Government may cap sale price of power in open market

Government may put a limit on the price that companies may charge for selling power in open market if such power comes from projects enjoying tax concessions. The move is aimed at ensuring that the companies bidding for mega power projects do not enjoy windfall gains at the cost of government’s revenue.

Power companies have to make arrangements with the state utilities and power trading firms to sell a large chunk of total output at pre-determined rates under the long term contracts, and can sell balance output in the open market. While the thermal power plants are allowed to sell 15% output in the open market, the limit for hydel plants is 40%.

Since there is power shortage in the country, the government is giving various tax incentives for the power generation projects. The mega power policy in its current form provides tax benefits to thermal projects with over 1,000 mw capacity and hydel projects with over 500 mw capacity in form of exemption from customs duty on import of capital goods and deemed export benefit along with income-tax holiday under Section 80-IA.

However, both the finance ministry and Planning Commission are opposed to extending tax sops to sale of power in open market. In this wake, the finance ministry has proposed that there should be a cap on the price that companies may charge for the open market sale of power as long as the project concerned is enjoying tax holidays. The draft policy in this regard has been prepared and is likely to be sent for cabinet’s approval soon.