India’s PPP: Power

India requires an additional 100,000 megawatts of power by 2012. The country currently has a peak deficit of 18 percent and an overall deficit of 9 percent. While India possesses the fifth largest electricity generation capacity in the world, it has low per capita consumption at just 606 units, less than half of China’s consumption per head.

While concerns exist over Chinese- managed projects close to India’s border areas, opportunities exist for politically neutral energy providers to service the India market.

According to the Ministry of Power, the total installed capacity in India is calculated to be 145,554.97 megawatts. They also state that:

• Generation capacity of 122 GW; 590 billion units produced (1 unit = 1kwh) CAGR of 4.6% over the last four years
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• India has the fifth largest electricity generation capacity in the world with low per capita consumption at 606 units
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• Transmission and distribution network of 5.7 million circuit kilometers
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• Coal-fired plants constitute 57% of the installed generation capacity, followed by 25% from hydroelectric power, 10% gas-based, 3% from nuclear energy and 5% from renewable sources

The State Electricity Regulatory Commission has said that India possesses a vast opportunity to grow in the field of power generation, transmission, and distribution. The target of over 150,000 megawatts of hydroelectric power germination is yet to be achieved. However, by 2012, India requires an additional 100,000 megawatts of generation capacity. A huge capital investment is required to meet this target. This has resulted in numerous power generation, transmission, and distribution multinationals to establish operations in the country under the PPP program. The power sector is still experiencing a large demand-supply gap, and this has called for an effective consideration of some of strategic initiatives. There are strong opportunities in transmission network ventures – an additional 60,000 circuit kilometers of transmission network is expected by 2012 with a total investment opportunity of about US$ 200 billion.

According to the Ministry of Power, the implementation of key reforms is likely to foster growth in all segments as follows:

• Coal based plants at pithead or coastal locations (imported coal)
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• Natural gas/CNG based turbines at load centers or near gas terminals
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• Hydroelectric power potential of 150,000 MW is untapped as assessed by the government of India
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• Renovation, modernization, upgrading and life extension of old thermal and hydroelectric power plants

Opportunities exist in:

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• Allowing foreign equity participation up to 100% in the power sector under the automatic route.
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• Encouraging the private sector to set up coal, gas or liquid-based thermal projects, hydroelectric projects and wind or solar projects of any size
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• Constitution of independent state electricity regulatory commissions
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• Deregulation of the ancillary sectors such as coal
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• Introduction of the Electricity Act and the notification of the national electricity and tariff policies
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• Provision of income tax holiday for a block of 10 years in the first 15 years of operation and waiver of capital goods’ import duties on mega power projects (above 1,000 MW generation capacity)
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  • Unbundling of the state electricity boards (SEBs) into generation, transmission, and distribution companies for better transparency and accountability

  Initiatives the government has introduced to facilitate foreign investment in the sector under the automatic route:

  • Unbundling of vertically integrated SEs
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  • “Open access” to transmission and distribution network
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  • Distribution circles to be privatized
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  • Tariff reforms by regulatory authorities

  For professional advice and assistance with foreign direct investment matters, incorporation, tax accounting, due diligence, payroll or audit services in India please contact Dezan Shira & Associates at india@dezshira.com or visit www.dezshira.com.

  
  
  
  

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