarifies it out. The said excise sop will be granted subject to certain conditions. It will be allowed only on those goods which have been using super critical coal thermal technology. Moreover such exemption is considered to be one of the most important part of the mega power policy of the government which will announce very soon. Presently only those companies are allowed such relief which are following norms related to the international competitive bidding (ICB) while purchasing of equipments.

The government move is more likely to play great role in the context of those companies which are into big power projects as it will bring down the cost significantly which will finally prevent any traffic enhancement in the hands of final consumer. The power situation in India is very chronic and the government has set out their motive of providing 'power for all' by the end of its eleventh plan i.e. 2012. It clearly points towards the entailment of arising of additional power capacity of minimum 1,00,000 MW in the next 4 years. For bridging this gap, UMPPs, having minimum capacity of at least 4000 MW or more are being developed by the government. After their completion, each of the UMPPs will be able to meet the power requirements by generating enough electricity.

The finance ministry has come up with the decision of offering fiscal sops to those equipments which are being supplied to the UMPPs. This move will help in lowering the import cost on those equipments which are being imported for such projects as no countervailing duty on imports will be charged by the government, thanks to the exemption of excise duty. This abolition will apply not only to the supply of equipments to UMPPs but the same will also be seen applicable on all other materials like cement, steel etc., requisite for the set up of project in India. The fiscal sops have been come up on the heels of the report submitted by the prime minister’s economic advisory council's (EAC). This report has demanded the 'special urgency' for stepping up the speed of capacity creation in both power generation and its distribution along with the completion of commercial reform process including the efficient distribution of power in throughout the India.

The outgoing EAC chairman, Dr C. Rangarajan has noted down the power generation situation in India. His report 'Economic Outlook for 2008-09 has pointed towards pace of the power generation, which is somewhere shortfall of the commissioned capacity. The report said that during the period of April-June of 2008-09, mere 23% increase has been registered in the power generation as compare to the programmed 12%. Such anomalous situation requires to be rectified. The total power generating capacity in 2007-08 was commissioned at 9,732 MW which was nearly 8 % more than what it was in 2006-07 i.e, 9,042 MW. Dr. Rangarajan said that for sustaining high rates of growth in power sector it is imperative that there should also be an increase in the generation and distribution process. It is highly required that the economic conditions should remain stable and those companies which are busy in distribution should be financially solvent.

According to the circular of the directorate general of foreign trade (DGFT), deemed export benefits can be availed by the power producers only if there is procurement which is done under the tariff based bidding or in case the company has the ICB for offering the engineering and procurement contract (EPC) for their power project. Such move has been heeled on improving the power scenario in the country. The government declaration is likely to prove advantageous for the coming power projects, which will be bid on tariff. Earlier such projects were required to undergone through the ICB twice (before on tariff stage and on purchasing of equipments) before getting deemed export benefits. Deemed export connotes with such transactions under which goods which have been supplying to users or projects, are in the national territorial of the nation and payment for this has been received either in rupee or in foreign currency. The sops list include excise duty exemption and duty drawbacks to suppliers. The benefits are either enjoyed by the inter-state thermal plant, having capacity more than 1000 MW or a hydral plant with 500 MW capacity or more.

About Ultra Mega Power Projects (UMPPs)

Ultra Mega Power Projects or UMPPs are the power projects set up by the government with an aim of creating additional capacity of 1,00,000 MW by the end of eleventh year of planning. These UMPPs are considered as the extension of the mega power projects (MPP), which have been took up by the government in nineties but failed to have a bang effect and were settled down with the limited success. The ministry of power has entered into an association with the central electricity authority and power finance corporation for setting up the coal based UMPPs in the India. The government has make out a declaration for setting up of the 3 more ultra mega power projects in Tamil Nadu, Maharashtra and Orissa, having capacity of 4000 MW each. Another UMPP has been set up in Tilaiya of Jharkand, where bidding inviting process has already been started.