Despite being a part of the project cost, no lender has funded the safeguard duty imposed by India since July 2018
Despite the Central Electricity Regulatory Commission (CERC) ensuring that the safeguard duty—imposed since 30 July 2018 on solar cells, modules and inverters imported from China and Malaysia—be a part of the project cost by allowing a pass-through in power tariffs, no bank or financial institution has financed a loan for it till date.
With debt financing for green energy projects drying up, the quantum of these unfunded levies assumes significance, given that India is running what will become the world’s largest clean energy programme. This has also diverted equity flow meant for new projects as firms are using it to finance this duty.
Given the uncertainty surrounding the refund mechanism, a similar fate awaits the funding requirement for basic customs duty (BCD) on solar equipment imports, which is to be shortly imposed as a retaliation against the country’s northern neighbour.
“Safeguard duty is a change in law and already established by CERC and therefore a part of project cost. The problem is that none of the banks are willing to fund safeguard duty due to uncertainty of the refund mechanism—like who will refund, how, when and how much? It is over 18 months and none in the industry have managed to get their legitimate dues,” said Sunil Jain, CEO, Hero Future Energies Pvt. Ltd, one of the two people cited above.
As part of India’s economic response against China, this safeguard duty has now been extended to help boost India’s push for domestic manufacturing as part of Aatmanirbhar Bharat Abhiyaan. A similar dispensation on the lines of safeguard duty is being considered for the developers in the case of imposing BCD on imported solar cells, modules and inverters, with the government’s plan to “grandfather” such projects.
“The issue (of banks unwilling to fund safeguard duty and BCD) has been brought to the notice of MNRE (ministry of new and renewable energy) and it will be followed up with the banks and financial institutions by the government,” said a government official cited above who did not want to be named.
Queries emailed to a MNRE spokesperson remained unanswered.
While such duties may increase the electricity tariffs, it is being done to help facilitate manufacturers set up these projects and maintain the country’s clean energy trajectory as India tightens its economic squeeze on China. The government had earlier said that an Indian is willing to pay more for power, provided the equipment is made in India.
While India is running the world’s largest solar energy programme, as much as 80% of the solar cells and modules used are bought from China, given their competitive pricing. India imported $2.16 billion worth of solar photovoltaic cells, panels, and modules in 2018-19.
According to the latest government order, the safeguard duty is to be paid on these items at a rate of 14.9% for the first six months and at 14.5% for the remaining six months. Exporters will be given relief from the safeguard duty to the extent of any anti-dumping duty paid on the items. The duty also applies to imports from Thailand and Vietnam but excludes imports from any other developing nation.
“All the safeguard duty or GST dues have been funded by companies through equity money. Ideally this equity should have gone to fund new projects. All banks need clarity on policies and regulations and therefore any uncertainty creates a vacuum in funding,” added Jain.
Analysts say that all is not lost and there is still hope.
Ratings agency Crisil in a 4 August statement said, “While Central Electricity Regulatory Commission (CERC) was quick to recognise the SFD (safeguard duty) imposition as a Change in Law event, uncertainty prevailed over the timeliness and mechanism of its reimbursements.”
“Commencement of GST reimbursement paves the way for similar disbursements towards SFD (75% of overall Change in Law payouts) where the payment mechanism is also established on similar lines and is awaiting submission and verification of cost documents by developers,” the statement added.
These duty measures are part of an economic response by India to the recent violent face-off with China along the border in Ladakh. India is also looking to play a larger role in global supply chains in the backdrop of the disruption caused by the novel coronavirus disease that originated in Wuhan, China. It plans to offer land near its ports to companies for building solar equipment factories.
India is running what will become the world’s largest clean energy programme with an aim of having 175 gigawatts (GW) of clean energy capacity by 2022 as part of its global climate change commitments. It plans to add 100GW of solar capacity by 2022, including 40GW from rooftop projects.