Tax holiday may help power sector find its groove

PPP projects to improve coal production, sops for wind power producers

Finance Minister P Chidambaram today proposed fresh incentives for the power industry, which is struggling to cope with fuel constraints as well as poor financial conditions of distribution utilities.

Chidambaram has announced public-private partnership (PPP) projects in the coal sector to boost the fuel's production and said price pooling would soon be a reality. Earlier, the government had proposed to average prices of domestic and imported coal to get a uniform price of the commodity.

He also extended Section 80-IA of the Income Tax Act pertaining to new investments in the sector and emphasised on debt restructuring for distribution companies.

In September last year, the government approved restructuring of Rs 1.9 lakh crore (till March 2011) debt of state electricity boards. Under the scheme, 50 per cent of the short-term outstanding liabilities would be taken over by the state governments, while the remaining 50 per cent would be restructured.

Chidambaram reintroduced generation-based incentives for wind energy projects and made an allocation of Rs 800 crore to the ministry of non renewable energy for the purpose.

"While Ficci (Federation of Indian Chambers of Commerce and Industry) welcomes the extension provided to the power sector for a period of one year till March 31, 2014 under section 80 (I) A, it hopes that the same benefit may be extended till the end of the 12th Plan as the private sector is envisaged to add a little more than 50 per cent of the installed capacity in the Plan period," said Sunil Wadhwa, chief executive officer, IL&FS Energy Services Co Ltd and co-chair of the Ficcci power committee.

Added Hemal Zobalia, partner-tax, KPMG India: "Budget 2013 is poised to push infrastructure growth by introducing energy reforms in terms of promoting shale gas, clearing Nelp (New Exploration Licensing Policy) blocks and PPP with Coal India."

According to Sabyasachi Majumdar, senior vice president and co-head, corporate sector ratings, ICRA Ltd, the a PPP policy framework would encourage investments in coal mining. "Reintroduction of generation-based incentives is likely to encourage IPP (independent power producer) investment in the wind energy sector."

Wind power generators have welcomed Chidambaram's sops. "I am confident that the industry would bounce back by 2014-15 and may be able to cross the set target of 5000-Mw capacity every year," said Ramesh Kymal, chairman, Indian Wind Turbine Manufacturers' Association.