Operationalising standalone power special economic zones (SEZ) will soon be easy with commerce and power ministries coming to an understanding that developers who have obtained the green signal from the board of approval (BoA) for such zones need not have to get a licence from the power regulator for distribution of surplus power.
Currently, even if the developers have the approval from the BoA headed by the commerce ministry, they will have to get a separate license from the respective state electricity regulatory commission under the Electricity Act for distribution of power.
Sources said following 8-10 months of detailed discussions, both ministries have now reached an agreement that the approval of the BoA would also be a ?deemed distribution licence? enabling such power SEZs to supply power outside the zone. A notification to this effect is likely to be issued soon.
The move also falls in line with the SEZ policy?s USP of ?single window clearance?. ?The ministries have agreed in principle regarding this. After considering other issues on pricing etc, a final decision will be taken by June-end,? a senior official said.
According to the SEZ policy, power SEZs, like all other tax-free enclaves, will have to maintain a positive net foreign exchange (NFE) earning. Power SEZs would have to achieve a positive NFE by selling more power to other SEZs and units therein than to the domestic tariff area (area outside SEZs and are subject to taxes).
NFE is calculated cumulatively for a period of five years from the time the production begins and is achieved if the free on board value of exports is more than the value of imported capital goods and raw materials. Any sale of good and services from one SEZ to another is deemed as export since SEZs are not subject to local taxes and duties and therefore considered foreign territory.
At present, the standalone power SEZs are located strategically amidst SEZs in the same region, like the ones being developed by Maharastra Industrial Development Corporation (MIDC) in Raigarh and Bhadravati Chandrapur districts in Maharashtra, Wardha Power Company Private Limited in Chandrapur and by Adani Power Pvt Ltd at Mundra in Gujarat to take care of the needs of the SEZs nearby. There is also an instance of smaller captive power SEZ by Jhunjhunwala Vanaspati Ltd to distribute power to their multi-services SEZ. These SEZs have already received formal approval from BoA. Maharashtra alone has 88 SEZs with formal approvals (those developers with land), including five from Raigarh region. The state has 37 SEZs with in-principle nod (those yet to procure the required land, but with a viable proposal).
Gujarat has 39 SEZs with formal nod and nine SEZs with in-principle approvals.
As per SEZ Rules, sale of surplus power from an SEZ to other SEZs or to export oriented units, electronic hardware technology parks, software technology parks, bio-technology parks shall be without payment of duty.
However, commerce, power and finance ministries are still debating the issue of distribution of surplus power to units in domestic tariff area.
According to the SEZ Rules, surplus power generated in an SEZ power plant or a unit?s captive power plant or diesel generating set may be transferred to DTA on payment of duty on consumables and raw materials used for generation of power. For this, the proposal for sale of surplus power received by the development commissioner of the SEZ shall be examined in consultation with the state electricity board and later obtain permission from the specified officer and the state government authority concerned.
Referring to the tax exemptions already given to SEZs, the finance ministry has said power-based SEZs that are selling power to the DTA units should pay the applicable taxes and duties along with special additional duties and countervailing duties. However, commerce and power ministries ?pitching for commercial viability of these SEZs and bringing down the cost of power?are contending that power SEZs should be exempted from the payment of these taxes and levies.