This year’s budget seems to be focused on increasing expenditure in the various government schemes being undertaken for the improvement of the power sector. Hence, investment and efficiency in the transmission and distribution sector has been encouraged with an allocation of Rs 2,080 crores to Accelerated Power Development and Reform Programme (APDRP) - an increase of 160 per cent over the previous fiscal. As part of the continued focus on rural development, allocation under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) has been increased by 27 per cent to accelerate rural electrification. Such expenditure will improve the efficiency of the state electricity boards and will also benefit construction contractors and power equipment suppliers.

Additionally, the following positive changes have been made in the taxation regime that will benefit the power sector:

# The income tax holiday under Section 80 IA has been extended by a year to 31 March, 2011. However, since a power project takes at least 3 to 4 years to commission, this section should have been extended to at least 2013.

# The benefit of Section 80 IA to reconstruction or revival of old power plants, which was not extended last year, has now been extended from retrospective effect.

# Customs duty cut on wind energy equipment and biodiesel are the only cheer for the renewable energy sector, where much more was expected.

However, it was disappointing to note that private sector projects (which in fact are the key focus of the government) did not receive any significant push. In fact, there were a few negatives provided in the Budget for private sector power projects, namely:

1) MAT rate has been increased from 10 per cent to 15 per cent (even though the credit period for allowing carry forward of MAT has been increased from 7-years to 10-years); this will impact nearly all power projects as these are typically set up as SPVs and will reduce their profitability.

2) Service tax has been imposed on transport of goods through rail – this will increase tariffs as the cost of coal will increase for power projects.

3) There is no mention of any ultra mega power projects (UMPPs) or of opening the nuclear power segment to the private sector.

4) The generation based incentive scheme, which caps the incentive for wind power projects at Rs 49 crore for the next 10 years has not been strengthened.