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Power producers approach PM on import duty
February, 29th 2012

The Association of Power Producers has represented to the Prime Minister that imposition of customs duty on power equipment would be detrimental to the sector.

It said that domestic power equipment makers were as such burdened with a huge order book. BHEL order book is 3.7 times its turnover and for L&T it is 7.1 times, said Mr Ashok Khurana, Director-General, Association of Power Producers.

Mr Khurana said the power segment turnover of BHEL was Rs 35,053 crore while its order book was Rs 1,31,316 crore. For L&T, turnover was Rs 2,137 crore, while the order book was Rs 15,205 crore. Thermax had a turnover of Rs 4,333 crore in the segment while the order book was Rs 5,605 crore.

In his letter to the Prime Minister, Mr Khurana said, We sincerely believe that any step at this stage which increases the cost of power for consumers and leads to delays in capacity addition would be detrimental to the sector.

Imported equipment for plants below 1,000 MW attracts five per cent customs duty whereas plants above 1,000 MW are exempt. Mr Khurana said there were reports that the Government was considering imposing customs duty on power equipment.

He said imports were supported by export credit agencies and hence the cost of financing was very competitive. There was also reliability of equipment since international companies were more experienced in making large-sized super critical units.

Import has been a major contributing factor in capacity addition for the 11th Plan with more than 50 per cent of coal-based projects capacities based on imported equipment.

Moreover, the 11th Plan saw unprecedented private participation because of various policy initiatives such as the competitive tariff based bidding which allowed developers to source inputs for projects in an efficient and cost effective manner.

The rupee has depreciated almost 15 per cent against the Yuan (the Chinese currency unit) since February 2010. The average exchange rate then was 6.79, but it is 7.79 in February 2012. Therefore, there has been an implicit duty of 15-17 per cent on equipment and machinery imports against the recommendation of 14 per cent which was suggested to ensure a level playing field by the Maira Committee, he said.

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