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The government on Thursday amended the Mega Power Policy, as per which states controlling the power distribution system would be allowed to purchase power from mega power units in a bid to encourage such projects.
Now such states have to give an undertaking to carry out distribution reforms as laid down by the Ministry of Power, which mandates privatisation of distribution in the future, according to changes in the Mega Power Policy approved by the Cabinet.
"The existing condition of privatisation of distribution by power purchasing states would be replaced by the condition that power purchasing states shall undertake to carry out distribution reforms as laid down by the Ministry of Power," a statement on the Cabinet decision said.
Earlier, this condition of not allowing states that have not privatised distribution of electricity to purchase power from mega power plants was frustrating for these power producing firms because of limited market as a large number of states have not reformed electricity distribution.
Mega power plants are those which have the capacity of generating electricity at least 1,000 MW.
Some states like Delhi have privatised power distribution.
A few cities like Mumbai, Ahmedabad, Surat, Noida, Kolkata have also done so, which in the rest of the country the power distribution system is controlled by the government.
The Cabinet also decided to remove the condition requiring inter-state sale of power for getting mega power status.
Earlier only those projects were granted mega power status which had inter-state power sale agreements.
The government also extended the benefits of mega power policy to the supercritical power projects to be awarded through the 'International Competitive Bidding' (ICB) route with the mandatory condition of setting up indigenous manufacturing facility.
The supercritical technology is more environment-friendly and efficient.
But the developer using this technology have to source equipment from vendors having manufacturing facility in the country.
Currently, only state-run BHEL has such facility.
The other private players are yet to start production.
In another major change in the policy, the government allowed the developers to procure equipment of the mega power projects without undertaking the ICB route.
But on a condition that either the project has been awarded or requisite quantum of power has been tied up through tariff based competitive bidding.
Providing a level playing field to the private players, the government also mandated in the policy that the 15 per cent price preference available to the domestic bidders in case of PSU projects would not apply to tariff based competitive bid projects of these state-run companies.
However, the present dispensation of 15 per cent price preference available to the domestic bidders in case of PSU projects would continue.
The Cabinet also decided to set up a committee under the Planning Commission with the Department of Heavy Industries, Ministry of Power and Department of Revenue for suggesting modalities to take care of the disadvantages suffered by the domestic industry related to power sector.
Under the policy, the existing power projects have been allowed to import equipment for brown-field expansion at a basic custom duty of 2.5 per cent.
Such expansion of existing projects would enjoy all other benefits available to greenfield mega power projects.
All projects with power generation capacity of 1,000 MW or more enjoy the benefits of mega power policy such as zero custom duty on import of equipment.
Mega power projects would be required to tie up power supply to distribution companies through long-term power purchase agreements (PPAs) and may also sell power outside long-term PPAs in accordance with the National Electricity Policy and Tariff Policy.
The mega power policy was introduced in November 1995 for providing impetus to development of large size power projects in the country and derive benefits from economies of scale.
These guidelines were modified in 1998 and 2002 and was last amended in April 2006 to encourage power development in Jammu and Kashmir and the North Eastern region.
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