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Power: Extend mega project concessions

Last updated on: July 01, 2009 16:12 IST

While the global financial and economic crisis has impacted India too, there are very few sectors like power where demand continues to exceed supply. India continues to be faced with a power deficit, with an all India peak power deficit. It has become one of the stumbling blocks of the country's economic progress. For the month of May 2009, the all India peak power deficit stood at 11.7 per cent and normal deficit at 6.6 per cent.

One of the reasons for the continued power shortage is largely on account of underachievement of the targeted generation capacity addition in all five-year plans.

For instance, the capacity addition under the 10th plan was woefully short at 41 per cent of its target. However the 11th plan started with a better pace. The 11th Plan envisages and additional power generation capacity of 78,577 MW, inter-regional transmission capacity addition of 23,600 MW to reach 37,700 MW, upgrade sub-transmission and distribution networks, complete electrification of villages by 2009 and complete electrification of all rural households by 2012.

Given the huge investment requirement and that all of that could not be met through public spending, the role of private sector has been crucial. 

In its quest to attract private participation in the power sector, the government of India has rolled out power sector reforms starting with the Electricity Act 2003. The new tariff norms of CERC have raised the fixed return on equity to 15.5 per cent from the earlier 14 per cent. In order to encourage a timely completion of power projects, the new tariff policy has also provided for an incentive of 0.5 per cent of additional RoE. 

Industry expectations

Exemption of import duty on power equipment that is currently available only for mega power projects of above 1000 MW in size only should be extended for plants that are 500-1000 MW also. IEEMA wants the sops to be extended to decentralised generation projects in the range of 1 MW plus also.

The prevailing duty and tax structure in the country prevents private merchant power plants from getting a credit or offset of duty and tax paid on input costs, both on the capital side as also on fuel and operational expenses. This imposes a heavy financial burden on the price of electricity generated at such merchant power plants that use fuels such as liquid fuels (furnace oil, residual fuel oils, etc) or natural gas.

Hence, the government should evolve a mechanism whereby such duty and tax loading be eliminated on generated electricity. 

Fiscal benefits available under section 80IA to power projects commissioned till March 31, 2010 should be extended beyond 2010

The interest payable by Indian power/ infra companies should be exempted from Indian income tax U/s 10 (15) or withholding liability. 

The refinancing of existing rupee loans through the ECB should be allowed for infrastructure sector

The introduction of single window clearance for various approvals required by power projects.

Amend the Atomic Energy Act to enable private sector participation

Promote Big RE Projects and incentive renewable energy generation.

Stocks to watch

NTPC, Tata Power, Torrent Power

Analyst expectation

Given the commitment of the government of India in pushing the accelerated development of infrastructure and especially the power sector, the demands of extension of 80IA benefits beyond 2010, ECB relaxations and the exemption of interest payable from withholding tax, etc, are to materialise. 

Summary

India requires over Rs 1 lakh crore (Rs 1,000 billion) of investment in power generation capacity additions.

Also, given the continued peak power deficit, the power sector is expected to sustain the focus of the government of India and expected to get some policy sops and measures, paving way for more funds into the sector.

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