ENHANCED REFORMS & ACCELERATED IMPLEMENTATION – IN FOCUS FOR INDIA BUDGET 2016

BUDGET 2 1 6

India Budget Analysis

29th February 2016

www.enincon.com/budget-2016/

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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.

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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

Positive

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

Positive

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Coal &Power Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

Sector – Power ` 3,000 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 Positive

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

Positive

Sector – Power ` 31,000 additional

mobilization of funds from agencies like PFC, IREDAE

etc.

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Coal &Power Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

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.

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 .

Negative

Sector – Power Clean energy cess to

witness a two fold increase from INR 200/tonn to INR

400 /tonn

Positive

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Coal &Power Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

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. Positive

Sector – Power & Coal

Ease of Doing Business – IT Enabled Government

Processes

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

Positive

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Coal &Power Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

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 Positive

Sector – Power

Banks & NBFCs to get `1,00,000 Crore Funds in

FY 2016-17

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

Positive

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Coal &Power Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

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.

Positive

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Infrastructure Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

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 Positive

Sector – Roads & Highways NH of 10,000 Kms & SH to be upgraded to NH stands

at 50,000 Kms

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 Positive

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Infrastructure Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

Though much more needs to be done on this project, as subsequent Governments' have failed to witness the better implementation upon same

Neutrally Positive

Sector – Ports

`800 Crores investment in Waterways Project

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 Positive

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Infrastructure Sector – Budget Analysis

Budget 2016

Announcements

Sectoral

Repercussions

Overall

Impact

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 Negative

Sector – Aviation

10 of 25 airports & airstrips of AAI to be developed

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 Negative

join the Future now

Disclaimer

This publication does not constitute professional advice. The information in this publication has been obtained or derived from sources believed by enincon consulting llp to be reliable but enincon consulting llp does not represent that this information is accurate or complete. Any opinions or estimates contained in this publication represent the judgment of enincon consulting llp at this time and are subject to change without notice. Readers of this publication are advised to seek their own professional advice before taking any course of action or decision, for which they are entirely responsible, based on the contents of this publication. enincon consulting llp neither

accepts or assumes any responsibility or liability to any reader of this publication in respect of the information contained within it or for any decisions readers may take or decide not to or fail to take.

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BUDGET 2 1 6

India Budget Analysis Contact Us Head Office Address: Worldmark 2, Aerocity, IGI Airport, New Delhi 110037, India Phone: +91 11 6502 1200 Email: connect@enincon.com Website: www.enincon.com