Policy grey area short circuits power plants within SEZs

Written by Rituparna Bhuyan | New Delhi | Updated: Aug 10 2009, 07:23am hrs
Six months after the Centre released new norms for power plants within Special Economic Zones (SEZs)in a bid to attract greater investmentsthree existing SEZ power plants with a cumulative generation capacity of over 760 mw have slipped into the policy grey area. The affected power plants include a 720-mw plant set up at Reliance Industries SEZ at Jamnagar.

The Jamnagar SEZ, along with Moser Baer India Ltd and Abhijeet MADC Nagpur Energy Pvt Ltd, has approached the Board of Approvals (BoA) under the commerce ministry for clarification on the status of their power plants. Although the plants got a green signal from authorities earlier, they dont fit into the new guidelines for power plants in SEZs notified in February.

As per the new guidelines, three types of power plants are allowed inside the tax-free zones. For one, power plants built outside the core processing area of an SEZ are eligible for tax sops for construction but not for operational running expenses.

A power plant is also allowed within the processing area if it is set up as a separate unit within the SEZ or if the entire SEZ is dedicated for power generation alone. Such power plants within SEZs would enjoy tax incentives for both construction and running costs.

But the three plants under question have been constructed by the co-developer of the projects and are based in the processing area of the SEZs. As a result, they do not fall under any of the categories of power plants mentioned in the new norms.

The BoA, headed by commerce secretary Rahul Khullar, may take a call on this in its meeting slated for August 11. While two of these plants are operational, permission to build the third one was given as late as January this year, about a month before the new guidelines were released.

The biggest power plant amongst the three, 720 mw, was constructed by Reliance Utilities Ltd (RUL) in the processing area of the Jamnagar SEZ refinery. RUL had partnered the lead developer of the SEZ, Reliance Jamnagar Infrastructure Limited, and has availed tax benefits for building the power plant as well as procuring routine supplies.

The plants existential dilemma was first discussed at the level of the development commissioner of Kandla SEZthe nodal officer responsible for SEZs in and around Gujarat. The commissioner had noted that the power plant is in the processing area and has been constructed by a co-developer, therefore, couldnt be allowed under the new norms. An alternative ideadesignating the plant as non-processing area to comply with the February diktatwas also unacceptable as SEZ norms require the processing area to be contiguous.

Moser Baer India Ltds (MBIL) 15-mw power plant in its Greater Noida SEZ has similar problems. Set up inside the processing area, the power plant started generating power in June 2008. Within the zone, the present requirement of power is about 56 mw.

The plant has been buying duty-free furnace oil to generate electricity, part of which it supplies to an adjacent export oriented unit (EoU) manufacturing optical medical products, also owned by MBIL.

Moser Baer needs to get fresh clearances to retain the tax sops on power consumables and continue its sales to the EoU both of which need a fundamental clarification on treatment of such power plants under the new norms.

Abhijeet MADC Nagpur Energy Pvt. Ltd (AMNEPL), a co-developer in the Maharashtra Airport Development Company Ltd (MADC) SEZ in Nagpur, is seeking a similar clarification for their 25-mw power plant. MADC is a Maharastra government company in charge of developing the multi-modal international hub airport in Nagpur. The nod for the plant was given on 29 January.

AMNEPL had approached MADC developer of the zone to demarcate the power plant as a non-processing area to comply with the new SEZ norms. But MADC maintained that this was not possible. Hence, the matter has been put before the BoA.

While the development of most SEZs has slowed, thanks to the credit crunch, setting up and operating power plants within SEZs are considered lucrative business propositions. Power from these zones can be supplied to industrial units outside, subject to conditions like payment of duty and maintaining positive net foreign exchange position of the SEZ power plants.