Budget 2013: Expectations From The Power Sector

Power is one of the core sectors of the Indian economy and has seen some policy initiatives in the reform drive that has been initiated by the government. In FY12, the sector faced some issues related to environment, tariffs, fuel, funding and so on, leading to a poor performance of the companies in the power sector, which in turn hampered the investor's sentiment.

To improve the business environment in the sector, the government gave an in-principal approval to the coal price pooling mechanism (CPP) last year. It was supposed to improve the coal supply in the sector. Many Discoms have also raised the tariffs after a gap of some years. The government has now approved the debt recasting of the state electricity boards, which will improve the financial health of the Discoms.

However, the SEB debt recast is yet to be signed by many states while the guidelines of the CPP are not yet finalised. In the last budget, the government reduced the import duty on coal from 5% to 1%. The long pending demand of the capital goods sector to levy import duty on import of the power equipments was also approved by the government.

Amid this, the sector has some expectations from the FY13-14 budget which it feels would help it perform better in the future. The wish list for FY14 budget from the power sector includes the following demands:

• Complete elimination of the 1% import duty on coal, which will help reduce the cost of generation for the power plants based on imported coal.
• Extension of 80-IA benefit. Under this section, a 10-year tax holiday is given to the power plants if they start power generation by March 31, 2013. The power sector is seeking the benefit of this section to be extended to March 31, 2017. Also, it wants the number of years to be increased from the current 10 to 15.
• Considering that public sector banks have touched their peak limits in lending to the power sector, the sector is seeking relaxation of the lending limits to the power sector which will help fund new projects.
• In view of an increasing requirement to invest in capital expansion, the sector is seeking relaxation of dividend distribution tax if the same is invested in the new capacities.

• The government is expected to come up with new natural gas pricing norms which would increase the domestic gas prices. The higher gas prices would further add to the worries of sector which is already facing a gas shortage. Any announcement on this front would hit the companies like GVK Power, Lanco Infra, NTPC and GMR Infra.
• As the government has imposed import duties on the power equipments, the Capital Goods sector is seeking similar import duties on foreign transmission equipments. This would impact the Powergrid Corporation Of India as well as Discoms. Besides these, private sector companies like Reliance infra, Tata Power, JSW Energy would also get impacted.