Duty-free import of power equipment by mega power project developers is set to be allowed on the basis of a provisional certificate issued by the finance ministry qualifying them for a waiver.
The move will accelerate the commissioning of the GMR, Jindal Power, GVK and Hinduja power projects.
The certificate will be issued after developers furnish a fixed deposit receipt(FDR) of an amount equivalent to the duty payable on equipment import. This would mean that the developers won?t have to wait for the formal mega power tag, which usually gets delayed, for availing the import duty waiver they are entitled to.
The changes have been incorporated to accelerate construction of power plants and bridge the widening energy deficit. It will benefit both public and private sector projects.
Under the existing regulations, duty-free equipment imports can start only after a final certificate giving mega power status to projects is issued by the finance ministry. The regulation does not permit issuance of provisional certificates.
The government currently allows duty-free imports for all mega power projects (thermal projects of 1,000 mw and above and hydro projects of 500 mw and above).
?Power projects face several delays in getting state- and central-level clearances (land acquisition, pollution, environment, forest, mining etc) even after a project has been awarded. The existing regulation prevents such projects to start equipment imports as a final mega power status certificate is issued only after the project gets all statutory clearances. The FDR system will eliminate this problem and allow developers to start initial work on projects even while waiting for full clearance,? said a power ministry official.
Under the changes finalised by the finance ministry, developers will be allowed duty-free import by furnishing a security in the form of an FDR from any scheduled bank for a period of 36 months or more in the name of President of India for an amount equal to the amount of duty payable by them.
The duty could be either custom duty payable by developers for import of equipment or excise duty to be paid by them if equipment is sourced from the domestic market.
Provisional certificates can also be obtained by developers that currently have only in-principle approval on mega power status by complying with new security deposit mechanism.
?The FDR amount will be proportionate to the value of import, meaning that amount of security deposit will be duty entitlement for a particular consignment of imports. Thus developers will need to provide requisite FDR each time they import equipment. This will protect cash flows of developers as security deposit will not be a one-time lump sum payment,? said the official quoted earlier.
Even under the new system, developers will need to provide a final mega power status certificate within a period of 36 months from getting a provisional certificate. Failure to comply with this regulation will result in forfeiture of the FDR. If the certificate is provided, the FDR security deposit will be released.
?The move was long due and it could expedite the process of setting up power projects in the country. It would solve some of the problems, which were causing delay in commissioning of such projects,? Ernst & Young tax partner Bipin Sapra said.
?The changes are good as it will help in better planning of equipment imports that constitutes almost 50-60% of the total project cost,? said a senior officer of a private sector power project develop who also asked not to be named.
Developers have placed orders for over 80,000 mw of generation capacity coming up for commission in 12 th Plan (2012-17). Progress on a substantial portion of this capacity is stalled for last several months as equipment orders cannot be placed without having a proper mega power certificate.
The government earlier considered having a cash security mechanism or asking the developers to provide bank guarantee for getting provisional mega power certificate. However, both were rejected by the finance ministry as the processes were cumbersome.
