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Monday, 13 Jan 2014
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Mega Power Policy Amendments: Relief to power developers


The Mega Power Policy was amended by the Cabinet Committee on Economic Affairs (CCEA) in January 2013, as a move to provide an impetus to the promoters of mega size power projects. Most of the mega power projects have not reported much progress in the last couple of years. This, in return, has impacted the ability of the country in meeting the target fixed for the 12th Plan period (2012-17). The policy amendment was one of the major initiatives taken by the Union government recently to enhance private participation and boost power generation in the country.


Mega Power Policy Amendments: Relief to power developers


The Mega Power Policy was originally introduced in 1995 to incentivise capital expenditure into large power projects and at the same time to ensure supply of electricity to the end user at a reasonable price. The policy is applicable to thermal power projects of 1,000 MW or more and  hydel power plants of 500 MW or more.


The Ministry of Power had circulated a draft note for amendments in the Mega Power Policy in November 2013.  The current amendments will help nearly 25 projects with investments of more than Rs 1.6 lakh crore and a combined capacity of 30,000 MW.


By approving the amendments, the CCEA has extended the duration for availing mega power certificates from 36 months to 60 months. By availing the ‘mega’ status, developers can reduce their project costs and electricity tariff. Further, such mega power projects enjoy an exemption of nine per cent on excise duty, which translates into an overall nine per cent reduction in capital costs.


Project developers will get the intended tax benefits by tying up just 65 per cent of the project capacity through power purchase agreements (PPAs) under the competitive bidding route with the State distribution utilities, against the earlier norm of 85 per cent. .


The developer can sell the remaining 35 per cent of installed project capacity under regulated tariff as per the specific host State policy. This dispensation would be one time and limited to projects located in the states having mandatory host State power purchase policy under regulated tariff. Project developers can also import equipments duty-free under this policy.


In 2012, a list of 111 power projects, with a total capacity of 167 GW were frozen to enjoy mega power project status. Out of these, 25 were provisional mega projects of independent power producers (IPPs). As per the original guidelines, no greenfield project was to be given the mega status after July 2012. .


About half of the listed mega power projects are made up of Central and State government projects, with NTPC itself accounting for 35 per cent. The remaining list consists of 10 per cent by four ultra mega power projects (UMPPs) which have been awarded so far, seven per cent by UMPPs yet to be awarded, 15 per cent by private projects with confirmed mega status, and 19 per cent with provisional mega status..


NTPC is a key beneficiary of this policy change, with 7.7GW of its under-construction projects due for CoD in the 12th Plan period and 32.77GW post 12th Plan projects being classified as mega projects. Amongst private players, the notable beneficiaries of this policy amendment are 2,400 MW KSK Mahanadi, 3,960 MW of Lanco Infratech's projects and Reliance Power’s 2,400 MW Samalkot project..


The policy decision was welcomed by the promoters of the mega power projects as most of their projects have seen a sharp increase in cost because of execution delays, non-availability of fuel and depreciation of the rupee.


Further steps to boost power generation


A number of coal-fired power projects have been under stress due to non-availability of fuel. The government has set a target of signing 172 Fuel Supply Agreements (FSAs) for plants commissioned after March 2009, and scheduled to be commissioned by March, 2015, having a combined capacity of 78 GW.  Signing of FSAs will ensure availability of fuel to the power plants which will boost power generation in the coming years. So far, as many as 157 pacts have been signed between power producers and Coal India.


Amidst reports of sale of surplus coal by some private parties in the open market against norms of captive coal block use, the government has also prepared a draft policy on utilisation of surplus coal from captive mines. As per the Coal Mines (Nationalisation) Act, 1973, there is no provision of sale of coal from the coal blocks allotted for captive use..


The draft policy has been circulated to various ministries / departments for obtaining their comments. The Ministry of Power has stated that the two proposed UMPPs - Bedabahal UMPP in Odisha and Cheyyur UMPP in Tamil Nadu, will be linked to the government's surplus coal policy as and when it is finalised..


At the beginning of the year, the southern power grid was integrated with the national grid. Of the five regional grids in the country—northern, southern, eastern, north-eastern and western—only the southern one had not been connected to the national grid.


The integration was achieved through the commissioning of the Raichur-Solapur 765 kV single-circuit transmission line by state-owned Power Grid Corp of India (PGCIL). With this interconnection, the Indian power system has become one seamless network of power. This integration will enable transferring of power from the surplus states to the power-starved southern states.


The CCEA has also approved setting up of a Power System Development Fund (PSDF) to facilitate financing of transmission infrastructure. The projects taken up to strengthen the electricity transmission grid can source funding from this Rs 6,000 crore facility. The Planning Commission has set a target of adding over 88 GW of power generation capacity in the 12th Plan period. As of October 2013, the installed capacity of power generation in India stood at 230 GW.


Manufacturing Sector Developments


  • BPCL has joined hands with Manali Petrochemicals for its petrochemicals project in Kerala
  • Honda Motors is planning to double its production capacity in India
  • Meghmani Finechem has completed the capacity expansion of its caustic chlorine and 40 MW captive power plant in Gujarat
  • Jaskeerat Cements is planning to install a 0.45 million tpa cement unit at Morak in Kota district of Rajasthan
  • Michelin India Tamil Nadu Tyres to commission its tyre manufacturing unit in Chennai by April 2014


Infrastructure Sector Developments


  • MoEF has granted environmental clearance to six long-stalled infrastructure projects worth Rs 19,000 crore
  • CCI will soon consider 14 infrastructure development projects worth Rs 33,000 crore to put on the fast track
  • NHAI has received HC nod for the 107 km Tiruchi-Karaikudi highway project
  • DMRC has invited bids for work related to Mundka, Ajronda and Sarita Vihar of Phase-III of Delhi mass rapid transit system project
  • Versova-Andheri-Ghatkopar corridor likely to get the safety nod by February


Power Sector Developments


  • NTPC has inked an initial agreement to set up a geo-thermal power plant at Tattapani in Surguja district of Chhattisgarh
  • Welspun Energy is planning to set up 160 MW solar power plants
  • TANGEDCO has received green nod for its Ennore SEZ coal-based power plant at Vayalur in Thiruvallur district of the state
  • NHPC is planning to develop an 82 MW wind farm in Palakkad district of Kerala
  • Adani Power has commissioned the 1,320 MW coal-based power plant at Kawai in Baran district of Rajasthan


Quote of the week:


Jyotiraditya Scindia, Minister of Power  
"I am very confident because Planning Commission has set a target of 88,000 mw for 12th Plan, which means adding 17,500 mw per annum over five years. In 2012-13, we had an internal target of adding 16,500 mw but we achieved almost 20,500 mw, which is the highest capacity addition (in a single year) in the history of our country. If we are able to do this for the next five years, then we should be able to meet that target of 88,000 mw. But, the key issue for me right now is to resolve the current issues with regard to fuel availability, financial strength of discoms and transmission issues. Once we are able to resolve these issues, then we can attract more investment in private sector. "

Jyotiraditya Scindia, Minister of Power


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