Power

Highlights

• New electricity bill to be presented in the current session of parliament.
• Rural electricity to be given priority, target for complete rural electrification by end of 2007.
• Enhanced REC credit support to SEBs for electrification of weaker sections of society. REC allowed to float tax exemption bonds.
• Rs 750 crores allocated through RIDF for Rural electrification. 
• Fiscal incentives for states undertaking power reforms
• Surcharge removal on customs duty of coal

Budget Impact
Excise		Customs		Policy Tax

Power generation and distribution companies would get an extended tax holiday of 10 years, during the first fifteen years of operations. Also, long term investors in power generating and distribution companies would be eligible for tax incentives on capital gains tax. 

Budget could benefit the power generating and distributing companies marginally, due to the removal of surcharge on non-coking coal. 

Markets reacted unfavourably - maybe due to unfulfilled expectations - to power stocks such as Tata Power and BSES. Both scrips touched lower circuits during the day. 

Outlook
Power sector in the country is characterised by tight government control in generation, transmission and distribution. "Power" is a concurrent subject under the constitution with each state involved in regulation, under the overall policy norms spelt out by the government. Power sector reforms started with a bang at the start of the liberalisation in 90s. Ten years later, the situation has not seen much change. 

Power sector requires changes on the policy front which will cover Independent Power Producers and the Licensee companies such as Tata Electric Companies and BSES. The accent is to develop an environment facilitating financial closure of private projects. The financial viability of State Electricity Boards is the most crucial key element. This requires hard decisions at the political level. The centre is giving signals to this end through fiscal measures. 

During the current fiscal, total power generation is up by 1.54% on yoy basis in between April 2000- January 2001. Thermal power generation has increased by 3.4% and hydel power generation has declined by 6.63% in the 12.8%, but total power generation has gone down by 3.2% in the same time period. 

Voices
	Government needs to press ahead with power sector reforms. Should encourage private participation in power, especially direct sale by the Independent Power Producers (IPP) to the end consumer. This will make the IPP`s financially viable and increase the flow of funds to this area.  Pradeep Mallick, MD, Wartsila Diesel Ltd)