Move to give companies
depreciation benefits not just on investment basis could affect firms
such as Suzlon
New Delhi: India is considering a change in laws governing tax benefits
linked to investments in wind power, a move that could have an adverse
effect in the short term on wind power firms such as Suzlon Energy Ltd
but eventually benefit them and also increase the amount of wind energy
generated in the country.
The change involves linking the benefit to the actual generation of
wind power and not merely the investment in a wind power project.
Specifically, it involves the depreciation benefits currently available
to companies or individuals investing in wind power. Under current
laws, such companies or individuals can claim a depreciation benefit of
up to 80% of their investment in the first year of the project itself.
That would mean a company that invests Rs100 crore in wind power
generation effectively gets to take Rs80 crore off its taxable income.
The change in policy is being considered by the energy coordination
committee, or ECC, a body whose members include the Prime Minister, the
ministers for finance, petroleum, power and coal, and the deputy
chairman of the Planning Commission.
At a meeting in late June, minutes of which have been reviewed by Mint,
the committee asked the ministry of new and renewable energy, or MNRE,
to study whether “depreciation could be linked to outcome or
generation”.
India has an installed wind power generation capacity of 8,696MW, but
most projects have a plant load factor, or efficiency, of only 10-15%.
Some power sector analysts say the low efficiency is because the
developers are interested in claiming depreciation benefits, not
generating power.
Apart from encouraging companies and individuals to invest in wind
power, the benefits have also partly been responsible for the growth of
companies such as Suzlon and RRB India Ltd. “Wind power projects are
set up for different reasons. Claiming depreciation benefits within
first year of operations is one of them,” said Vikram Apte, senior
vice-president at consulting firm Feedback Ventures Pvt. Ltd.
The prevailing business model doesn’t even require companies to develop
the project. Companies such as Suzlon, which has around a 70% share in
the domestic wind power market, develop wind farms. They then sell a
part-ownership in such farms to individuals and firms who can, in turn,
claim tax credits.
If the government goes ahead with the change, it will affect firms such
as Suzlon’s revenue stream in the short run, said Anish De, chief
executive of Mercados Asia, an energy consulting firm. “(But) the wind
power lobby is very strong and hence it will be very difficult for the
government to abruptly withdraw the depreciation benefits.”
A senior official at MNRE, who did not wish to be named, confirmed the
ministry had been asked by ECC to “check the feasibility of such a
move” and said a report on this would be submitted “within a month or
45 days”.
A Suzlon spokesperson played down the impact such a measure would have
on the company. “The generation-based incentive programme has been
created in addition to the existing accelerated depreciation structure,
and not replacing it ....”
Significantly, the minutes reviewed by Mint do not mention an
alternative to this benefit. Instead, their emphasis is on an
alternative way of calculating the depreciation benefit.
Executives at RRB Energy and Enercon India Ltd, another wind power
company, did not respond to an emailed query.
In the June meeting, ECC said: “(The) outcome should be incentivized
rather than creation of capacities”.
Mercados’ De, however, said the impact on Suzlon would be temporary
because about 60% of the company’s production “caters to overseas
markets”.
Apart from the “depreciation benefits”, investors also stand to benefit
from the sale of power to the grid. MNRE recently announced a 50-paisa
incentive per unit for wind power supplied by independent power
producers
Of India’s total installed capacity of 143,000MW, wind-based power
accounts for only 6.08%. India, however, has a wind energy potential of
45,000MW and MNRE hopes to increase wind power capacity to around
18,000MW by 2012.
http://www.livemint.com/2008/08/22001646/Govt-plans-to-link-tax-benefit.html
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