The Navi Mumbai special economic zone (SEZ), promoted by Reliance Industries Chairman Mukesh Ambani and his close aide, Anand Jain, may finally win government approval with the promoters deciding to split the multi-product zone into five parts.

The project has been grounded for close to four years as the promoters were not able to meet the government requirement of contiguity within the composite zone. The government was concerned that lack of contiguity might lead to revenue leakages as products meant for exports could be smuggled to the local market. SEZs are special enclaves enjoying significant tax concessions on exports.

The board of approval, the central body for clearing SEZs, is expected to take up the revised proposal of Navi Mumbai SEZ on May 31.

"The board will have to see if the new proposal meets the minimum criteria for setting up the zones," a senior government official told ET.

Chaired by the commerce secretary, the board of approval comprises senior officials from several ministries and departments, such as revenue, agriculture and home.

The new proposal says the SEZ will be split into five zones - a light engineering SEZ spread over 100 hectares, two IT/ITES SEZs spread over 20 hectares and 27 hectares, respectively, a free-trade warehousing zone over 60 hectares and the main multi-product SEZ spread over 1,014 hectares.

The developer has also sought approval for units to start operating within the multi-product SEZ. "Units can be allowed to operate only when the board is satisfied that the zone is sealed tight and there is no possibility of goods going out and coming in through unauthorised routes," the official said.

The 1,233.67 hectares Navi Mumbai SEZ was given a formal approval and notified in 2007, but units were not allowed to start operations as the revenue department was not satisfied with the developer’s plan of ensuring contiguity within the zone, which has a road and railway lines running through it.

"The directions given by the revenue department for building bridges and underpasses to ensure connectivity would have cost the company Rs 350 crore, which it would not have been able to recover," said a source close to the developers.

The new proposal of splitting the zone into five parts would bring down the cost of ensuring contiguity to about Rs 50 crore. Last November, the developers had proposed to split the SEZ into three zones. But the proposal was shot down by the revenue department on the ground that two of the three proposed zones did not have contiguity
between the processing and non-processing areas. "A foolproof plan has been submitted this time," said the person quoted above.

The board will also take up requests of 53 other developers for more time to set up their projects. These include Parsvnath SEZ, Unitech Realty Projects, Reliance Haryana SEZ and Mahindra & Mahindra.

Six developers have decided to surrender their projects citing reasons such as the global economic slowdown and the application of minimum alternate tax (MAT) on SEZs, which they said had made their ventures unviable.

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Economic Times - May 25,2011