The power ministry is considering a proposal to relax the guidelines for granting mega power project status to thermal and hydroelectric projects.
According to the present power ministry guidelines, only 1,000-mega watt thermal power projects and 500-mega watt hydroelectric power projects are permitted this tag. Thus allowing these to avail of tax exemptions.
A draft Cabinet note, circulated by the power ministry, has proposed to reduce the threshold to 300 mega watts for both types of power projects.
A final draft is expected to be referred to the Cabinet in the near future.
A significant dilution in the guidelines governing inter-state sale of power is also expected to be suggested.
The move to an open access regime is expected to increase the possibility of mega projects attracting buyers from within the state, according to power ministry officials.
A number of states, including most of the southern ones, had approached the Centre for a reduction in the capacity requirements. This will allow the states to obtain tax exemptions for projects promoted by them.
A reduction of the limit to 250 mega watts would have made many plants eligible for tax exemptions, thus negatively impacting revenue collection on account of a lower Customs duty mop-up. A figure higher than 250 mega watts was therefore necessary, said the officials.
Gas-based plants, like hydroelectric ones, are environment-friendly and have the benefit of starting production instantaneously, which makes them useful to meet peak-level demand. Coal-based plants, which take time to start generating electricity, are better for meeting base load demand.
New power plants, which are coming up, are not coal based. They are either gas based or combined cycle plants, which use both coal and gas as fuel. This has been forwarded as another reason to extend benefits to these new plants, which will be relatively smaller in size.
The power ministry had moved a similar proposal earlier. The proposal to change the definition of mega power projects to those with generating capacity of over 250 mega watts, was, however turned down by both the Planning Commission and the finance ministry.
The finance ministry had said as 85 per cent of plants in the country were of 250 mega watts capacity and above, it would cover almost all of them. Thus, the benefits would have to be provided across the board rather than to a limited few.
The Planning Commission was of the view that the policy was ill-conceived and tinkering with the provisions was not adequate. Rather a more comprehensive package of incentives was sought to be made available universally.
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