Cost of electricity is likely to go up with the Budget 2008-09 proposing to impose a four per cent additional customs duty on power generation as well as distribution projects, other than UMPPs.

The government announced withdrawal of exemption of four per cent additional customs duty levied under section 3(5) of Customs Tariff Act, 1975 on power generation projects, transmission, sub-transmission and distribution projects.

However, mega power projects have been exempted from the purview of additional customs duty. "I propose to reduce the customs duty on project imports from 7.5 per cent to five per cent. However, I also propose to impose the four per cent special CVD on a few specified projects in the power sector," Chidambaram said, while introducing the Budget.

Reacting to Budget 2008-09, Power Secretary Anil Razdan said: "We are happy with the Budget as there would be a special fund for transmission and distribution, which would be an area of focus for us this year."

Asked if the cost of production of electricity would rise with introduction of additional customs duty, he said: "it needs to be re-evaluated in the long term."

Country's largest power equipment supplier BHEL said that withdrawal of exemption of four per cent customs duty on power projects would give it a level playing field.

"The Union Budget is indeed a welcome Budget with focus on growth in infrastructure. The withdrawal of exemption of additional customs duty of four per cent, commonly known as SAD, on power projects is likely to provide a level playing field for companies like BHEL," company Director (Finance) C S Verma said.

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