The Budget proposals come at a time when 60 power projects under development face a loan default risk due to fuel shortages. Union power minister Sushilkumar Shinde speaks to Sanjay Jog on the state of the policy. Edited excerpts:
How will the Budget proposals help in the procurement of coal by power producers?
Due to inadequate coal production, the power sector is forced to import it to maintain generation. There was no point in having import duty and a CVD (countervailing duty) on imported coal, as that was only adding to the cost of generation. So, the power ministry took this up with the finance minister and it resulted in a proposal for exemption from the five per cent customs duty and the one per cent CVD. This is likely to reduce the landed cost of imported coal and the cost of generation, and encourage generation companies to import their targeted quantity fully. The consumer will benefit. The removal of customs duty on regasified LNG will help meet the gas shortage.
How will the Budget proposals give an impetus for capacity addition?
The ministry will achieve 53,000 Mw in the 11th Plan (2007-12) and around 18,000 Mw in the current financial year. This is a record. The budget proposals like tax-free bonds, external commercial borrowing (ECB) for part-finance rupee loans, reduction of withholding tax on ECBs, additional depreciation of 20 per cent for new power projects in the first year and Section 80A exemption for one more year will help the power sector to mobilise more funding.
The tax sops?
These would all go a long way in allowing developers to source funds from even external sources and augment the availability of domestic funding to the power sector. The income tax exemption and depreciation will add to the viability of the power sector.
Lack of signing of FSAs (fuel supply agreements) is causing hardship for generation companies. What has the ministry done on this?
CIL (Coal India) has been advised to sign FSAs for around 28,000 Mw of commissioned plants by March 31 and for another 32,000 Mw getting commissioned up to March 2015 in due course. The CIL board is likely to approve the new FSAs in its meeting on March 22. This will go a long way in providing certainty to developers and bankers, and to increase the supply.
What are the ministry’s views on the slow pace of development of captive coal blocks?
My ministry and the Central Electricity Authority have been closely monitoring the development of captive coal blocks for the power sector. There are 14 blocks under production. All 12th Plan projects based on coal blocks are likely to start production on time. The issues of environment/forest clearance, exploration, land acquisition, etc, have delayed their development. But, do note that the output from these blocks are meant for their own end-use projects and will in no way increase the coal supply for other projects, which are to get coal from CIL only. So, CIL has to increase its production substantially.
The power distribution segment is passing through difficult times. Will the Budget proposal give the needed relief?
The financial condition of the utilities in the distribution sector are a matter of concern. From the report of the Power Finance Coporation on the performance of state power utilities for 2009-10, the losses of distribution companies increased to Rs 42,415 crore (2009-10) from Rs 17,620 crore in 2007-08. Cumulative losses on an accrual basis have increased from Rs 79,339 crore as on March 31, 2009, to Rs 1,06,347 crore as on March 31, 2010.
The government has taken several remedial steps to improve the financial health of distribution utilities, such as the R-APDRP (Restructured Accelerated Power Development and Reform programme) to reduce aggregate technical and commercial losses to 15 per cent, a national electricity fund to facilitate investment in the distribution sector and various other steps for regular rationalisation of tariffs (rates). In the current budget, Rs 3,000 crore has been proposed for R-APDRP.