Budget 2012 power sops will trim your future electricity bills

New Delhi: Power producers have got enough fuel for growth from Pranab Babu in the budget. Freeing of coal and liquefied natural gas (LNG) imports, extended tax breaks for new projects, permission to replace high-cost rupee debt with foreign borrowings through external commercial borrowings (ECBs) are some of the sop given to the sector.

You as a consumer may be saved from an immediate increase in power tariffs due to these reliefs. Even if an increase is effected, it may be lesser than proposed. The budget has proposed duty-free imports of coal and LNG - two critical raw materials used in power generation —  and this will reduce power companies’ cost of generation on cheaper fuel imports. Which will benefit your pocket, if only in a small way.

Power sector experts have welcomed the move, saying that though the FM’s tax breaks and other sops to power companies will not really help fuel shortages, they may make power generation costs a wee bit less.

Already states such as Tamil Nadu (300 percent) and Andhra Pradesh (90-100 percent) have sought massive tariff hikes in the last few months on rising costs of power generation and their proposals are pending with their respective regulators. Friday’s budget may help soften the blow.

India imports 45-50 million tonnes of coal each year, which (in calorific terms) means 15 percent of its annual requirements. Going forward, imports are only going to increase further so cheaper imports will also have a long term impact on power generation costs and therefore power tariffs.

Even on the fuel supply side, the budget has asked Coal India to sign agreements with power producers besides talking of constituting an inter-ministerial group for periodic review of allocated coal mines. “Power producers have got enough fuel in the budget to kickstart sectoral reforms,” says Ficci Director (Economy & Research) Soumya Kanti Ghosh.

Speaking to CNBC TV-18, Tata Power Managing Director Anil Sardana said on Friday that the waiver of import duty for thermal power companies will be beneficial for upcoming projects. “And the removal of customs duty on imported coal, natural gas, LNG, and incentives for the mining sector will marginally improve coal supply”.

The budget sops come at a time when 52 power projects, being developed at a cost of about Rs 3.42 lakh crore, could face the risk of default on fuel shortages and environmental hurdles. India is expected to see a capacity addition of 80,000 mw in the 12th Five-Year Plan (2012-17) and a significant chunk would be from private players.

The top executives of private power companies had met Prime Minister Manmohan Singh in January to apprise him of sectoral woes. Following the meeting, the Prime Minister set up a Committee of Secretaries (CoS), headed by his Principal Secretary Pulok Chatterjee, to look into the issues.

Later the CoS decided that Coal India would sign fuel supply pacts for power projects for a period of 20 years.

“For power plants that have been commissioned up to 31 December 2011, FSAs will be signed before 31 March 2012,” the PMO had said in a statement.

Fuel Supply Agreements (FSAs) would be signed for the full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years. If the supply is below 80 percent, then Coal India would be penalised, whereas in case the supply is above 90 percent, the company would be provided an incentive.

In case Coal India is unable to meet the obligations, the company would have to arrange for fuel through imports or other arrangements.

The PMO had also noted that these arrangements would provide relief to power plants with an estimated capacity of more than 50,000 mw.