Power sector allocation more than doubled

BL Bureau

New Delhi, Feb. 26

The Budget 2010-11 has raised the allocation for the power sector by more than double in the coming fiscal, with the Government's ongoing generation capacity addition programme and its flagship distribution reforms project among the beneficiaries.

The Finance Minister, Mr Pranab Mukherjee, raised the allocation for the sector to Rs 5,130 crore, from the Rs 2,130 crore in this fiscal. A big recipient could be the flagship distribution reforms programme, the Accelerated Power Development and Reforms Programme. Allocations to the Government's rural electrification programme — the Rajiv Gandhi Grameen Vidyutikaran Yojana — are over and above this amount.

The Finance Minister said that Government has accorded the highest priority to capacity addition in the Power Sector. The Centre is targeting to add new capacity of 78,700 MW of capacity by 2012.

Also, in the Budget, the full Central excise duty exemption available currently to goods supplied against international competitive bidding has now been extended to goods supplied to mega power projects from which power supply has been tied through tariff-based competitive bidding. This is also seen as a plus.

Mr Mukherjee's announcement that the Government will set up a coal regulatory authority and launch competitive bidding for captive coal mining will help expedite the process of allocation of mining resources to players. This is a positive step for the power sector, which has been struggling with delays in allocation of coal linkages for years.

The cess of Rs 50 per tonne on coal, announced in the Budget, is being seen as a dampener, which would be passed on to the consumer by generation utilities as fuel costs are pass-through.

Welcoming the increase in plan allocation for the power sector, Mr Kuljit Singh, Partner, Ernst & Young, said that he hoped a bulk of this would go towards investment in the transmission and distribution sectors as any increase in power generation needs to be matched by a commensurate increase in T&D network.

“However, increase in MAT rate would be negative for private power projects as these projects typically enjoy a tax holiday… Capitalisation of banks and increased focus on IIFCL may have an indirect benefit for power projects as such measures would increase the funds availability for power projects in India.

“However, it would have been useful if the Budget could have also addressed (or at least provided a road map for addressing) the sectoral and group exposure norms constraining private power sector financing in India. UMPPs that have provided such fantastic tariffs to India were unfortunately missing from the Budget,” he said.