Energy & Infrastructure Impact Analysis of Union Budget 2016

Executive Summary

India Budget 2016 , had enormous expectations in terms of renewed capital interests of investors in India coupled with better and organized reforms for the common man as well. The challenge was massive and arguably the “Budget 2016” almost lived upto the expectations. The opinion circles, however appear divided in the initial feedback upon same marginally skewed towards positive.

Indeed there are positives for the energy & infrastructure domain, but as the theme was hinged towards accelerated implementation of the already declared budgetary steps in the last fiscal the impetus on fresh announcements were mostly reserved. Though, domestic gas availability which was an issue of concern for the country in terms both to harness the domestic hydrocarbon resources and reduce the tune of imports. The Government, definitely has scored positive in terms of declaring incentives for deep water exploration and developments in O&G sector.

Another, beneficiary was Nuclear Power business which would witness an increased tune of investments of ₹ 3,000 Crores per annum which is a move targeted towards Government’s commitment depicted at Paris Summit to reduce upon emission’s and present an example before the counterparts. The move to rechristen the Clean Energy Cess to Clean Environment Cess is another indication of Governments’ concern on environmental issues with the same being doubled at ₹ 400/Ton of coal from ₹ 200/Ton. This might lead to the enhancements in energy charge for power generation in turn which would be a direct pass through to the consumers, however it would be a noteworthy fact to witness as to how Discoms react to same since an endeavor is also on move to make them more accountable for power business in India.

Apart from this a series of boost in the three legs of power generation, transmission and distribution are likely to continue with an accelerated pace and witness enhanced implementation.
The roads & highways sector would get an added boost and there are efforts in the right directions to enhance the national connectivity following our largest Asian counterpart China. The allocations in rail & road have been highest so far and is stipulated to streamline the lagging sector in terms of performance. Surprisingly, the budgetary allocations for much anticipated defense sector was at 4.8% which was considered to be more given the Governments’ fillip on Make in India. enincon consulting llp as leading firm has analyzed the repercussions & impacts of Budget 2016 on energy & infrastructure segment to enable better understanding for clients.

Oil & Gas Sector – Budget Analysis

Budget 2016
Announcements
Sectoral
Repercussions
Overall Impact
Incentivize Deep Sea & Ultra Deepwater Projects Will be a good step for the country to target lower degree of hydrocarbons import. This would lead to lowering of capital burden on the Government as well as the companies participating in entire value chain. The country can further improve upon gas supplies to the preliminary consuming sectors of power & fertilizer. Also, this would rekindle the interests of global majors in India pertaining the O&G segment which could take the country to be self sufficient in terms of energy needs in long-term positivePositive
Calibrated market freedom & predetermined market price for landed fuel Another key initiative in order to promote increased participation of both domestic and foreign players in Indian Oil & Gas sector which would remove barriers to entry in the eventuality of huge risks in terms of returns on investments. Also, the market would not form a cartel if the prices would be pre-determined thereby the dominance of handful of players will slowly wither out in the country e&p exercise. This additionally will boost India’s rank among chief hydrocarbon producing countries positivePositive

 

Coal &Power Sector – Budget Analysis

Budget 2016
Announcements
Sectoral
Repercussions
Overall Impact
Sector – Power ₹ 3,000 Crores Investments /Annum in Nuclear Power for coming 15-20 years The risks associated in terms of developing a nuclear power plant is well known post Fukushima event. However, barring that tragedy it would be safe to claim that Nuclear is fairly secure source of power generation which is also clean in nature with excellent capacity utilization. India hopes to add more capacities in this front signaling changes for business realms of OEMs & turnkey EPC solutions providers at large from conventional thermal power plants to nuclear plants Neutrally positiveNeutrally Positive
Sector – Power ₹ 31,000 Crores additional mobilization of funds from agencies like PFC, IREDAE etc. Certain boost in terms of arranging funds for the power sector funds. Would be apt for both large solar project funding (both government scheme projects as well as private projects) , rooftop and conventional thermal power projects (typically for bigger scale projects viz. UMPP scale) which was a growing concern for the capacity additions. However, power procurement is still a conundrum which seeks its resolution through UDAY schema positivePositive
Sector – Power
Service tax exemption on rural electrification programme
A good initiative in terms of encouraging investments for electrifying the rural India . Moreover, the thought falls in sync with the government’s vision of providing power to all by 2019. positivePositive
Sector – Power
Clean energy cess to witness a two fold increase from INR 200/tonn to INR 400 /tonn
One of the biggest challenge which the Indian power sector is facing as of now is ease in financing. The two fold increase announced in the clean energy cess would not only decrease the confidence of new entrants into the power generation business in India but might also promote operational difficulties for the existing ones. Thus, restricting the flow of funds into the segment especially from private channels . positiveNegative
Sector – Power
Make in India (MII) initiative to witness increased excise and customs duty on Capital Goods & Hardware market in India
The impact on MII will increase the impetus on secondary sector for the country thereby decreasing the tune of imports. This additionally would encourage foreign OEMs to set up manufacturing plants in India to facilitate the equipment’s consuming sectors of conventional power & RE market. Also, it would set India as preferred destination to transform as business hubs for MNCs looking to capitalize the Asia-Pacific regions positivePositive
Sector – Power & Coal
Ease of Doing Business – IT Enabled Government Processes
Positive in terms to reduce the bottlenecks and enthuse transparency in the overall operations of the Government Departments aiding beneficiaries with minimal capex upon same. positivePositive
Sector – Power
ARCs to help distressed assets
The setting up of Asset Reconstruction Companies would enable the distressed power assets to bail out and see a new horizon of growth and positivity. Moreover, it would help banks recover its bad debts thereby improving their lending credibility to the future projects positivePositive
Sector – Power Banks & NBFCs to get ₹ 1,00,000 Crore Funds in FY 2016-17 Positive in terms for the small scale power projects, typically solar roof top projects, biomass, W2E projects etc. This would help state’s meet their RPO targets as an extended repercussion positivePositive
Sector – Coal
Clean energy cess to witness a two fold increase from INR 200/tonn to INR 400/ tonn
Revenue sourcing of CIL and states practicing mining activities shall certainly get a boost. Additionally, the funds generated through this clean energy cess could be further used for developing the existing mining and other infrastructure facets in the country. positivePositive

 

Infrastructure Sector – Budget Analysis

Budget 2016
Announcements
Sectoral
Repercussions
Overall Impact
Sector – Roads & Highways
₹ 1,00,000 Crore for stalled projects investments planned in FY 2016-17
Though planned investments tenor is good, but application matters as it would enable close to 100+ mega scale projects in the segment opened as new avenues for market participants Neutrally positiveNeutrally Positive
Sector – Roads & Highways
NH of 10,000 Kms & SH to be upgraded to NH stands at 50,000 Kms
Huge opportunities opened up for both private as well private players to initiate projects on PPP mode and better concession agreement to ensure lower risk profile positivePositive
Sector – Ports
Green Field Projects to be throttled on east & west coasts equally
Definitive game changer for the logistics sector if implemented to success. This would help the country utilize the huge coastline better in terms of cargo dispatch and enhanced TAT with reduced time at ports Neutrally positiveNeutrally Positive
Sector – Ports
₹ 800 Crores investment in Waterways Project
Though much more needs to be done on this project, as subsequent Governments’ have failed to witness the better implementation upon same Neutrally positiveNeutrally Positive
Sector – Aviation
160 airport & airstrips to get ₹ 50-100 crores of fund each
The investments would improve the situation for remote area connectivity’s however the tune of investment might prove to less to improve the domestic flight carriers and cargos Neutrally NegativeNeutrally Negative
Sector – Aviation
10 of 25 airports & airstrips of AAI to be developed
AAI needs to hit the peddle more on development mode, as India lags far behind its developing counter part China. Hence, need for more impetus was required in this ambit positiveNegative
*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

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