There is no change in customs duty and excise duty for power companies.

Securitisation of dues owed by the SEBs to coal companies among others

Budget Impact
Currently the basic duty on power generation projects is 5% and the countervailing duty is 16% as imposed in last years budget. For power transmission projects the basic duty is 25% and the countervailing duty is 16%.

Excise duty on electrical machinery, motor generators stands at 16%. Hence the impact of customs duty and excise duty on power companies is neutral as there is no change for them on customs duty and excise duty front.

However in view of the power reforms the budget mentions that the dues of the State Electricity Boards would be cleared. However it does not touch upon the dues for Independent Power Producers who depend on these SEBs. Hence for private players there does not seem to be any reprieve.

The major disappointment for power transmission and distribution companies is that they are not given "infrastructure status" as was expected by the industry.

Industry wish list

Mr. Mr. R.K.Kanga, General Manager (Finance), Tata Electric Companies Ltd says:

Infrastructure status to be given to transmission and distribution business.

There should be clarity on taxation on different types of fuel especially LNG. There is a doubt as to whether LNG would be subject to excise duty when it is re-gassified at the Utility Station. If, the concept of excise/CVD is not clear on LNG, it could affect the economy of the country as it would ultimately affect the fuel cost of power generated.

We feel that government should identify major cities and towns and should introduce the licensee business concept for such locations, just as it is being practised in Mumbai area by TEC/BSES. Under the IPP concept, the generator could get a profit of as high as 25% whereas under the Licensee business, the generator is restricted to 16% post-tax profit under the Electricity Act. Under the IPP concept, the generator is open to financial risk of SEB whereas under the Licensee business, the generator is more or less confident of recovering his dues from his customers under his nose. Whenever the Licensee concept is practiced, the transmission and distribution losses are also low and are more or less in line with the international standards. The Licensee concept can slowly penetrate into the whole of country, which will automatically provide T&D business in India.

India has a long history of power shortages. The existing gap in supply coupled with the expected rise in demand from a growing economy will ensure that power will remain a precious commodity for some time to come.

The returns of power companies were earlier linked to the bank rate, however since April'99 the returns of the licensees have got delinked from the bank rate. This is a positive as now the profits of power companies are not dependant to changes in the bank rate.

There have been many positive reforms in the IPP (Independent Power Projects) policy. Some of them being : the period of licenses for generation and distribution can be upto 30 years and renewals for 20 years, five year income tax holiday and upto 100% foreign holding permitted in power projects.

Overall power reforms have been slow. Independent power projects (IPPs) supply power to the State Electricity Boards (SEBs). However the poor financial condition of the SEBs is a major concern for the viability of these IPPs. As a result financial Institutions are reluctant to fund these IPPs.

Politics continues to play a major role in the power sector. Some state governments have taken steps to restructure SEBs. They are also keen to privatize distribution. However as power is a politically sensitive issue, there have been delays in the reforms for this industry. Though technically power utilities can pass on the increase in costs by raising tariffs, increase in tariffs is not easy as it is a sensitive political issue.

Transmission and distribution losses continues to be an area of concern. Power theft continues to be a serious problem in India. The transmission & distribution losses in India exceed 20%, while internationally the level is around 10%.