Mar 1 2016 | Web Exclusive

KPMG Statement Budget reaction - Renewable and Overall ENR

  • Anish De, Partner Infrastructure and Government Services, KPMG in India
  • Manish Aggarwal, Partner and Head of Energy and Natural Resources, KPMG in India

Statement from Anish De, Partner Infrastructure and Government Services, KPMG in India
The increase in coal cess will improve relative attractiveness of renewables, but increase the overall cost of power for utilities by approximately 10,000 crores, thus impacting retail tariffs and utility financial health. For renewables, the reduction of accelerated Depreciation is a negative that will cause wind tariffs in particular to go up for projects set up after March 2017. All in all it is a mixed bag and the measures appear to be aimed more at shoring up government finances.

Statement from Manish Aggarwal, Partner and Head of Energy and Natural Resources, KPMG in India

Overall Energy Sector perspective
Overall positive intent for the sector except the adverse impact of increase in national environment cess (which is doubled to Rs. 400 / ton). The budget refrained from big bang measures and focused on consolidation to achieve ‘energy security’ for the Country. Intent to have a ‘comprehensive generation plan’ over next 15 to 20 years for nuclear power brings this important resource to mainstream focus apart from Renewables, which is good as it would remove India’s ‘fascination with single fuel’ and bring a holistic view required to achieve Energy security. Budget also provided for an outlay of Rs. 3000 cr per annum for nuclear power.

Permitting ‘calibrated market pricing’ for new discoveries / exploration for deep-water and difficult gas basins is real positive as that has been long standing demand of industry given the current low oil price scenario.

Disappointed to not have concrete measures to resolve stressed assets issue directly. Expectation was to have a ‘specialised turnaround stressed fund’. Though budget reiterated the intent to resolve commercial disputes, and talked of having guidelines for ‘re-negotiation of PPPs’, and enhanced power of institutions under the SARFEASI Act, these may not lead to faster resolution of stressed asset problem in short term.

Increase in Clean Environment Cess is going to impact the sector negatively. While good from overall environment perspective, this goes against (intuitively) stated intent to reduce ‘cost of power’ to industry (per unit impact of additional increase would be roughly 12 to 16 paise per unit).

Target of 100% village electrification would be achieved by May 1, 2018 (earlier then envisaged), which when seen together with RURBAN initiative launched recently to create growth centres in rural areas may lead to increase in demand of power from these unserved clusters over medium term.

Another interesting resource generation measure for making new investments pertains to divestment of assets by Central Public Sector Enterprises (CPSEs). If implemented well, this can lead to significant generation of resources outside the normal equity divestment window.

Little dampener for the Renewable sector as accelerated depreciation benefits gets restricted to 40% from April 1, 2017. However, this is in line with the overall direction outlined by FM in respect of reduction in corporate tax rates while doing away with various tax exemptions.

Renewables / Solar
The increase in Clean Environment Cess by Rs. 200 per tone would help to push more funds to the Renewable sector and provide impetus to realise ambitious government vision to this sector.

Little dampener for the Renewable sector as accelerated depreciation benefits gets restricted to 40% from April 1, 2017. However, this is in line with the overall direction outlined by FM in respect of reduction in corporate tax rates while doing away with various tax exemptions.

Oil & Gas
Permitting ‘calibrated market pricing’ for new discoveries / exploration for gas basins is real positive for oil & gas sector as that have been long standing demand of industry given the current low oil price scenario.

Provision of LPG connections to roughly 1.5 crore BPL households is a big positive; budget has provided for Rs. 2000 cr allocation towards the same.


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