The government today proposed a slew of steps including customs duty exemption on imported fuel and lower levy on overseas funds for projects to provide relief to crisis-hit power sector.
Unveiling various proposals for the power sector in the Union Budget 2012-13, Finance Minister Pranab Mukherjee said said that "in power generation, fuel supply constraints are affecting production prospects".
Permitting power companies to tap External Commercial Borrowing (ECB) route to part re-finance rupee debt on power plants and increasing power sector's tax-free bonds limit to Rs 10,000 crore from Rs 5,000 crore are also among the Budget proposals.
"Producers of thermal power have been under stress because of high prices of coal. I propose to ease the situation by providing full exemption from basic customs duty and a concessional CVD of 1% to steam coal for a period of two years till March 31, 2014," Mukherjee said in his Budget speech.
At present, imported coal attracts a customs levy of around 5%.
Full basic duty exemptions would be extended to power plant fuels such as natural gas and Liquified Natural Gas (LNG), uranium concentrate, sintered uranium dioxide in natural and pellet form.
In a move that would reduce overall debt cost, withholding tax on ECB would be cut to 5% from 20% for three years.
Further, the last date for power generating projects to seek tax holiday has been extended by one more year till March 31, 2013.
"Additional depreciation of 20% in the initial year is proposed to be extended to new assets acquired by power generation companies," Mukherjee said.
"There are signs of recovery in coal, fertilisers, cement and electricity sectors. These are core sectors that have an impact on the entire economy," he said.
The Association of Power Producers (APP) -- a grouping of about 22 private entities -- said the budget proposals announced today would go a long way in incentivising the power sector and benefitting the end consumer.
These proposals come against the backdrop of severe fuel shortage as well as funding issues hurting the power sector, which is expected to see a capacity addition of over 80,000 MW in the 12th Five-Year Plan (2012-17).