Budget 2004: Power

For development of the power infrastructure, the FM announced that mega power status would now be given to all power projects meeting the existing norms.

Customs duty reduced on high voltage equipments from 25% to 5%.

Import of capital goods relating to water treatment exempt from duties

On the face of it, this budget did not focus too much on power sector. However, the freeing of mega power status to all power projects is an indication of the government's focus on power development.

More than the budget, it's the new electricity bill that holds more promise for power development in the country. The bill has already been mooted with broad guidelines to reduce government interference. In it, there are references to freeing of licencing norms for setting up distribution and generation projects. More carrots and sticks to States to conform with the new APRDP norms focusing on unbundling of SEBs and charging real rates of power production to consumers.

In the short term, not much changes for BSES and Tata Power. But the long term looks good against the backdrop of these measures. Water treatment exemption is unlikely to have any effect on Thermax financially, however, this will expand the market for these type of products going forward and benefit companies in this field over the long term. While we thought that reduction in imports of voltage equipment is not good news for ABB, the ABB management has clarified that this measure is only for very high voltage transformers and therefore do not affect ABB at all.

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.

Lower import duties and tax benefits to encourage private distribution.

Make dividends from infrastructure sectors tax-free and do away with MAT (minimum alternate tax) for infrastructure.

Make forex borrowings tax-free for encouraging infrastructure projects.

No change in customs duty and excise duty

There was also mention of increasing user charges for services provided by the government. But there is no clarity on that

APDRP outlay enhanced to Rs 35 bn (from Rs 15 bn earlier).

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.