India's power ministry wants zero customs duty maintained for mega projects

India's power ministry insists that zero customs duty given to mega power projects should not be withdrawn to avoid additional costs to the projects under construction.

This will also help steer clear of any contractual and legal issues that may emerge as a result of the revision.

The ministry argues that the mega power policy has been very successful in bringing out a `quantitative` jump in capacity addition. This, according to the ministry, justified the benefits of zero customs duty.

Moreover, since a majority of the these projects which come under the central and state sectors have placed their orders for the main plant equipment with BHEL, the mega power policy has also benefited the domestic equipment manufacturers.

However, this zero duty structure is unlikely to prevail for very long as a new proposal is already in the wings and awaiting the cabinet`s nod. How the proposed increase in duty rates will affect the `mega` projects remains to be seen.

The new duty regime, which was first introduced last year, has now been submitted for approval of the Cabinet. The following proposals are currently awaiting approval: A customs duty at the rate of 5%, countervailing duty at the rate of 10%  and special additional duty at 4% shall be uniformly applicable to all categories of Power projects, that is, non-Mega projects, Mega Power Projects or Ultra Mega Power Projects.

All projects certified provisional mega or mega before the date of CCEA/Cabinet decision will be exempted from the duty structure proposed above and will get the benefits of Mega Power Policy. Ministry of Power will submit the list of eligible mega and provisional mega power projects to the Department of Revenue, Ministry of Finance for availing mega status benefits.

After approval of the tariff measures proposed above becomes effective, the policy providing for 15% price preference to domestic manufacturers in case of cost plus projects of PSUs under the mega power policy will be withdrawn.