Power tariffs may fall as corporate taxes reduced

Installation of prepaid meters over the next three years will help ailing power distribution companies cut losses substantially while reduction of corporate tax for new power generation companies will reduce power tariffs for consumers.

“The reduction in taxes for new companies in the generation sector will prompt existing power companies to float special purpose vehicles that would be eligible for reduced tax at the rate of 15% against the existing 30% rate. They will also be able to bid lower tariffs in auctions thus reducing power tariffs for consumers and for fixed tariffs their profits would be higher,” said Sabyasachi Majumdar, group head at ICRA

Kameswara Rao – leader-energy, coal and mining at PWC India said: “It will also encourage them to scrap old and inefficient plants and use the land to set up efficient new units – in thermal, solar and hydel sectors among others.”

“The time-bound proposal to shift to pre-paid smart meters can truly help utilities improve cash collection as well as for consumers get a competitive power supply. This is, eventually, is a positive for generators too who currently suffer delays of six-eight months and are sitting on surplus capacity that could be sold if they had access to consumers,” Rao said.

“Sovereign wealth funds with presence already in India’s renewables, hydro, transmission and distribution sectors will see the 100% tax exemption on interest, dividend and capital gains as a huge positive. This, in addition to the corporate tax cut for power generators, should attract new investments, encourage early closure of inefficient plants and reduce marginal cost of generation,” he said.

Majumdar said: “Shutting down of old thermal power plants will shift generation to newer generation thermal projects and thus provide a moderate boost to their PLFs.

ET News
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