In the run-up to the Budget 2010, Business Line caught up with Kameswara Rao, India Leader for Energy, Utilities, and Mining Practice, PricewaterhouseCoopers, for a quick email interaction on the power sector.

Excerpts from the interview

On the noteworthy policy measures/ stimuli

• India Infrastructure Finance Co Ltd (IIFCL) permitted to raise Rs100 billion through tax-free bonds; and subsequently enhanced for additional fund raising in tranches for Rs 300 billion.

• Import duty on naphtha for use by the power sector reduced to 0 per cent.

• A number of policy initiatives, including the civil nuclear cooperation have been signed with, or ratified by, several countries; generation-based initiative for wind power; and broad-based actions to improve energy efficiency.

• Policy emphasis on power procurement on the basis of competitive procurement, and offering a range of projects on PPP basis (such as UMPP, private power transmission, renewables, and municipal lighting).

On the impact of policy measures/ stimuli

• The focus of stimulus plan in infrastructure, considering that slackness of demand was not the problem, was to ensure the flow of finance for projects. The lower cost of inputs also helped improve the project economics and encouraged new investment.

• IIFCL raised Rs 10,000 crore of tax-free bonds in Jan-Mar 2009 and Rs 3000 crore of taxable bonds since (Apr-Dec 09). The power sector accounts for 46 per cent of the disbursement; and it supports projects that achieved financial closure of Rs 88,000 crore, which is 61 per cent of its portfolio.

• The reduction in naphtha prices benefits the dual fuel plants which represent only 12 per cent of our generation. Given the shortfall in cheaper hydropower generation, this reduction helps cushion the costs for power utilities. Incidentally, the prices of naphtha were already in decline, and the reduction led to displacing LNG and a higher level of production as against the previous year.

• The competitive bidding process has attracted a good response. In generation, Case 1 bids obtained tariffs ranging 225-264 p/kWh, and Case 2 UMPP bid a tariff of 177 p/kWh. In transmission, we have seen the first IPTC award, and in distribution, franchisees were let out in UP and Bihar, and several initiated in other states.

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