The jury is still out on the energy sector

The energy sector, which comprises of the power and petroleum sectors, has not been expecting much from the Union Budget, yet the government has been considerate to make the sector more appealing, both to domestic investors and distribution companies.

However, the Union Budget as a platform provides great scope for any possible improvement in any sector of the economy, say experts.

Although Finance Minister P Chidambaram accepted the importance of the sector in Indian economy while presenting the Budget for 2013-14, he also said, "My greater worry is the current account deficit (CAD). The CAD continues to be high mainly because of our excessive dependence on oil imports, the high volume of coal imports, our passion for gold, and the slowdown in exports. This year, and perhaps next year too, we have to find over $75 billion to finance the CAD."

During his Budget speech, he admitted that "coal imports (for power sector) will rise to 185 million tonnes in 2016-17...there is no alternative except to import coal and adopt a policy of blending and pooled pricing." But despite providing any relief to the power sector, by making coal cheaper for example, he rather hiked duty on steam coal - preferred for power generation - to 4 per cent from 1 per cent at present.

The Finance Minister said, "Steam coal is exempt from customs duty but attracts a concessional countervailing duty (CVD) of 1 per cent. Bituminous coal attracts a duty of 5 per cent and CVD of 6 per cent. Since both kinds of coal are used in thermal power stations, there is rampant misclassification. I propose to equalise the duties on both kinds of coal and levy 2 per cent customs duty and 2 cent CVD."

Sunand Sharma, president (India and South Asia) of Alstom, said to NDTV after the Budget announcement that overall the Budget was "balanced" and that he would like to give a "six out of ten" rating to the Finance Minister for the same. Also, he mentioned that the 4 per cent duty (2 per cent customs and 2 per cent CVD) on coal imports will not have significant impact, but nevertheless "it will push power tariffs by 7-8 paisa per unit."

However, Tata Power in a statement said, "We are thankful for the Minister's announcement to equalise the custom and CVD for steam and bituminous coal used in thermal power generation at 2 per cent each as this provides clarity to otherwise claims that got raised by customs department."

On the oil and gas front, the Finance Minister only made a passing remark and said, "The oil and gas exploration policy will be reviewed to move from profit sharing to revenue sharing contracts. A policy to encourage exploration and production of shale gas will be announced. The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed."

Sashi Mukundan, British energy major BP's regional president and head of country, said, "We welcome the focus on regulatory and pricing clarity for the E&P industry announced in the budget today. A key next step should be the transition of prices of domestic natural gas to import parity in the next 3 years, similar to the diesel price reforms. To me, these measures will help build a sustainable gas market in the country."

On a more critical note, Deepak Mahurkar, leader-oil and gas at PwC India said, "Revenue share replacing profit share will help investors not get subjected to cost scrutiny and likes of CAG audits. However, withdrawal of cost recovery mechanism exposes investors to more risks of investments, and that may dissuade large oil companies from India."

However, Hinduja Group industrialist Srichand P Hinduja said, "Investment allowance, capacity addition to ports, extension of tax holiday for power sector, appointment of road construction regulator, pricing of coal and gas and measures announced to create a vibrant debt market will boost investments in industry and infrastructure."

JSW, however, did not seem to be happy about the Budget. Seshagiri Rao, joint managing director of JSW, said, "As most of the projects are stalled due to regulatory and bureaucratic delays, the expectations from the budget to ease the process of clearances is not met since the effectiveness of Cabinet Committee on Investment (CCI) is yet to be established."

Mr Rao was referring to the roadblocks in the power sector which are marred by the clearances and are hard to come by from various government bodies. Also, a basic problem faced by the power sector is the concerned with supply coal.

During his speech, however, the Finance Minister said, "Two meetings of the CCI have been held already and decisions were taken in respect of a number of oil and gas, power, and coal projects. CCI will take up some more projects shortly."

Power Minister Jyotiraditya Scindia told NDTV that CCI in the last two meetings has taken few big decisions, including NTPC's North Karanpura power project which "was stuck for last 10-12 years." On the Budget 2013, Mr Scindia added the government believes in "high growth path with inclusive growth" and that is what Mr Chidambaram has focused on.

Undoubtedly, the energy sector is an important stake holder in the Indian economy and the jury is out on whether the Budget has ignored the energy sector. But then the Finance Minister also said during a post-Budget press conference that there may be additions and deletions from the finance bill during and after the debate in Parliament.