IMPACT: POWER

MEASURES

• Reduction of customs duty from 25 per cent to 10 per cent
  
• Abolition of the four per cent Special Additional Duty
  
• Reduction of customs duty on electricity meters from 25 per cent to 15 per cent
  
• Reduction in customs duty on imported coal from 25 per cent to 15 per cent
  

IMPACT

Duty cuts will significantly cut down project costs, thus, raking in savings for utility and transmission and distribution (T&D) companies.

Due to increased threat from T&D equipment imports, domestic T&D companies will be marginally affected.

The gainers on this front will be Indian arms of MNCs such as Siemens and ABB which will benefit by way of higher business volumes since these companies import equipment from their parents.

Firms with power plants based on imported coal will also benefit from the reduction in customs duty on coal. Projects based on coal will be able to compete better with other fuel-based plants.

But since very few utility plants are based on coal, there will be hardly any impact on grid tariffs. Cost of production for coastal power plants based on imported coal is likely to decline by Rs 0.15 per kwh.

OUTLOOK

The power sector has been all charged up last year. The Electricity Act brought in the much needed reforms in the sector by way of open access.

Open access will allow companies to distribute power to anybody, anywhere in the country. The Act has also done away with licensing, given a new lease of life to cash-strapped state electricity boards (SEBs) and has encouraged infrastructure upgradation.

This will help companies to limit their transmission and distribution losses. This has been a big positive for generating companies looking at expanding their capacities in the near future.

The significant pent-up demand in the system due to power deficits will be addressed fairly with the above mentioned exercises.

However, things are easier said than done. Analysts tracking the sector are of the opinion that implementation is the key to reaping any benefits from the Act. They are considering at least 4-5 years before we finally see the whole picture.

The icing on the cake came in the form of the mini-budget. This has brought in immediate benefits in form of fuel cost savings and lower capex requirements. With reduction in customs duty on imported coal and electricity meters firms will benefit more than expected.

Impact - Neutral

TATA POWER

The duty cut impact will be positive for power generation companies. Setting up new plants will be cheaper now with the duty reduction in customs, thus bringing down capex levels.

Also, the reduction in customs duty on imported coal (Tata Power imports 100 per cent of coal) will bring in savings of Rs 40-50 crore.

The move will not have any major impact on revenues since fuel costs are totally passed on to consumers. The company's third-quarter results have been impressive with net profit rising 26.39 per cent to Rs 184.49 crore.

The main driver was the reduction in fuel costs. By changing the fuel mix in favor of coal, Tata Power has been able to cut down a considerable amount of its fuel costs.

BSES

The result of customs duty on imported coal will not have much impact on BSES since it imports only 15 per cent of its coal fuel requirements.

However, there will be some savings in fuel costs. The firm will benefit from setting up new power plants since capex will be reduced.

BSES' third quarter standalone figures show a net profit though extra-ordinary income stands 31.4 per cent lower at Rs 80.7 crore.

Going forward BSES Andhra and BSES Goa will also contribute to these figures after these firms are amalgamated into the parent.

Since both firms are operating profitably, the amalgamation will bring about better results in the coming quarters. It has also applied for distribution licenses in Maharashtra and New Delhi.

CESC

The company will primarily gain from savings in fuel costs on imported coal. The company has substituted high cost power purchase from the West Bengal State Electricity Board with its own low cost fuel-based power.

The company expects to save significant amounts on its fuel costs from this move. With the reduction in duty on imported coal, the savings will only increase.

Savings on imported coal are expected to amount to Rs 16.5 crore. The firm has seen a turnaround last year.

It has employed restructuring strategies in several areas including in fuel costs and debt repayments. The company has also been granted an increase in tariff by the WB SEB which will enhance its revenues going forward.