New guidelines issued by the commerce ministry have made setting up of power plants within Special Economic Zones (SEZs) more lucrative than outside.
The guidelines, which cover both stand-alone electricity generating zones and captive units, permit sale of power to users based outside SEZs.
Experts say the new regulations would make it attractive to set up a power plant inside an SEZ, as the formalities required to start such projects in SEZs are much easier compared with the non-SEZ areas.
After the SEZ Act of 2005 came into force, there were no clear rules on how power plants within the SEZs would be treated. One of the key issues was how to treat surplus power produced by power plants within the SEZs. The commerce ministry, as well as its revenue and power counterparts, was in talks to find a common ground on the matter for over a year.
The latest guideline will also allow power companies to sell electricity to users outside the SEZs after payment of duty.
The move will benefit all SEZs including the one built by Adani Group at Mundra, Gujarat, which, according to the commerce ministry, will have a 2,300-Mw power plant.
Maharashtra Industrial Development Corporation had got an in-principle approval from the Board of Approvals on SEZs to build two power-based SEZs in Raigarh and Chandrapur districts of the state. Moreover, multi-product SEZs, which have to be set up in areas over 1,000 hectares, also stand to benefit from the new guidelines as they require large amounts of power.
According to the new norms, a developer wanting to set up a stand-alone power-based SEZ will enjoy fiscal benefits for constructing the plant as well as for the raw material and consumables used in operating it. However, there could be no other factories in such zones. Moreover, such a power plant will have to be a net foreign exchange earner by sourcing more revenue in foreign currency, than in Indian rupees. This can be done by selling more power to other SEZs, who can pay the tariff in foreign currency.
“It seems it has become more lucrative to set up power plants inside the SEZs,” said Abhishek Goenka, partner, BMR Advisors.
CAPTIVE POWER PLANTS
The guidelines also specify norms for captive power plants located within an SEZ. Even these plants will enjoy fiscal benefits for construction and maintenance. But duty-free inputs and consumable for such a plant will be counted for calculation of net foreign exchange obligations of the unit that has set up the plant.
Moreover, such a plant will have to be inside the processing area, where the core industrial activity is carried out.
But, power plants developed by SEZ developers will have to be set up in the non-processing area, which is outside the industrial zone of the SEZs. Moreover, such power plants will enjoy fiscal benefits only for construction, and not for operation. Developers of such power plants will not be required to conform to net foreign exchange obligations.
The generating company can apply to the state government for permission to set up the distribution facility inside a zone. But the final notification allowing distribution of power inside the zones will be released by the commerce ministry, after receiving the go-ahead from the state government.
The SEZ-based power plants will have to maintain separate meters for supply to the factories in the processing area, and establishments in the non-processing area as well as outside the zone. Developers or units can also set up separate distribution and transmission companies to wheel power produced in the generating plants.
