BackBudget disappoints on energy factor
Clean energy cess on coal increased to Rs200 per tonne from Rs100 per tonne
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Expectations: Reasonably High
Delivery: Moderate
Measures
l Clean energy cess on coal increased to ₹ 200 per tonne from 100 per tonne.
l To set up five new ultra mega power projects of 4,000 megawatts (MW) each. All clearances and linkages to be in place before the projects are awarded.
l Renewable energy capacity addition of 175,000MW by 2022, comprising 100,000MW solar energy and 60,000MW wind energy, 10,000MW biomass and 5,000MW small hydro.
l An amount of ₹ 30,000 crore pegged as petroleum subsidy.
l Conversion of existing excise duty on petrol and diesel to the extent of ₹ 4 per litre into road cess to fund investment in roads and other infrastructure.
Impact
l Coal-based power generation plants will see costs increase across the board due to higher cess. Companies that have merchant power capacities and no power-purchasing agreements (PPAs) will be affected the most.
l Push for large power projects may see cautious response from existing companies, considering that many of their power projects are suffering from non-remunerative PPAs and low interest from electricity boards.
l The allocated petroleum subsidy is in line with the Street estimates. However, that may fall short if international crude oil prices rise sharply and lead to higher losses on selling fuel below cost (or under-recoveries). Thus, if under-recoveries are higher than expected next year, then it could well mean that companies such as Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL) may have to shell out more than expected towards subsidy sharing.
l While road cess will lead to an additional sum of ₹ 40,000 crore for the infrastructure sector, there is no impact of the same on oil companies.
Stocks in focus
l Due to significant merchant power capacity, JSW Energy Ltd can see a rise in cost of electricity production from the increase in the coal cess. Jindal Steel and Power Ltd and CESC Ltd are also expected to see a rise in the cost of merchant power capacities.
l Shares of OIL and ONGC will be in focus, as they may have to bear higher-than-expected subsidy burden if oil prices rise sharply in future.
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