The Demo Site

Allocation to the power sector has been doubled to Rs 5,130 core in Budget 2010. In his Budget speech, Finance Minister Pranab Mukherjee says the government will set up a coal regulatory authority and launch competitive bidding for captive coal mining. The move will help expedite the process of allocation mining resources to consuming firms.

This has come to the rescue of the power sector, which is grappling with financial closure of key projects coupled with a delay in allocation of coal linkages. This has made power companies cautious in bidding for new projects as the setting up of a 1 mw power plant requires roughly Rs 4-5 crore. This failure was apparent as the government, time and again, misses its ambitious targets set in Five Year Plans by sufficient margins.

Solar energy also found a special mention in the Union Budget. The government proposes to establish a national clean energy fund and is targeting the setting up of 20,000 MW of solar power by 2022. Allocation for renewable energy has been increased to Rs 1,000 crore. A separate sum of Rs 500 crore has been allotted for the setting up of solar and small hydro power units.

The move is likely to help light up around 300-400 million Indians which still have no access to power. Per capita consumption is 700 units per annum (1 unit = 1 KwH or the power consumed by using a 40 watt tube for 250 hours) as against the first world average of around 1,000 units per month. Under the power for all by 2012 mission, the government needs an installed generation capacity of at least 200,000 mw by 2012 from the present 144,564.97 mw. Power requirement will double by 2020 to 400,000 mw.

However, the industry demand for the corporatisation of state electricity boards on a war-footing, reining in of transmission and distribution losses, and withdrawal of cap on the sale price of merchant power in the open market has not been addressed. Merchant power is surplus or excess power with power companies, which is not attached to any long-term power purchase agreements (PPA).

Taxes: Impetus for cleaner fuel
A cess of Rs 50 per tonne has been levied on coal. Power producers had sought a reduction in duties on coal imports. Import duty on coal stands at 5% at present. In India, more than half the power plants are coal-fired and domestic coal supply is scarce.

Excise duty has been hiked to 10% from 8%. This should not come as a surprise as the industry expected a two percentage points in excise duty, which was lowered from 12% to 8% under the stimulus package. The move will help bridge the government's fiscal deficit.

Reiterating the government's cleaner energy focus, the Finance Minister has exempted inputs for making rotor-blades from excise in his Budget speech.

Excise duty on photo-voltaic and solar panels has been waived while central excise on LED lights have been cut to 4%.

Giving in to the demand of domestic power equipment manufacturers, the Finance Minister has levied a duty of 5% on project imports. Recently, a government panel report suggested the imposition of a 14% duty on imported power equipment to safeguard interests of domestic manufacturers. However, private power plant owners say domestic generation equipment are in short supply and a duty on imports will penalise them if they source from overseas. The move, they say, will jeopardise the massive capacity addition programme.

Sectors/stocks to benefit:
- NTPC, Reliance Power, and Adani Power to benefit from the doubling of power allocation.

- Setting up of a coal regulatory authority positive for cement and steel companies.

- Increase in the refinancing by India Infrastructure Finance Company (IIFCL) is positive for infrastructure companies.

- Suzlon and Jaiprakash Hydro are likely to gain from the setting up of a national clean energy fund.

- Excise exemption on inputs used for making rotor-blades is positive for Suzlon.

- Cut in excise duty for photo-voltaic units is positive For Moser Baer.

- Tata Power is likely to be affected by the clen energy cess.

- Increase in import duties on power equipment would benefit companies like L&T, BHEL among others.

What the sector wanted?
- Expected increased spending on the government's flagship schemes -- Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) and Restructured Accelerated Power Development and Reforms Programme (R-APDRP) -- to spur growth.

- Developers sought an extension of income tax exemption under clause 80 IA beyond 2010-11. This is likely to go through given the government’s thrust on reducing aggregate technical and commercial losses. The move would also shorten the pay-back period for utilities.

- Setting up a single window clearance system in order to avoid potential delays and expedite the approval process.

- Restoration of the 100% accelerated deprecation for solar energy projects. This will help promote use of renewable energy.

- Extension of long-term loans at 2.5% to industry and individuals for investing in solar energy applications.

- Incentive to indigenous manufacturing of wind turbine gensets. Import duty should be increased or otherwise conditions as regards to the indigenization of wind turbine gensets by using 70% of local components should be implemented in the windmill sector. The move will boost domestic manufacturing and curb dumping by way of imports from countries like China.

- Award mega power status to thermal projects above 500 mw. If implemented, it would lower the cost of power.