Tax waiver for NTPC plant in Sri Lanka - Co finding it difficult to get over environmental hurdles for executing its projects in India

Even as state-run NTPC Ltd is finding it difficult to get over environmental hurdles for executing its projects in India, the first overseas power project of the company, in Sri Lanka, has got a big incentive from the local government for smooth implementation.

The Sri Lankan government has offered a 25-year tax waiver and customs duty concessions to its 500 Megawatt (Mw) power project planned at Sampur near Trincomalee in the east coast of the island nation, through a gazette notification earlier this month. The Sri Lanka government said it accorded the special incentive as it was a project under the Strategic Development Projects Act of the country. NTPC and Sri Lanka will finalise the details soon.The power project and an under-sea power transmission High Voltage Direct Current (HVDC) line linking the island nation to India, originally planned in 2006, was delayed due to the Tamil insurgency in the island nation and other issues like delays in power purchase agreement and guarantee for funds from the Indian government.

India and Sri Lanka had signed a Memorandum of Understanding (MoU) in 2006 to set up the power plant as a 50:50 joint venture between NTPC and Ceylon Electricity Board (CEB). The project was then estimated to cost about $500 million and was planned as a build, operate, own and transfer (BOOT) model and with a debt to equity ratio of 70:30. It was scheduled to begin operations by 2011. Sampur was selected as the site for the plant, citing proximity to the sea and possibility to berth large ships with imported coal close to the shore, at its natural harbour.

As part of the deal, India’s state-owned transmission utility, PowerGrid Corporation, had agreed to set up a 400 Kv HVDC transmission line connecting Madurai in Tamil Nadu to Sri Lanka’s Anuradhapura via Talaimannar, at a cost of about $330 million. The funds would be shared between the two countries.

The plans were to lay a 139-km 400 KV HVDC overhead line from Madurai to the Indian coast near Rameswaram and then lay a 39-km undersea cable connecting Anuradhapura on the Sri Lankan coast and then connect to the power plant through another 125-km overhead HVDC line in Sri Lanka. The transmission line was scheduled to take off by 2013.

Trincomalee being a Sri Lankan Tamil-dominated and war-ravaged region about four years ago, the project was then seen more as political diplomacy between India and Sri Lanka, than a vision to bring electricity from Sri Lanka to India.

The war between the Liberation Tigers of Tamil Eelam and the Lankan Army had also caused largescale civil displacement in the region and the army had declared the Sampur region as a high security zone. The symphathisers of Tamil liberation were viewing the project as a hidden political agenda of the Sri Lankan government to permanently evict Tamils from the eastern region of Trincomalee.

Despite the opposition, the Sri Lankan government was planning to go ahead with the project. There were also differences between NTPC and its partner on power purchase agreement and the project site, with NTPC preferring a no-war zone for the power project.