The power sector has pitched for restoration of import duty exemption on power equipment for mega projects. Last year, to protect the domestic industry from cheap Chinese imports, the Government had slapped a 21 per cent customs duty on power equipment.

The Association of Power Producers (APP) has suggested to the Finance Ministry that in view of the severe power scarcity in the country and high cost of alternative energy sources, customs exemption should continue for mega power projects till the country achieves sufficient capacity in thermal power.

Industry observers say that duty imposition will not only increase production cost but also play spoilsport for getting cheap foreign credit. For instance, there are projects that have been funded by Chinese banks for supplying equipment to Indian developers.

Also, the supply of equipment is quicker by foreign equipment manufacturers, which brings down the implementation timeline, industry trackers said.

“Due to lack of taxes on the output of power plants and Cenvat credit, power equipment is the most highly taxed among core sectors. Restoration of customs duty exemption to mega power projects is imperative to reduce taxation,” APP said in its Budget proposals for 2013-14.

However, a lot will depend on how the Commerce and Industry Ministry views this.

Commerce Ministry view

The Commerce Department does not believe there is much weight in the power producers’ argument that import duties on equipment would lead to a significant increase in power prices.

“Plant equipment purchase is capital expenditure, which is not recurring. Power equipment lasts for about 30 years. So, the extra expenditure in terms of import duties will be spread over a long term and not affect prices much,” a Commerce Department official said.

The duties on power equipment imports were imposed after much deliberation between the Commerce, Finance and Power Ministries and there was no reason to remove these, the official said.

“Domestic manufacturers, such as BHEL, L&T and Bharat Forge continue to need protection against cheap equipment imports from China,” he said.

All ultra mega power projects (UMPPs) approved before the import duties were imposed last year have been kept out of the ambit of the levy despite the Commerce Department stating that it should be applicable on imports by mega projects.

A number of UMPPs, including Reliance Power’s ambitious Sasan project, which received a $1.1-billion loan from Chinese banks for importing equipment from the country, were thus exempt from the duties.

richa.mishra@thehindu.co.in

amiti.sen@thehindu.co.in

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