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Feb 24, 2012, 08.38 AM IST | Source: CNBC-TV18

Customs duty: Power companies to cough up more for equipment import

Power sector players are in for a major haul. CNBC-TV18 has learnt that customs duty is likely to be levied on power equipment with prospective effect.

Power sector players are in for a major haul. CNBC-TV18 has learnt that customs duty is likely to be hiked on power equipment import with prospective effect. Sources indicate that the duty rejig will most possibly be enforced post Budget 2012-13.

Currently, projects with less than 1,000 MW generation capacity attract nearly 5% import duty while the rest enjoy duty-free import of equipment. Domestic power equipment makers such as BHEL and L&T have been demanding levy of 14% duty on imported electrical equipment in order to provide them a cushion against local taxes. These firms have been facing stiff competition from cheaper overseas gear, mainly from China.

According to CNBC-TV18 sources, all projects prior to cabinet decision will be exempt from duty apart from the mega and provisional mega projects. This means that all those projects that have the mega project status currently, and until cabinet note is passed, can import equipment at zero-duty. It is learnt that the power ministry will be notifying to the revenue department, a list of such projects that need to be exempt from duty.

Here is the twist: Once the Cabinet decision is taken, the mega power policy that provided for the duty benefits will become inapplicable to new projects and the regime will cease to exist. Therefore, future projects that are announced after the cabinet decision will not get mega status and thus will have to pay up more as custom duty for imported equipment.

Till date, 1.33 lakh MW projects have been granted mega status and 28000 MW projects from the private sector have received the provisional mega status.

The news comes at a time when power companies are known to have cancelled equipment orders worth nearly Rs 6000 crore in the past few months. This had distressed domestic equipment suppliers as very few contracts have been awarded in the current fiscal. Competition from China has only be adding to their woes.

Sector majors and industry analysts are hopeful of a revival in demand soon and the duty rejig is likely to positive for the domestic industry as companies may then opt for local players such as Alstom or BHEL to place equipment order with. Though the final decision is still pending on the matter, a timeline up to April 1, 2012 is what is shining through.

Also watch the accompanying video for comments by CNBC-TV18's economic policy editor, Siddharth Zarabi.

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