Private power producers, including Reliance and Tata Power, have written to Prime Minister Manmohan Singh saying that imposition of higher duty on imported equipment would result in increased electricity tariffs and would hurt the sector.
The letter to the Prime Minister comes amid government reportedly planning to slap higher import duty on power gear.
The plan for higher import levy is aimed at providing a cushion for domestic equipment makers such as BHEL and Larsen &Toubro that are grappling with stiff competition, especially from Chinese entities.
According to the Association of Power Producers (APP), there are some reports suggesting the government is moving ahead with the imposition of customs duty on imports of equipment for power projects.
"We sincerely believe that any step at this stage which increases the cost of power for consumers and leads to delays in capacity addition, would be very detrimental to the sector," APP Director General Ashok Khurana said in the letter to the Prime Minister.
Currently, equipment imported for projects of less than 1,000 MW capacity attract five% customs duty while those above that enjoy levy exemption.
"We request your consideration of the issues and continue the duty benefits for power projects...," the letter, dated February 27, said.
APP is a grouping of about 22 companies, including Reliance Power, Tata Power, Lanco Infratech and Adani Power, that account for 95% of total generation capacity in the private sector.
More than 50% of coal-based power capacities are based on imported equipment in the current five-year Plan (2007-12) and the trend is likely to continue in the next Plan period (2012-17).
The letter noted that imported power gear comes on faster delivery schedules since domestic manufacturers are burdened with a huge order book.
"BHEL's order book is 3.7 times its turnover while it is 7.1 times for L&T. This puts a severe constraint on ability of domestic players to supply within a given period," it added.
Further, imports of equipment are supported by export credit agencies, resulting in competitive cost of financing, APP pointed out.
"There has been a significant depreciation of the rupee against both the US dollar and the Chinese yuan ... There has been an implicit duty of 15-17% on equipment and machinery imports," the letter said.
The domestic power sector is grappling with multiple woes including fuel scarcity, rising coal prices and environmental hurdles.
