With the coming of Electricity Act 2003, the power sector, which was highly regulated with lot of licensing requirements, is in the throes of a long awaited change.

The licensing requirements have been reduced, as the generation company will be free to enter distribution business and vice-a-versa. Currently private sector accounts for 10 per cent of the total power generation capacity. The remaining is divided between Center and the state owned companies in the ratio of 36:64.

Industry Wish List Mr. Madhukar Moolwaney, Sr. Vice President, Reliance Energy Clarification on treatment of MAT as part of Income tax liability while determining tariffs to be paid by state electricity boards on power purchase agreements with power generating companies Fringe benefit tax to be made an allowable expense by regulator while determining tariffs Extending the period of Section 115J by 3-5 years over its expiry in 2010  Budget over the years Budget 2004-05 Budget 2005-06 Budget 2006-07 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. Financial institutions like IDFC, ICICI Bank, SBI, LIC, Bank of Baroda and Punjab National Bank will form an Inter-Institutional Group (IIG) where in, they will pool resources to the tune of Rs 400 bn, which will be made available to infrastructure projects as and when needed. Government to provide equity support of around Rs 142 bn and loans worth Rs 21 bn 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% education cess on all taxes. 6 power projects brought to financial closure in last one year and another 10 projects are likely to reach financial closure soon. 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 Proposal for setting up a 33/11 kV sub station in every hub and at least 1 transformer in every village Rural infrastructure development fund - a corpus of Rs 80 bn for FY06 Five ultra mega power projects of 4,000 MW each to be awarded before December 31, 2006 Tenth plan target of 3,075 MW of installed capacity for non-conventional energy sources exceeded by December 31, 2005 with installation of 3,650 MW capacity. Rs 5.9 bn proposed to be spent on non-conventional energy resources. 10,000 villages in 2005-06 and 40,000 more villages in 2006-07 to be electrified under the Rajiv Gandhi Grameen Vidyutikaran Yojana. Coal reserves of 20 bn tonnes to be de-blocked for power projects Customs duty on natural gas reduced from 10% to 5% [Read more on Budget 2004-05] [Read more on Budget 2005-06] [Read more on Budget 2006-07]
Key Positives Large investment plans: With the recent string of reforms in the Indian power sector, the sector is expected to grow at a rapid rate going forward. As per the commissioning programme, till March 2010, an aggregate generation capacity of 43,865 MW is expected to come on stream. The government has also indicated of a projected capacity expansion of 67,000 MW in the 11th five-year plan (2007-12). Electricity Act 2003: The Electricity Act 2003 has provided great opportunity for power companies, given its provisions relating to the abolishment of various licensing norms, liberalisation of the power distribution business and opening of power trading for private sector power companies. Though the track record of execution of such reforms is appalling, the power sector is slowly but surely set for a change. Corporatisation of SEBs and linking profitability to the state government's plan outlay are likely to give some sort of fiscal strength to the key sector participants in the long run. 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.		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 re-invest towards growth initiatives. Average transmission and distribution losses (T&D) exceed 25% of total power generation compared to less than 15% for developing economies. The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage. Existing capacity under-utilisation: The poor performance of India's existing generating units has been a principal cause of power shortages and unreliable quality of power supply. The primary culprits are the coal-fired thermal power stations, which accounts for over 65% of total installed capacity. The average plant load factor (PLF) of thermal power stations in India is less than 60%, but varies considerably across regions. However, not all of the thermal generating stations have such dismal records. For instance, the performance of 500 MW and 200 MW units has been satisfactory, and their PLFs have been higher than the national average. It is, in fact, the thermal units of 120/140 MW and below that are cause for concern. SEBs still reeling under losses: Poor financial health of a large number of 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.

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