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Power sector may see cut in govt funding, extension of tax sops

Power sector may see cut in govt funding, extension of tax sops
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First Published: Fri, Feb 04 2011. 12 43 AM IST
Updated: Fri, Feb 04 2011. 12 43 AM IST
New Delhi: The government is expected to earmark Rs9,600 crore for the power sector as plan expenditure in the Budget, a 9.68% dip compared with Rs10,630 crore allocated for the year ending 31 March.
The Budget may also announce forming a debt fund that will raise low-cost and long-term resources to re-finance power projects.
“While Rs6,000 crore is slated towards our rural electrification programme Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), around Rs2,400 crore will be earmarked for restructured accelerated power development and reforms programme (R-APDRP),” a power ministry official said on condition of anonymity. “This is only the Plan part with the non-Plan part being minimal.”
“We have been told that our requirements will be fully met,” another power ministry official said, who also declined to be named. “A significant portion of this allocation will be for R-APDRP and RGGVY.”
These two are the government’s most ambitious energy schemes. RGGVY is part of India’s Bharat Nirman project to develop rural infrastructure. While RGGVY is meant for providing electricity to villages and connecting poor households across the country, R-APDRP is meant to upgrade distribution systems, minimize transmission and distribution losses, improve metering and assign responsibility for the realization of user charges.
“We may also see some kind of announcement regarding the creation of a debt fund for the power sector,” said the second power ministry official.
Mint had reported on 27 July about the?government’s plans to create a Rs50,000 crore debt fund to bridge a funding shortfall and help banks avoid asset-liability mismatches.
The finance ministry’s position could not be confirmed as it is under quarantine during the last phase of preparations for the Budget, scheduled to be announced on 28 February.
The power ministry also wants finance minister Pranab Mukherjee to extend a tax holiday on power projects. The tax break under section 80-IA of the Income-tax Act ends on 31 March, making any power project that starts operating after that date ineligible for the benefit. The law allows a developer to claim tax exemption of up to 10 years within the first 15 years of a project’s commissioning. The original deadline was 31 March 2010, which was extended through the Finance Act of 2009.
With significant capacity addition planned for the 12th Plan that runs through 2012-17, which won’t be commissioned before the deadline, the power ministry said ambiguity on the extension of tax benefit is affecting funding commitments. A power project requires a minimum period of around two years to achieve financial closure. The two power ministry officials quoted above said they expected the tax holiday to be extended.
India faces a peak shortage of nearly 12% and it has an abysmal track record in adding capacity. India currently has a power generation capacity of 169,748MW. The 11th Plan had set a target of adding 78,577MW of generation capacity, which was later revised to 62,374MW. According to an internal analysis of the power ministry, a capacity addition of around 55,000MW in the current Plan is expected.
utpal.b@livemint.com
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First Published: Fri, Feb 04 2011. 12 43 AM IST