The power and petroleum ministries are preparing a joint cabinet note to provide various relaxations to stranded gas-based power plants, which involve investments worth around Rs 65,000 crore. Some of the proposals being considered are tax breaks on imported gas, reduction in the pipeline tariff and the easing of lending norms.
The high cost of imported gas is not viable to power producers starved of domestic gas. This can be solved by pooling imported gas with domestic gas and supplying it at reasonable rates to power plants. However, even after pooling, the price of gas will be high; hence, the need to make imported gas cheaper through tax breaks.
The cabinet note calls for a waiver of customs duty, VAT, central sales tax and state entry tax on imported gas. It also proposes scrapping the service tax on the regasification of imported LNG for pooling with domestic gas.
Besides, it wants GAIL (India) to reduce its pipeline tariff and regasification charges by as much as 50 per cent.
Further, the two ministries want a special dispensation from the RBI to allow banks to classify loans given to gas-based power projects as "standard asset" instead of "standard restructured asset". This would help to maintain the provisioning requirement at half per cent of the loan amount instead of 5 per cent for restructured assets.
The government does not want to charge more than Rs 5-5.50 a unit for electricity from gas-fired plants, said top officials working on the Centre's plan to kick-start projects worth Rs 64,000 crore.
A presentation by the power ministry on price pooling had earlier said, "Since the ratio of costly imported gas in the pooled gas will be high with limited domestic gas, the cost of generation will be high compared with the APM (administered pricing mechanism). For competitive scheduling of gas-based power, it is (however) important that the delivered cost of power is around Rs 5.0 to 5.50 per unit."
The ministry had asked the finance ministry to waive off the VAT on imported gas.
"There are a number of interventions required to make this work and to save investments worth around Rs 64,000 crore, which could otherwise turn into bad loans for banks. However, the key to it all is a tax waiver," said officials.
An earlier cabinet note had pointed out that the average cost of gas-fired electricity is currently about Rs 3.50-5 a unit. However, the price of fuel for plants using pooled gas could work out to Rs 7-10 a unit, making power unaffordable for state electricity boards.