Fuel, land acquisition issues force global power firms to rethink India strategy

Global power companies such as Chinese giant CLP India are putting on hold investment plans in India, where fuel, tariff and land acquisition problems have jammed the sector, and are considering opportunities in less risky places like the Middle East and Vietnam.

Bankers and international consultants say top foreign companies that were actively negotiating deals to enter India a year ago have developed cold feet – a move that will reduce the flow of technology and capital to the power sector where domestic banks are already reluctant to lend. At least half a dozen companies from countries such as USA and Japan are reviewing their plans, industry officials said.

CLP India, a subsidiary of the Hong Kong-based group with operations in Asia Pacific, Australia, Thailand, Taiwan and other countries, has long-term plans for the country but would expand in other markets if issues related to fuel, tariffs, power offtake, land and regulatory clearances were not sorted out in few months, Managing Director Rajiv Mishra told ET.

“As management we are interested in conserving cash and I suppose this is where we stand now. At this point there are too many problems and one should be extra cautious. If the issues do not get resolved over a period, it will effect new investments. Capital is always restricted and you have to look at right opportunities. Plenty of opportunities exist in many existing markets,” Mishra told ET.

Foreign presence in Indian power sector has been limited but was projected to grow as the market is vast and short-supplied and investors had anticipated a friendly policy regime. But even existing foreign companies such as CLP are worried while AES India, a unit of the global major AES, has already announced exit from most of its India operations.

Kotak Investment Bank executive director Sanjay Sethi said a year ago his firm was negotiating acquisition and partnership deals in power sector for 6-8 potential overseas investors.

“India was marked in roadmaps of companies for high growth story. Some deals were at advanced stages. But with the adverse feedback on availability of coal, land and regulatory clearances, the overseas companies scaled back their India objectives. The companies have started looking beyond in Southeast Asian, Middle East and Africa,” he said.

Boston Consultancy Group partner and director Kaustav Mukherjee said fuel was a bigger concern for foreign investors than Indian developers who manage with spot purchases and coal supplies from Coal India Ltd.

“Indian companies manage on sort of day-to-day basis that is a discomfort for foreign investors. They are finding it extremely difficult to supply power at fixed tariffs,’ he said.

Experts see a spurt in investments in Southeast Asia and Middle East that offer returns in the range of 10-12% as compared to about 16% in India. Several companies are opting for these markets.

Source: ET
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