• Has FM Jaitley done enough for the energy sector?

    he Union Budget 2017-18 has come as a mixed bag for the energy sector. While Finance Minister Arun Jaitley has retained the government’s focus on rural electrification, renewable energy and a push for the oil and gas industry, there were no major provisions for other crucial areas of thermal power, wind, hydro and nuclear energy.

    Key announcements:

    One of the major energy related announcements in today’s budget was the merger of Indian state oil companies to create a global behemoth. Jaitley said the government will create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.

    The FM also announced a reduction in basic customs duty for liquefied natural gas (LNG) to 2.5 per cent from 5 per cent. He also said two additional strategic crude oil reserves will be created at Chandikhole in Odisha and Bikaner in Rajasthan to ramp up domestic reserves to 15 MT.

    Significantly, this budget also maintains the last year’s allocation for the oil ministry’s flagship scheme to provide LPG connections to poor households at Rs 2,500 crore. Also, in an indication of things to come, Jaitley identified the ongoing rise in global crude oil prices as one of the key three factors that will be major challenges for the emerging economies, including India.

    This year’s budget also attempts to maintain focus on rural electrification flowing from Prime Minister Narendra Modi’s vision. Jaitley said India was confident of meeting its 100 per rural electrification target by May 2018 and allocated a sum of Rs 4,814 to its flagship scheme Deen Dayal Upadhyaya Gram Jyoti Yojana.

    On the front of renewable energy, the FM said the government would add 20,000 Megawatt by taking up the second phase of solar park development in the country.
    Stressing on the government’s seriousness to focus more on solar energy, he said around 7,000 railway stations would be fed through solar power in the medium term and work has already begun in that respect in 300 stations.

    Major misses

    While the government maintained its push for the renewable sector, the lack of any relief provision for private thermal generators struggling with huge investments stuck for want of long term PPAs left a part of the domestic industry disappointed. there was not even a mention on thermal power and coal apart from Jaitley’s announcement on rural electrification.

    The Economic Survey, released on Jan 31, had pointed out to the difficulties being faced by the private power generation sector due to falling tariffs. The survey said private firms were reeling under cost-overrun pressure and PLFs and tariffs in the short-term market are not likely to rise in the near term.

    The industry had expected some, if not major, relief in terms of corporate tax and minimum alternate tax (MAT) for the power sector. But there was no such mention in the FM’s budget speech. Thermal power producers had also expected some relief in terms of the Rs 400 per tonne clean energy cess that was imposed last year.

    Experts also flagged the lack of major provisions for hydro or nuclear energy. The wind power sector had also hoped for a revision of the generation based incentive (GBI) for wind generators which is expiring on 31 March. The oil and gas industry had also demanded a revision of the high crude oil cess — another demand that remained unheeded in this budget.

    Overall, experts said the budget was a mixed bag for the energy sector. Research and ratings agency ICRA said the budget has several favourable proposals such as creation of two more strategic oil reserves projects, reduction in basic customs duty (BCD) on LNG and creation of an integrated oil PSU major. “The creation of additional strategic oil reserves will boost the energy security of the nation. Reduction in BCD on LNG will make LNG more affordable to end users. This is a credit positive for existing regasification terminal owners such as PLL, GAIL and Shell India,” ICRA said in a statement.

    Experts also said the idea of creation of an integrated oil major is laudable as it will strengthen the business and financial risk profile of the combined entity but integration issues, especially on the HR side, will e key challenges. Globally, the concept of stated-owned oil majors is a well established one, which confers advantages to the stakeholders. Vince Williams Jersey

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