New SEZ in Navi Mumbai as Mukesh Ambani's dream in shambles

As Mukesh Ambani's dream to set up a mega special economic zone (SEZ) in Navi Mumbai and several thousands of crores in capital investment lie in shambles, the Narendra Modi-led government is going ahead with another giant SEZ project in the neighbourhood.

The government-owned Jawaharlal Nehru Port Trust (JNPT), India's largest container port owning large tracks of land, is now taking a march over the private giant that is awaiting tax incentives to begin the project.

While the government goes ahead with SEZs – like the JNPT project, in the public sector -- several private SEZs are languishing. Some others had converted their projects into industrial parks over last few years.

In fact, the Navi Mumbai SEZ (NMSEZ), promoted by the RIL chairman in his personal capacity, along with his friend Anand Jain of Jai Corp, Sea King Infrastructure Ltd (SKIL) and CIDCO, is among 203 SEZs that were approved and notified as on March 31 but are yet to go operational, according to the commerce ministry.

Over the last 5-6 years, 185 SEZs have become operational with an incremental investment of Rs 2.92 lakh crore made in SEZs. Industry officials point out the held-up SEZs may have throttled another Rs 3 lakh crore investments in these projects.

Why the delay in Ambani's SEZ?
Like many other SEZs, the NMSEZ is awaiting a few changes "to be announced" in the next Foreign Trade Policy, a senior NMSEZ official told dna. "We would like to see the reinstatement of the earlier tax regime. Over the last few years, the government introduced the minimum alternate tax (MAT) and dividend distribution tax (DDT) for SEZs, making SEZs completely unviable. This has even forced several project developers to denotify their SEZs."

What exactly is JNPT's SEZ project?
The project, for which prime minister Modi is going to lay the foundation on Saturday (today), is expected to change the face of Navi Mumbai and the port city completely. The phase I of the project will be spread over 277 hectares and is expected to bring in public and private investment of about Rs 40,000 crore. This self-sustainable integrated development project is likely to have a potential of generating over 1 lakh jobs. The multi-purpose zone will cater to various export sectors of pharma, electronic, gems & jewellery and textile, among others.

How will tax incentives help SEZs?
Several big companies that forayed into the SEZ space lost interest after the previous government brought special zones under the MAT and DDT from April and June 2011. While MAT is applicable at the rate of 18.5% of book profit after April 1, 2011, DDT was levied from June 1, 2011, on dividends distributed by SEZ developers at 16.22%. MAT is a way of making companies pay minimum amount of tax. Now, all companies having book profits under the Companies Act have to pay a minimum tax at 18.5%. DDT is the tax levied by the government on companies according to the dividend paid to a company's investors.

Following the government move, around 60 SEZs were denotified, claiming that these taxes made their project unviable. Apart from MAT and DDT, the project developers also cited non-availability of skilled labour force, lack of demand for space and the global economic slowdown, as reasons.

What is the current state of NMSEZ?
As the project got stuck, construction activity that had picked up pace some years ago, has come to a complete halt. Two under-construction buildings are standing in SEZ at Ulwe. An office inside the campus was closed a few days ago, a worker at the site told dna. "About 40-50 employees used to work inside the campus," he says. A senior NMSEZ official said they have put on hold all developmental activities in the zone. "There is only a skeletal staff on ground to hold the project up. All related projects such as development of Rewas Port are also on hold," he said.

How is JNPT implementating its project?
Basic infrastructure such as roads, electricity, drainage, water etc will be provided by the port, through Project Management Consultants (PMCs). SK Kaul, chief manager (admin), JNPT, said the project would be spearheaded by a special purpose vehicle, fully owned by the port. "We have appointed a Surat-based company to undertake the Environment Impact Assessment and have floated a tender to appoint a consultant for detailed engineering plan. We have around 1,200 hectares of land approved for SEZ, to be developed in phases." The master plan for the project was done by the project consultants EY (formerly E&Y), while the architectural plan is being done by Tata Consulting Engineers (TCE).