>Power Utilities (MOTILAL OSWAL)

● NTPC to retain 80-IA tax benefits under the revised tariff norms: Under the revised tariff norms (FY10-14), the tax rate for calculating pre-tax RoE will be the applicable tax rate, and not the effective tax rate. Thus, NTPC (Neutral) will be able to retain the 80-IA benefit. For PowerGrid (Not Rated), this change will make no difference, as it is a MAT paying company. Most of the private sector projects would also not benefit, as they are being set up as project SPVs, which would be MAT paying.

● Expect XIIth Plan project awards by CPSUs / state companies to be expedited: According to the National Tariff Policy, post January 2011, all new projects of Central Public Sector Undertakings (CPSUs) will be based on CBT, versus current tariff based on fixed RoE plus incentives. To be eligible for current tariffs, the projects need to receive investment approval and achieve financial closure before January 2011. Thus, we believe that a large part of the XIIth Plan (FY13-17) capacity award by the CPSUs and state generation companies could happen by FY11. This will translate into a steady flow of orders for power equipment companies like BHEL (Neutral).

● Draft guidelines for promotion of renewable energy being framed: CERC is in the process of issuing draft guidelines on promotion of renewable energy, and providing cost plus returns to such projects. CERC is in favor of preferential treatment during the initial period of debt repayment to allow renewable energy projects to compete with thermal power. Going forward, benchmarks for capital cost will be established and escalations will be provided. CERC is also conceptualizing renewable energy certificates (REC) along the lines of carbon credits.

To see full report: POWER UTILITIES