Budget crumbs leave power players sore

Mumbai: The country's 2009/10 Union Budget disappointed players in the power and allied sectors who found it falling short of expectations, except for a hike in the Government-run schemes, industry officials and analysts said.

"Somehow income tax, excise, customs benefits and other incentives which are critical for the investments in the power sector, are missing," Harry Dhaul, director general of Independent Power Producers Association of India (IPPAI) said.

Industry bodies like IPPAI and Council for Power Utilities (CPU) had sought an extension of a 10-year income tax holiday for power project developers beyond March 2010.

"We wanted 80I(A) benefit to be extended (to project contractors and equipment makers); that did not happen. We were looking for fiscal incentives for power projects; that did not happen," Ramesh Chandak, chief executive of KEC International, said.

Industry observers believe that the extension of tax holiday could come to project developers during next fiscal year.

"It would continue because the capacity addition requirement is still high," Manish Agarwal, executive director, KPMG said.

Industry officials are divided on the proposal to make Indian Infrastructure Finance Corp (IIFCL) refinance 60 per cent of commercial bank loans for public-private partnership projects "in critical sectors" over the next 15 to 18 months.

"There is some ambiguity about IIFCL, unless we read the fine print we will not know whether there is something in them or not," said Manish Mohnot, executive director of Kalpataru Power.

"Power sector already have Power Finance Corp and Rural Electrification Corp, I don't think IIFCL will disburse subsidiesed loans to power sector," Girish Solanki, analyst with Angel Broking, said.

The proposal to develop a national gas grid highlighted the Government's emphasis on natural gas as an alternative fuel for the power projects, KPMG's Agarwal said.

The finance minister nearly trebled the allocation for Accelerated Power Development and Reforms Programme (APDRP) to 21 billion rupees from last year. Similarly, allocation for village electrification scheme, Rajiv Gandhi Grameen Vidyutikaran Yojana (RGVVY), was also raised 27 per cent to 70 billion rupees.

"(There) may be some benefits in the RGVVY...but that's not what is required. We need to have much more direct statements made for the international investors and the private sector to get the confidence," IPPAI's Dhaul said.

Considering the planned power sector expansion, which would need investments of billions of rupees, it is not clear from where and how these funds will be made available, said the Indian Electrical and Electronics Manufacturers Association (IEEMA).

The BSE Power index ended down 6.36 per cent on the day the BSE index closed down 5.83 per cent.