Budget 2016: To revive power sector grant SLR status to bonds under UDAY

By Yogesh Daruka

We have seen significant focus from the government on generation capacity addition, in particular on renewable sector to connect our 30 percent unserved households and to meet demand growth.

The large sector investment requirement ($1 trillion) requires concerted attention on various fronts in this budget such as:

Budget 2016: To revive power sector grant SLR status to bonds under UDAY


Performance & distribution health

UDAY (Ujwal DISCOM Assurance Yojana) day is a well-thought out initiative from GOI for restoring distribution viability. However, the large quantum of bonds to be issued by the states to take over utilities’ liabilities requires a market so that banks and FIs who are issued these bonds gain liquidity. Towards this, some measures need to be considered such as granting SLR status to the bonds.

UDAY also provides various measures and parameters for DISCOMs, many of which require significant capital outlays. This entails providing access to competitive financing for DISCOMs and incentives for efficiency and consumer service (for metering, system improvement, technology initiatives like analytics and digital transformation, etc.).

The government may specify sources of funds for the large capex as it is not provided in UDAY.

Sector investments

The sunset clause for 80 IA incentives expires in 2017 and requires extension till 2020 (preferably beyond) to provide fiscal certainty for investments. Providing Special Economic Zone status to solar parks and MAT exemption to power projects are long-standing industry demands and could be looked at, fiscal room permitting.

Auctions are increasingly used for allocation of projects and resources (coal blocks and renewable projects, particularly). This necessitates stabilization of fiscal regime as investors bid for long-term. Levy or increase in taxes can derail investments not covered under change of law provisions.

For renewable energy promotion, the drive for 175 GW of renewable energy by 2022 requires continued incentives and fiscal stability. The GST regime is expected to increase the Capex in RE system by 20 percent and solar and wind tariffs by 11-15 percent.

The budget needs to ensure that GST does not increase capital costs or tariffs in RE sector.

Financing schemes that are specific to the power sector need to be promoted to meet large investments - for instance, fiscal incentives for green bonds (SEBI has approved norms to help companies raise funds for renewable investments) will promote the 175 GW initiative.

With impending segregation of distribution wires and supply businesses, a roadmap for listing of the wires business could provide new long-term financing avenues.


Bringing large hydropower under the ambit of renewable energy will promote initiatives to incline our energy mix towards cleaner and greener sources through promoting hydropower sales to DISCOMs under RPO obligations and also enable access for developers to wider funding sources.

The clean energy cess taxing fossil fuels (introduced to incentivize cleaner technologies) may provide exemption for projects using advanced clean coal technologies at significant investment.

T&D and Evacuation

Power transmission and distribution (T&D) can be granted infrastructure industry status and related tax benefits, which will result in cost and tariff reduction.

Further, the budget could look at incentives for promotion of Make in India for distribution equipment (such as Smart /Pre-paid meters, energy efficient equipment, efficient transformers).

The author is Partner, Power & Utilities Advisory at PwC. Views expressed are personal

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Updated Date: Feb 18, 2016 16:35:13 IST

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