Imported gear for mega power projects may attract levy

The Union Cabinet is likely to take up a proposal on Thursday to impose a levy on equipment imports for large power projects. The move is intendedto bridge the duty differential between imported sets, especially gear coming from China, and those manufactured domestically.

The issue was listed twice on the Cabinet agenda in the past couple of months, but a decision has been deferred amid lobbying from user groups in favour of deploying Chinese gear in their projects.

The issue comes at a time when equipment contracts for well over 40,000 MW of upcoming power capacity are estimated to have been placed with Chinese vendors, none of which plans to set up a manufacturing base in the country. Currently, equipment imports attract zero levy under the Centre's Mega Power Policy forthermal projects of 1,000 MW and above.

Panel recommendations

Domestic manufacturers, led by State-owned Bharat Heavy Electricals Ltd (BHEL) and Larsen and Toubro (L&T), have backed a recommendation made by a panel headed by the Planning Commission Member, Mr Arun Maira, that an estimated 14 per cent duty differential faced by domestic firms be bridged for mega and ultra mega power projects .This was proposed to be done through the levy of a 10 per cent Custom duty and 4 per cent Special Additional Duty.

At a subsequent meeting of the Committee of Secretaries (CoS), the proposal for the levy was diluted in favour of 5 per cent Customs duty, 10 per cent countervailing duty and 4 per cent SAD on import of equipment for mega and ultra mega power projects.

The Power Ministry is pushing for the revised formula , which the domestic manufacturers say would translate into a duty benefit of just the 5 per cent Custom duty alone.As for CVD and SAD, domestic manufacturer are any way subject to excise duty and sales tax respectively.

Quality concerns

Apart from the duty issue, the Central Electricity Authority had earlier come up with a report on quality concerns raised against Chinese equipment. Private sector players too had detailed some of the glitches they encountered when using the Chinese equipment; but they continued with imports citing faster delivery and lower upfront costs. The Power Ministry too, citing further slippages in an already whittled-down target for the current Plan, has backed the Chinese equipment imports.

The report of the Maira Committee, which had representations from the Power Ministry, the Department of Heavy Industries and the Department of Revenue, was submitted earlier this year. It recommended a a level playing field to domestic manufacturers. Orders should be awarded after factoring in life-cycle costs of Chinese equipment, and not just upfront costs, it has ruled for future award of equipment contracts. The report also flagged an even more important issue — that the over-reliance on Chinese equipment, without access to adequate and rightly-priced spares, could create a serious crisis for the power sector as a whole.

The report also took note of specific instances of underperformance of the Chinese equipment deployed at various plants. These include Vedanta Group-led Balco requesting renovation and modernisation for improving boiler availability for their 540-MW plant within two years of commissioning.