Welspun demands tax sops for investors in RE sector

 “The government should offer tax incentives for investors in the renewable energy sector, as for the infrastructure and irrigation sectors,” says Vineet Mittal, Vice Chairman, Welspun Renewables
The Indian power sector is going through numerous challenges, Vineet Mittal, Vice Chairman at Welspun Renewables outlines some major ones.Issues with respect to InvIT structure need to be addressedMittal believes that issues with respect to Infrastructure Investment Trust (InvIT) structure need to be addressed to provide long term financial solution for the ailing infrastructure sector and pave the way for sustainable overall economic growth. He suggests:Capital gains tax for sponsors: Similar treatment for capital gains in the InvIT regime as in the case of IPOs. This will reduce cost for Sponsors and an incentive to raise long term funds under InvIT.Minimum Alternate Tax (MAT) to be removed: Capital gains arising on exchange of shares of SPVs for units of InvITs should not be subject to Minimum Alternate Tax (MAT)Qualifying period for long term capital gain tax: Reduce the qualifying time period for long term capital gains from 36 months to 12 months. Reducing this time frame will achieve the stated objective of bringing parity between listed units of business trusts and equity shares in respect of taxability of capital gains.Dividend distribution tax: Since it’s not always feasible for InvITs to hold assets directly, InvITs should not be denied DDT exemption on distribution by SPVs to InvITs. This will remove the existing arbitrage of DDT depending upon the whether the asset is transferred as capital assets or as shares.Capital gains tax on disposal of assets by InvIT: In line with prevailing international structures, tax exemption should be extended to the gains accruing to the trust on sale of shares of the SPVs or the sale of assets directly held by the trust.Withholding tax (10 per cent – residents; 5 per cent – non residents) to be removed. The unit holders are further taxed as per the tax rate applicable to them. The income from InvITs should be tax free in the hands of the investorsLeverage for InvIT assets to be increased to a maximum of 75 per cent to make the structure more tax efficient. The existing leverage permitted is a maximum of 49 per cent of the InvIT assets that would result in tax-inefficiencies as capital in form of debt is more efficient than equity.Limit for investment in development assets to be increased to at least 25 per cent of the InvIT assets to promote capacity build up. There is a restriction that only 10 per cent should be invested in developmental assets. Separate sectoral limit and priority sector status for lending to solar energySolar energy should be made a priority sector and excluded from overall power sector as it includes thermal power projects as well. A different sectoral cap should be assigned to solar industry, such that banks are encouraged to lend to the sector.
Ensuring payment securityGiven the financial health of the discoms, default in payment to developers is seen as a critical risk by financial institutions. It is necessary to take constructive steps for allaying the fears of the bankers and ensure investments in the sector. Indian government funding must provide full payment guarantee facility, allowing for a greater number of lenders to extend financing to solar projects. Currently only partial guarantee available – for example from Asian Development BankInsurance sector must be allowed to reinsure payment security. Swiss Re and Zurich have products which provide payment security but Indian government does not allow them to sell product directly and Indian insurance companies have not pursued this.MIGA should also be requested to allow MIGA to give payment security. Currently MIGA can only insure foreign companies exposure in India but not Indian companies exposure.
Evacuation infrastructureThe project development cycle of solar and wind power projects is six to eight months.  However while the projects are ready to be commissioned, the corresponding power evacuation architecture lags behind. Developers in most states are facing this issue wherein they lose revenues because the evacuation infrastructure has not been developed in time. Therefore based on the solar potential in the state the respective state government should develop evacuation architecture. For developing the green corridor, a priority lending status should be given. This will ensure that as soon as the green energy projects are commissioned the evacuation infrastructure is already in place and they are able to transmit the energy generated to the state grid.
Land banksLand availability for the projects has been a challenge. Post assessing the solar potential of each state, government land banks should be created and allocated to the projects which are coming up in the state. Additionally, as solar and wind are non polluting industries, these projects should fall under the non – agricultural land conversion exemption. For private land to be used for setting up solar power plants stamp duty exemption may be considered.
Renewable Purchase ObligationsRenewable Purchase Obligations (RPO) should be made enforceable for state distribution licensees, open access consumers and captive consumers of power. The sector is not witnessing the percentage increase in solar energy consumption to the degree it should have experienced. Without a legal enforcement mechanism for RPOs, India will not be able to make a steady and sustainable transition to green economy. Enforcement of RPO must for growth of RE Sector.
Renewable Generation Obligation Renewable Generation Obligation (RGO) will increase the strain on the thermal generators. Approximately, 136 GW private sector capacity with investment of over ` 6.23 lakh crore is in crisis. Implementing RGO will further increase the financial strain on these players, which in turn, will increase the systemic risk on the banking and financial sector. Hence, RGO is not a good thing given the current state of affairs. The priority should be to fix the RPO and have a periodic revision of REC (latest amendment has come on 2nd January with reduced floor price etc.) prices and conditions to make it more amenable to a free market.
Statutory clearancesThe clearance process for solar and wind power projects should be made much more simplified. Mainly for the reason that these projects are sustainable and do not emit any pollutants under the State Pollution Control Board, Consent to Establish (CTE) or Consent to Operate (CTO) should be done away.
Finance needs attentionThough financing has ceased to remain a major challenge for the sector, power sector and particularly the renewable energy sector needs more attention from banks and investors. “We are glad that the government has done much to encourage bankers’ interest in the clean energy space. Priority sector lending to the renewable energy sector will boost the confidence of developers significantly,” observes Mittal. He also adds, “Credit enhancement and payment security for state utilities’ PPAs are also needed so that PPAs of weaker states also become bankable.”
Offer tax incentives for investorsSpeaking on the short term measures to revitalise the sector, Mittal says, “In the long term, the government should offer tax incentives for investors in the renewable energy sector, as for the infrastructure and irrigation sectors. This would be imperative for achieving the ambitious renewable energy target that the nation has set.”
He further adds, “Technology sharing and transfer, robust battery storage technologies, lower cost financing and smoother regulatory processes will ensure sustainability in the long run.”
Increasing mega projects capacityWelspun has set a capacity target of 1,000 MW by the end of the current financial year. In the long run, the company will be setting up mega solar and wind capacities towards achieving national renewable energy goals. “In the next few years we will be setting up 5,000 MW capacities. We are very pragmatic about these strategies and see them coming true since most of our projects have had strong financial backing,” Mittal informs.
Welspun Renewables has received another round of funding of $ 617 million. The investment has been through a combination of debt and equity infusion by the promoters, existing and new investors. Among other investors General Electric has extended its partnership with Welspun with a second round of infusion.
“Consistent support from our investors, coupled with excellent engineering and operational execution skills and time-bound project realisation has helped build trust equity with our stakeholders. And in long term, we are exploring power generation for commercial, industrial and captive use,” Mittal concludes.

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Welspun demands tax sops for investors in RE sector

 “The government should offer tax incentives for investors in the renewable energy sector, as for the infrastructure and irrigation sectors,” says Vineet Mittal, Vice Chairman, Welspun Renewables
The Indian power sector is going through numerous challenges, Vineet Mittal, Vice Chairman at Welspun Renewables outlines some major ones.Issues with respect to InvIT structure need to be addressedMittal believes that issues with respect to Infrastructure Investment Trust (InvIT) structure need to be addressed to provide long term financial solution for the ailing infrastructure sector and pave the way for sustainable overall economic growth. He suggests:Capital gains tax for sponsors: Similar treatment for capital gains in the InvIT regime as in the case of IPOs. This will reduce cost for Sponsors and an incentive to raise long term funds under InvIT.Minimum Alternate Tax (MAT) to be removed: Capital gains arising on exchange of shares of SPVs for units of InvITs should not be subject to Minimum Alternate Tax (MAT)Qualifying period for long term capital gain tax: Reduce the qualifying time period for long term capital gains from 36 months to 12 months. Reducing this time frame will achieve the stated objective of bringing parity between listed units of business trusts and equity shares in respect of taxability of capital gains.Dividend distribution tax: Since it’s not always feasible for InvITs to hold assets directly, InvITs should not be denied DDT exemption on distribution by SPVs to InvITs. This will remove the existing arbitrage of DDT depending upon the whether the asset is transferred as capital assets or as shares.Capital gains tax on disposal of assets by InvIT: In line with prevailing international structures, tax exemption should be extended to the gains accruing to the trust on sale of shares of the SPVs or the sale of assets directly held by the trust.Withholding tax (10 per cent – residents; 5 per cent – non residents) to be removed. The unit holders are further taxed as per the tax rate applicable to them. The income from InvITs should be tax free in the hands of the investorsLeverage for InvIT assets to be increased to a maximum of 75 per cent to make the structure more tax efficient. The existing leverage permitted is a maximum of 49 per cent of the InvIT assets that would result in tax-inefficiencies as capital in form of debt is more efficient than equity.Limit for investment in development assets to be increased to at least 25 per cent of the InvIT assets to promote capacity build up. There is a restriction that only 10 per cent should be invested in developmental assets. Separate sectoral limit and priority sector status for lending to solar energySolar energy should be made a priority sector and excluded from overall power sector as it includes thermal power projects as well. A different sectoral cap should be assigned to solar industry, such that banks are encouraged to lend to the sector.
Ensuring payment securityGiven the financial health of the discoms, default in payment to developers is seen as a critical risk by financial institutions. It is necessary to take constructive steps for allaying the fears of the bankers and ensure investments in the sector. Indian government funding must provide full payment guarantee facility, allowing for a greater number of lenders to extend financing to solar projects. Currently only partial guarantee available – for example from Asian Development BankInsurance sector must be allowed to reinsure payment security. Swiss Re and Zurich have products which provide payment security but Indian government does not allow them to sell product directly and Indian insurance companies have not pursued this.MIGA should also be requested to allow MIGA to give payment security. Currently MIGA can only insure foreign companies exposure in India but not Indian companies exposure.
Evacuation infrastructureThe project development cycle of solar and wind power projects is six to eight months.  However while the projects are ready to be commissioned, the corresponding power evacuation architecture lags behind. Developers in most states are facing this issue wherein they lose revenues because the evacuation infrastructure has not been developed in time. Therefore based on the solar potential in the state the respective state government should develop evacuation architecture. For developing the green corridor, a priority lending status should be given. This will ensure that as soon as the green energy projects are commissioned the evacuation infrastructure is already in place and they are able to transmit the energy generated to the state grid.
Land banksLand availability for the projects has been a challenge. Post assessing the solar potential of each state, government land banks should be created and allocated to the projects which are coming up in the state. Additionally, as solar and wind are non polluting industries, these projects should fall under the non – agricultural land conversion exemption. For private land to be used for setting up solar power plants stamp duty exemption may be considered.
Renewable Purchase ObligationsRenewable Purchase Obligations (RPO) should be made enforceable for state distribution licensees, open access consumers and captive consumers of power. The sector is not witnessing the percentage increase in solar energy consumption to the degree it should have experienced. Without a legal enforcement mechanism for RPOs, India will not be able to make a steady and sustainable transition to green economy. Enforcement of RPO must for growth of RE Sector.
Renewable Generation Obligation Renewable Generation Obligation (RGO) will increase the strain on the thermal generators. Approximately, 136 GW private sector capacity with investment of over ` 6.23 lakh crore is in crisis. Implementing RGO will further increase the financial strain on these players, which in turn, will increase the systemic risk on the banking and financial sector. Hence, RGO is not a good thing given the current state of affairs. The priority should be to fix the RPO and have a periodic revision of REC (latest amendment has come on 2nd January with reduced floor price etc.) prices and conditions to make it more amenable to a free market.
Statutory clearancesThe clearance process for solar and wind power projects should be made much more simplified. Mainly for the reason that these projects are sustainable and do not emit any pollutants under the State Pollution Control Board, Consent to Establish (CTE) or Consent to Operate (CTO) should be done away.
Finance needs attentionThough financing has ceased to remain a major challenge for the sector, power sector and particularly the renewable energy sector needs more attention from banks and investors. “We are glad that the government has done much to encourage bankers’ interest in the clean energy space. Priority sector lending to the renewable energy sector will boost the confidence of developers significantly,” observes Mittal. He also adds, “Credit enhancement and payment security for state utilities’ PPAs are also needed so that PPAs of weaker states also become bankable.”
Offer tax incentives for investorsSpeaking on the short term measures to revitalise the sector, Mittal says, “In the long term, the government should offer tax incentives for investors in the renewable energy sector, as for the infrastructure and irrigation sectors. This would be imperative for achieving the ambitious renewable energy target that the nation has set.”
He further adds, “Technology sharing and transfer, robust battery storage technologies, lower cost financing and smoother regulatory processes will ensure sustainability in the long run.”
Increasing mega projects capacityWelspun has set a capacity target of 1,000 MW by the end of the current financial year. In the long run, the company will be setting up mega solar and wind capacities towards achieving national renewable energy goals. “In the next few years we will be setting up 5,000 MW capacities. We are very pragmatic about these strategies and see them coming true since most of our projects have had strong financial backing,” Mittal informs.
Welspun Renewables has received another round of funding of $ 617 million. The investment has been through a combination of debt and equity infusion by the promoters, existing and new investors. Among other investors General Electric has extended its partnership with Welspun with a second round of infusion.
“Consistent support from our investors, coupled with excellent engineering and operational execution skills and time-bound project realisation has helped build trust equity with our stakeholders. And in long term, we are exploring power generation for commercial, industrial and captive use,” Mittal concludes.

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