The Budget brings good news for the power sector on one main count. It modified the application of the 20 per cent additional depreciation for power firms. Until now, a company was allowed 20 per cent additional depreciation on new plant and machinery installed until September 30. For assets installed after this date, only 10 per cent additional depreciation would be allowed. Companies being allowed to claim the remaining 10 per cent too would lower the tax incidence.
The other positive is awarding five new ultra mega power projects (UMPPs), with all clearances and fuel linkages secured. This is expected to attract investments of ₹1 lakh crore. While certainly attractive, this alone may not generate interest . Take for instance, the two recently proposed UMPPs at Bedabahal in Odisha and at Cheyyur in Tamil Nadu. The bids for these projects were cancelled after they failed to attract enough bidders despite major clearances in place. The detractor for the sector is a hike in the Clean Energy Cess on coal by ₹100 per tonne. This would necessitate a hike of 2-3 paise per unit in power tariffs.
Background
While lower taxes are a sweetener, major concerns for the sector remain. One, the uncertainty on coal availability, following last year’s coal block cancellation and two, unremunerative tariffs that do not allow full recovery of costs. The first round of auction of the cancelled coal blocks has however brought some relief to power producers. As more blocks are auctioned, greater clarity will emerge. Apart from coal supply concerns, many power companies have been hurt by tariffs that do not fully reflect the rise in costs. These companies have filed tariff review petitions and await a decision from the sector regulator. Favourable tariff orders are crucial to mending the finances of some of these companies.
The verdict
As far as the hike in the Clean Energy Cess is concerned, companies such as NTPC, Tata Power and Reliance Power that sell power under long-term agreements would not be impacted. These agreements allow increases in costs to be passed through in tariffs.
(This article was published on February 28, 2015)
