The power ministry will soon approach the Cabinet to do away with the 15 per cent price preference to domestic manufacturers, under the mega power policy. This proposal will primarily affect state-run Bharat Heavy Electrical Ltd (BHEL), the largest equipment supplier in the industry.
In a draft Cabinet note, the power ministry has recommended imposition of 5 per cent customs duty, 10 per cent CVD and 4 per cent special additional duty (SAD) to be uniformly applicable to all categories of power projects.
The move has been opposed by private power generating companies, including Tata Power, Reliance Power and Lanco, as it will increase the cost of generation.
Once the imposition of duty is approved, the policy for 15 per cent price preference to domestic manufacturers in case of cost-plus projects of public sector units (PSUs), will be withdrawn, the note said.
The price preference policy (PPP) gives PSUs an extra edge against global players, including the Chinese companies.
The draft has been circulated to other ministries for their comments and is expected to be finalised soon. The power ministry is of the view that the proposed measures should be implemented from April 2012 to ensure that capacity addition programmes are not affected.
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The proposal for imposition of duties is expected to compensate the disadvantages suffered by the domestic power equipment manufacturing industry on account of higher interest rates, local taxes and infrastructural inadequacies. Besides, this would also create a level playing field to the domestic power equipment manufacturing industry with respect to foreign vendors.
However, all mega certified projects for which orders for main plant equipment have been placed on or before the date of the Cabinet decision, will be exempted from the duty structure proposed above.
Besides, UMPPs, which have been awarded to the developers and bulk tender projects (phase I & II- 9 projects) and the Barethi project of NTPC will also be exempted from duty.