Lights, action!
In 10 years, demand for power will touch three times its existing capacity. That poses a challenge for policymakers and an opportunity for investors.
According to the Central Electricity Authority (CEA), at 1.09 lakh MW of peak supply in the 11 months to February 2009, India has a deficit of 16,000 MW or 14 per cent of restricted supply. Come summer and dry reservoirs, the gap will widen and dampen dreams of higher growth. The Kirit S. Parikh Committee had reckoned that India needs to install nearly 8 lakh MW by 2031-32, if it wants an 8 per cent GDP growth. That means adding around 40,000 MW a year for the next 20 years, or an annual investment of Rs 1.20 lakh crore.
Just for the next 10-year period, the demand is likely to cross 3 lakh MW, according to Vipul Tuli, Partner, McKinsey & Co. “Meeting this demand will require a five-to-ten-fold increase in the pace of capacity addition,” says Tuli. The Centre has set a target of adding 78,700 MW during the 11th Plan (2007-2012).
R.V. Shahi, a former Union Power Secretary who is now Chairman of consultants Energy Infratech, says projects adding up to about 65,000 MW are under construction but the private sector’s share of about 20,000 MW may face funding trouble. “This provides an opportunity for equity investors to participate in the sector,” says Shahi, the architect of the ultra-mega power project (UMPP) policy, among others. An investor could get stakes at competitive valuations now. Coal is another sector up for grabs. “Almost 50 developers have been allotted coal blocks. These mines will need investment,” says Shahi.
M.V. Subba Rao, Director of GMR Energy, sees light in the trend towards merchant power plants, in which the investors bear the risk. “Once the power market matures in India, a lot more of investment will come from abroad,” he says.
Anil Ambani, Chairman of Reliance Power, had told shareholders on September 23, 2008: “Even at our current low levels of electrification, the power sector has an annual revenue of over Rs 1.5 lakh crore. If we reach the per capita consumption levels of China, the industry size will nearly triple to over Rs 4 lakh crore.”
But, Manish Agarwal, Executive Director for Infrastructure Advisory at KPMG India, says some projects could fail to get funds or the statutory clearances. At the same time, many developers with mine allotments are looking for either strategic or financial investors. In transmission, Shahi says, onefourth of the new projects could require private sector investment.
Manish Mohnot, Executive Director, Kalpataru Power, is scouting for such opportunities: “…We are expecting about three to five tenders… soon. We will be participating in all of them.” Power Finance Corporation will soon be inviting bids for three UMPPs in Tamil Nadu, Orissa and Chhattisgarh. Then there is power-strapped Karnataka, which is inviting tariff-based bidding and merchant plants. “We plan to buy 4,500 MW through distributed generation route… from each taluk,” says Vijayanarasimha, MD, Power Company of Karnataka, a PSU.
Leading players like GMR say funding is not a problem; the plethora of regulatory hurdles is (Each project needs 54 licences and permits). On funding, Parikh says, the government has to help develop a long-term debt market. “Such a market would also help private investors to keep tariffs under check and prevent further cross-subsidisation,” he says.
For R.S. Sharma, Chairman of NTPC, the biggest challenges are availability of funds, equipment manufacturing capacity, fuel supply infrastructure, and the shortage of construction agencies.
All business opportunities!
Projects up for grabs |
