In final days of Modi government, Adani project in Jharkhand becomes India's first power sector SEZ Mar 25, 2019

Posted On : April 20, 2019

Twelve days before elections dates were announced, the Modi government on February 25 cleared the way for an Adani project in Jharkhand to become the first standalone power project in India to get the status and benefits of a Special Economic Zone. For this, the commerce ministry amended power-related guidelines for Special Economic Zones earlier this year.

Geared towards exports, Special Economic Zones get a host of duty-waivers, tax exemptions and faster clearances. The government decision to grant SEZ status to the Adani project will save the company billions of rupees in taxes – Rs 3.2 billion annually in clean energy cess alone.

 

In addition, with the amended guidelines mandating that all electricity generated in the SEZ be exported, Jharkhand could lose its share of electricity from the project.

The project that will be converted into an SEZ is a coal-fired power plant in Godda district of Jharkhand being built by Adani Power Limited, the power subsidiary of the Gautam Adani-led infrastructure conglomerate. Under a memorandum of understanding signed with Bangladesh in August 2015, the plant will mainly supply electricity to India’s neighbour.

However, Jharkhand’s energy policy requires all power projects to supply 25% of the electricity locally. As Scroll.in has previously reported, the Bharatiya Janata Party government in Jharkhand amended the energy policy in 2016 to allow Adani to charge a higher price for electricity from this project than other thermal plants bill the state. Now, by allowing Adani to convert its power plant into an SEZ, the BJP government at the Centre has made Jharkhand’s share of electricity uncertain.

To enable SEZ status for the Adani project, the Centre had to amend 2016 guidelines that prohibited the establishment of a standalone power project inside an SEZ. The commerce ministry moved the amendment on December 28, 2018, which the Board of Approval for SEZs cleared on January 9, 2019, after commerce minister Suresh Prabhu directed it to consider the matter, minutes of board meetings show.

A month and a half later, on February 25, the board approved Adani Power’s proposal for a sector-specific SEZ for power in Jharkhand. The same proposal had been rejected by the board in February 2018 because it was inconsistent with the guidelines and there was no recommendation from the state. It is unclear whether Jharkhand backed the Adani proposal the second time around, or whether its views were sought by the board. Questions sent to the state government went unanswered.

Scroll.in also sent questions to the commerce ministry and the board, asking whether the amendment of guidelines was prompted by the Adani proposal, or whether there was a larger rationale for the decision. No response has been received.

Questions emailed to Adani Power Limited about how the SEZ status will impact the economics of the project remained unanswered at the time of publishing. On March 5, in a clarification issued to Indian stock exchanges, the company said it was yet to receive the letter of approval for the SEZ from the government.

First private coal project to export electricity

As a power-deficient country, India has restricted electricity exports. But in December 2014, it signed a framework agreement for energy cooperation with other countries of the South Asian Association for Regional Cooperation to enable electricity to be exported to Bangladesh, Bhutan and Nepal. Until then, the only power projects geared to export electricity were being built by public sector companies like the National Thermal Power Corporation and regulated by the Power Trading Corporation.

In June 2015, Prime Minister Narendra Modi travelled to Dhaka to meet his Bangladeshi counterpart Sheikh Hasina and made a pitch for Indian power companies, both public and private. Two months later, on August 11, 2015, a memorandum of understanding was signed by Adani Power Limited and Bangladesh for the export of 1600 megawatts for electricity.

However, signalling that the export of electricity by private projects was still an exception, on December 5, 2016, the Ministry of Power released guidelines on the cross-border trade of electricity that said: “Any coal-based Indian thermal power projects other than Public Sector Undertakings shall be eligible for export of electricity to neighbouring countries only if surplus capacity is certified by the Designated Authority.”

Adani Power Limited presumably obtained such certification since it went on to ink an implementation agreement with Bangladesh Power Development Board in April 2017, followed by a power purchase agreement in early November 2017.


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Does electricity export qualify as an SEZ?

Special Economic Zones were first created in 2000 by Atal Bihari Vajpayee-led BJP government under a policy to encourage exports. In essence, the idea was that to enable Indian companies to compete in global markets, industrial production for exports must be exempt from duties and taxes, both on inputs as well as the final output.

SINCE INDIA DID NOT EXPORT ELECTRICITY UNTIL RECENTLY, THE QUESTION OF WHETHER POWER PROJECTS SHOULD BE CONSIDERED SEZS DID NOT ARISE. HOWEVER, GUIDELINES WERE FRAMED TO GOVERN POWER STATIONS SET UP INSIDE SEZS TO SUPPLY POWER TO THE INDUSTRIES OPERATING THERE.

On February 16, 2016, the commerce ministry amended the guidelines to explicitly state: “No single stand-alone power plant will be permitted to be set up in an SEZ in which there would be no other units.” This effectively meant a standalone power project could not be considered an SEZ.