INDIA: Naphtha duty exemption extended
In a bid to maintain retail electricity prices ahead of the general elections, due in April-May this year, the government has decided to keep naphtha imports free of customs duty beyond March 31.
The government had exempted 5% customs duty on import of naphtha for use by power plants to generate electricity, thus preventing retail electricity prices from rising due to use of costlier fuel.
India has an installed power generation capacity of 147,403 megawatt (mw), of which, 14,734 mw (10%) is fuelled using gas.
Generation companies, however, are forced to use naphtha, a much costlier fuel, due to lack of easy availability of gas.
Withoutthe 5% customs duty, generation companies might have started selling power at higher prices, forcing distribution companies to increase the prices of retail electricity.
An expert, however, points out that the state distribution companies might not have been allowed to raise prices in the election year, thus straining their already stretched finances.
Manish Agarwal, executive director, advisory services, KPMG said the decision is a good one. "I am happy to see that the distribution companies are not burdened with higher costs, as the central public sector utilities pass on any increase in generation costs to the distribution companies real time."
Added: February 25, 2009 Source: Agencies