MUMBAI: The private power producers are happy with the announcement of a slew of goodies for the sector in the Budget, but unanimously say that it makes only a marginal difference and a lot more needs to be done.
They now want the government to take policy initiatives, regulators to allow steep tariff hikes, state utilities to set their house in order and companies, like Coal India, ONGC and Reliance Industries, to produce more fuel as the country is running out of coal and natural gas needed for new power plants.
“As far as power is concerned, there is a recognition that power will be one of the levers for growth, and some of the issues of the power sector have been addressed,” said Sanjiv Goenka, chairman of the RP-Sanjiv Goenka Group and vice-chairman, CESC Ltd.
Industry officials say that the budget proposals have paved the way for policy action.
“The budget would not solve the main problems but it has set a positive tone for policy reforms. It recognised that the power sector is in trouble and something needs to be done,” Association of Power Producers’ director general, Ashok Khurana, said.
On Friday, finance minister Pranab Mukherjee proposed duty exemption for coal and liquefied natural gas (LNG) imports, extended tax breaks for new projects, and allowed utilities to replace high-cost rupee debt with foreign borrowings through external commercial borrowings. He also reiterated prime minister Manmohan Singh’s diktat to Coal India to sign by March-end firm agreements for supply of fuel to power projects commissioned up to December 2011.
“The measures would only have a small impact, it is not a game changer,” GMR Group’s chief financial officer A Subbarao said.
Shares of power companies had been rising before the budget on hopes that the government may give the sector a shot in the arm, but they shed gains after the budget only offered a balm for pain relief.”Policy reforms for power sector are not entirely in the Centre’s hand; they require state cooperation,” said Santosh Kamath, executive director at KPMG. “We need to expedite process of new coal block allocation and move faster on clearances and project execution,” Kamath said.
According to the Association of Power Producers which represents more than 20 private power companies in the country, around 50 power projects, totaling 68,563 mw and worth 3.42 lakh crore, may face defaults if the problems in the sector are not resolved.
Debasish Mishra, senior director (consulting) Deloitte Touche Tohmatsu India, said: “Power utilities have been increasingly dependent on fuel imports since domestic output has been low. The duty exemption would help them manage costs better to some extent.” Power projects consume almost 80% of domestic coal production and have been worst hit by decline in output. Coal India is likely to supply only 320 MT of coal to power sector in FY12 against the committed 347 MT.