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• Still, much needs to be done, and the markets are looking towards the budget to push some reforms. So far, the pre-budget chatter has focused on tax exemptions. As Mint reported on 24 February, the power ministry is pressing for a 19% import duty on power-generating equipment. It is also proposing to make it compulsory for bidders of ultra mega power projects— plants with the capacity to generate at least 4,000MW—to source a part of the equipment locally.Secondly, media reports also suggest that the government might remove the 5% import duty on coal and liquefied natural gas that will be used for power production. In a country starved of these fuels, and where producers are struggling to keep their operations viable due to the higher cost of imported fuel, this will certainly boost their profits. It is also in line with the recent directive to CIL.

• Also on the cards are service tax exemptions for power projects and perhaps a removal of the withholding tax on foreign investments in the sector. While these are, undoubtedly, positive measures, they are to a certain extent already expected and discounted in the prices. Still, given the darkness surrounding the sector and the track record of the government, especially when it is struggling to rein in a ballooning fiscal deficit, these measures, if they materialize, may boost power stocks further.

• But these may not be enough to crack the structural problems. For one, there is the problem of state electricity boards with their burgeoning losses that are estimated at upwards of Rs. 75,000 crore. Banks are reluctant to lend to these entities and they are partly responsible for the falling capacity utilization at power plants across the country (fuel shortage being the other reason).

• Various government-appointed panels headed by people such as B.K. Chaturvedi, a member of the Planning Commission, and V.K. Shunglu, a former comptroller and auditor general, have suggested solutions and bailout plans.It is here that the big questions emerge. Will the government privatize all distribution companies? Will the government clear the problems surrounding mining of coal to ensure fuel supply rather than arm-twisting CIL?Tough reforms such as these are what would make gains for power stocks sustainable.

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