Cabinet Grants Three Years Extension to Indian Mega Power Projects

Recently, the Cabinet Committee on Economic Affairs extended the deadline for furnishing final mega certificates to tax authorities from 10 years to 13 years from the date of import, for ten provisional power projects as indicated in the Policy.[1] The office memorandum bearing no. A-3/2015-IPC (Vol-III) dated April 7, 2022, was introduced by the Ministry of Power (“the Ministry”) to this effect.

The Government stipulated that during the extended period, bids for mega power plants (combination of intermittent renewable energy, storage and conventional power) will be invited in co-ordination with the Ministry of New & Renewable Energy (“MNRE”) and Solar Energy Corporation of India Limited (“SECI”) who would further participate in such bids to secure Power Purchase Agreements (“PPAs”).

Before we understand the amendment, let's first discuss the evolution of this Policy and its importance.

Market Position and Consumer Demand

The Indian public sector lacked adequate resources to match the incremental generational requirement of additional coal mining. To plug this gap, the Ministry is exploring the possibility of setting up mega power projects with the help of private sector players thereby attracting domestic and foreign private investment from eager investors.

Another pertinent issue faced by the Indian Government in the power sector relates to its geography. While the authorities identified locations in eastern, central and coastal India endowed with naturally occurring coal and hydel power capacity, the highest demand for power in southern India. The geographical demand-supply conundrum faced by authorities demands the establishment of mega power projects to tackle the increasing demand for power on the most viable route.????

When the private power policy was initiated during 1991-92, the Ministry envisaged that to improve the power supply, it would require setting up more than 10,000 MW of capacity every year in the next few years. Moreover, the fuel for such thermal power plants i.e., coal is located mainly in eastern and central India, whereas the hydel power potential is concentrated in the northeast and north but a higher demand for power is in the south and the west. It is, therefore, obvious that unless mega power projects are set up in the region having coal and hydel potential, it would be difficult to tackle the increasing demand for power on the most viable route. Establishing mega projects in the coastal regions based on imported coal also poses a feasible option.

Regulatory Changes in the Energy Sector

Pertinently, during the launch of the private power policy in 1992, the Ministry found that India requires to set up more than 10,000 megawatts of capacity each year to improve power supply in the coming years.

The public sector front lacked resources for putting up the required additional coal mining capacity to match the incremental generation requirement. Therefore, the Ministry has been exploring the possibility of setting up mega power projects through the private sector route to attract domestic and foreign private investment and the response so far has been positive.

At this juncture, it is important to note that the government amended the Mega Power Policy in 2009 to smoothen the application process to attain final mega certificates.[2]

The said modifications endow benefit of the Policy to the power projects of the following capacity:

A. Capacity of the Power Plant????

B. Widening the scope of the Policy

i. The benefits enjoyed by stakeholders under the said Policy are extended to brownfield expansion projects.

ii. The benefits are to be extended to brownfield expansion projects too.

C. Interstate sale of power for achieving mega power project status has been removed.

D. The mega power projects would have to tie up power supply with power distribution companies/utilities through long-term PPA in accordance with the National Electricity Policy 2005 & Tariff Policy 2006.

E. ICB for procurement of equipment for mega projects are not required if the requisite quantum of power has been tied up or the project has been awarded through tariff-based competitive bidding.?

F. The present exemption of 15% price preference available to domestic bidders in cost-plus projects of PSU would continue. However, the price preference would not apply to tariff-based competitively bid projects of PSU.

Extension of Deadline to Apply for Mega Power Project Certification????

Prior to the recent amendment, the Policy only allowed a period of 120 months or 10 years from the date of import for businesses to apply for and furnish final mega certificates to the tax authorities as against the provisional mega projects. Now, the Cabinet has officially extended the said deadline by 3 years for ten partly / wholly commissioned provisional mega power plants. ????????????????????????????????????????????????????????????

Reproduced hereinbelow is the list of 10 (ten) provisional mega power projects to which the aforesaid amendment is applicable and which have been commissioned/partly commissioned so far:????

Key Takeaways

The extension of time granted to businesses for furnishing final mega certificate is a thoughtful action welcomed by the concerned industry players. The extension thus granted will enable developers to competitively bid for further Power Purchase Agreements and enjoy the applicable tax exemptions under the Policy. The increased liquidity at the behest of the developers will boost the power sector’s growth in India and revive the stressed power assets.

The government will also invite bids for firm power (a combination of intermittent renewable energy, storage, and conventional power) during this extended period in coordination with the MNRE and Solar Energy Corporation of India Limited. Moreover, the ten notified mega projects will be expected to participate in firm power bids to secure PPAs.

[1] Clause- I of Para- I of Amendment to Mega Power Policy, 2009 (“the Policy”) for Provisional Mega Power Projects dated April 12, 2017.

[2] Ministry of Power vide notification dated 14th December 2009