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Run-up to the Budget: Power sector

Power: State of the industry (2000-01)

• Power capacity additions are expected at 4,200 MW as compared with 4,000 MW in 1999-2000.
• Demand for power increased by 6 per cent as compared with 7.6 per cent in 1999-2000, largely due to a slow-down in industrial production.
• Generation increased by 5.2 per cent as compared with 6.6 per cent in 1999-2000, due to a lower plant load factor and a significant decline in hydel generation. Power shortages in several states increased; the average energy shortage is expected to increase to 8 per cent, as compared with 6 per cent in 1999-2000.
• Average power tariffs increased by 5-20 per cent in several states, such as Andhra Pradesh, Maharashtra, Gujarat and Karnataka, following the tariff order passed by the State Electricity Regulatory Commissions.
• Private projects, with a total capacity of about 300 MW, achieved financial closure in 2000-01. In 2001-02, capacity additions are largely expected in the public sector.

Power: Expected regulatory changes

Reportedly, the cap of 16 per cent return on capital base for power distribution licensees could be removed by the Government. Returns of licensees would be determined by efficiency and performance. The policy is likely to be announced by the Ministry of Power. (At present, the licensees earn a fixed return of 16 per cent on investments made after March 31, 1999, and and at a rate linked to the RBI Bank Rate on the investments made prior to March 31, 1999.

Power: Industry expectations from the Union Budget (2001-02)

• Removal of dividend distribution tax: The Independent Power Producers Association of India (IPPAI) has asked the Government to remove the tax on the distribution of dividend (22 per cent), as it is not a pass through item in the tariff charged to the SEBs.
• Removal of Minimum Alternate Tax (MAT): The IPPAI has also asked the Government to withdraw the MAT for the power sector.

Power cables: Duty structure

	Excise (%)	Customs (%)
1999-2000	16	40
2000-01	16	40

Notes:

1) For 2000-01, the landed cost and customs duty include the SACD of 4 per cent, effective since 1999-2000. In 1999-2000, the SACD was applicable only for non-traders, and hence, has not been included in the customs duty.

2) In the 1999-2000 Union Budget, the MODVAT credit was increased from 95 per cent of the excise duty paid on inputs to 100 per cent.

Source: Central Excise and Customs Tariff

Rediff-CRISIL Budget Impact Analysis

Budget 2001

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