Budget 2005-06: Power
The Indian power industry has been characterised by energy shortages. Over the years, demand for electricity has exceeded supply by a sufficiently large margin. Now, with the coming of Electricity Act 2003, the power sector, which was highly regulated with lot of licensing requirements, is amidst a long awaited change. The government has set an ambitious target of providing 'power for all' by the end of the eleventh plan. To achieve this goal, India would require an additional capacity creation of nearly 100,000 MW by 2012. 

Budget Measures Rural infrastructure development fund - a corpus of Rs 80 bn for FY06 Creation of a rural electricity distribution backbone envisaged To reach electricity to the remaining 125,000 villages and offer electricity connection to 23 m households  Budget Impact Creation of a rural infrastructure development fund to boost spread of electricity network across the length and breadth of the country.  Sector Outlook The Electricity Act of 2003 proposed significant policy decisions that could reform the Indian power sector over the long term. Licensing norms for entering generation and T&D businesses of power have been eased. The government plans to add around 100,000 MW of generation capacity by 2012 in order to bridge the current demand-supply gap. This would almost double India's power generation capacity from the current levels of 112,058 MW. To that extent, on an overall basis, the outlook for the sector remains positive.  Industry Wish List Removal of the Minimum Alternate Tax (MAT) Excise duty on machinery needs to become zero, in order to encourage infrastructure development Import duty on oil, fuel etc. needs to go, in a bid to encourage plants run by these fuels.  Budget over the years Budget 2002-03 Budget 2003-04 Budget 2004-05 An accelerated rural electrification program with an outlay of Rs 160n crore (Rs 1.6 billion) was provided. APDRP outlay enhanced to Rs 3500 crore {Rs 35 billion (from Rs 15 billion)earlier)}. The focus of reform has shifted from generation to transmission and distribution. Setting up of an infrastructure equity fund of Rs 1000 crore (Rs 10 billion) to provide equity investment for infrastructure projects. For development of the power infrastructure, the FM announced that mega power status would now be given to all power projects meeting the existing norms. Customs duty reduced on high voltage equipments from 25 per cent to 5 per cent. Import of capital goods relating to water treatment exempt from duties. 6 power projects brought to financial closure in last one year and another 10 projects are likely to reach financial closure soon. Financial institutions like IDFC [Get Quote], ICICI Bank [Get Quote], SBI [Get Quote], LIC [Get Quote], Bank of Baroda [Get Quote] and Punjab National Bank [Get Quote] will form an Inter-Institutional Group (IIG) where in, they will pool resources to the tune of Rs 40,000 (Rs 400 billion), which will be made available to infrastructure projects as and when needed. Government to provide equity support of around Rs 14200 crore (Rs 142 billion) and loans worth Rs 2100 crore (Rs 21 billion) to central public sector enterprises including power. Tax benefit under Section 80 IA extended to projects undertaken during the period April 1, 2004 to March 31, 2006. Basic necessities like power to be made available to everyone. 2 per cent education cess on all taxes.
Key Positives Large investment plans: Considering the energy shortage in the country, the government has embarked on a plan to add nearly 100,000 MW of capacity by 2012. This includes 41,110 MW of addition in the ongoing tenth plan (2002-07). This is likely to plug the demand-supply gap and result into improved performance for power sector players. Electricity Act 2003: The Electricity Act 2003 provides great opportunity for power companies, given its provisions relating to the abolishment of various licensing norms, liberalisation on the power distribution business and opening of power trading for private power companies. Benefits of unbundling: Provision for unbundling of power generation, transmission & distribution companies has been laid. This will result in reducing T&D losses, as incentives to these private players are directly linked to reduction in T&D losses. Securitisation Act: Passage of the Securitisation Act was another major development, as power companies will be able to pursue their expansion plans with ease.		Key Negatives T&D losses pinch: The T&D losses, which are still on the higher side, result in lower effective realisation of per unit of power produced by generation companies. Poor T&D infrastructure remains a cause of concern. It is due to this and few other factors that the losses are on the higher side as compared to other countries. As a result, the industry is able to deliver less than its actual potential. This in turn has also affected the ability of players to reinvest towards growth initiatives. SEBs reeling under losses: Poor financial health of the state electricity boards (SEBs) continues to be cause of concern. Though some measures have been taken to address this issue, these have been inappropriate. Inability to take hard decisions has been impacting industry fortunes.

Equitymaster.com is one of India's premier finance portals. The web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.