Power : Empowered by customs duty reduction and increased allocation
Reduction in Customs duty on Aluminium and Copper to benefit power
Budget provisions
- Increase in budget allocation for Accelerated Power Development and Reforms programme from Rs 1500 cr in FY 2001-02 to Rs 3500 cr in FY 2002-03.
- Total power sector outlay increased from Rs 10960 cr in FY 2001-02 to Rs 13483 cr in FY 2002-03.
- Reduction in customs duty on Aluminium from 25% to 15% and on copper from 35% to 25%.
Expectations Vs Provisions
| Parameters |
Expected |
Proposed |
| Customs duty on Capital equipment |
To be reduced. Currently attracting 5% Basic duty and 16% countervailing duty |
No Change |
| Customs duty on fuels |
Reduction in customs duty on coal from 25% and on Naphtha from 10% and on LSHS/LSWR from 20%. |
No Change |
| Allocation under Accelerated Power Development Programme |
To be increased |
Increased to Rs 3500 cr for FY 2002-03. |
| Minimum Alternate Tax |
Not to be applicable for power sector |
Continues to be applicable for power sector also. |
Reactions
Shri Yogendra Prasad is the Chairman cum Managing Director of National Hydroelectric Power Corporation and Nathpa Jhakri Power Corporation. He is also the Chairman of Narmada Hydro Development Corporation.
Commenting on the budget, Shri Yogendra Prasad said, "Plan outlay in power sector has been increased by 22% which augers well for the development of power sector.
"For implementation of the reforms program by various SEB's, plan allocation has been enhanced from Rs 15,00 crone this year to Rs 35,00 crones for the year 2002-03 and APDP has been rechristened as APDRP (Accelerated Power Development and Reform Programme). This again is a concrete step.
"Important aspect of the budget has been the shift in focus from generation to transmission & distribution which again is a correct step in the right direction.
"However, I would have liked that Hydro Power Development should have got special mention in the budget as it has become a technical requirement for the country to have more & more hydro power to infuse stability in the system."
Adi Engineer, Chairman cum Managing Director of Tata Power Company said, "From the power and energy side, the budget had made some advancement on the positive agenda that has been earlier adopted by the government, although from the topical view point it may be viewed as having under delivered on the expectations."
Current Industry Status
The power generation increased by a mere 2.94% to 427.69 billion units. As a result, the power availability was woefully short by 7.3% to 360.14 billion units, as against the requirement of 388.59 billion units in the nine months ended Dec’01. The peaking shortage was much higher at 12.5% as peaking demand was 77.96 billion units while peaking supply was way below at 68.21 billion units.
The cost of supply of electricity in FY 2000-01 is estimated at 303.8 paise per (Kilowatt-hour) Unit, as against the average tariff of 212 paise per unit, leaving a gap of 91.8 paise per unit. The return to SEBs under the existing tariffs and subsidies are negative 41.2% in 1999-00 and are estimated to have improved to negative 40% in 2000-01. Huge T & D losses and heavy subsidization to agriculture and domestic sectors are primarily responsible for the negative return. The MoU signed with 20 state governments addresses these problems to ensure viability of the SEBs.
Impact of the budget on the industry’s prospects
The reduction in the import duty on Aluminium and Copper is likely to improve the industry’s margins. It will also lead to reduction in the cost of power equipments, thereby reducing the cost of capacity additions / expansions and modernisation. The increase in budget allocation for Accelerated Power Development and Reforms programme is likely to accelerate the capacity addition and power reforms by the states. The shift in focus from power generation to transmission & distribution will move the industry towards financial viability, atleast in the long run.
The increase in depreciation by 15% for green field projects and brown field expansions by 25% or more will also benefit power industry, which has ambitious expansion programmes. The industry will also be benefited by the changes proposed in direct taxes like removal of dividend surcharge. However, it will be partially offset by increase in surcharge on Income tax to 5%.
On the whole, the impact on power industry is moderately positive.
Company impact
The reduction in import duty on aluminium and copper will benefit the domestic power companies including Tata Power, BSES. The changes proposed in direct taxes will marginally increase the cash flow of leading power companies like Tata Power, BSES, and Ahmedabad Electricity Company on account of reduction in relative net tax outflow.
Companies to Watch
Tata Power, BSES and Ahmedabad Electricity company.
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