Centre likely to extend compliance deadline for tax sops on long-term PPAs by three years

The government proposes to extend the compliance timeline for availing of tax benefits being given to large power projects worth Rs 1.5 lakh crore under the Mega Power Policy by three years.

The 2009 policy promised exemption of customs duty on equipment and excise duty benefits to 25 power projects of 30,000 MW capacity that sign long-term power purchase deals. However, given the lack of power procurement tenders from states, the government proposes to extend the deadline to give producers more time for compliance, a senior government official said.

“If mega status is not accorded to these projects now, their bank guarantees will be forfeited and the projects will also not get the tax exemptions. There are high chances of the projects turning to NCLT (National Company Law Tribunal),” he said, adding the power ministry has decided to approach the cabinet for approval to extend the timelines for entering into long-term power purchase agreements (PPAs).

As per the current policy for plants above 1,000 MW, the timeline to sign long-term PPAs for 25 provisional mega certified projects will end between September 2021 and April 2022, he said.

Association of Power Producers director general Ashok Khurana said not extending timelines for entering into PPAs would have grave implications as this would mean immediate encashment of the remaining amount of security for the 25 provisional mega projects.

“Looking at the current stress, in all likelihood these projects may turn into NPAs (nonperforming assets) with collateral impact on the banking sector,” he said.

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States have not issued long-term power procurement tenders in the past decade since there has been a sharp decrease in exchange prices while long-term tariffs increased steadily. As a result of this, states now prefer to buy short-term or medium-term power through the exchanges or competitive bidding.


Demand of industry associations

Experts said not extending the deadline at this juncture, when the projects are struggling to collect funds to set up emission control systems to meet new norms, would be a double whammy.

The power ministry’s proposal is based on demands from various industry associations to allow projects with provisional mega certificates to avail of the policy’s benefits, irrespective of the availability or duration of PPAs. They also demanded immediate action to extend the deadlines for signing PPAs to avoid encashment of security deposits.



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