In the run up to the investors meet, the MP government is going all out to woo investors to set up production units in the state but a policy to impose cess and duty on captive power- an important requisite for many industries could prove to be a dampener.
MP is the only state besides Gujarat that has a cess on captive power and has the highest rate of electricity duty among all states in the country. MP also has the 6th highest charges on industrial power supply in the country. Industries Associations are of the view that the cess and high rate of duty are robbing industries of their competitive edge.
Presently, the state government draws a 15 paise per unit cess on captive power besides imposing an electricity duty of 57 paise per unit of captive power generated by an industry.
Gujarat is the only other state that had a cess on captive power that was realized as a 'green cess' at 2 paise per unit and was later suspended by the Gujarat HC.
No other state has imposed a cess on captive power. Karnataka, Punjab, Haryana and Puducherry do not have electricity duty on captive power while the duty charged in other states ranges between 1.2 to 40 paise per unit.
Sources in the industry suggest that approximately 1,800 MW of captive power is generated in the state. The outflow from industries by way of cess and electricity duty is roughly Rs. 300 crore annually.
It is not that industries would be better off in case they start drawing power from the state run utilities at the industrial tariff. For one, industrial supply tariffs at 498.14 paise per kwh is the 6th highest in the country and secondly, industries have invested substantially in setting up captive power units and cannot pull out.
"Industries had set up captive power units after a letter from the union government to states in 1995 asking them to do so," said an industrialist. The state government had imposed the cess on captive power in August 2011 and hiked the electricity duty from 8.5 to 15%.
President, federation of MP chambers of commerce and industry (FMPCCI) Ramesh Agarwal has written to the CM seeking a rationalisation of electricity duty with that charged by other states and a withdrawal of the cess on captive power. In the letter, the president has said that FMPCCI feels that the potential investors are showing less interest in MP because of the cess and electricity duty.
The imposition of the cess and electricity duty is against the industrial promotion policy of 2004,2007, 2010 and is sending out a wrong message to potential investors, says the letter. Managing director, MP trade and investment facilitation corporation (TRIFAC) Arun Bhatt told HT, "We are aware of the issue and would take it up with the relevant department."
Sources also said that the imposition of the cess can be challenged in a court of law too. "The Gujarat HC gave relief to industries as the imposition of a 2 % green cess was suspended after it was found that cess could be imposed on consumption of captive power and not on generation. In MP, the cess is imposed on generation," said an industrialist.