Power – Budget Impact

Power – Budget Impact

NSS rates & Govt. Commercial Paper

Given the huge fiscal deficit and domestic revenue constraints, the government has announced a raise in the return on National Saving Schemes (NSS) by 200bps. Further, the Central Directorate of National Savings has also been directed to launch 3-, 6- and 12- month papers --- Government Commercial Papers ---, rates of which would be market competitive. The rates on NSS schemes would now be revised quarterly instead of biannually so as to minimise the gap between NSS and market rates.

Subsidies to WAPDA & KESC

The subsidies for WAPDA have been set at PKR74.612bn for FY09 against PKR113.658bn last year while that for KESC has been set at PKR13.8bn against PKR19.596bn last year.

Import of power generation plants

WAPDA and its generation companies have been allowed temporary import of power generation plants free of customs duty as against the existing rate of 5% duty.

Allocation for power sector

An allocation of Rs. 66 billion has been made for a number of power sector projects. It is estimated that 2,200 MW of power will be brought on stream by the early next year.

Tax on transfer of profits

Profit transferred by a branch of foreign company out of Pakistan are proposed to be treated as dividend and chargeable to tax @ 10% as final tax.

Recipient of services

The liability of recipient of excisable services to pay duty has been established. Accordingly, an enabling provision has been made to charge duty from the recipient of services coming from abroad and terminating in Pakistan.

Impact - Neutral to Negative

• An allocation of PKR66bn for the purpose of setting-up of new power sector projects should not only improve the power shortage in the country but also help produce electricity at much cheaper rates compared to thermal power generation.

• Increase in NSS rates by 200bps shall have material negative impact on the valuations of IPPs that are considered close to corporate bond due to fixed project tenure and relatively stable dividend stream.

• We understand that the subsidies allocated to the power utilities would help partially off-set the impact of rising crude price and help insulate the utilities’ consumers from the impact of rising electricity generation costs.