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In a boost to power firms with plans to set up units in Special Economic Zones (SEZ), the Government has exempted them from the positive net foreign exchange (NFE) obligation applicable to regular units in such enclaves.

The decision will help power companies such as Torrent Energy, Welspun Energy and AES.

Most power firms have been reluctant to set up plants in SEZs due to feasibility concerns arising from the positive NFE norm. The positive net NFE norm stipulates that foreign exchange earned from exports should exceed foreign exchange spent on imports.

According to the new guidelines, power plants can be set up by developers and co-developers in the processing area (where export units are present) as well as in the non-processing area with social infrastructure, including houses, schools and hospitals.

Power plants in the processing area can also avail themselves of fiscal benefits under the SEZ Act. These include benefits for initial setting up, such as duty-free import of raw materials, components and consumables for operation and maintenance of the power plant as well as generation of power. According to the norms, power plants in both the processing and non-processing areas will have no obligation to achieve positive NFE status.

However, if a power plant is set up as part of infrastructure facility in the non-processing area, it will be entitled to fiscal benefits only for the initial setting up and not for operation and maintenance.

The new norms also allow transfer of surplus power to the Domes Tariff Area (the area outside the SEZ) on payment of duty as applicable on import of such power.

These activities — generation, transmission and distribution of power — will be governed by the Electricity Act and Electricity Rules as well as the Power Ministry's resolutions.


Reacting to the new guidelines, Mr Ashok Khurana, Director General, Association of Power Producers, said, "This circular clears the ambiguity regarding the benefits available to power units in the processing zone." Earlier, the Revenue Department was treating a power plant in the processing area just as any other export unit and not as an infrastructure facility/developer/co-developer. This meant its output was considered as 'goods' attracting the positive NFE obligation.

Power companies had claimed that unlike manufacturing/IT/ITES units, it is not possible for them to achieve a positive NFE. Though the supply of power to units within the SEZ is treated as exports and counted towards calculation of positive NFE, achieving economies of scale is difficult by just supplying to SEZ units.

The only option is to sell the surplus electricity generated to units in the domestic tariff area (area outside the SEZs where all taxes and duties apply) by paying the applicable levies.

Power companies were not bothered about paying levies, but were concerned about the positive NFE condition. Even if all their supplies to the SEZ units are deemed as exports, it would have been difficult for them to meet the positive NFE norm due to the high capex.