Customs duty waiver for chemical industry likely

The Union Government is reportedly considering revision of customs/excise duty on inputs required by the chemicals and petrochemicals industries, in order to bail out the industries reeling under global financial meltdown. The chemical sector has been adversely affected by the extreme fall in prices, slump in export orders and a significant slowdown in demand in the domestic market which has forced the industry to hold back expansion plans and operate at lower capacities. The proposals under consideration include waiving the current 5 per cent customs duty on naphtha, reducing the excise duty on mono ethyl glycol (MEG) from 8 to 4 per cent and cut in the excise duty on furnace oil and on-coking coal from 10 to 5 per cent.

Karnataka announces industrial policy for 2009-14

The Karnataka government has unveiled its new industrial policy for 2009-14 effective from 1 April 2009. The policy prominently focuses on attracting investments to the tune of Rs 3,00,000 crore and create employment for 10 lakh in the next five years. The policy offers a slew of sops to new industrial investments, expansion, modernisation and diversification in 166 talukas. Micro, Small and Medium industries will get production or employment-linked investment subsidy of Rs 5 lakh to Rs 35 lakh and 20 per cent of the developed land reserved for these industries. Stamp Duty exemption to the extent of 75 per cent to 100 per cent in respect of all categories of industries for purchase of flat or sheds in approved layout and also for registering their term loan documents, besides exemption of conversion fee from 75 per cent to 100 per cent will be offered. In order to attract more investment, the state government had decided to extend entry tax exemption to all categories of industries and APMC cess to Agro and Food Processing industries, exemption from payment of electricity duties; incentives and concessions to export oriented industries and 1,000 to 2,000 acre in each district to be acquired and developed to attract industries.

Government mulls alteration in gas utilisation policy

The Union Government is mulling over proposal to alter the gas utilisation policy to allow Reliance Industries (RIL) to use some of the gas that will start flowing from its D-6 block in Krishna- Godavari (KG) basin. RIL, which has a refinery complex and Petrochemicals plant at Jamnagar, is expected to use the natural gas as fuel for its captive power projects, apart from other industrial uses such as heating. As per the current gas utilisation policy, RIL can't use its own gas. If RIL is allowed to use some of its gas then it could set the example for other gas producers in future as well. RIL's initial gas production will be 10 mmscmd. In a few months, the production is expected to increase to 40 mmscmd. In Phase II, peak production is scheduled to go up to 80 mmscmd. Even if the government has listed top-priority customers for the distribution of first 40 mmscmd gas, there is a possibility for allowing RIL to use some of it in the second phase.

Companies may be allowed to mine & sell coal through PPP route

The Union Coal Ministry plans to open up commercial coal mining activities in the country by allowing private companies to form JVs with staterun firms such as Coal India, NTPC and the mineral development corporations of various state governments. A proposal in this regard is likely to be presented to the Cabinet shortly. As of now, private companies are only permitted to mine coal for their captive consumption. If the proposal is approved, it will allow private companies such as Tata Steel, Monnet Ispat, GVK Power to sell domestic coal in the open market. The ministry has sought advice of the law ministry on whether subleasing of coal blocks allocated to government companies or to a JV company (which may not necessarily be a government company) is permitted under the provisions of Coal Mines (Nationalisation) Act, 1973. The additional solicitor general of India has already advised that this may be permitted in case of JV companies, where a government company owns a 26 per cent stake and controls the composition of board of directors. Once the new norms are notified, private sector companies will also be allowed to pick up to 74 per cent equity in coal mining projects.

CERC mulls cut in the power cost

The Central Electricity Regulatory Commission (CERC) is considering a proposal on reduction of unscheduled interchange (UI) price from Rs 10 to Rs 7.35 for a unit of power in an effort to reduce spot price. UI is the difference between the actual generation and the scheduled generation from a power project for a particular period of time. Besides, CERC will be examining a plan for restriction on unscheduled withdrawal of power, which might be fixed at 10-15 percent of scheduled demand. If the plan gets notified then the power withdrawal from any grid is expected to be stopped as soon as the frequency of the grid drops to 49.3 Hz. A power utility has to begin load shedding as soon as the frequency touches 49.3 to prevent collapse of the grid. Presently, it happens after the frequency drops at 49 Hz. Meanwhile, CERC is known to be considering the concept of a no load shedding tariff for customers who are willing to pay more for zero power cuts.

CERC to come up with power transmission pricing rules soon

The Central Electricity Regulatory Commission (CERC) is likely to announce the rules for pricing of power transmission between states in a few months time to make possible the entry of private sector companies in the sector. The commission will therefore come up with regulations to make transmission cost shared by all users and to provide open access to transmission utilities to buy power from the electricity surplus states for the medium term. CERC is likely to come up with rules on medium-term access for up to three years, since it had rules for short-term access of up to one year, and long-term access of more than 25 years, with nothing in between. This is in response to the state load dispatch centres responsible for monitoring generation, transmission and distribution of power in a particular state who many a times deny open access in inter-state power transmission.

Government mulls seven year lock-in for foreign power equipment companies

The Union Government is reportedly considering a seven-year lock-in period for Indian subsidiaries or JV operations of foreign companies setting up manufacturing facilities for new generation power equipment to discourage non-serious players. Presently, large and fuel efficient 'super critical' equipment, expected to be used in all new power projects, are not manufactured in India. As per the current norms, 100 per cent foreign direct investment under the automatic route is allowed in the sector. Besides, current guidelines governing power equipment manufacturing do not have any provision to stop unreliable operators. New norms are likely to be applicable in bulk tenders to be floated by NTPC and Damodar Valley Corporation (DVC) for 660 MW power equipment based on super critical technology. The proposed changes (equity lock-in) would first be tested in bulk order for 11 units of 660 MW power generation equipment sets. It will then be applied for any future tendering for all super critical equipment. The equity lock-in clause is expected to ensure that there will be no bids from foreign firms, whose track record is not satisfactory. New norms will make it mandatory for all interested companies to get technology transfer agreement in place before bidding begins. In addition to the transfer agreement, companies will also need to have a licence from the parent company to sell and manufacture its products in India. Moreover, the companies winning the bulk tendering bid will have to adhere to a phased manufacturing programme (PMP) with milestones and indigenisation. Any deviation from the agreed PMP will attract penalty of up to 5 per cent of the contract price. Prior to the submission of the bid, the manufacturing company (a subsidiary or a JV company) must be registered in India and should have obtained certificate for commencement of business. Technology transfer to the Indian manufacturing company should be completed by the time the eighth 660/800 MW super critical equipment set is supplied by the bidder.

No freezing of concession period for roads: Finance ministry

The finance ministry has reportedly turned down a proposal from banks that the concession period in government-private road projects, during which the private partner recoups its investments through toll collection, be kept constant to avoid uncertainty. The ministry has ordered that the current model concession agreement, which allows the flexibility to extend the period in case of low toll collection, should be retained. The ministry is of the view that loans availed by road projects are mostly for 10 years, which is far less than the normal concession period. Therefore, any extension or shortening of the concession period by a couple of years does not in any way affect the banks' interest or the payment schedule. Besides, the flexibility in the concession period is one of the strengths of the existing model concession agreement between the state and the developer. A private sector player executing an infrastructure project with a government agency usually gets 30 years to recover the investment. If revenues through user charges help in recovery of the investments before the completion of 30 years, the concession period can be cut short.

New service tax policy for SEZ units

The Union Finance Ministry, on 03 March 2009 announced a new notification on the levy of service tax for SEZ developers and units. As per the new norms, SEZ developers and units will get an exemption on service tax. However, they will have to first pay the service tax, and then claim for refunds. The claims can be filed within six months of actual payment of service tax. The refund will be allowed only for services that are related to authorised operations (permitted activities within SEZs). Another change is related to services provided between units located within an SEZ. Earlier, this was exempted but now firms have to claim refund instead of a blanket exemption. However, on the flipside, as per the Tax experts, if service tax is paid first and then refund is claimed, it will result in unnecessary blockage of funds, paper work and transaction costs.