This comes close on the heels of a fresh post-budget proposal made by the power ministry to the ministry of finance regarding rationalisation of import duties on fuels used for power generation.

Following duty changes made in the recent budget, condensate attracts a net import duty of 20 per cent. For LSHS, the existing basic duty is 30 per cent and the net effective duty comes out to be as high as 56.8 per cent.

Industry experts are of the view that a further reduction would make condensate a better choice for power generation and would come as a major relief for the imdependent power producers (IPPs) who are currently using naphtha as the primary fuel for their plants.

Although naphtha has a basic duty of 5 per cent, it also attracts a counter-vailing duty of 16 per cent.Along with a surcharge, the net effective duty works out to 21.8 per cent.

As a fuel, naphtha and condensate have almost the same properties when used for power generation and even the present duty structure is almost the same for both naphtha and condensate, at 21.8 per cent and 20 per cent, respectively.

However, if the customs duty on condensate is less compared to naphtha, as is also being proposed by the power ministry, the choice of most of the IPPs will come down to condensate as it is comparatively easier to handle when compared with naphtha.

It may be noted here that of all the fuels proposed for power generation, LNG is currently the most attractive as it attracts a basic duty of 5 per cent and a net duty of 9.2 per cent.

Compared to this, naphtha, condensate, LSHS attract a net duty of 21.8 per cent, 20 per cent and 56.8 per cent, respectively.

However, due to non-availability of LNG, it can only be used as a secondary fuel and the IPPs will have to depend on naphtha, LSHS or condensateas their primary fuel.

The increase in customs duty on naphtha from zero to five per cent has been largely criticised by the IPPs as in addition to this customs duty, there has also been an increase in CVD by almost 16 per cent for equipments import for power generation projects. As a result of these additional duties, the cost of power from the IPP plants is likely to go up sustantially.

It may be recalled that as a result of varying duties on fuels, which had created a lot of confusion over the choice of fuels to be used by the IPPs in their plants, the power ministry had earlier proposed a uniform tax structure for all fuels to be used for the power sector.

However, except naphtha and LNG, which now attract a basic duty of 5 per cent, all other fuels continue to attract a basic duty as high as 30 per cent.

INSIGHT

Costs may come down
Naphtha has always been costlier than fuel oil/LSHS and LNG and nowhere in the world is naphtha used as extensively as a fuel for producing power asit was expected in India.

Basically, the distortion in the duty structure has resulted into few power projects coming in India with naphtha as the fuel. If today the Government decides to rationalise the duty structure, a more coherent fuel policy can prevail. Although the cost of fuel would rise for the existing naphtha-based power plants (Essar Power), in the case of the remaining users it would mean lower costs and better power quality.