Extension of the tax holiday for power generators under Section 80 IA for one more year and the private-public partnership framework for Coal India to increase its output are key positives from the Budget for the power sector.
However, the increase in Customs duty on steam coal to 2 per cent and increase in CVD from 1 per cent to 2 per cent will negatively impact the players, who are locked into fixed tariffs. The Budget has also asked State Governments to push ahead with financial restructuring plans for the State-run electricity boards.
The proposal to extend benefits of Section 80IA for 2013-14 will see many projects including Tata Power’s Maithon project and Mundra UMPP, Adani Power’s Kawai and Tiroda projects and KSK Energy Ventures’ Mahanadi power plant, which will be operational next year, benefit from a lower tax outgo for the next ten consecutive years.
A total of 14,671 MW of power (thermal) capacity is expected to be commissioned in 2013-14. Power generation companies will also benefit from a shorter working capital cycle if the proposed restructuring plan for State Electricity Boards (SEB) is implemented by the State Governments.
This measure is critical for SEBs to clear their dues to distribution companies and for these, in turn, to repay power generation companies. The debtor days of NTPC stood at 69 days at the end of first six months of FY-13. Debtor days of many power companies including Reliance Power and Torrent Power are upwards of 145 days.
The measures to boost output of Coal India will also be highly beneficial for many players including Adani Power, Lanco InfraTech and Sterlite Energy that rely largely on domestic coal supplies. Many power projects have been running at a low plant-load factor because of lack of domestic supply of coal. However, reliance on imported coal is expected to continue and companies that are hugely reliant on imported coal, such as JSW Energy, Tata Power and Reliance Power, will have to bear costs of marginally higher Customs duty on coal.
A 2 per cent import duty plus a one per cent higher CVD will increase the per unit cost of power by around 10 paise. The cut in Customs duty on bituminous coal to 2 per cent may negate the negative impact of increase in customs duty on steam coal and offer some relief. Stocks of power companies lost around 2-6 per cent in the market.