Trends in power industry & budget impact

Mr. Harish Kumar Agarwal – CEO, Supreme & Co. Pvt. Ltd.

Q. What will be the impact on Power Equipment manufacturers of the boost to Rural Electrification and Renewable Energy in this Budget?
The rural electrification scheme was subsumed under the Deen Dayal Upadhyaya Gram Jyoti Yojana feeder separation scheme with an allocation of R42.3 bn, is lower than last year’s allocation of R48.5 bn–but higher than actual spend of R27.4 bn. In alternate energy, a focus area of the new government, the overall target has been iterated as 175 GW by 2022.

Renewable Energy allocations are expected to increase by 34% to R25 bn, however, FY15 achievement has been below par (53% lower than the budgeted capex). Of the targetted 1,75,000 MW, lion’s share of 1,00,000 MW will come from solar power, 60,000 MW from wind, 10,000 MW from biomass and the remaining 5,000 MW from small hydro projects. So, a total of 67 bn budget allocation on account of rural electrification and alternate energy will a big impact on Power Equipment manufacturers.

Q. 2 “As announced by the Finance Minister, the introduction of the Goods & Services Tax (GST) regime, from April 1, 2016 will resolve most of the complicated tax issues and help boost productivity, R&D and business development for the electrical equipment industry,” How this step will benefit to the Industry?
Clarity is urgently needed on expected rate regime for industry to prepare for the ultimate impact. This change would impact almost all business divisions of industries from procurement, to manufacturing, to sales and distribution. Service providers are also likely to be substantially impacted, as they have historically been subjected to a less exacting compliance regime. It will provide the industry to take a relook at how they are organized.

Q. 3 What is your general Opinion on Budget 2015-16? Do you find it to be trade and industry friendly?
Issues in the power sector are more strategic than pecuniary at this juncture. Hence, decision at the policy level on fuel supply issues, contractual resolution for stalled projects and reviving state sector reforms will be required many of which the government has already initiated, but will take time to implement.Budgeted Plan expenditure for the power sector is expected to be higher by 11% (vs -4% in FY15) largely due to higher projected capex by PSUs. I am hopeful that unlike in previous years the government will take all steps to ensure that there is full utilisation of funds allocated. The infrastructure projects such as roads, ports, rail lines, airports and even nuclear energy, will mean a mega boost to power generation, transmission and distribution projects.

Q. 4 Government’s recurrence and willpower to provide 24×7 Power to all & the announcement to set up 5 new Ultra Mega Power Projects, Do you feel that T&D Sector will get advantage and enhancement in Order Positions from the State?
With an ambitious target to give 24X7 electricity to all, the government is eyeing INR 3 lakh crore worth investments in power transmission and distribution business, as it gears up to free the sector from a gridlock of fuel scarcity, regulatory clogs and other issues. Further, the announcement to set up 5 Ultra Mega Power projects is a positive step and definitely strengthens the power value chain, right from clearances to execution.Unlike expectations on higher expenditure on transmission & distribution (T&D) infrastructure development, budgetary provision for FY16 reduced it by 21% to R14.63 billion, compared with FY15.

Actual expenditure this fiscal was 10% lower than budgetary expectations. In fact, the capex for FY15 is now 4% lower than that spent in FY14, given the limited fiscal room and below par execution largely by PSUs. Overall capital expenditure is expected to increase by 11% year-on-year (y-o-y) to R614 bn in the power sector. Lower T&D capex doesn’t entail that investments are slowing. In fact, the onus of capex is shifting towards the private sector, with the government unveiling $6 bn projects later last year for competitive bidding which means T&D sector will get advantage and there will be enhancement in order position.

Q. 5 What will the impact on Power Sector, especially T& D Sector in connection of Electrification, by 2020, of the remaining 20,000 villages in the country, including by off-grid solar power generation, investment in infrastructure are solid initiatives etc?
By 2020, we do not expect much change from the overall electrification level of around 96 per cent, but certainly there will be intensification of electrification. Villages despite being electrified by technical definition should have an increasing number of households coming under the ambit of electricity.

Q.6 “National Investment and Infrastructure Fund (NIIF) objective of ensuring an annual flow of Rs 20,000 crores”? Your views please!
Setting up of a National Investment and Infrastructure Fund ( NIIF) with an initial corpus of Rs.20,000 crore can be leveraged by infrastructure companies. The infrastructure finance companies can leverage extra equity from the funds and use it to erect infrastructure.