Budget Reaction - Energy and Natural Resources - Manish Aggarwal, Head of Energy and Natural Resources, KPMG in India

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

The budget speech of the FM focused extensively on supporting infrastructure but lagged in substantive reform roadmap for the ENR sector in particular over short term. The key positive takeaways from the budget for the sector are creation of a National Infrastructure Investment Fund with an upfront allocation of Rs. 20,000 Crore, and intent to create a vibrant bond market may lead to enhance availability of funds to the Power sector.

Two new proposed legislations i.e. The Public Contracts (Resolution of Disputes) Bill; and The Regulatory Reform Bill would probably be a step in positive direction to help resolve long standing power tariff disputes with high potential to revive impacted projects. The step to bring out “bankruptcy code – 2015-16” is a very positive measure. We believe that this will help in restructuring, recovery, and subsequent change of management for stressed projects in the power sector. Rationalization of subsidies via the “Jan Dhan – Aadhar – Mobile telephony’ trinity would augur well for oil PSUs.

Increase in public sector commitment for investments in infrastructure by Rs 70,000 Crore augurs positive for infrastructure investment in immediate term. However, key issues that demanded clarity like revival of stressed power generation assets, fiscal & policy measures for achievement of the highly stretched goal of renewable energy, enhancing domestic fuel supply to power stations have not been detailed out. 

The clean energy cess on coal has again been proposed to be doubled in this budget from Rs 100/ Ton to Rs 200/ Ton, which would provide meaningful support to renewable energy investments but mode of drawdown of these funds is still not clear even for funds already accumulated in the existing corpus.  There was mention of five (5) ultra-mega power projects under ‘plug and play’ model to get approvals, clearances in place before auctioning them. However, whether the sector has financial capacity to invest in new capacity of such scale remains a question mark.

We hope that may be the relevant ministries would take cue from the overall focus & intent of the budget speech and bring out clear implementation frameworks, and policy measures to address the key issues being faced by the sector.

Overall Budget seems to have laid down road map for some key institutional response to address the challenges being faced by sector without giving clarity on specifics