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Power dreams of duty cuts in Budget 2005

D. Murali

Chennai , Feb. 8

WHILE reacting to the July 2004 Budget, the Tata Power Company Managing Director, Mr Firdose Vandrevala, spoke of "two concerns in the power sector", viz. affordability and reliability. For the first, the industry banks on duty reduction on fuel and capital imports, while definite tax sops satisfy the second.

Thus, the Finance Minister promised alignment of tariffs with the ASEAN levels, and also conferred on the power industry a two-year beneficial window for renovation and modernisation projects under Section 80IA of the Income-Tax Act.

But that was last year. As an infrastructure industry, power will continue to receive the attention of those in power and the forthcoming Budget too may try to satisfy popular expectation by nibbling at cost irritants, working on capacity creation and ensuring the flow of funds for the purpose, not omitting the rural angle.

"Out of estimated 5,86,000 villages about 1,20,000 remain to be electrified," said the Secretary, Ministry of Power, at a World Bank Conference last year. Eight States that have achieved 100 per cent village electrification, viz. Andhra Pradesh, Goa, Haryana, Maharashtra, Kerala, Punjab, Tamil Nadu and Nagaland, constitute but 18 per cent of villages in the country. Therefore, a spur to rural electrification is unmistakably on the cards; as a necessity, that is, not as just a populist measure.

Is there a prospect of capping the rate at 5 per cent for all capital imports in power sector? "Yes," according to Mr Vedamororthy Namasivayam of PricewaterhouseCoopers, heading the `Government Reforms and Infrastructure Development in India' department.

For, such a move will not only lower the project cost but also tariff. As an added sop, there can be complete duty waiver if one is importing for setting up of generation and distribution systems in rural areas.

There is also a case for taking some load off coal, a key input for power generation, in view of soaring international prices and domestic shortage of this commodity.

For instance, NTPC is running on critical coal supplies that last for less than a week.

On his part, the Coal Secretary, Mr P.C. Parakh, has spoken of "a difference of opinion between the coal and power sectors" and to resolve the resultant supply constraints, the Coal Ministry has begun the process of allocating coal blocks to power companies, as the media reports.

To help, there can be "a reduction of customs duty on coal from 15 per cent to 5 per cent to bring it in sync with liquefied natural gas or LNG," opines Mr Namasivayam.

If one were to eavesdrop the `power' lines, there's also the prayer that the Government relax the definition of the `mega power project' to confer sops on more players, and also accelerate the Accelerated Power Development & Reform Programme (APDRP) by pumping in more funds aimed at reducing T&D losses.

For starters, the abbreviation is not theft and dacoity, as normally understood, but of transmission and distribution losses, robbing the industry of almost 50 per cent of power generated.

Power dreams, these are, but one can reliably forecast that before they become reality, they'd have to be first affordable in the numbers that the Finance Minister draws up in the coming weeks.

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