Budget 2012-13: Energy sector overview by BMR Advisors

BMR Advisors has come out with its report on energy sector.

Energy sector being one the key strategic sectors, continues to receive policy thrust required for sustained growth. Proposals to extend viability gap funding for oil and Gas/LNG storage facilities and oil and gas pipelines will provide much needed impetus for growth of this sector. Extension of ten year tax holiday for undertaking engaged in generation / generation and distribution of power by a year until March 31, 2013 is a welcome move.

Other non-tax policy measures including proposed cap on subsidies (which will subsume fuel subsidy as well) would enable the Government to achieve a balance fiscal consolidation over the 12th plan period.

Policy announcements

• Viability gap funding extended to oil and gas/ LNG storage facilities and oil and gas pipelines.
• To overcome fuel supply constraints in the power sector, Coal India Limited directed to sign fuel supply agreements with power plants that have entered into long term Power Purchase Agreements with distribution companies; such power plants should be commissioned on or before March 31, 2015.
• ECB allowed to partly finance rupee debt of existing power projects.
• Issue of tax free bonds for power sector increased to INR 100 billion.

Direct Tax Proposals

Oil & Gas

• Income received by foreign companies in Indian currency in India from sale of crude oil will be exempt, subject to following conditions:

1. Consideration received is pursuant to an agreement / arrangement entered into with or approved by Central Government;
2. Foreign company and the agreement / arrangement is notified by Central Government having regard to the national interest; and
3. Foreign company does not undertake any other activity in India other than receipt of consideration from oil sale.

Power

• The period for commencing operations for claiming tax holiday has been extended by one year to March 31, 2013;
• Benefit of additional depreciation at 20 percent extended to power generation companies;
• Interest payable on ECBs between July 1, 2012 to July 1, 2015 by an Indian company engaged in the business of generation or distribution or transmission of power, under a loan agreement approved by the Central Government, and subject to a maximum rate of interest approved under such agreement, subject to tax at the concessional rate of 5 percent.

Indirect Tax Proposals

Oil & Gas

• Cess levied under Oil Industry (Development) Act, 1974, as a duty of excise on crude and petroleum increased from INR 2,500 per tonne to INR 4,500 per tonne effective immediately. Cess continues to remain exempt for crude oil imported into India.
• Reduced rate of Cess of INR 1,600 for specified fields appears to have been retained.
• Exemption from basic customs duty (

  Read More