Finance minister P Chidambaram did not announce any major incentives or reforms for the power and energy sectors in his. Indeed, there were even some negatives for the industries. Chidambaram removed duty concessions for coal provided in last year’s Budget and put the same percentage of custom duty for steamed coal and bituminous coal imports. This may make generating electricity costlier by up to 6 paise per kWH and could hit the country’s power producers, which have been forced to increasingly rely on imports, analysts said.
Nearly two-thirds of power plants run on coal in India, which face shortages because of poor production at state-miner Coal India (CIL).
Gautam Adani, chairman of the Adani group, called the step “amusing” given the fuel shortages, but Anil Sardana, managing director of Tata Power, welcomed the move, saying it provides clarity on the custom duty for the fuel. The move hopes to resolve confusion that resulted in Indian customs authorities denying importers fuel duty concessions granted in last year?s budget.
India currently imports around 80 million tonne per annum (mtpa) of coal for electricity generation and it is estimated imports will rise to 185 mtpa by 2016-17, which may further increase financing costs of power projects. However, coal price pooling may provide some relief once introduced. “If the coal requirements of the existing power plants and the power plants that will come into operation by 31.3.2015 are taken into account, there is no alternative except to import coal and adopt a policy of blending and pooled pricing,” Chidambaram said.
Moreover, some analysts, including Nabin Ballodia, partner-tax at KPMG India, criticised the finance minister’s proposal to move from profit sharing to revenue sharing in oil and gas exploration, saying it is a riskier model.
An increase in withholding tax rate for royalty and fee for technical services as well as surcharge rates would also increase overall cost for oil and gas companies, warned Ballodia, judging the Budget to have a negative impact on the oil & gas sector. Instead, Chidambaram offered the industries hope by promising to frame policies for introducing stability in natural gas pricing, encouraging exploration and production. In order to combat the acute fuel shortages in the power industy, he proposed framing a private-public partnership policy with state miner Coal India to ramp up production.
New Exploration Licencing Policy (NELP) blocks that were awarded but are stalled will be cleared, the FM said. He also urged state governments to take advantage of the recently announced debt package for ailing electricity distribution companies.
The measures were largely met with lukewarm responses from the sectors, even as Chidambaram, a straight-talking, Harvard-educated lawyer, won plaudits for striking a delicate balance between the nation’s economic aspirations,and his own Congress-led UPA government’s political ambitions.
The power and energy sectors, which are crucial to economic growth, presented Chidambaram with a tricky conundrum ahead of the Budget. Should he put the sectors on the backburner with spending required elsewhere, or immediately address the issues?
In the end, he chose to introduce small measures. He extended a tax break for power projects, which was set to expire this year, to March next year. He also introduced a slew of measures to boost investment in the renewable energy space, including offered low-cost lending and allocating R800 crore to the ailing wind energy sector for generation-based incentives.
The message from the finance minister was clear: a complete overhaul of these sectors will take time. For the long run, he hinted that the ministries of coal, oil & gas and power were working to develop more sweeping policies.
