Comments
The scale and opportunities in the energy sector can make it an engine to boost investment, growth and employment in India.
The following measures can help revive energy investor sentiment by improving financial sustainability of the sector, leading to greater investment, lower tariffs, and rapid job creation:
An effective resolution mechanism for power sector receivables is required to ease stress in the sector. An advance payment system for power procured by Discoms could be a game-changing move that would reduce generation costs, lower the cost of debt, and bring financial discipline to the sector.
Financial products
Creating financial products for discounting of receivables from Discom or other government entities can reduce financing costs and energy tariffs. Specifically, the Trade Receivables Discounting System of the Receivables Exchange of India Ltd may be extended to the power sector, with commercial banks discounting generation bill with ultimate payment security provided by the Discoms or State governments. This process would also establish the true credit quality of each Discom.
Rapid implementation of environmental protection equipment like FGDs in coal power plants can provide a major boost to investment and construction activity, since nearly ₹60,000 crore needs to be spent on around 300 FGDs across India. To make these projects viable, while also avoiding raising tariffs by ₹0.40/kWh, the government should consider waiving the erstwhile Clean Energy Cess (later renamed GST Compensation Cess) of ₹400/tonne on coal for power projects once they meet the new emission norms.
Bringing the sector — including power, gas, and liquids — within the ambit of GST would lower energy costs by reducing stranded taxes.
The government should reduce the GST on services relating to setting up power evacuation and operation & maintenance services (OMS) of renewable energy projects, from 18 per cent to 5 per cent, in line with the GST rate applicable on renewable energy equipment. Similar anomalies also exist for inputs to the oil industry, such as drilling services and components.
To boost domestic oil and gas production, the government should reduce the ad valorem cess from its present level of 20 per cent and rationalise royalty rates.
In upstream oil and gas, several input services and equipment are taxed at GST rates as high as 18 per cent. These should be harmonised and lowered to 5-12 per cent, in order to encourage exploration and attract further investments. The renewables industry is facing a liquidity crunch for debt, due to the NBFC crisis, and is resorting to short-term debt which is not well suited for long-term infrastructure investments. The Budget can help solve liquidity concerns.
Attract investors
To attract foreign investors withholding taxes on long-term infrastructure equity investments should be reduced. The existing Infrastructure Investment Trust rules should also be streamlined to allow leverage in line with global industry standards.
The Budget can and must provide the blueprint for ensuring energy sector viability, reviving investments and creating new jobs.
(The writer is Managing Director, Sembcorp Energy India Ltd)
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.