Budget 2012: Little good news for power producers

Coal India Limited (CIL) has been advised to sign fuel supply agreements, with power plants that have entered into longterm Power Purchase Agreements with DISCOMs and would get commissioned on or before March 31, 2015.

External Commercial Borrowings (ECB) permitted to part finance Rupee debt of existing power projects

Full exemption from basic customs duty and a concessional CVD of 1 per cent to steam coal for a period of two years till March 31, 2014.

Issue of Rs 10,000 crore of tax-free infrastructure bonds for power sector.

Impact

Although most industry expectations were not met, power producers will still be benefited from the exemption of thermal coal from basic customs duty, this is expected to ease some of the pressure on their finances, given the supply crunch. Issue of tax free bonds will also help in accessing capital.

Expectations

•Government subsidy/concessions on interest rates to be provided on lending to SEBs, given their weak financial health

•Tax break on longer-tenor deposits.

•Increase in insurance exemption limit

•Separate subsidy/fund to be created to meet financing requirement of SEBs..

•Extension of 80-IA benefits to power plants commencing operations before March 2017 (currently March 2011).

Possible introduction of customs duty on power equipment. The developer lobby is against the move, while local manufacturer have demanded the same

Waiver of import duty on coal (~5%). This would allow slightly less burden on already higher cost of imported coal.

•Exemption of sales tax and VAT on supplies for construction of mega power projects.

Allocation to National Electricity Fund for further push in the transmission and distribution sector.

•Increase in allocation to R-APDRP (Accelerated Power Development and Reform Progra ) and RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana) schemes

•Imposition of import duty on power equipment for projects above 1,000MW.