Power:
PROPOSAL TO CREATE A COAL REGULATOR SHOULD MAKE THE PROCESS OF MINE ALLOCATION MORE FAIR
PROPOSAL TO CREATE A COAL REGULATOR SHOULD MAKE THE PROCESS OF MINE ALLOCATION MORE FAIR
*Increase in planned allocation for power sector
*Key components of rotor blades exempt form excise duty
*Proposal to set up a coal regulator
*Clean energy cess on coal (both domestic and imported)
The plan allocation for power sector has been increased by 130%. Excluding RGGVY, the allocation has been increased from Rs 2,230 Cr to Rs 5,130 Cr, a positive for the power sector. The proposal to set up a coal regulator is also a good sign as delay in coal block allocation and lack of transparency in the mine allocation process is affecting expansion plans of companies. The 61 per cent increase in plan outlay for the ministry of new and renewable energy is seen as a positive development for equipment manufacturers.
Impact: Increased power allocation may benefit companies like KEC, Jyoti, EMCO and Crompton Greaves. However, increase in the coal energy cess can have a marginally negative impact on coal importing companies like Tata Power, GVK, Lanco and Adani Power. Suzlon is expected to benefit from the exemption of excise duty on key components for manufacturing rotor blades for wind power.
[A] Focus on power sector capacity addition: The government has accorded highest priority to capacity addition in power sector and has initiated steps to expedite the same. Budget 2010-11 provides for exemption of customs duty for mega power projects, for which power supply is tied-up on competitive bid mechanism.
*Key components of rotor blades exempt form excise duty
*Proposal to set up a coal regulator
*Clean energy cess on coal (both domestic and imported)
The plan allocation for power sector has been increased by 130%. Excluding RGGVY, the allocation has been increased from Rs 2,230 Cr to Rs 5,130 Cr, a positive for the power sector. The proposal to set up a coal regulator is also a good sign as delay in coal block allocation and lack of transparency in the mine allocation process is affecting expansion plans of companies. The 61 per cent increase in plan outlay for the ministry of new and renewable energy is seen as a positive development for equipment manufacturers.
Impact: Increased power allocation may benefit companies like KEC, Jyoti, EMCO and Crompton Greaves. However, increase in the coal energy cess can have a marginally negative impact on coal importing companies like Tata Power, GVK, Lanco and Adani Power. Suzlon is expected to benefit from the exemption of excise duty on key components for manufacturing rotor blades for wind power.
[A] Focus on power sector capacity addition: The government has accorded highest priority to capacity addition in power sector and has initiated steps to expedite the same. Budget 2010-11 provides for exemption of customs duty for mega power projects, for which power supply is tied-up on competitive bid mechanism.
[B] Rationalization of coal resources / plans to appoint coal regulator: Sufficient coal availability is likely to be a key constraint for the power sector; and to address the issue, the Budget has announced various initiatives.
Award coal blocks for captive mining through competitive bid mechanism (CBT). This, we believe is the key positive, as this would drive the private sector to expedite mine development.
"Coal Regulatory Authority" is proposed to be created to offer a level playing field in the coal sector.
[Utilities (Positive): NTPC, Tata Power, Reliance Power, Adani Power, JSW Energy. Capital Goods (Positive): BHEL, L&T, etc]
[C] Increase in defense spending: The government has increased budgetary allocation for capital expenditure on defense sector in FY11BE to Rs600b (+9%YoY) v/s Rs548b during FY10BE.
[C] Increase in defense spending: The government has increased budgetary allocation for capital expenditure on defense sector in FY11BE to Rs600b (+9%YoY) v/s Rs548b during FY10BE.
[Positive: BEL, L&T]
[D] MAT rate increased to 18% from 15%: Under section 80-IA, power and infrastructure development was eligible for 100% tax exemption for 10 years out of any 15-year block. Thus, the developer was liable to pay MAT rate of tax during the years of 80-IA benefit.
Impact on power sector companies: Power sector firms under the regulatory regime such as NTPC and Powergrid get tax as pass-through in tariff. So, the hike in MAT rate has no implication on the profitability of these companies.
[E] Electricity generation from SEZ brought under customs net: Currently, electricity generation from SEZ supplies to Domestic Tariff Area is fully exempt from customs duty. Now, such sales of electrical energy would attract duty of 16% ad valorem + Nil special CVD. This change is being made retrospectively w.e.f. 26 June 2009. Exemption on supplies or imports of electrical energy, other than the above, would however continue.
[E] Electricity generation from SEZ brought under customs net: Currently, electricity generation from SEZ supplies to Domestic Tariff Area is fully exempt from customs duty. Now, such sales of electrical energy would attract duty of 16% ad valorem + Nil special CVD. This change is being made retrospectively w.e.f. 26 June 2009. Exemption on supplies or imports of electrical energy, other than the above, would however continue.
[Négative: Adani Power]
[F] Transmission exempt from service tax: Budget has proposed to exempt transmission of electricity from service tax net, while electricity exchanges have been brought under service tax. This will lower the cost of power transmission.
[G] Excise rate increased to 10% from 8% on capital goods: Hike in basic rate of excise duty for all manufactured goods from 8% to 10% is marginally negative, as it could make domestic equipment slightly less competitive, as peak rate of customs duty is kept unchanged.
[F] Transmission exempt from service tax: Budget has proposed to exempt transmission of electricity from service tax net, while electricity exchanges have been brought under service tax. This will lower the cost of power transmission.
[G] Excise rate increased to 10% from 8% on capital goods: Hike in basic rate of excise duty for all manufactured goods from 8% to 10% is marginally negative, as it could make domestic equipment slightly less competitive, as peak rate of customs duty is kept unchanged.
[Négative: Siemens, ABB, Crompton Greaves, Areva]
[H] Increased allocations towards APDRP, etc: Budgetary allocations to the sector have increased to Rs51.3b in FY11BE from Rs22.3b in FY10 (excluding RGGVY).
[I] 80IA benefit status quo till March 2011: The Budget has not clarified on the key industry expectation of extending deadline for claiming 80IA deadline for power generation projects commissioned post FY11. Our NPV factors in that projects commissioned post FY11 will also continue to enjoy section 80-IA benefits.
[J] Development and promotion of clean energy / environment management:
[H] Increased allocations towards APDRP, etc: Budgetary allocations to the sector have increased to Rs51.3b in FY11BE from Rs22.3b in FY10 (excluding RGGVY).
[I] 80IA benefit status quo till March 2011: The Budget has not clarified on the key industry expectation of extending deadline for claiming 80IA deadline for power generation projects commissioned post FY11. Our NPV factors in that projects commissioned post FY11 will also continue to enjoy section 80-IA benefits.
[J] Development and promotion of clean energy / environment management:
To build the corpus of National Clean Energy Fund, clean energy cess on coal produced in India at a nominal rate of Rs50 per ton to be levied. This cess will also apply on imported coal.
Concessional customs duty of 5% to machinery etc required for initial setting up of photovoltaic and solar thermal power generating units; these would also be exempt from central excise duty.
Allocation of Rs10b towards Jawaharlal Nehru National Solar Mission (JNNSM), with plans to add 20GW of solar power by 2022.
[K] Thirteenth Finance Commission Report has also recommended provision of Rs50b grant from the central government to states towards incremental costs for promoting renewable energy over a period of four years.
[K] Thirteenth Finance Commission Report has also recommended provision of Rs50b grant from the central government to states towards incremental costs for promoting renewable energy over a period of four years.
Further, to promote wind power generation, the government has announced zero excise duty on certain raw materials required for manufacturing rotor blades.
[Positive: Suzlon; Tata Power (PV manufacturing)]
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