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Friday, Jul 09, 2004

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Nothing much to glow about

ALL those who expected the Budget to address power sector reforms came away disappointed. There were no announcements for the power sector, except extension of tax benefits under Section 80IA for renovation and modernisation of transmission and distribution systems.

"If I look at it as a common man, given the time Mr Chidambaram had to prepare the Budget, he has done a splendid job. But looking at it from the power sector's perspective, not much has been done to help reduce the cost of power," said Mr Firdose Vandrevala, Managing Director, Tata Power Company.

The sector had expected customs duty cuts and a nod for floating infrastructure bonds to raise finances.

But most importantly, the government was expected to grant mega power project status to projects of up to 500-MW capacity. The Budget has not addressed any of these.

Said Mr A.K. Srivastava, Managing Director, Essar Power: "It was expected that the Budget would extend `mega power project' status to units up to 500-MW capacity.

We also expected reduction in customs duty on power plant spares to help power plants cut maintenance costs. The Budget is silent on this and is hence disappointing. We hope the government will take care of this in the next Budget, to be presented a few months from now."

According to Mr Vandrevala, however, extending tax benefits for modernisation of transmission and distribution is an important step. "The Finance Minister has taken measures to ensure reliability of power and these are more significant than they appear. Extending Section 80IA tax benefits up to March 2006 will help utilities save money, which in turn will cut per unit costs," he said.

Mr Sanjiv Goenka, Vice-Chairman of the RPG Group and Vice-Chairman of the group's flagship CESC Ltd, pointed out that there were incentives for distribution and transmission, which he felt would help the entire power sector.

Sources in central PSUs said very few PSUs in either the central sector, including those administered by the Union Power Ministry, get equity support from the government and the announcement on equity infusion of Rs 14,194 crore to various PSUs (including power sector ones) will bring little cheer.

"The loan support promise of Rs 2,132 crore too will not gladden many hearts in the power sector as the rates are prohibitive," they said.


THE only favourable mention that the Budget has for the energy sector comes in the form of benefit under Section 80IA of the Income-Tax Act for companies engaged in the business of erecting/installing transmission and distribution lines.

The said section allows full deduction of profits made by such companies from renovation and modernisation of existing transmission and distribution lines.

This will benefit companies such as Kalpataru Power Transmission and Jyoti Structures that are in the business of erecting transmission and distribution lines and towers.

The power industry has reason to be disappointed with the Budget as there are no proposals to promote investment in new-generation projects.

The industry had been awaiting re-classification of mega power projects to include projects with 500-MW capacity. This would have entitled companies promoting such projects to several fiscal incentives.

There is, of course, a general statement of intent to the effect that the government plans "major investment" in public sector units belonging to the power sector, among others. If such investment materialises, this would translate into business for those into manufacture and supply of generation, transmission and distribution equipment.

Raghuvir Srinivasan

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