The Finance Ministry is considering a proposal to expand the mega power policy and provide fiscal sops to a larger number of projects. The new proposal is expected to cover all thermal power projects of 1,000-mw and above and all hydel projects of 500 mw and above.

The earlier policy, framed eight years ago, was restricted to eight projects of which only one — NTPC’s Simhadri project — has started construction. The move to expand this policy is aimed at facilitating more capacity addition at lower costs.

The mega power policy status would provide for a complete waiver on the customs and excise duty on all project imports for the plant. It has also requested state governments to relax sales tax on such projects.

The policy could be effective only if a large number of projects can avail of the tax sops. Despite this policy, announced almost four years back, it failed to take off because it was restricted to a select few who were delaying their projects.

Incidentally, the government has also proposed a similar status for the Dabhol plant in its reworked package to reduce the costs. Tax waivers have a major impact on tariffs. Capital costs are estimated to be reduced by 15% with the proposed tax exemptions. At the current market rates, the fixed cost element in the tariff is around Rs 1.30 per unit. Rates could be lowered by 20 paise per unit under the mega power policy. It is felt the policy would be most effective if procedures were made automatic.

The expanded mega power policy, which may make many more plants eligible for the tax sops, may be announced in budget 2003-04. It has also been proposed by the power ministry that this policy should include some large-scale transmission projects, which require equipment imports of high-voltage lines.