Power firms may get nod for infra bonds

New Delhi, January 24: | Updated: Jan 25 2002, 05:30am hrs
Power sector companies may be allowed to raise funds through infrastructure bonds, as in the case of IDBI and ICICI, under section 88 (xiv) of the Income Tax Act,in the forthcoming Budget.

Top government officials said the ministry of finance is actively contemplating an amendment to section 88, thereby enabling power sector companies to tap subscriptions from individual assessees looking for a 20 per cent income tax rebate on the qualifying amount. In addition to this, the finance ministry is likely to extend customs duty benefits for import of all goods and equipment for power generation.

Giving details, officials said that zero duty import of all items for power generation for a period of three years may be allowed in the Budget for 2002-03. This benefit will help in bringing down the tariff of power generated from such projects, besides giving a major boost to investments in the sector.

Currently, customs duty exemption is available on import of goods for only those power generation projects, which are either funded by the World Bank or Asian Development Bank(ADB). Similar exemption is also available for mega power projects.

However, power projects being funded through domestic resources have to pay the duty even if they are executed through the international competitive bidding route (ICB).

Sources said that these zero duty import benefits, being contemplated by the finance ministry, for all goods for power generation would be irrespective of the source of funding.

Alongside, the finance ministry is also considering to extend the exemption of interest, long term term capital gains and dividend received by an infrastructure company/fund under Section 10 (23G) for a period of nine years, from March 2003 to March 2012.

While this may be done, the power ministry has also asked for extension of this interest benefit to investments on renovation and modernisation (R&M) projects, as this is the cheapest way of adding to capacities, moreso at a time when ambitious targets of adding one lakh mw capacity by the year 2012 have been set. It is important to note here that while new capacity addition in the power sector costs about Rs 4-5 crore per mw, the same can be achieved by R&M of a generation plant at a cost of Rs 1 crore per mw or even less in a shorter gestation time.

Sources disclosed that tax sops on imported LNG terminals are also expected to be announced in the Budget. The finance ministry is planning to give all LNG projects the status of infrastructure, thereby making them eligible for concessional duty benefits.

Currently, independent LNG project attracts effective duty of 50.80 per cent as compared to effective duty of 21.80 per cent on LNG terminal captive to power/fertiliser/petrochemical projects. Giving benefits of deemed export, income tax benefits, under section 10 (23G) and 80 (IA), to LNG projects and inclusion in declared goods under central sales tax are also under consideration of the finance ministry, sources said.