NTPC, RPower top gainers from ECB tax sops

The finance minister has reduced withholding tax rate on interest payment for ECB loans from 20% to 5% in the Budget, a move that should help power companies make commensurate savings on account of loans raised in the overseas market. For example, a company that has taken a seven-year, $1-billion loan at the interest rate of 4% will save as much as $42 million in interest payment.

Withholding tax is used as a tool by the government to tax interest payment on overseas loans raised by domestic companies. So far, NTPC and Reliance Power have tied up ECB loans of about $3 billion each for drawing down over a three to five-year period.

Reliance Power has tied ECB loans for its coal and gas-based power projects at Sasan and Samalkot project and solar project in Rajasthan. NTPC has firmed up these loans to finance a basket of power projects. The central utility is in the process of undertaking implementation work on more than 15,000 MW capacity.

Tata Power, which has taken $1.8 billion, will also benefit significantly from reduction in the withholding tax rate. The ECB exposure of Adani Power, Lanco Power and JSW Energy is comparatively lower.

India has envisaged adding 1 lakh MW capacity during the coming 12th Five Year Plan, which entails investment of R5 lakh crore in generation alone. The total investment requirement of the power sector during the coming plan is estimated at R12 lakh crore.

Since most of the domestic banks and financial institutions are constrained by prudential norms to step up lending to the power sector, tapping overseas market is the only option left for the developers to raise funds for financing their envisaged projects.