Monday, February 29, 2016
Power: Nuclear power generation gets Rs 3000 crore p.a. for next 20 years
Budget proposal

Sunset clause for the 10 year tax holiday available (u/s 80(I) (A)of Income Tax Act) not extended. Section 80IA which provided 100% profit linked deductions for specified period on eligible business carried on by industrial undertakings or enterprises referred in section 80IA. With sunset clause not extended no deduction shall be available if the specified activity commences on or after 1st day April, 2017. (i.e from previous year 2017-18 and subsequent years).

The accelerated depreciation provided under IT Act will be limited to maximum 40% from 1.4.2017

Extended the benefit of initial additional depreciation under section 32(1) (iia) available for players engaged in power generation to those engaged in power transmission as well.

Rs.8,500 crore allocated tos rural electrification, targeting 100% rural electrification by May 1, 2018

Government to ensure to provide electricity to 18452 villages located in remote locations and aims to provide electricity 24/7 to every household in India by 2019.

Government will permit mobilisation of additional finances to the extent of Rs 31300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority through raising of Bonds during 2016-17.

Increase in clean environment cess: At present, the government levies Rs 200/tonne tax on coal used by coal-run plants to promote clean environment initiatives. The FM on Monday announced to increase the cess to Rs 400 per tones. This was much higher than Rs 250/tonne expected by analysts. Impact: Negative for power producers such as JSW Energy and NTPC. The clean environment cess on coal/lignite/peat produced/extracted as per traditional and customary rights enjoyed by local tribes without any license or lease in the state of Nagaland attracts nil cess.

Diversification of power sources: In the power sector, the FM said that the government needs to diversify the sources of power generation for long term stability. The government is drawing up a comprehensive plan, spanning next 15 to 20 years, to augment the investment in nuclear power generation. For that purpose, the budgetary allocation up to Rs 3,000 crore per annum, together with public sector investments, will be leveraged to facilitate the required investment for this purpose. 

Boost to renewable energy: The government has announced to allocate Rs 5,036 crore towards promotion of renewable energy. This is against an allocation of Rs 216 crore in the ongoing financial year. The excise duty on carbon pultrusions used for manufacture of rotor blades, and intermediates, parts and sub-parts of rotor blades for wind operated electricity generators has been reduced to 6% from 12.5%. 

Rationalization of DDT on Invits

Basic customs duty of lignite was reduced from 10% to 2.5%. The BCD on coal for all usage was normalized to 2.5% from 2.5%/10%.

Stock to watch

NTPC, Torrent Power, Power Grid corporation of India, JSW Energy, Reliance Infra, Tata Power, Suzlon, ABB

Budget impact

Given long gestation nature of power project and other road blocks faced by power projects, non extension of the current sunset clause for availing 80IA benefits which was scheduled to expire on March 31, 2017 will hurt the ongoing power projects which are expected to get completed post March 31, 2017 as well new projects under planning. Though the extension can be done in next budget the sector requires long term policy consistency to attract investment and this missed chance will not augur well as we are end of penultimate year of current five year plan.

The increase in clean environment cess (formerly clean energy cess) to Rs 400/tonne for coal/lignite though increase the cost of power, will not pinch the power plant operating under regulatory regime but will hurt the players operating in merchant power segment. The 40% ceiling for accelerated depreciation benefit will not do good for wind power segment, who investment in wind power for accelerated depreciation benefits. Though the BCD of lignite cut down to 2.5% from current 10% how benefit of it is doubtful as it could not be transported as easily as coal for long distance. However the extension of additional depreciation benefit so far available to power generation plants to transmission projects will benefit transmission players especially the private transmission players. So it is neutral or mildly negative for the sector.

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