Reforms in the power sector continue. The FM's tone underlined the government's focus on development of the sector.
The rural electrification programme received a boost. An accelerated rural electrification programme with an outlay of Rs 1.6 bn was provided.
Renamed Accelerated Power Development Program (APDP) as Accelerated Power Development and Reform Program (APDRP). APDRP will have an enhanced outlay of Rs 35 bn (up from Rs 15 bn).
Access of the states to APDRP fund will be on the basis of agreed reform programmes, the centre piece of which would be the narrowing and ultimate elimination of the gap between unit cost of supply and revenue realisation within a specified time frame. Accordingly, the focus of reform has shifted from generation to transmission and distribution.
Setting up of an infrastructure equity fund of Rs 10 bn to provide equity investment for infrastructure projects.
Budget Impact
Private participation in power sector likely to improve. As the APDRP scheme progresses, hopefully state electricity boards' (SEBs) will become economically viable. Consequently, financial closure of power plants will become easier. But all this will come over the longer term.
Companies like Tata Power and BSES will hopefully expand even more. More activity likely in the distribution segment.
Engineering companies like ABB, Siemens and Bhel likely to benefit by these measures.
Industry wish list
As per Mr. Romi Kanga, GM Finance of Tata Power Company, in the 2002-2003 budget the government should:
Lower import duties
Give tax benefits to encourage private distribution
Make dividends from infrastructure sectors tax-free
Do away with MAT (minimum alternate tax) for infrastructure
Forex borrowings should be made tax-free for encouraging infrastructure projects
The other long pending demand of the power industry is that the government should withdraw the 16% cap on the rate of return for power projects in the upcoming budget and instead state that power companies should compete on the efficiency of their plants and tariffs. This will encourage companies to become operationally efficient and would be beneficial for consumers in the long run.
The industry has also asked the government to allow power and power finance companies to raise money by issuing infrastructure bonds (very much like ICICI and IDBI) that carry a 20% income tax rebate to the bond subscriber. This will aid the industry in mobilizing resources.
Key Positives
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.
There has been a significant shift in the government's power policy. The stress is now on strengthening the distribution infrastructure. Corporatising of the SEBs, with a greater degree of accountability being demanded from the states. The PM's rural electrification programme is also a step in the right direction.
Key Negatives
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.
The Dabhol fiasco is likely to make Indian FIs even more reluctant to fund power projects. Also, though the government has made the right noises about power reform, investors are still till circumspect about the government's ability to execute its resolve.
