Hydro power sector in India is plagued by numerous problems like problems relating to land acquisition; environment, forest and wildlife clearances; R&R issues and law and order problems and variety of local issues. “Hydro Power has its own set of risks and disadvantages – Prolonged gestation periods, High cost of construction, Environmental issues, Geological Risks, Political Risks, Rehabilitation & Resettlement costs, Infrastructural development costs, Government Policies etc.” says R.P Singh, CMD, SJVN Ltd. According to CEA about 25,000 MW hydro projects have been concurred by CEA and are held up due to various reasons. However, it is heartening to note that the government, at last, seems to have realized the gravity of the situation and is planning to take measures which may attract investment and speed up the execution of the existing projects. Hydro power sector received a major setback last year when the government withdrew mega power policy which resulted in higher cost of construction for hydro power projects.

Though the Task Force on Hydro Project Development had recommended the restoration of these benefits, the government is not too keen on reversing its policy decision within a year. Instead it is mulling grant of fiscal incentives in terms of excise duty and service tax exemptions to hydro project developers. Incentive may be in the form of exemption from excise duty to all the capital goods required for the setting-up of a hydro power project irrespective of whether it is a mega power project or not. It may be remembered that at present hydro power projects attract total customs duty of 23.08% on the cost of imported gear while the equipment manufactured by domestic companies attract similar percentage of excise duty. Incidentally this, i.e., proposed reduction in duty, will also result in lower CST and VAT levied as CST/ VAT is levied on the gross value including the excise duty.

In addition to this, a suggestion has also been made to provide exemption from excise duties on cement and steel required for the civil construction work undertaken during the construction of a hydro power project. Further the government is considering a proposal to provide exemption from service tax to all services received and used during the construction, erection and commissioning of a hydro power project. At present services provided during the construction of hydro projects attract service tax @ 12.36%. The impact on account of Excise Duty and Service Tax on the overall cost of 10897 MW of hydro power generation capacity proposed to be added during the 12th Plan will be to the extent of Rs.5231 crores.

Major hydro power projects allotted to private developers for which work not started

Project
Capacity (MW)
Developer
Status
Etalin
3097
Etalin Hydro Electric Power Co. Ltd
  • Concurrence Meeting held on 31.01.2013.
  • Letter of Concurrence is to be issued
Demve Lower
1750
Athena Demwe
Power Pvt Ltd
  • Concurrence accorded on 20.11.09.
  • Commissioning period 61 months from Zero date of April 2011.
  • Environment clearance accorded on 12.02.2010.
  • In-principle Forest Clearance accorded on 01.3.2012.
Lower Siang
2700
Jai Prakash  Arunachal Power Ltd.
  • Concurrence accorded on 16.02.2010.
  • Commissioning period 114 months from Zero date of January, 2011.
  • FC proposal submitted to state Government on 13.4.2011.
  • Public hearing fixed by AOSPCB for 17,18 & 20 April, 2012, could not be held due to law and order problem.
Siyom
1000
Siyom Hydro Power Pvt. Ltd
  • Project has been cleared from civil and E&M design aspects.
  • In the 5th meeting of STC on conversion of Storage scheme to ROR scheme on 29.11.2012, the project has been cleared.
  • E&M cost submitted by developer in Feb., 2013 and currently under examination in CEA
Naying HEP
1000
Naying DSE Power Pvt. Ltd
  • All clearance except Civil Qty. received.
  • Cost of Civil & E&M under examination
Kalai-II
1200
Kalai Power Pvt. Ltd
  • DPR received on 10.4.2012.
  • Presentation Meeting held on 06.7.12
Demwe Upper
1080
Lohit Urja Pvt. Ltd
  • DPR received in July, 2012.
  • Developer has submitted the revised PPS, comments on PPS sent on 11.3.2013
Kalai-I
1352
MFIPL
  • STC recommended for resubmission of DPR after review of  the scheme as per  new levels.
  • DPR returned on 24.5.2012
Hutong-II
1200
MFIPL
  • STC recommended for resubmission of DPR after review of the scheme as per new levels.
  • DPR returned on 24.5.2012
Subansiri Upper
2000
KSK Energy Ventures Ltd
Survey & Investigation in progress
Subansiri Middle
1600
Jindal Power Ltd
Survey & Investigation in progress
Naba
1000
Abir Infrastructure Pvt. Ltd
Survey & Investigation in progress
Oju-II
1000
Navayuga Engg. Co. Ltd
Survey & Investigation in progress

However, a section in the Power Ministry is skeptical about the entire proposal as it feels that considering poor fiscal health of the economy which is marked by the widening current account deficit and increasing fiscal deficit fresh tax exemption proposals may not find favour with the Finance Ministry. At the same time it is also argued that as most of the equipment are procured from the domestic manufacturers, customs duty exemption may not have any adverse impact on the current account deficit. However, the moot point is whether the Finance Ministry will take such drastic steps in the middle of the fiscal year? In other words, these incentives may not fructify before the next budget which will be only after next General Elections. And that may happen only if it is there in the priority list of the new government.

There is no doubt that hydro power sector has lost its sheen over the years as is evident from declining share of hydro power in the energy sector which has gone down from 43.50% in 1969-70 to 17.55% as on 30th June, 2013. According to the Power Minister, Jyotiraditya Scindia the main reasons for this downward trend is slower pace of growth of hydro projects i.e. development cycle of hydro is 8-12 years vis-à-vis 4-5 years for thermal. Indian private sector is disillusioned with the hydro power sector due to various reasons mentioned earlier. As of now, 136 Nos. of hydro projects with a combined capacity of 40991.5 MW have been allotted to private developers by state governments which are yet to be taken up for construction. Tax concessions alone may not help to tide over the situation and the government may have to take many more steps to lure more players into the sector.


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