India Powers Up

Foreign interest and investment in India's electricity generation sector is on the rise, with capital inflows more than doubling over just the last year as the country struggles to meet its burgeoning power needs.

Two recent moves by global majors highlight the trend.

The impact of the considerably improved Indo-US relations and the November visit of President Barack Obama are being felt in the power business, apart from more publicized sectors such as nuclear energy and defense.

The giant American power producer AES Corp has announced its intention to invest US$15 billion to expand its capacity to 10,000 MW of power plants in the country. AES plans to list a local subsidiary on Indian bourses to raise funds from local markets for its projects.

If and when the plans are in place, AES, with global capacity of over 40,300 MW, will be the biggest foreign company in India's power business -- following the fiasco of the US-based Enron, which set up the Dabhol power plant in the 1990s, but had to exit due to dispute over billing and allegations of corruption. Shortly after that, Enron collapsed into one of the biggest bankruptcies in US history at the time and was revealed to be a house of cards, generating considerable distrust, along with the Union Carbide disaster in Bhopal, in which thousands of people died from poisoned gas.

Meanwhile, the Hong Kong-based China Light and Power (CLP), the biggest foreign power company operating in India, recently revealed major investment plans that range from coal-based power generation, wind energy and transmission projects. CLP's wholly-owned subsidiary, CLP Power India, is aiming at 10,000-MW power capacity by 2015 in India, with new investment of Rs300 billion (US$6.65 billion) adding to Rs100 billion in capital already pumped into gas, coal and wind energy projects since 2002.

Speaking about the plans, Rajiv Mishra, managing director of CLP India, said the company has pre-qualified for two 4000 MW ultra mega power projects (UMPPs) proposed at Orissa and Chattisgarh.

"Earlier, we felt UMPPs were risky and CLP India lacked experience in setting up mega green field power projects. With the experience of setting up the green field project in Haryana, we think it is time to look at mega power projects," Mishra said. "India's power market is changing from a nascent/opening market phase to a developing phase."

CLP is one of the largest power companies in the Asia-Pacific region, with more than 19,000 MW of capacity spread over Hong Kong, China, Australia, Philippines and Laos.

According to Paul Hanrahan, CEO of AES and part of the US business delegation that accompanied President Barack Obama to India in November, "It (India) is probably going to be one of the biggest markets in the world."

"We are targeting 10 percent revenue from India and 25 percent from Asia in five years, Hanrahan said, adding: "We aim to have 10,000 MW of capacity (in India), 90 percent of that would be coal or gas-based and 10 percent would be renewable. That is my ambitious target. We may go for partnerships.''

Hanrahan did touch upon the problems that private firms face in the still highly regulated power sector in India.

"They (India) are not perfect; they could improve; but they are moving in the right direction. The only constraint is getting approvals and land acquisitions. Every country has complications," he said.

India plans to add 100,000MW capacity during in its 12th Plan period (2012-17) to supplement 62,000 MW in the 11th Plan (2007-12). As per official estimates, India's power sector needs investment of up to US$400 billion in five years to end-March 2017 to tide over acute electricity deficits.

Other foreign firms with India power plans include South Korea's Doosan. Joint Ventures include Mitsubishi, JSW and Toshiba, Bharat-Forge and Alstom and Ansaldo Caldaie (Italy) and GB Engineering.

Indian entities are investing big into the power business as well. Recently, R-Power signed major equipment supply contracts with Hong Kong-listed Shanghai Electric Company and GE. NTPC, India's biggest power producer, plans to buy equipment worth over US$36 billion in the next two-years to more than double installed capacity.

Even as investment flows, questions remain about fruition, given the dynamics of such large projects.

Coal shortages, environment issues, transport bottlenecks, absence of adequate power equipment capacity and insufficient capital have all set back India's power sector.

The Power Ministry last month said it may miss its power capacity addition target for the 11th plan period by about 4,000 MW due to delay in hydro-power projects. The government has already scaled down target to add 78,000 MW of power capacity to 62,000 MW.

The entry of foreign firms can provide the requisite boost to power generation. Power sector share in India's foreign direct investment is rising at a quick pace.

Analysts agree that a big portion of India's massive electricity generation plans to tide over acute power deficits rests on the success of coal-fired UMPPs of 4000 MW and above.

The Anil Ambani backed Reliance Power has won three UMPPs of 4000 MW each, out of the four awarded by the government so far: Sasan (Madhya Pradesh), Tilaiya (Jharkhand) and at Krishnapatnam (Andhra Pradesh). Tata Power has won the Mundra (Gujarat) UMPP.

The government has announced plans for five more UMPPs (for a total of nine), with four at pithead and five in coastal locations.

Apart from CLP, firms that have placed their bids for UMPPs include majors such as L&T, NTPC, Tata Power, Sterlite Industries, Jindal Steel & Power, Essar Power, GVK, AES, Adani, Lanco Infratech, Dian Wijaya (Malaysia), Torrent Power and Citra, among others.

Each UMPP requires an investment of up to Rs200 billion, with states such as Karnataka, Maharashtra, Chhattisgarh, Andhra Pradesh, Orissa and Gujarat at the forefront of pushing for such projects.

Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com