Govt imposes duty on power equipment

Amrit Raj, Shauvik Ghosh & Utpal Bhaskar
New Delhi: India will shortly impose a 5% import duty on power generation equipment in a move that will benefit domestic firms, including Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T), that have been lobbying with the government to limit imports.

Information and broadcasting minister Ambika Soni told reporters that the cabinet approved a proposal to impose duties on power equipment imported for building large power projects.
In addition, the government will also impose a 12% countervailing duty (CVD), a sort of equalization levy, to make up for the excise duty on local products, and 4% special additional duty (SAD), taking the effective tax rate to 21%.

The decision was taken by the Union cabinet on Thursday evening in a meeting that wasn’t attended by Praful Patel, minister for heavy industries and public enterprises. The cabinet note was floated by the Union power ministry.

The duty structure will be the same for so-called mega projects, or those generating at least 1,000 megawatts (MW), and non-mega projects. Mint reported the proposed duty structure on 21 June.

“There will be a uniform duty structure. This would effectively mean doing away with the mega power policy,” said a top power ministry official requesting anonymity.

“The cabinet has approved the recommendation of the committee of secretaries. This is likely to be applicable by August-September this year for the projects that will be awarded in the 13th Plan (2017-2022) because the orders for the current Plan (2012-17) have already been placed,” said another senior government official, who also didn’t want to be identified.

The contentious move, which has been in the works since 2010, will affect Chinese power-generation equipment firms such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd, and their Indian customers—power companies such as Reliance Power Ltd, Lanco Infratech Ltd and Adani Power Ltd. Any rise in the cost of the equipment may also lead to higher power tariffs.

While spokespersons for Reliance Power and Lanco Infratech declined to comment, an Adani spokesperson didn’t respond to phone calls or to a message left on his cellphone.

While the power ministry had earlier floated a cabinet note ahead of the budget recommending a 5% import duty on power equipment, apart from 10% CVD and 4% SAD, this was not considered in the budget. A panel of secretaries had earlier decided to impose the same quantum of duties. The ministry of heavy industries and Arun Maira, a member of the Planning Commission and former chairman of the Boston Consulting Group, had recommended a combination of 10% import duty and 4% SAD.

“The decision will benefit us,” said B.P. Rao, chairman and managing director of Bhel.

Bhel, which comes under the ministry of heavy industries, has been facing competition from Chinese power-generation equipment makers both in the domestic and overseas markets. Equipment makers, much like other exporters from China, benefit from low interest rates and an undervalued currency. Power utilities have placed orders for overseas equipment largely because of the inability of local manufacturers to meet growing demand. Chinese equipment is also relatively cheaper.

Power generation equipment makers having a manufacturing base in India—Bhel; Doosan Heavy Industries and Construction Co. Ltd; the joint ventures between L&T and Mitsubishi Heavy Industries Ltd; Toshiba Corp. of Japan and the JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH; and Thermax Ltd and Babcock and Wilcox Co.—will benefit from such a move.

In another decision, the Union cabinet approved the proposal to hive off surplus Videsh Sanchar Nigam Ltd (VSNL) land into a special purpose vehicle (SPV) company, Hemisphere Properties India Ltd (HPIL), that was formed through a 2005 cabinet decision.

The issue has been pending since 2002 when 45% of the then state-owned VSNL was acquired by a subsidiary of the Tata group’s holding company Tata Sons Ltd for Rs. 1,439 crore. The 773 acres in question are spread across prime areas in Delhi, Chennai, Kolkata and Pune, and are valued at around Rs. 6,200 crore, with stamp duty and registration costs estimated at around Rs. 430 crore, according to government estimates.

The land was not a part of the disinvestment deal and it was kept in abeyance till the government took a call on it. The largest chunk of land is in the Dighy area of Pune, while the most valuable is expected to be the land in Delhi’s Greater Kailash and Chattarpur areas. The government has a majority 51% stake in the SPV.

The department of telecommunications is to hire consultants to look into the valuation of the land, land laws as well as the procedure for selling it. The government has the option of using the land for other purposes, but this is unlikely given the fiscal constraints it faces.

The government also deferred consideration of a Bill that seeks to amend an existing Act to give more powers to commodity markets regulator Forwards Market Commission due to opposition from ruling coalition constituent Trinamool Congress.

Nelp concerns

In an unrelated decision, as part of an attempt to arrest the rapidly diminishing interest in the Indian hydrocarbon sector, the Prime Minister’s Office (PMO) has decided to set up a “project clearance board” for expediting the “non-clearance” of blocks awarded under the New Exploration and Licensing Policy (Nelp).

The board, to be set up on the lines of the Foreign Investment Promotion Board, will be headed by cabinet secretary A.K. Seth “for review and issue of one-time clearances, including security clearance” and comes against the backdrop of accusations that the Congress party-led United Progressive Alliance has been guilty of policy paralysis that has seen a decline in both foreign and domestic investments in India.

The petroleum ministry had earlier warned the PMO that the “non-clearance” of blocks awarded under Nelp “may lead to exodus of foreign companies who were brought with assurance of conducive investment environment”.

The board will include representatives from the ministries of home, defence, environment and forests, commerce and coal, the department of space, as well as other infrastructure- and energy-related departments, the PMO said in a statement. “For the petroleum and natural gas sector, the special cell for clearances being set up in DGH (Directorate General of Hydrocarbons) will act as the secretariat. A common mechanism for all sectors will be evolved soon and the board will be set up in the coming weeks,” the release added.

Interestingly, while clearances from the ministries of defence, home affairs and environment and forests, the department of space, and the Survey of India are obtained in advance before the auction, 46 blocks face issues related to such approvals. An investment of around $11.8 billion (Rs. 65,370 crore) has been made in these 46 blocks.

The cabinet committee on economic affairs approved the sale of 10.82% of its stake in Steel Authority of India (SAIL), which may fetch the exchequer over Rs. 4,000 crore. The public offer is proposed to be conducted by auction route or offer for sale.

In other decisions, the cabinet approved a proposal making rape a gender-neutral offence and replacing the word with the phrase “sexual assault”. A proposal to make acid attacks a separate offence punishable by a maximum of 10 years was also approved. The government also approved a 17% hike in the sugar cane price that mills pay to farmers to Rs. 170 per quintal (100kg) for 2012-13.