Union Budget 2014-15Power, Coal and Capital Goods

Virendra Patil

TBWES 11-07-2014

2

Highlights

Sunset clause for tax holiday for power generation extended for 10 years

Assures coal supply to plants commissioning by March 2015

Allocates Rs 1,000 crore for clean energy schemes

Excise duty exemption on raw materials for renewable energy equipments

Levies uniform 2.5% custom duty and 2% CVD on coal

Budget allocation for power sector increases by 11%

Outlay for coal sector up by more than Rs 1,620 crore at Rs 12,561 crore

11-07-2014

3

Sunset clause for tax holiday for power generation extended for 10 years

Finance Minister, Arun Jaitely, has set a new trend in his maiden budget by extending the tax holiday enjoyed by companies involved in a generation, transmission and distribution business for a straight ten year period instead of an annual extension.

Pertinently, an annual extension to this tax holiday had become a sort of norm in the budget announcements for the past few years.

Breaking the norm, Jaitely has decided to give the tax holiday for a longer period of ten years to the companies who begin generation, transmission or distribution of power before March 31, 2017.

Justifying his move, the Jaitely noted that stability in policy is critical as it will help investors plan their investments better.

To note, this tax holiday is provided to the power sector under Section 80-IA(4)(iv) of the Income Tax Act 11-07-2014

4

Assures coal supply to plants commissioning by March 2015

Coal shortage is the biggest problem plaguing the Indian power sector currently. Even more worrisome is the situation of those power plants that are likely to come by March, 2015 but have no assured coal linkages with them.

While the Presidential Directive issued in July, 2013 assured coal supply to 78,000 MW worth of power plants, the Finance Minister has gone one step forward by assuring coal supply to all power plants which are already commissioned or will come up by March, 2015.

The Minister is confident that this move will help unlock dead investments.

Giving his maiden budget speech in the Parliament, the Finance Minister contended that, "comprehensive measures for enhancing domestic coal production are being put in place along with stringent mechanism for quality control and environmental protection, which includes supply of crushed coal and setting up of washeries".

He further noted that an exercise to rationalise coal linkages to optimise transport of coal and reduce cost of power is also underway.11-07-2014

5

Allocates Rs 1,000 crore for clean energy schemes

According highest priority to renewable energy in his power sector related schemes in his budget allocations for the current fiscal, the Finance Minister Arun Jaitely has decided to allocate Rs 1,000 crore approximately for introducing new clean energy schemes in the country.

On this account, the Minister has set aside a sum of Rs 500 crore for setting up of ultra mega solar power projects in Rajasthan, Gujarat, Tamil Nadu, and Ladakh in J&K.

Morever, an additional Rs 100 crore is set aside for the development of 1 MW Solar Parks on the banks of canals.

The Minister has also allocated Rs 400 crore for a scheme for solar power driven agricultural pump sets and water pumping stations for energizing one lakh pumps.

Implementation of"Green Energy Corridor Project will be accelerated in this financial year to facilitate evacuation of renewable energy across the country", the Minister added.

11-07-2014

6

Excise duty exemption on raw materials for renewable energy equipments

Furthering his emphasis on development of renewable energy in the country, Finance Minister, Arun Jaitely has provided excise duty exemption on critical raw material used in solar, wind and biomas equipments. These products and materials that have been exempted are as follows:

EVA sheets and solar back sheets and specified inputs used in their manufacture

Solar tempered glass used in the manufacture of solar photovoltaic cells and modules

Flat copper wire for the manufacture of PV ribbons for use in solar cells and modules

Machinery and equipment required for setting up of a project for solar energy production

Forged steel rings used in the manufacture of bearings of wind operated generators

Machinery and equipment required for setting up of compressed biogas plants (Bio-CNG)

11-07-2014

7

Levies uniform 2.5% custom duty and 2% CVD on coal

As a measure to levelise the custom duty and CVD on various coal varieties, the Finance Minister has rationalized the duty structure on all non-agglomerated coal at 2.5 percent basic customs duty and 2 percent CVD.

With this tax rationalization measure in place, anthracite coal, bituminous coal, coking coal, steam, coal and other coal will attract the same duty.

Earlier, the custom duties varied depending on the variety of coal.

Now, by levying a uniform custom duty and CVD, Jiately aims at eliminating all assessment disputes and transaction costs associated with testing of various parameters of coal.

However, in the current year budget estimates, Jaitely has increased the duty on metallurgical coke from Nil to 2.5 percent in line with the duty on coking coal

11-07-2014

8

Budget allocation for power sector increases by 11%

Increased the budgetary outlay for the power sector to Rs 60,384 crore for 2014-15, from the revised budget allocation of Rs 53,962.89 in the previous fiscal.

Allocation for investments in public power sector enterprises has also been increased substantially, to Rs 51,425.84 crore this fiscal, from the revised allocation of Rs 49,731.90 in 2013-14.

The budgetary support extended for the power ministry's rural electrification scheme, Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) has also increased. The scheme now stands to receive Rs 4,850 crore, against the revised budget estimate of Rs 2,868.5 crore for the previous fiscal.

Further, the budgetary support for research and development programs has been increased manifold, from Rs 20 crore in the revised budget estimate for the previous fiscal to Rs 295.53 crore for the 2014-15 fiscal.

Taking due cognizance of the T&D programs, the lump sum provision for various schemes has been enhanced to Rs 2,036.36 crore, from the previous year revised estimates of Rs 566.40 crore. This, it may be said, signals the urgent impetus that the government has put on development of T&D infrastructure in the country.

11-07-2014

9

Outlay for coal sector up by more than Rs 1,620 crore at Rs 12,561 crore

total outlay for the coal sector to Rs 12,561 crore, as against the revised expenditure estimate of Rs 10,940.14 crore for the previous fiscal year.

The government has increased its budgetary support to Coal India Limited (CIL) to Rs 5,225 crore, as against the previous Rs 5,000 crore.

It should be noted that the budgetary support of Rs 2,936 crore and Rs 3,850 crore have been provided to Neyveli Lignite Corporation Limited and Singareni Colleries Company Limited, respectively.

The contribution to the coal mines pension scheme has increased from Rs 22 crore to Rs 24 crore. Conversely, the budgetary provision for conservation and safety of coal mines has remained the same at Rs 169.83 crore.

Further, the budgetary support for development of road and rail transport infrastructure in the coalfield areas and research and development programs has been increased from Rs 86.65 crore in the previous fiscal to Rs 92.95 crore for the 2014-15 fiscal.

11-07-2014

10

Outlay for MNRE (renewable)pegged at Rs 3,941 crore

Pertinently, the plan outlay for new and renewable sources has increased to Rs 3,941 crore as against the revised budget estimates of Rs 3,392.75 crore in previous fiscal.

Allocation for investments in Grid Interactive and Distributed Renewable Power has been increased substantially, from Rs 1144.83 crore in previous year revised estimates to Rs 1,949 crore this year.

Notably, Indian Renewable Energy Development Agency (IREDA) and Solar Energy Corporation Of India (SECI) are the two big players in the new renewable energy market.

Keeping in view the urgency to tap the solar potential of the country, IREDA has been backed by the government with a plan outlay of Rs 3,040 crore in the current fiscal, as against the revised estimates of Rs 3,011 crore for FY14.

Moreover, the planned outlay for SECI has increased from Rs 36 crore in previous year to Rs 55 crore in the current year.

11-07-2014

11

Total plan outlay for nuclear power schemes at Rs 8,213.42 crore against the revised outlay of Rs 6,073.72 crore for 2013-14.

As per the scheme wise allocation presented in the Union Budget speech, the outlay for the Rajasthan Atomic Power Station saw a marginal increase at Rs 84.77 crore against the previous year's revised outlay of Rs 83.83 crore.

Similarly for the Bhabha Atomic Research Centre and the Indira Gandhi Centre for Atomic Research, a slight increase in allocation is seen at Rs 8 crore and Rs 9 crore respectively.

However, budget allocation for neighborhood development project in Kundankulam is a whooping Rs 150 crore compared to revised outlay of Rs 20 crore for 2013-14.

Also the allocation for investment in public sector is pegged at Rs 643 crore, more than double of last year's Rs 307.88 crore. Other major allocation for the nuclear power sector are made for Heavy water pool management at Rs 950 crore

Nuclear power : Allocation of Rs 8,213 crore

11-07-2014

12

Other highlights

Allocates Rs 500 crore to provide 24x7 power supply: Committed to provide 24x7 uninterrupted power supply to all homes, the government in the Budget 2014-15 has noted that “Deen Dayal Upadhyaya Gram Jyoti Yojana” for feeder separation will be launched this fiscal.

This scheme will help augment power supply to the rural areas and for strengthening sub-transmission and distribution systems.

The Finance Minister has allocated a sum of Rs 500 crore for this purpose.

Provides concessional basic custom duty on machinery needed for bio-gas plants: The Finance Minister has also shown his inclination to promote bio-gas energy in the country.

To this end, he has proposed a concessional basic customs duty of 5 percent on machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).

Ensures optimum exploitation of CBM reserves: Keen on fully utilising the available natural resources of the country, the Finance Minister in his budget speech has noted his government`s intention to accelerate production and exploitation of Coal Bed Methane (CBM) reserves of the country.

11-07-2014

13

Capital Goods

Banks will be permitted to raise long term funds for infrastructure lending with minimum regulatory pre-emption such as CRR, SLR & PSL. This would lower the cost of funds by 100-200 bps

Reduced capex threshold to Rs 250 mn from Rs 1 bn earlier for availing higher depreciation rate of 15%

Debt facility for urban development raised from Rs 50 bn to Rs 500 bn for next five years

FDI in Defense raised to 49% from 26%

Subsidies for wind turbine sector not restored

Outlays: Increase in Defense by 20%, Railways budgetary support hiked by 25%

11-07-2014

14

Thank YouVirendra Patil

TBWES

11-07-2014