Fitch predicts 8% India growth, despite rough patch
Railway Budget 2012: Five things to watch out for

Economy

What power producers want from Budget 2012

By Rajanya Bose

The mess the power sector is in can hardly be over emphasised. The 11th plan which ends in March 2012 had the target of adding 78,000 MW of power. In the first four years, all India has managed to add is 34,463 MW. What stands out is the dominance of the private sector in the addition of energy capacity.

The issues that are grappling the sector are many. Private power producers have bid aggressively in ultra mega power projects and are slowly getting unviable, coal supply has not improved much in the last two years and fuel imports are expensive. The health of the state electricity boards are also a cause for concern and some giving them pricing power is the need of the hour if the industry has to survive. So, what is the wishlist of the power sector for Budget 2012; and can it be fulfilled?

1. Waiver on import duty on coal. There is an import duty of 5 percent on non coking coal which can be brought down to nil, thus, bringing down the cost for coal import. This will be a big positive for power companies, who have to increasingly use imported coal for their projects.

To decrease losses, SEBs must be allowed to raise power tariffs regularly. Reuters

2. Doing away with customs duty on power equipments. The government is trying to protect the Indian power equipment producers like Bhel by imposing customs duty on power equipment import. This will mean players like Reliance Power cannot rely on cheaper Chinese power equipment anymore. The estimation is the duty could be anywhere between 14-19 percent. This will be a negative for the power sector whose cost of power production will go up further.

3. Reduction of customs duty on coal handling and transportation equipment. This is unlikely to be granted by the finance minister keeping his own revenue considerations in mind.

4. Greater focus on the Accelerated Power Development and Reform Programme (APDRP). The Budget could insist on greater focus on APDRP, which proposes reducing transmission and distribution losses, allowing SEBs to raise power tariffs regularly, etc. Though this will be a positive for the pwoer sector in the long run, it will only have a neutral effect, immediately. All the reforms need political consensus and state support which can be addressed in the long term.

5. Setting up of the National Electricity Fund. Deutsche Bank expects the Budget to announce setting up of National Electricity Fund to provide subsidies on interest to SEBs for investments in transmission and distribution, which will help reduce losses. This is also a positive for the sector, but will have no major effect immediately till implementation is ensured.

by Rajanya Bose

Related Stories.