Arun Jaitley lights up power sector in Union Budget 2014

Jul 11 2014, 11:38 IST
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The  tax holiday for power units provided by Arun Jaitley will  benefit projects worth over Rs 5 lakh crore being implemented under the  12th Plan programme. The tax holiday for power units provided by Arun Jaitley will benefit projects worth over Rs 5 lakh crore being implemented under the 12th Plan programme.
SummaryProposes schemes to promote clean energy, tax holiday extension, national gas grid and rationalising coal linkages, but no plan to reform LPG pricing

The Modi government on Thursday chose to give the troubled power sector some respite by extending the 10-year tax holiday by three years till March 2017. Arun Jaitley also unveiled plans for the national gas grid — a 15,000 km pipeline — via the public-private partnership ( PPA) route, at an estimated to cost R60,000 crore.

However, there was no proposal to reform LPG pricing which is heavily subsidised by upstream companies. The FM has provided R63,426.95 crore as the government's contribution to oil subsidy for FY15, down from the revised R85,480 crore last year. This means upstream players such as ONGC, GAIL and Oil India will have to shell out more to compensate oil marketing companies which sell fuel at below the cost price. ONGC shouldered the highest-ever oil subsidy bill of R56,384 crore in FY14.

“In FY14, the subsidy was rolled over to the next fiscal year. In that case, the situation remains same,” AK Banerjee, director (finance) of ONGC said.

The tax holiday for power units will benefit projects worth over Rs 5 lakh crore being implemented under the 12th Plan programme. The proposal to extend tax breaks under Section 80-IA of the Income Tax Act to entities that start generation, distribution and transmission by March 2017 will help investors plan their projects better. The FM also allocated R500 crore for the installation of separate feeders and to strengthen sub-transmission and distribution networks in rural areas,

The government in the Budget also proposes rationalising existing coal linkages to improve fuel supply to new power plants by diverting coal from ageing and derated power plants which are unable to utilise allocated coal.

Close to 9,000 MW of capacity, including that of Essar Power, GMR and Bajaj Hindustan, is commissioned or ready for commissioning but do not have coal. Besides, the government will explore possibilities to cut coal transportation costs of generating stations by allowing the swapping of coal between linkage-based plants located in coastal areas and inland units running on imported coal.

The Budget also proposes customs and excise duty exemptions on renewable power equipment; lower duties are expected to help domestic manufacturers reeling from cheaper imports from US and China. To generate more funds to subsidise the renewable power sector, the Budget has proposed to double applicable Clean Energy Cess rate on coal and lignite to R100 a tonne.

A major chunk of investments of over R2.75 lakh crore, to create 55,000 MW of generation capacity, is spread across companies such as NTPC, Sterlite, Indiabulls, Jindal Power, GVK Power, Essar Power, Bajaj Hindustan, Vandana Vidyut, Haldia Energy, Torrent Power and Hinduja National Power. These firms can now plan the commissioning of their units given the certainty of tax treatment. Reliance Power’s Sasan UMPP will also benefit from the tax exemption. The remaining investment is expected to flow into transmission and distribution projects.

The oil and gas industry is disappointed there is no significant proposal to promote R-LNG. “The FM failed to address the issue of unrealistic bidding mechanism. There has also been no mention of promoting R-LNG in other segments which could have encouraged the viability of pipelines and R-LNG terminal for investors to come in,” Manish Aggarwal, partner at KPMG in India, observed.

The FM also proposes to make branded fuel cheaper by around R5/litre by reducing the applicable excise duty from R7.50/litre to R2.35/litre. He has also exempted basic customs duty on re-gassified LNG for supplies to Pakistan.

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