Low Voltage Budget For Power Sector

The much awaited Union Budget 2013-14 has failed to lift the sentiment in the power sector as the government has ignored most of the demands that the sector had put forth. The only positive announcement was that the government has extended the deadline for tax holidays (section 80-IA) from March 31, 2013 to March 31, 2014. The industry, however, had been expecting an extension till 2017 and hence it will need to repeat the exercise during the next budget.

The documents published with the budget have also indicated that Coal India has signed the fuel supply agreements with 43 Discoms, and 92 FSAs are yet to be signed. These documents also suggest that the Inter Ministerial Group has recommended the de-allocation of 13 coal blocks allocated to 29 companies and the deduction of bank guarantee of 14 coal blocks allocated to 19 companies, which is a negative gesture as the sector is facing a severe fuel crunch.

Following are the highlights of the budget with the respect to the power sector:

• A PPP policy framework with Coal India to improve coal supply in the country.
• The government said that the country would need to meet the increasing coal demand through imports. It has also indicated that it needs to devise a policy for price pooling and blending.
• The government has asked the Discoms to sign a Memorandum of Understanding (MoU) and take the benefits of the financial restructuring plan.
• The finance minister has also announced that a Cabinet Committee on Investment (CCI) has been set up to take up speedy decisions in the Coal, Gas and Power sector. This is just an announcement and we don’t see a major impact on the sector at the moment.
• The ministry, however, has not changed the excise duty, which is a positive sign for the sector. On the other hand, the sector had demanded a complete removal of the import duty on coal, which is not taken up. This will impact the companies which consume imported coal.
• The sector had also been expecting the government to raise the lending limits of the public sector banks to the power sector, which would have helped to meet the capital requirements of the power companies. The demand has been left untouched.

The only hope remains with the Cabinet Committee on Investment, which if comes with an implementation plan of various policies, then that would help in changing the current business environment.

After the budget was announced, the BSE power index emerged as a top loser closing the day with an over 4% loss. Most stocks in the sector were also hammered, with Reliance Power coming down by over 7% at closing.