NATH OPPOSES TAX SOPS FOR UMPPS

Commerce & industry minister Kamal Nath has sought scrapping of fiscal incentives provided to power manufacturers. Pitching strongly for consumers, his ministry has said that tax sops should be provided only to projects based on competitive bidding, if scrapping of these concessions is not possible at this stage. Reduction of cross subsidy is another aspect the commerce & industry ministry has emphasised in its comments on the draft note on the proposed mega power policy. In a letter sent to the power ministry recently, the department of industrial policy & promotion (DIPP) that is part of the commerce & industry ministry has argued that fiscal incentives to mega power projects have not helped in getting cheaper power for consumers from large projects. The lesson from the past decade’s experience is that a transparent competitive bidding process is the key to cheaper power, says the communication. Interestingly, DIPP has sent its comments even though the National Manufacturing Competitiveness Council (NMCC), which is functioning in co-ordination with the ministry of commerce & industry, has submitted its proposals. DIPP has backed NMCC’s views but emphasised on its own comments related to scrapping of tax concessions. “Experience of over 10 years culminating with the recent ultra mega power projects (UMPPs) has demonstrated that the key to getting cheaper electricity is a truly transparent competitive bidding process. Adequate risk mitigation through project development work being undertaken to a reasonable degree in advance helps. The competitively determined tariffs of UMPPs are so attractive that fiscal incentives through tax concessions no longer seem to be required for getting cheaper electricity,” says the DIPP communication. Copies of the memorandum have been sent to the finance ministry and the Prime Minister’s Office (PMO) as well. “If, however, it is decided to continue with fiscal incentives, these should be restricted to projects based on competitive bidding for tariffs only. Provision of such benefits to cost plus projects would be retrograde,” says the communication which has Mr Kamal Nath’s seal of approval. Some other departments, including the Planning Commission, are of the view that fiscal concessions should be provided to smaller players too and they should not be restricted to large projects. Mega projects in the power sector benefit from Customs and excise exemptions but smaller players are denied this benefit. The finance ministry is of the view that tax concessions for power generation should be phased out and DIPP has expressed similar views now. The revenue generated by scrapping the sops could be used to promote energy efficiency and sustainable use of ground water, DIPP feels. “If the fiscal incentives under the mega power policy are withdrawn prospectively, the additional revenues generated could be used to incentives states for furthering the key objectives of power reforms..,” the department has emphasised. The communication also calls for reduction in cross subsidy as envisaged in the government’s tariff policy – www.economictimes.com