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FM rejects Power Ministry's wish list

P Chidambaram snubs Power Minister?s proposal to extend a host of tax exemptions, reports KA Badarinath.

india Updated: Nov 14, 2006 20:14 IST

Finance Minister P Chidambaram is not willing to entertain Power Minister Susheel Kumar Shinde’s proposal to extend a host of tax exemptions to the equipment and fuel needed by the power sector.

The Power Ministry had forwarded its wish list seeking a host of both direct and indirect tax concessions, in the backdrop of Chidambaram’s move to do away with a large number of customs, excise and service tax exemptions enjoyed by different sectors.

Power Minister Sushil Kumar Shinde asked Chidambaram to consider extending deemed export benefits to equipment suppliers for thermal and hydroelectric projects, pointing to the shortage in domestic capacities.

Currently, only equipment suppliers to nuclear power projects enjoy these deemed export benefits. “Extending such benefits to all power plants would add to existing capacities as new players would enter this field” the Power Ministry's note to the Finance Ministry said.

Deemed export benefits, if extended to domestic private producers of equipment for thermal and hydroelectric projects, would result in a large revenue loss. Such a concession on supplies to the National Thermal Power Corporation (NTPC) alone would cost the exchequer about Rs 170 crore.

The Power Ministry has sought deemed export benefits in projects where suppliers are finalised on domestic bidding and  negotiated contracts are awarded based on price benchmarked to similar projects in which International Competitive Bids (ICBs) were invited.

The Power Ministry has also sought excise duty exemption on goods that contain less than 25 per cent of fly ash from thermal power plants. Bricks or any other products with less than 25 per cent fly ash or phospho-gypsum or both do not qualify for  excise duty exemption and  attract eight per cent levy.

Currently, thermal power plants generate 120 million tonnes of fly ash. This quantity is likely to touch 175 million tonne per annum by 2012. As per Environment Ministry guidelines, fly ash disposal problem will have to be eliminated through 100 per cent utilisation by 2013-14.

To make utilisation of fly ash products on mandatory basis as stipulated in Environment Ministry norms, incentivising their usage through duty exemption or remission is the only way, pointed out Power Ministry.

In India, about 200 billion bricks are produced annually. Less than the 25 per cent of them - the limit set by Finance Ministry to avail the duty concessions use fly ash.

Email badarinath@hindustantimes