current budget’s effect on power and infrastructure

8/2/2019 Current Budgets Effect on Power and Infrastructure

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CURRENT BUDGETS EFFECT ON

POWER AND INFRASTRUCTURE

PRESENTED BY:

Hiren PatelBinit Kumar Das

Shashank Jain

Ankur Anand

Sourabh Kumar

Krishna Kulkarni

Sweta Bhatkoti

Rajat Negi

Abhishek Pratap Singh

Rahul Sherawat

Prateek Bhargava


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BUDGET FOR POWER SECTOR


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PRE BUDGET EXPECTATIONS OF

POWER SECTOR

The issues that are grappling the sector are many. Privatepower producers have bid aggressively in ultra mega powerprojects and are slowly getting unviable, coal supply hasnot improved much in the last two years and fuel importsare expensive.

The health of the state electricity boards

Expectation: Giving SEB pricing.

The budget sops come at a time when 52 power projects,being developed at a cost of about Rs 3.42 lakh crore, could

face the risk of default on fuel shortages and environmentalhurdles. India is expected to see a capacity addition of80,000 mw in the 12th Five-Year Plan (2012-17) and asignificant chunk would be from private players.


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PRE BUDGET EXPECTATIONS OF

POWER SECTOR

1. Waiver on import duty on coal.

2. Doing away with customs duty on powerequipments.

3. Reduction of customs duty on coal handlingand transportation equipment.

4. Greater focus on the Restructured -

Accelerated Power Development and ReformProgramme (R-APDRP).

5. Setting up of the National Electricity Fund.


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POST BUDGET ANALYSIS

1. Tax incentives: Extension of sunset

clause for tax holiday for power sector

It is proposed to amend section 80-IA (4) (iv) to

extent the terminal date for a future period of oneyear, i.e., up to 31st March, 2012.

This amendment will take effect from 1st April, 2012

and will, accordingly, apply in relation to assessment year 2012-13 and subsequent years.


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POST BUDGET CONT2. Waiver of Import duty on fuel

Full exemption on basic customs duty for Natural gas /Liquefied Natural Gas imported for power generation;uranium concentrate, sintered natural uranium dioxide,sintered uranium dioxide pellets for nuclear power

generation and Steam coal (only up to 31/3/2014) is to makeimported fuel cheaper for power plants.

CVD (Counter Vailing Duty) on steam coal is also beingreduced from 5% to 1% on such coal till March 2014.

customs duty exemption for coal mining projects. Power utilities such as TATA power, NTPC ltd, Adani power

and Reliance power are likely to benefit after the budgetproposed a 2-year exemption on import duty for companiesimporting thermal coal.


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POST BUDGET CONT

3. Reduction of Import duty on Equipment

Subject to end use condition the basic customs duty onboiler quality tubes and pipes for manufacture of boilersreduced from 10% to 7.5%.

Almost 30% of the projects awarded during the 11th FiveYear Plan that ends in March were bagged by Chinese

companies. Power generators, such as Reliance Power, LancoInfratech, and Adani Power have sourced majority of theircore power equipment from foreign manufacturers.

The Chinese power generation equipment manufacturershave advantage due to low interest rates and an undervaluedcurrency in the country. In the Budget there is also nomention about development of the transmission sector andreform in the distribution sector.

The reduction in customs duty will be more beneficial to

foreign MNCs operating in India.


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POST BUDGET CONT4. CoalIndia to sign fuel supply agreements with power projects

The Budget has also directed Coal India to sign fuel supplyagreements with power projects to give a boost to energygeneration for a period of 20 years.

For power plants that have been commissioned up to 31December 2011, FSAs will be signed before 31 March 2012.

If the supply is below 80 percent, then Coal India would bepenalized, whereas in case the supply is above 90 percent, thecompany would be provided an incentive.

In case Coal India is unable to meet the obligations, the companywould have to arrange for fuel through imports or otherarrangements.

The PMO had also noted that these arrangements would providerelief to power plants with an estimated capacity of more than50,000 mw.


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POST BUDGET CONT

5. Increasing the quantum of tax-free bonds limit

The minister has also permitted power companies to

avail of external commercial borrowings (ECBs) to part

finance their rupee debt besides increasing the quantumof tax-free bonds limit for the sector to Rs 10,000 crore

from Rs 5,000 crore.


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POST BUDGET CONT

6. External Commercial Borrowings (ECBs)

"The decision to allow ECBs and cutting the withholding

tax on ECBs to 5 per cent from 20 for power sector are

welcome moves.

The budget allowed power projects to retire part of theirrupee debt and replace it with foreign borrowing, which

is much cheaper even after hedging costs. This would

also increase the ability of domestic banks to lend to the

sector without exceeding their exposure limits.


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POST BUDGET CONT

7. Incentives for promotion

The budget also announced incentives to promote

the use of energy-efficient appliances and light-

emitting diodes (LEDs)

I propose to fully exempt a coating chemical used

for compact fluorescent lamps from basic customs

duty. Excise duty on LED lamps is also being

reduced to 6%, Mukherjee proposed.


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POST BUDGET CONT

8. Agreement To Compute Additional Depreciationfor the New Assets

The finance minister has agreed to compute additional

depreciation for the new assets purchased by powercompanies and extended the sunset clause for the

power sector by one more year.


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BUDGET DISAPPOINTMENTS

1. Disappointment for non conventional and

renewable energy

There is nothing supportive for the wind and solar

energy sectors in particular,"

"The indigenous solar cells and module manufacturers

are suffering because of cheap imports. By not

addressing this issue, the Budget has left domesticindustry to suffer and fail.

Thus, the non-conventional power producers, however,

have expressed disappointment over duty exemption on

imported coal.


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BUDGET DISAPPOINTMENTS CONT

2. Disappointment for Indian power equipment makers, Indian power equipment makers, who were demanding

imposition of customs duty on imported power gear above 1,000mw, are left high and dry by the finance minister as there was nomention of this demand in the budget. Thus, Union Budget2012-13 has been a great disappointment for the Power PlantEquipment makers who were drumming up for imposition ofimport duty of 14%-19% on mega/UMPP projects, whichcurrently allows concession duty imports.

Non-introduction of duty on import of power gears was criticized

by Domestic Equipment Manufacturers Association. "This is a major setback for manufacturers who have made big

investments to build power equipment capacity,"

The basic customs duty on boiler quality tubes and pipes formanufacture of boilers reduced from 10% to 7.5%.


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"Companies may scale down investment and jobs wouldbe lost unless government intervenes,

Companies impacted by the decision include Bharat

Heavy Electricals, Doosan Heavy Industries and

Construction, Larsen & Toubro-Mitsubishi HeavyIndustries joint venture, JSW Energy-Toshiba Corporation

JV, BGR Energy-Hitachi Power Europe JV, Gammon India-

Ansaldo Caldaie SpA JV and Bharat Forge-Alstom SA

venture.


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3. Hike in service tax and excise duty rates

The hike in service tax and excise duty rates, will

further impact the top-line and the bottom-line of

electrical equipment manufacturers. Thus, weresaddled further with 2% hike in excise duty and

service tax


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5. No attempt made to address the structural problems

No attempt has been made to address the structural

problems facing the sector, namely fuel scarcity and

distribution sector reforms. No concrete measures were announced on resolving issues

such as environment and mining clearances.

Thats perhaps why the power index on the Bombay Stock

Exchange lost more than the benchmark SENSEX on Friday,and stocks such as GVK Power Ltd and NTPC Ltd lost far

more.


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6. Reduced Overall Budget Allocation

The total budget allocation to MoP actually fell 6%from Rs 66,382 crore in 2011-12 to Rs 62,424 crore forthe upcoming fiscal.

The plan outlay for central public sector units in thepower sector has decreased from Rs 57,640 crore in2011-12 to Rs 53,296 crore for 2012-13.

The Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY)

scheme now stands to receive Rs 4,410 crore, againstthe budget estimate of Rs 5,326 crore for the previousfiscal.


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EFFECTS ON POWER SECTOR

Only 320 mt of coal is to be supplied to the powersector by Coal India against the committed 347 mtin the fiscal year ending 31 March. The state-ownedfirm mined only 431 mt in 2010-11 against a targetof 461.5 mt because of stalled projects. Its overall

target in the current fiscal is 452 mt. Scrapped taxes on coal imported by power

companies wont be enough to boost purchasesmuch beyond the 70-80 million tonnes for 2012-13.

But the gap between domestic and internationalcoal prices is still wide. Power producers cannotpass on any increase in fuel prices to consumers.


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EFFECTS ON POWER SECTOR CONT

Global coal prices are about 40% more than domesticprice, which accounts for about 80% of the countrysoutput.

Indonesia spot coal prices are currently around $65 per

tonne while average domestic coal prices are`

1,600-1,700 ($31.76-33.74) per tonne.

Here we are talking about a 5% cut in duties -- so its anincentive but this will not necessarily make importers gofor foreign coal in a big way.

Using current benchmark Newcastle coal prices at $110per tonne, and CFR prices around $120 per tonne, theimpact of removing the duty is a benefit close to $6 pertonne


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EFFECT ON STOCK MARKET

Shares of power sector firms on Friday rallied for the

second consecutive day, as the governmentdirection to Coal India for fuel supply to powerutilities continued to boost the sentiments.

Shares of Lanco Infra zoomed 11.58% to close at Rs

22.65 on the BSE. Adani Power gained 4.23%to close at Rs 85.

Tata Power soared 4.6%

JSW Energy gained 8.28 per cent.

PFC and REC gained 3.30% and 2.86%, respectively.

Neyveli Lignite shares declined by 3.12%

Reliance Infra stock dipped by 2.27%.


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BUDGET FOR INFRASTRUCTURE


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For the year 2011-12, tax-free bonds for Rs30,000 crore were announced for financinginfrastructure projects.

Finance Minister Pranab mukharjee has proposeto double it to raise Rs 60,000 crore in 2012-13.

This includes Rs 10,000 crore for NHAI

Rs 10,000 crore for IRFC

Rs 10,000 crore for IIFCL

Rs 5,000 crore for HUDCO

Rs 5,000 crore for National Housing Bank

Rs 5,000 crore for SIDBI

Rs 5,000 crore for ports and

Rs 10,000 crore for power sector
http://economictimes.indiatimes.com/topic/NHAIhttp://economictimes.indiatimes.com/topic/HUDCOhttp://economictimes.indiatimes.com/topic/HUDCOhttp://economictimes.indiatimes.com/topic/NHAI


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Infrastructure finance companies such asInfrastructure Development Finance Co, L&TFinance and Rural Electrification Corp will benefit

after the budget proposed to double the issue oftax-free bonds for financing infrastructureprojects to Rs 60,000 crores.

The steps taken on the infrastructure side is

positive for the sector. Although, there has beensome doubts about the performance ofinfrastructure sector and availability of ECBfinancing. All those things will help infrastructuremuch better so that stress which was coming on

to the banking sector will also kind of getreduced.


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PERFORMANCE EXPECTATION OF

INFRASTRUCTURE SECTOR

It is possible that infrastructure sector might

outperform FMCG and consumption oriented

space atleast in the short run as far as the

stock market is concerned. It mightoutperform because they have been beaten

down out of shape and consumer stocks are at

almost like an all-time high.


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HOW INDIA CAN SUSTAIN GDP

GROWTH OF 9% ?


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The government has stated that one of the

foremost challenges in the coming few years

will be to meet the country's energyrequirements.

The 12th Five Year Plan projections made by

the Planning Commission indicate that for aGDP growth rate of 9 per cent per year, energy

supply has to grow at around 6.5 per cent per

year.

Specifically, according to the commission's

estimations, this will require an achievement

of following targets : -


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406.78 MToE of coal

204.80 MToE of oil

87.22 MToE of LNG and natural gas

14.85 MToE of hydro power during 2016-17.

The actual generation from coal, oil, gas, and

hydro in 2010-11 was 272.86 MToE, 164.32 MToEand 57.99 MToE and 10.31 MToE respectively.

In addition, significant imports will be required tosustain the country's energy requirements in

2016-17. Of the projected coal requirement of 406.78

MToE in 2016-17, 90 MToE alone would need toimported.


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Similarly, 164.8 MToE will be the import

requirement for oil

24.8 MToE for gas.

It is opined that the ability to meet the (huge)

energy requirements will depend upon our

ability to expand domestic production in thecritical sub-sectors such as

Petroleum

natural gas

Coal.


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COAL BOTTLENECK ISSUE

In view of the fast growing coal shortages and otherdelays related to coal projects, the government has tointroduce competition in the coal sector and alsosuggested that state-owned Coal India should adopt apricing policy which is transparent, credible, and based

on global norms.

The gap between demand for coal and domesticavailability, according to the survey, is widening at afast pace and it is important that this gap not be

allowed to get out of hand. One of the reasons for this gap, the survey observes, is

CIL's near monopoly in the coal sector and the hazypricing mechanism employed by it.


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CIL's monopolistic position, it is noted, has

often resulted in supply bottlenecks, delays in

development of new coal fields andinadequate emphasis on cost reductions at

operational levels.


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current budget’s effect on power and infrastructure

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