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Dabhol rescue package ready with tax waivers

Sidhartha

The government has finalised a rescue package for Dabhol Power Company, which includes granting mega power project status to the 2,184-mw plant and offering a string of other fiscal incentives.

The policy package - for which a Cabinet note is being moved - is also likely to waive the minimum alternate tax for the initial 6-7 years and allow financial institutions to issue tax-free bonds carrying a coupon rate of 8.5-9 per cent with a 5-year tenure.

The Centre, which prepared the note borrowing largely from the domestic lenders' suggestions to re-engineer the project, might well put an end to the 8-month long impasse surrounding the $3-billion project.

The package, which calls for specific concessions by all the stakeholders, includes the Centre allowing FIs to issue tax-free bonds.

These could be rolled over to match the tenure of the loans extended to Dabhol by the FIs, and utilised for refinancing the offshore loans of external commercial agencies.

In the case of offshore loans of $183 million (approximately Rs 8.75 billion) extended to the project's first phase, the FIs have asked the Centre to advance loans bearing 10 per cent-a-year interest to Maharashtra.

The loans, whose tenure could be co-terminus to the loans by FIs, can be on-lent to Dabhol by the state government on a back-to-back basis.

Another sop that the lenders have sought from the government pertains to the Central Board for Direct Taxes allowing tax benefit on lease finance with regard to Dabhol's assets which should be eligible for 100 per cent depreciation.

In addition, the FIs have suggested that the customs duty applicable to LNG imports be waived or, alternatively, be set-off against the duty already paid for import of equipment.

If the LNG unit is hived off, the government should allow concessional customs duty for imported LNG equipment, the Indian lenders said.

The Centre will also need to provide guarantees to domestic lenders, which will lend funds to Dabhol for completion of the project. This amount is estimated to be in the region of Rs 21.55 billion.

Maharashtra, the FIs have said, should recommence drawal of power from the first phase immediately and allot distribution circles to the restructured project to absorb at least 50 per cent of the power from the second one.

The state should also extend support through escrow for off-take of power from the first phase.

The FIs have suggested that the existing sponsors should write down the equity capital by 50 per cent, apart from restricting the return on equity to 16 per cent a year.

The sponsors will also negotiate a 10 per cent reduction in shipping charges and LNG prices.

The lenders, on their part, will reduce interest rates by 10 per cent on the offshore as well as onshore loans, besides rescheduling domestic loans so as to provide a 3-year moratorium followed by a 13-year repayment schedule.

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