Mega power projects get extra tax benefit

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Firms allowed to sell more power outside pacts

Mega power projects get extra tax benefit
The government on Thursday tweaked the policy on mega power projects. This will benefit 25 projects together worth Rs 1,60,000 crore.

Announcing the decision of the cabinet committee on economic affairs, finance minister P Chidambaram said the change in the 2009 policy related to tax benefits and reduction in power supply to state distribution companies to 65 per cent from 85 per cent now. This will release more power for private sale.

Chidambaram said power companies would be allowed to produce tax certificates in five years instead of three years, the norm hitherto. This benefits 25 projects. The objective of the decision, he said, was to increase power availability to boost overall growth and also ensure that consumers were reasonably charged for electricity.

The policy, introduced in 1995 and modified in 2009, was mainly to provide an impetus to the setting up of large power projects of at least 1000 mw in case of thermal power and 500 mw in case of hydel power.

The policy amendment coincided with the integration of the southern power grid with the overall national grid. It was the only grid not linked to the national grid. The other three grids — western, northern and eastern — were integrated earlier.

The generating companies will now have more electricity to sell to private users in power starved southern states, particularly Tamil Nadu and Karnataka. After the policy change, power projects can tie up electricity sales with distribution utilities through long-term power purchase agreements.

The benefits of the policy also apply to energy-efficient supercritical projects that are awarded through international competitive bidding with the mandatory condition of setting up indigenous manufacturing facilities.

By another decision, the government decided to convert preference shares held by it into equity in three public sector banks — Indian Bank, Uco Bank and Vijaya Bank — to let them be Basel III compliant. The government holds perpetual non-cumulative preference shares worth Rs 4,000 crore in Indian Bank, Rs 1,823 crore in Uco Bank and Rs 1,200 crore in Vijaya Bank. The conversion of these shares will, however, be subject to the approval of shareholders and Sebi. The conversion will be completed before April.

Chidambaram said the conversion would enhance the banks’ tier I capital, placing more funds at their disposal. It would also provide an impetus to the economy by including the under-banked rural and semi-urban areas, he said. It was the banks that requested the conversion.

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