Trouble for stand-alone power SEZs

DEEPSHIKHA SIKARWAR & AMITI SEN

TIMES NEWS NETWORK[ WEDNESDAY, JANUARY 03, 2007 01:35:13 AM]

NEW DELHI: Trouble may be brewing for stand-alone power special economic
zones (SEZs). The revenue department has raised objections to setting up
of stand-alone power SEZs on the ground that such zones go against the
spirit of the SEZ Act. This would spell trouble for developers,
including Essar, the Adani Group and Maharashtra Industrial Development
Corporation (MIDC), keen on setting up such SEZs.

While the Essar project in Surat and MIDC proposals in Raigad and
Chandrapur have not been given formal approvals, the Adani group has
received the formal go-ahead for its project in Surat. The finance
ministry has recently written to the commerce ministry objecting to such
proposals.

According to rule 53 under the SEZ Act, a developer within the SEZ needs
to have a positive net foreign exchange, calculated cumulatively for
five years from the date of production. Since power projects essentially
would either feed units within the SEZ or consumers in the domestic
tariff area, it is difficult to see how they could generate forex
earnings. Thus, the concept of a power SEZ went against the principle of
giving tax breaks to projects for boosting forex earnings through
exports, sources in the finance ministry said.

The government has already gone slow in approving power SEZs as norms
for selling power by such zones to SEZ units and other units in the
domestic tariff area (DTA) are yet to be framed. Sources added that
since such zones would get all the tax benefits available to SEZs, they
would put domestic power units at a severe cost disadvantage as these
benefits are not available to them.

The revenue and commerce departments have also locked horns on the
guidelines for captive power plants within SEZs. While the finance
ministry wants that 75% of the power produced should be sold within the
zone, the commerce ministry feels that the requirement should be lower.

The commerce department’s argument is that since the number of units in
SEZs would not be high in the initial phase, demand for power will also
be low. Power plants should, therefore, be allowed to sell more than 25%
of the power produced to DTA units, it contends. The revenue department
has also called for a higher tariff for power sold in DTA.

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