Decisive Action On Power Sector

The government has finally done its bit to improve power availability in the country. The Budget has addressed a majority of the problems raised by the industry, and the moves announced seem to be dictated by the growing realisation that time is running out fast for salvaging the sector, which is crucial to sustaining the high economic growth over the long term.
Earlier, Prime Minister Manmohan Singh signalled his government’s strong support for the power when he set up a committee under the chairmanship of his principal secretary Pulok Chatterjee to resolve key issues impacting the sector’s growth. The committee made important recommendations to address these problems. In this Budget, finance minister Pranab Mukherjee reflected the same.
India’s high trade deficit calls for increasing exports in a big way, and this cannot be achieved unless the manufacturing sector gets uninterrupted power supply.
The industry has hailed the Budget. “It is indeed heartening to note that the government, particularly the prime minister and the finance minister, have addressed the critical issues facing the sector,” JP Chalasani, chairman, association of power producers (APP), and also CEO of Reliance Power, said.
Most of the big players like Reliance Power, Tata Power, Adani Power and Lanco Power are about to hit group and sectoral limit norms for borrowing from domestic banks and financial institutions. For this, the Budget has allowed power companies to raise funds through the external commercial borrowing (ECB) route to refinance their loans for existing projects. That should also go a long way towards easing financial constraints of the power sector where funding requirement is estimated at R12 lakh crore during the coming Twelfth Five-year Plan (April 2012- March 2017).
The Budget has also tried to address the issue of high price of imported coal and LNG by fully exempting them from duty. This assumes added significance given the persistent supply bottlenecks for these power generation fuels from domestic sources. Besides, energy infrastructure like oil and gas pipelines and storage facilities are now eligible for viability gap funding.
In the Budget, the finance minister has also proposed reducing withholding tax on interest payments on ECBs from 20% to 5%. This should bring down the cost of raising ECB funds for the power sector. Besides, it has been proposed to extend by one year the sunset clause for a 10-year tax for the power sector.