Govt bans duty-free import of capital goods for power plants

The government on Monday banned duty- free import of capital goods for power generation and transmission projects under the EPCG Scheme. The decision is aimed at encouraging manufacturing of power equipment and giving a push to domestic capital goods sector, with an aim to boost the overall economy.

Amending the Foreign Trade Policy 2015-20, the Directorate General of Foreign Trade (DGFT) said in an order: “Authorisation under EPCG Scheme shall not be issued for import of any Capital Goods for generation/transmission of power (including Captive plants and Power Generator Sets of any kind)...” 

The Export Promotion Capital Goods (EPCG) scheme allows import of capital goods for pre-production, production and post-production at zero custom duty. The government has fixed a target of 88,537 mw power generation capacity addition for the 12th Plan period ending 2016-17. 

Till December 2015, 72,240.12  mw or 81.59 per cent of the target has achieved, as per the Central Electricity Authority data.

Meanwhile, India Ratings and Research (Ind-Ra) has maintained a ‘stable to negative’ outlook on the power sector for the next fiscal as the plant load factor (PLF) of plants is expected to remain low amid muted growth in electricity demand, India Ratings said.

The rating agency expects power demand to grow modestly at 4-5 per cent and power generation at 5-6 per cent in FY 2016-17, with deficits remaining low at 3-4 per cent.

“The muted demand growth would be driven by the expectation of muted growth by industrial consumers, who constitute 40 per cent of the energy sales. Moreover, the current focus on use of efficient devices (LEDs and agricultural pumps) is leading to lower demand,” it said.

The PLFs of the thermal power plants are likely to remain low as demand growth remains muted. Moreover, as the renewable energy share increases, it could exert additional pressure on the PLFs of coal-based plants.

“Until the financial position of the discoms improve, they will continue to prefer load shedding rather than supply power to the consumers, due to the average loss incurred of Rs 1.14 per unit on each unit supplied,” Ind-Ra said.

It further said state electricity distribution companies (discoms) are still to see a financial turnaround, despite the announcement of Ujwal Discom Assurance Yojana (UDAY) scheme, which is a welcome move to bring about operational efficiencies and a financial turnaround. The agency also expects the coal output to increase by 10 per cent in the next fiscal to reach 594 metric tonnes, given the government’s focus on achieving the targeted one billion metric tonnes by 2020 and on the back of the strong performance this financial year.

“Higher output will come from ramping up output from existing and new mines and better efficiency. Given the increase in domestic coal output, coal imports into India could decline by 10-15 per cent, which is likely to exert pressure on volumes of large coal importers,” it said.

Ind-Ra expects solar tariffs to decline to Rs 4 per unit by next fiscal (the lowest bid in FY 2015-16 stood at Rs 4.34 per unit), which, it said, will accelerate its adoption. “Lower tariffs will be driven by financial, technical and counterparty improvements. Financially, the cost of capital is expected to decline due to lower cost of debt, increase in loan tenors, lower equity internal rate of return expectations, and higher project leverage,” it said.