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Ministry push for small power units

business Updated: Sep 09, 2007 22:33 IST
Arun Kumar
Arun Kumar
Hindustan Times
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The Ministry of Power has proposed to bring down the minimum threshold for mega power projects to 25 MW from the existing limit of 1,000 MW for thermal power plants and 500 MW for hydro power plants.

The move, the ministry says, will help in augmenting power generation capacities, provide a level playing field for small and midsize companies, reduce electricity tariff, besides attracting more foreign direct investment (FDI).

In a note prepared for the Cabinet's approval, the ministry suggests that power purchasing states must take measures to reduce transmission and distribution (T&D) losses. It says that the states should privatise distribution assets or deploy franchisee systems in towns with a population of 50,000 or more.

The ministry feels that power projects up to a minimum capacity of 25 MW may also be granted zero custom duty concessions, apart from other applicable concessions, including the continuation of the income tax holiday regime. It said that the promoters could claim the tax holiday in any block of 10 years within the first 15 years.

"While large capacity power plants enjoy the advantages of economies of scale, primarily based on higher efficiency of machines and pithead locations with access to fuel without bearing cost of transportation, they also suffer from the disadvantages due to requirement of high investment towards transmission, issues relating to pollution due to concentration of thermal generation of one location, and difficulties in getting financial closure on account of the huge investment involved," the ministry notes.

As a result of difficulties in getting financial closures, not a single mega project has actually started generation since the announcement of the mega power projects policy, the ministry says.

Besides, in a regulatory regime, the beneficiary of the zero-customs duty is not primarily the project developer, but the consumer. "Therefore, there is not much merit in following a policy discriminating between consumers of large, medium and small-sized projects," the note says.

The present policy constrains private sector development, it says. A 1,000 MW thermal plant and a 500 MW hydel plant would require an investment of Rs 4,000 crore and Rs 3,000 crore respectively. "These large investments from the private sector appear extremely optimistic, particularly in the context of the present transient phase of the power sector," says the ministry.

In addition to attracting large-scale private investments, including FDI for much-needed capacity addition, the proposed policy would help reduce the electricity tariffs by 12 to 15 paise per unit, the ministry adds.