Over the past few quarters, the power sector has seen hard times given the severe liquidity crunch that hit existing as well as new projects. And as such, the sector once again saw capacity addition that was way below the targets set out as part of the XIth Five Year Plan. While the situation on the funding side has improved considerably since the middle of 2008, companies are stepping up on new projects with utmost caution. This is especially given that linkage for fuel (especially coal and gas) is becoming a tough nut to crack. However, rural electrification continues to get a boost in each passing budget and so is the improvement in the transmission and distribution network. Corporatisation of state electricity boards and linking profitability to the state government's plan outlay are likely to give some sort of fiscal strength to the key sector participants in the long run.
Budget Measures
Allocation under Accelerated Power Development and Reform Programme (APDRP) has been increased by 160% YoY to Rs 20.8 bn in 2009-10.
Allocation to the Rajiv Gandhi Grameen Viduytikaran Yojana (RGGVY) has been enhanced by 27% YoY to Rs 70 bn.
Excise duty on naphtha has been reduced to 14%.
Fringe benefit tax (FBT) abolished.
Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to 15%, but with a provision of carrying forward the tax credit on MAT to ten years from the current seven years.
Budget Impact
Substantially increased allocation under APDRP to improve financial viability of state power utilities, and also lead to a faster reduction in technical and commercial losses of electricity.
Higher allocation to RGGVY to aid faster provision of electricity to villages across India.
Reduction in excise duty on naphtha to lead to lower electricity costs for generation companies using this fuel as replacement for gas.
Company Impact
Higher allocation under APDRP to benefit companies like NTPC, Tata Power, Power Grid, and Reliance Infrastructure.
Increased allocation to RGGVY to benefit transmission project companies like Jyoti Structures and Kalpataru Power Transmission.
Reduction in excise duty on naphtha to lead to lower electricity costs for generation companies like Tata Power and Reliance Infrastructure.
Over the past few quarters, the power sector has seen hard times given the severe liquidity crunch that hit existing as well as new projects. And as such, the sector once again saw capacity addition that was way below the targets set out as part of the XIth Five Year Plan. While the situation on the funding side has improved considerably since the middle of 2008, companies are stepping up on new projects with utmost caution. This is especially given that linkage for fuel (especially coal and gas) is becoming a tough nut to crack. However, rural electrification continues to get a boost in each passing budget and so is the improvement in the transmission and distribution network. Corporatisation of state electricity boards and linking profitability to the state government's plan outlay are likely to give some sort of fiscal strength to the key sector participants in the long run.