Budget 2016. Power sector: Not much spark

The Budget has turned out to be a dampener for the power sector. While the Centre’s allocation for the Deen Dayal Upadhaya Gram Jyoti Yojana (DDUGJY) and the Integrated Power Development Scheme (IPDS) is a positive, many of the sector’s demands have been given a go-by. The Centre has earmarked ₹3,000 crore for the DDUGJY, which aims at electrifying all villages, strengthening the transmission network and improved metering. The IPDS, which targets infrastructure upgradation and smart metering in urban areas, has been allocated ₹5,500 crore for 2016-17. These schemes will aid the loss-making state distribution utilities (discoms) in becoming more operationally efficient and thereby bringing down their losses. But given that most state discoms, particularly where the state governments are signing up for the UDAY (Ujwal Discom Assurance Yojana) scheme, have a long way to go in attaining operational efficiency, a higher allocation would have speeded up the transition. Power generation companies’ demand for roll-back of the Clean Energy cess was ignored. Instead, the levy has been doubled from ₹200 to ₹400 on every tonne of coal. This could mean a hike of 4-6 paise per unit in power tariffs. On the tax front, the companies’ demand that the existing cut-off date of March 2017 for the 10-year tax holiday be extended was not met.

The power transmission sector can however rejoice. The 20 per cent additional depreciation benefit on new plant and machinery has been extended to the power transmission sector from 2017-18 which will bring them some tax savings. The government’s intention on increasing investment in nuclear power generation is a move in the right direction.

Poor finances of the state discoms have constrained their power purchases, thereby affecting the capacity utilisation of power generators. As the discoms’ finances improve, so will their power purchases, which can help revive the current low capacity utilisation levels.

The hike in the Clean Environment Cess will add to the generation cost of power companies. However, companies such as NTPC, Tata Power and Reliance Power that sell power to state discoms under long-term agreements will not be impacted. This is because these agreements allow increases in costs to be passed through in tariffs. But, this can increase the power purchasing costs of state discoms unless tariffs to the final consumer are also revised.