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Budget 2012: 5% customs duty exemption on coal to stoke imported fuel-fired plants
March, 17th 2012

The power industry is feeling fully charged. Consumers will be able to see the light in the coming years as the Budget measures make fuel a little more affordable, reduce funding costs and ease tax burden for generators.

Exemption from 5% customs and 1% countervailing duty on coal allows a breather to imported fuel-fired plants. For domestic coal-fired projects , imports become a viable means to bridge supply shortfall from Coal India Ltd.

CRISIL's Prasad Koparkar says projects running on imported coal can expect a net realization of 3%. Major beneficiaries for this sop include the Adani Group, Jindal Power, Reliance Power and Tata Power.

A similar sop for gas imported in ships (LNG or liquefied natural gas) will help restart capacity stranded by domestic supply shortage. GAIL chairman B C Tripathi says consumers can expect a 3%-5 % netback in gas price after offsetting higher excise and service tax rates. Lanco, GVK, Torrent and NTPC are set to benefit too.

Permission to go for overseas borrowings and reduction in withholding tax from 20% to 5% for three years lowers funding costs. Reliance Power, with some $5 billion borrowings , and China Light & Power , with about Rs 4,500 crore borrowings, have emerged as the biggest beneficiaries. Expect a beeline for external commercial borrowings.

The extension till March 31, 2013, of the last date for claiming the 10-year tax holiday will help project economics of almost all players since they have plans coming on stream through the terminal year of the 12th Plan. Many of these are running late and would have lost the incentive.

Exemption from tax on dividend paid to parent company by a SPV ensures better returns and rewards efficiency. All ultra-mega power projects - three by Reliance Power and one of the Tata Group - jointventures of NTPC gain.

Duty-free import of mining equipment lowers mining cost of power projects with captive coal mines. NTPC, Reliance Power, Adani and Jindal Power have big coal mining plans. But the biggest beneficiary, perhaps, would be Coal India and iron ore miner NMDC.

Not everyone is happy, though. China Light and Reliance Power say greater attention to availability of land, environmental clearances and state utilities' inability to pay bills is critical to make sure India has adequate power infrastructure to realize GDP growth potential.

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