www.newkerala.com22nd June, 2009

Source : UNI

Much ado about Power Reforms, Budget and Common Man

New Delhi, Jun 22 : Notwithstanding the heat and dust kicked up by power sector reforms or their lack of it or the Indo-US nuclear deal aimed at filling the void in power generation, India continues to be plagued by the power deficit -- the single biggest constraint on its industrial development and economy, not to speak of the anguish of its citizens who frequently face power cuts.

The capacity addition that is required is estimated to be in the range of 5,000 MW each year and there is an equally strong need for building the power infrastructure.

The Budget is a solemn occasion when the industry flashes to the media and the government its wishlist and the government makes tall claims as to what it proposes to do.

Like figures of the Indian statistical system, Laxman's Common man continues to wonder what is all this talk about. Little has changed in his life despite the rhetoric and drama that surrounds this saga. A large part of the rural areas still is without electricity, smaller towns have frequent power cuts and even in the National Capital Region things are far from satisfactory.

He hears talk of how power never stops in the countries of the West, developed part of Asia and elsewhere. He often wonders as to when will India be able to become like them, for after all the proof of the pudding lies in its eating.

Yet, Budget is an exercise where public and private players are compelled -- perhaps as a ritual, or in desperate hope or maybe as a professional compulsion -- once again voice

their concerns.

It is the oft-repeated stuff but must be said. The Planning Commission has repeatdly been speaking of the wonderful times to come and the government's resolve to get things moving. Commissions will come and Commissions will go, but the talk of power reforms never ceases.

What then is the wishlist of the Power sector for the General Budget to be presented by Finance Minister Pranab Mukherjee on July 6? "The gaps can be attributed to misuse of the Electricity Act, 2003 by certain State governments. Lack of accountability of State governments and financial vulnerability of Independent Power Producers need to be addressed," says Mr Harry Dhaul, Director General, Independent Power Producers Association of India (IPPAI).

Mr Dhaul said huge investments are anticipated in the sector in the year 2010-2011. However, the sunset clause in the tax exemption provision (generation and distribution of power) is eligible for a 10 year tax holiday provided the undertaking begins generation of power any time before March 31 next year.

Mr Daul says the applicability of Minimum

Alternative Tax (MAT) is bound to discourage future investments in the sector. The liability to MAT during the tax holiday period to a great extent offsets the benefits of tax holiday and delays the overall intent for extending tax sops to the power sector.

''The anomaly should be removed and tax on MAT applicability, exemption of 10 years needs to be enforced, irrespective of the year of commencement of power generation and distribution.'' He suggests providing even ground for all the players by treating electricity as a 'declared good'. Capital investments in the power sector are astronomical. Power generator is only eligible to claim depreciation in plants and machinery at the rate of 15 per cent on written down value basis. It is, therefore, imperative that power generator be allowed to claim depreciation ranging from 40 to 80 per cent.

Besides, the Income Tax Act prohibits tax exemption for organisations post merger or de-merger. Mr Dhaul argued that mergers and de-mergers are a norm to increase the efficiency of any organisation and, therefore, income tax exemptions should be permitted in such cases.

Mr Dhaul makes out a case for the government addressing the anomaly in the credit rules. According to the exisiting rules, manufacturers supplying goods to Ultra Mega Power Projects(UMPP) would not be able to avail input credit and would just be forced to pass on the additional cost to such projects. These provisions would make UMPP worse off as compared to mega power projects from a tax cost perspective.

Industry sources are pleading with the government to provide exemption on service tax for construction of power projects. The ground on which they justify this is that construction services with respect to other critical infrastructre sectors like roads and railways are outside the service tax net.

Besides, industry argues that concessions or exemptions under customs and excise laws should be exempted for civil construction materials like cement and steel; just as raw materials required for the manufacture of machinery and equipment of power projects are allowed to avail.

Mr Dhaul says captive power plants should no longer be given step motherly treatment as they are neither covered under any of the existing exemptions or concessions under Custom and Central Excise laws for power projects nor are they eligible for benefits under the project import scheme, he said.

Set up in 1994, IPPAI is a non-profit organisation. IPPAI was established in 1994 shortly after the government opened power generation to private players.

What is equally important for the Budget is to address the huge leakages of the power sector, the continuing losses of the State Electricity Boards and ways and means to shun populism by announcing free power to farmers and other sections of society.

If this not done, Laxman's common man will continue to wear a bewildered look, for Budgets may come and go.

www.webindia123.com22nd June, 2009

Source: UNI

The capacity addition that is required is estimated to be in the range of 5,000 MW each year and there is an equally strong need for building the power infrastructure.

The Budget is a solemn occasion when the industry flashes to the media and the government its wishlist and the government makes tall claims as to what it proposes to do.

Like figures of the Indian statistical system, Laxman's Common man continues to wonder what is all this talk about. Little has changed in his life despite the rhetoric and drama that surrounds this saga. A large part of the rural areas still is without electricity, smaller towns have frequent power cuts and even in the National Capital Region things are far from satisfactory.

He hears talk of how power never stops in the countries of the West, developed part of Asia and elsewhere. He often wonders as to when will India be able to become like them, for after all the proof of the pudding lies in its eating.

Yet, Budget is an exercise where public and private players are compelled -- perhaps as a ritual, or in desperate hope or maybe as a professional compulsion -- once again voice their concerns.

It is the oft-repeated stuff but must be said. The Planning Commission has repeatdly been speaking of the wonderful times to come and the government's resolve to get things moving. Commissions will come and Commissions will go, but the talk of power reforms never ceases.

What then is the wishlist of the Power sector

for the General Budget to be presented by Finance Minister Pranab Mukherjee on July 6? "The gaps can be attributed to misuse of the Electricity Act, 2003 by certain State governments. Lack of accountability of State governments and financial vulnerability of Independent Power Producers need to be addressed," says Mr Harry Dhaul, Director General, Independent Power Producers Association of India (IPPAI).

Mr Dhaul said huge investments are anticipated in the sector in the year 2010-2011. However, the sunset clause in the tax exemption provision (generation and distribution of power) is eligible for a 10 year tax holiday provided the undertaking begins generation of power any time before March 31 next year.

Mr Daul says the applicability of Minimum Alternative Tax (MAT) is bound to discourage future investments in the sector. The liability to MAT during the tax holiday period to a great extent offsets the benefits of tax holiday and delays the overall intent for extending tax sops to the power sector.

''The anomaly should be removed and tax on MAT applicability, exemption of 10 years needs to be enforced, irrespective of the year of commencement of power generation and distribution.'' He suggests providing even ground for all the players by treating electricity as a 'declared good'. Capital investments in the power sector are astronomical. Power generator is only eligible to claim depreciation in plants and machinery at the rate of 15 per cent on written down value basis. It is, therefore, imperative that power generator be allowed to claim depreciation ranging from 40 to 80 per cent.

Besides, the Income Tax Act prohibits tax exemption for organisations post merger or de-merger. Mr Dhaul argued that mergers and de-mergers are a norm to increase the efficiency of any organisation and, therefore, income tax exemptions should be permitted in such cases.

Mr Dhaul makes out a case for the government addressing the anomaly in the credit rules. According to the exisiting rules, manufacturers supplying goods to Ultra Mega Power Projects(UMPP) would not be able to avail input credit and would just be forced to pass on the additional cost to such projects. These provisions would make UMPP worse off as compared to mega power projects from a tax cost perspective.

Industry sources are pleading with the government to provide exemption on service tax for construction of power projects. The ground on which they justify this is that construction services with respect to other critical infrastructre sectors like roads and railways are outside the service tax net.

Besides, industry argues that concessions or exemptions under customs and excise

laws should be exempted for civil construction materials like cement and steel; just as raw materials required for the manufacture of machinery and equipment of power projects are allowed to avail.

Mr Dhaul says captive power plants should no longer be given step motherly treatment as they are neither covered under any of the existing exemptions or concessions under Custom and Central Excise laws for power projects nor are they eligible for benefits under the project import scheme, he said.

Set up in 1994, IPPAI is a non-profit organisation. IPPAI was established in 1994 shortly after the government opened power generation to private players.

What is equally important for the Budget is to address the huge leakages of the power sector, the continuing losses of the State Electricity Boards and ways and means to shun populism by announcing free power to farmers and other sections of society.

If this not done, Laxman's common man will continue to wear a bewildered look, for Budgets may come and go.

Quotes on “www.daylife.com”22nd June, 2009

Source: UNI

“The gaps can be attributed to the misuse of the Electricity Act, 2003 by certain State governments. Lack of Accountability of State Government and Financial vulnerability of Independent Power Producers need to be addressed.”

“The anamoly should be removed and tax on MAT Applicability, exemption of 10 years needs to be enforced, irrespective of the year of commencement of power transmission and distribution.”

www.webindia123.com22nd June, 2009

Source: UNI