Akshay

Assocham seeks tax holiday for infrastructure industries

New Delhi, Aug 6 (IANS) The Associated Chambers of Commerce and Industry of India (Assocham) has asked for 100 percent tax holiday benefits for infrastructure building industries to achieve 12 percent manufacturing growth.

In recommendations presented to Finance Minister P. Chidambaram by Assocham president Anil K. Agarwal, the leading industry lobby has also asked the government to grant infrastructure status to the gas pipelines industry.

Assocham, which is seeking tax holidays for 15 years from the day of commencement of business operations, asked for incentives for the tourism industry.

Citing the examples of China, Thailand and Malaysia, Assocham has enumerated the benefits of tax sops for the growth of a developing economy like India.

It has also asked 100 percent tax holiday for food-processing and agro-based industries so that the industry can contribute substantially to the country's GDP (gross domestic product), according to a press release from Assocham.

__________________
If at first you don't succeed, call it v1.0!

Akshay

Keep India moving
Road investment should be a priority

Posted online: Monday, August 07, 2006 at 0000 hours IST

The initiation of a proposal to connect all district headquarters to the stretches under the National Highways Development Programme is welcome. This will, of course, take some time to fructify, even if, as the Union road ministry says, it will be undertaken independently of the NHDP. The latter schedule is still far from completion; even the ‘golden quadrilateral’ between the four major metros has substantial work remaining and will severely miss the target completion date. Nevertheless, that and the entire north-south and east-west corridors should be in place, or most of it, in another two years. It is appropriate that planning begin now on the next logical push in this regard. Fast connectivity between all places, for people and goods, is an imperative in a modernising economy, the lack of it a hurdle to growth. We, in India, have yet to experience much of the synergy that will be enabled once the NHDP is in place, let alone the next stages in connectivity.

That the road sector will be taking a large flow of resources for a long time to come is clear. Within the budgetary constraints, transport infrastructure development will and should be a priority area for continued allocation. There have been various problems in leveraging private sector participation; these will persist. Apart from continuing to address these and in improving internal generation of funds, we would like to see a change on the priority given to maintenance of these new and updated stretches. This is not only about budgetary allocation, though that for maintenance of even national highways is well below the requirement, based on the norms. It is also on related aspects, such as the alarming overloading of trucks. A recent investigative series in this regard on the national capital, Delhi, shows that even here, not one rule is obeyed by operators or enforced by a corrupt, uncaring and/or ineffectual police and civil officialdom. As investment in roads proceeds apace, as it must, these and related questions, as in use of land, incorporating environmental concerns and use of energy, need much more attention.

Akshay

Delhi's entry points to be developed

NEW DELHI: With the aim of enhancing visitors' experience when entering the national capital, Delhi government has decided to develop the city's entry points and equip them with various facilities.

Delhi State Industrial and Infrastructure Development Corporation (DSIIDC) has been entrusted with the task of developing the eight entry points.

Each entry point would have a different look, but they would all have facilities such as trade and tax department, toll collection booths, petrol pumps, food courts, tourism kiosk and weigh bridges.

"When you enter Delhi, you should get a feel of the place and the fact that you are entering the national capital. The project has been taken up to enhance this feeling," said DSIIDC Managing Director Jalaj Shrivastava.

The entry gate would be a sort of a facilitation centre where the different facilities would be available at the same place, he said.

"This would be made on BOT basis so that the government does not have to spend any money on the project," Shrivastava said. Earlier, the project had been given to PWD.

He said initially, DSIIDC, a Delhi Government PSU, would develop three entry points.

Meanwhile, DSIIDC is also building freight complexes in the capital, Shrivastava said.

He said DSIIDC had won the project from DDA in an open competitive bidding process and would be taking up the work on setting up a freight complex at Dwarka first.

Akshay

India Infrastructure Sector Needs Reform

Monday, July 31, 2006; Posted: 01:22 AM

(RTTNews) - The Federation of Indian chambers of Commerce and Industry said that India needs more reforms and lower taxes, if the core infrastructure sector, from energy and steel, is to grow at more than 5% in 2006-07, according to media reports.

The infrastructure sector is the key for Asia's third-largest economy, to hit 10%, up from 8.4% in 2005-06, while combined growth of six-infrastructure sector, such as oil, gas, crude oil, electricity, coal steel and cement, was 4.9% in 2005-06.

The FICCI said higher core growth would also benefit the engineering and service sectors. The oil and gas sector in 2006-07 growing at 0.8-1.4%, while crude oil production should rise 0.5-1.2% in the year to March 2007, compared to 5.2% drop a year earlier, the release said.

Akshay

India's infrastructure spend inadequate

India needs about Rs 27,60,000 crore of investment in infrastructure development over the next 10 years, according to Mr J.P. Nayak, President (Operations) Larsen and Toubro.

He told the press here on Tuesday that India's current spend on infrastructure is about 3.5 per cent of the gross domestic product (GDP), which was inadequate. He quoted a World Bank estimate saying that between 2005 and 2010, India would need to invest 3.82 per cent of its GDP simply to maintain existing infrastructure, and a further 3.06 per cent to build it further.

The problem, he said, is that traditionally about 80 per cent of infrastructure spend comes from the Government, which is under pressure to cut fiscal deficit. Consequently, the money has to come from the private sector, banks, international financial institutions, and the capital markets.

In this context, the Confederation of Indian Industry (CII) will organise Suminfra 2006, a summit on sustainable public-private partnerships (PPP) in infrastructure development in the Southern States, on August 3 and 4.

Mr Nayak, as Chairman of the event, said that the main purposes of the summit include pointing out opportunities for private sector involvement in infrastructure in the South, showcasing previous private sector experiences with PPPs in infrastructure, and helping financial institutions understand the issues related to such projects, and their `bankability.'

He said that the summit is significant because India has one of the most extensive transport systems in the world, which includes 3.2 million kilometres of road, 63,000 kilometres of railways, over 150 seaports, 12 international airports and over 90 domestic airports.

Akshay

INTERVIEW: KV RANGASWAMI

‘BOT projects in the road sector will be among the most promising’

Larsen & Toubro is one of the leading engineering and construction conglomerates in India. It undertakes engineering, design and construction of infrastructure and industrial projects in India and abroad. It generates almost 85% of its revenue from the construction business. Engineering and construction sector has been amongst the fastest growing sectors in India over the past few years. KV Rangaswami, president - operations, ECC, and member of the board, L&T, spoke to Jitendra Kumar Gupta of The Financial Express while discussing the prospects of various issues of the industry. Excerpts:

How sustainable do you think is India's construction boom?

Yes, it is definitely sustainable in the next 10 years or so. It is primarily owing to infrastructure demands; the Indian infrastructure is way behind the infrastructure of China, Malaysia and Korea, to talk the least about the developed countries. To bridge this gap created during the last 50 years or so, more investments in infrastructure projects would continue for the next 10-15 years, first in the metro and larger cities and moving on to the second larger cities and with focus also on industrial areas.

If Indian industry's competitiveness has to be enhanced and brought to global standards, it is essential that we have the best infrastructure facilities. More so, if the competitiveness has to be maintained at higher levels 10-15 years down the line when there is no other way but to implement the infrastructure projects at a faster pace.

Hence, it is very clear that given a political will and the conducive situation the construction boom related to infrastructure projects will continue for at least next 10-12 years. Growing purchasing power of emerging middle-class with rise in salaries and wages and rising demand for better quality of life also will necessitates infrastructure development.

The current construction boom is also because of increased Capex by various sectors of the industry. There is talk of making India a refinery hub and also a manufacturing hub by analysts, and there is every possible chance that new access roads will crop up across the country. All these sectors, I believe, should sustain the construction boom even in non-manufacturing areas for the next 10 years or so.

In the rising commodity prices such as cement and steel, what is your take on the overall margins in the industry?

Rising steel and cement prices have an impact on the margins of the construction industry. Nowadays, especially after 2003-04 steel price increase, most construction companies have put in place measures to mitigate the risk from commodity price increase.

Most construction companies today negotiate for escalation clause on steel price, reimbursement clause or similar clauses to mitigate the risk. Although it will have an impact on companies which have steel, cement and fuel prices as a very large component, companies like L&T can sustain the impact as we have a very good mix of contracts which minimise the exposure towards a specific commodity.

Whenever the escalation risk is to be borne by the industry it is built into the cost estimate and price. Only when the price of the commodities escalates beyond the reasonable limits it may have impact on the margins. However, the prices are not controlled now and this can go beyond this peak price of today. Then we may have a large impact.

Can you comment on the region-wise demand growth in India?

In the 90s demand was more concentrated in western India. Of late, in view of the resources and probably conducive environment demand has shifted to the southern part of India with Bangalore, Hyderabad, Chennai being the major destinations for capex and investment. With the change in leadership lot of developments are seen in West Bengal and if the steel plants of Posco and Mittal get through to the eastern parts (Orrisa and Jharkhad) we may probably see a fair amount of construction activity in those regions too. Delhi and northern India have, of course, gathered this momentum with most foreign companies preferring Delhi as their destination. On the whole, it is tilted towards southern and eastern regions of India.

As most of the projects are allotted on BOT basis, how does it benefit the industry, particularly in creating shareholders value?

As rightly put, most of the projects are being developed on BOT basis especially in road sector. The industry faces a change in the business outlook and opportunities. The following positive business scenarios create huge value to the shareholders:

• More opportunities for the construction industry

• Contractors becoming developers, going up in the value chain

• Indirect push to mechanisation/modernisation of construction industry: Increased productivity and thereby turnover and profits

• With the economy reviving, BOT road projects experience higher traffic growth thereby increasing returns on investment

• More employment opportunities to construction engineering fraternity

The industry has come a long way in terms of technical expertise but has yet to make its presence felt in overseas projects? Why is it so?

Construction across the world has been primarily a local business. Although many Indian companies were operating in Africa and Middle East countries, most of them had to come out during the Gulf war. However, since the late 90s Indian companies have restarted their operations in these countries and today we find that many Indian companies have a significant presence in the Middle East and African countries. Even engineering construction companies have made inroads to European and American markets, Of course, the fact remains that the volumes are not big in these markets. Indian construction companies need to really stay put in the overseas market to make their presence felt.

In terms of technical expertise we are almost on par with what is required for operating in the overseas projects, but the difference lies in our knowledge and experience in working in the given local environment, which sometimes, are not as conductive as we wish (issues like restricted visas). As a number of Indian companies are setting up their operation for long-term presence, they will overcome these hurdles and will be able to make their presence felt in future.

How would the rising interest rate impact the construction industry?

Yes, it will definitely affect the business with higher working capital and so also BOT projects. Here again, I think the industry will have to rise and look at various techniques to reduce the working capital. Good advances from customers, vendor credit, back to back subcontracting are some of the areas where industry can focus with while shortening the cycle time.

Which are the most promising segments in the construction sector? And why?

The developments are likely in all the areas. BOT projects in the road sector will be probably the most promising one as this is primarily in view of the big gap in the road sector. Real estate in some companies will be a very huge driving force and will continue to head in the next few years. Real estate boom may even shift to second next, as India will face a gap of 30-40 million homes by 2012. Software parks and shopping malls are the other promising areas. In view of the government's vision, 'Power for all', investment in the power sector will also be a promising area.

As a construction company what are your strengths in tapping the maximum construction opportunities?

Construction boom is likely to take place in all sectors. Our leadership is almost in all the sectors with our primary strength, our track record, and our performance in the last two years. Apart from these our good engineering and finance capabilities adds to our strength in tapping the opportunities.

Akshay

Indian infrastructure financing needs municipal bonds


To fund projects under the prestigious Jawaharlal Nehru National Urban Renewal Mission (NURM), CRISIL estimates that India’s municipal bodies will need to invest about Rs.300 billion over the next seven years. For municipalities that are short of funds even for routine projects, this may seem an ambitious target indeed. However, a study by CRISIL concludes that, with appropriate funding (backed up by good revenue management), the challenge is far from insurmountable.



The study shows that accessing the municipal bond market will be the key enabler in allowing municipal corporations to provide better infrastructure facilities and services. Municipal bonds are the most effective funding options for urban local bodies: the tenure of these bonds is long, matching the payback on municipal projects, and they provide a wide investor base. Additionally, the nature of these instruments encourages much-needed institutional strengthening. Added to this is the fact that, in the Indian context, the credit risk profiles of most municipal corporations are superior to those of the respective state governments. Therefore, these corporations have an opportunity to access market funds for infrastructure development at low interest rates and based on their standalone profiles.




CRISIL believes that the 35 cities with populations in excess of 1 million are likely to see urbanisation growth and infrastructure spending higher than the national average. Given the magnitude of urban infrastructure investment needed over the next seven years, CRISIL believes that the Indian municipal bonds market is poised for exciting growth. According to Ms. Roopa Kudva, Executive Director and Chief Rating Officer, CRISIL, “The rapid economic growth that has created the need for infrastructure will also widen the funding options available to municipalities. We believe the municipal bond market offers huge, unexploited potential, for meeting the funding needs of Indian municipalities. The revival of this market is necessary if we are to bridge the infrastructure financing gap and sustain the economic growth that we are seeing today.”

Akshay

Indian Power Sector: Approaching The Target
India ranks fifth in power generation- 617 BU in 2005-06, meeting 99.3% of the target. Government of India promises Power for all by 2012.

/24-7PressRelease/ - NEW DELHI, INDIA, August 20, 2006 - The Indian Power Sector provides major support to the growing economy. With a large deficit in the power supply, the Indian economy is rather constrained due to this weak link in the infrastructure. The Government of India has set for itself the target of providing Power for all by the year 2012. This would require a further capacity of almost 100,000 MW.

The major players in the Indian Power Sector Infrastructure are National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation, ESSAR, GMR, Nuclear Power Corporation and LANCO. NTPC is the largest power generator in India. Hence, the major responsibility of increasing the power generation capacity falls on NTPC. With an investment of 300 million USD, it has approved the plan to set up a merchant power plant of 4 x 150 MW hydroelectric power project at Loharinag-Pala.

NTPC was set up 30 years ago and has come out as a truly national corporation. It has power generating facilities across all major regions of the country. It is majorly owned by The Government of India, with only 10.5% of its shares listed in the stock market since 2004.

India Power Sector Performance: "Indian Power Sector (2006)", a market research by RNCOS says that with power generation of 651 Terawatt- hours in 2004-2005, India ranks fifth after U.S., China, Japan and Russia. Year 2005-2006 saw the growth of 5.1% when 617 BU electricity was generated and 99.3% of the target was met.

As per the analysis done by RNCOS, the power generation capacity needs to be doubled by 2016, so that the peak time demand as well as the growing demand in the different regions is met.

The report looks at:
• The Indian Power Sector
• The driving forces and challenges of The Indian Power Sector
• The Growth Prospects & Future Scenario of The Indian Power Industry

The report contains discussions on various aspects of the Indian Power Sector.


To purchase your copy: http://www.rncos.com/Report/IM041.htm
For more information about the report please visit www.rncos.com

About RNCOS
RNCOS, incorporated in 2002, provides Market Research Reports for your business needs and aims to put an end to your information pursuit. Our expertise in gathering global business information for industry research, corporate training, growth consulting, and business consulting, brings reputed companies and firms to us for business enhancement solutions. We can be your one-stop-shop for Industry research information and niche market analysis.

Akshay

India to woo investments in power sector from Kuwait

NEW DELHI: The Indian government has asked the state-owned National Thermal Power Corporation (NTPC) and the National Hydro Power Corporation (NHPC) to woo investors from West Asian nations of Kuwait, Bahrain, Oman, Qatar, Saudi Arabia, UAE and Yemen who would invest in the country's power sector. India's leading English daily Hindustan Times in its Friday edition said that Secretary in the Indian Power Ministry R V Shahi has called for pro-active action to woo foreign investment in the country's power sector from West Asia.

According to India's Power Secretary, who visited West Asia recently, the countries in the region want to invest in India and are looking for reliable organisations which are either government bodies or government-controlled.
"The problem in not having adequate West Asian investment is mainly due to the gap of information as to what are India's requirements and what West Asian countries can afford. There is an urgent need to bridge this information gap," the daily quoted Shahi as saying.
The Indian Power Ministry has identified five power projects for investments from West Asia and even set a range of funding each public sector power company can generate from the region.
NTPC and NHPC are likely to offer equity investments of upto 40 percent and debt investments of 60 to 74 percent as an appropriate mix to attract big investments from West Asia, the daily reported.
"Every company is expected to set up a Middle-East cell to liaise with the target countries and also ensure coordination with other Indian Public Sector Units. Power Grid Corporation of India Ltd will attract investment for construction of transmission systems for the government's ultra mega power projects from West Asia," the daily reported. --- Kuna

Akshay

TATA POWER COMPANY

Expanding capacity for growth
JITENDRA KUMAR GUPTA
Posted online: Sunday, August 20, 2006 at 0000 hours IST

Among the infrastructure development in the country, power has been equally focused as a key area of development. The Indian power companies are ramping up the existing capacities to tap the maximum advantage of the demand-supply gap in the power sector.

Tata Power Company Limited (TPCL) is India's largest private sector power producer, with an installed generation capacity of over 2300 mw. The company is aggressively investing in new power generation capacities. The company has plans to invest about Rs 19,200 crore to add another 4500 mw, besides the company's plan to bid for the 4000 mw ultra mega projects. The consolidated capacity will be much higher as compared to the present capacity.

Company perspective

TPC has almost 19% of the total private sector power generation capacity in India. The company has presence in all areas of the power sector - generation through thermal, hydro, solar and wind. Besides the power generation, the company is also operating in transmission and distribution.

The company has generation capacities in Mumbai and Delhi, and also in Jojobera, Jharkhand and Karnataka. Tata Power has also carried out several overseas projects and successfully completed erection, testing and commissioning of major power projects in Saudi Arabia, Bangladesh, Kuwait, Algeria, Myanmar and Thailand.

Key developments

The company is initiating projects, which will be fuelled by a hybrid mix of fuels such as coal, natural gas, water and other liquid fuels. The company, for its additional capacity expansion, is contemplating to buy coal mines in Australia, Indonesia and South Africa and has tied up with Tata Steel for its acquisition of coal mine overseas. The company is also building four coal-based project for setting up a capacity of about 3250 mw.

The company has started work on 250 mw coal-based plant at Trombay, to meet Mumbai's future power requirements. The project is scheduled to be commissioned in the next 25-26 months. It has also signed a development agreement with Siemens Project Ventures GmbH (SPV), Germany. The company will jointly participate in the tariff-based bidding process for selecting developers for the Sasan and Mundra projects under the Ultra Mega Power Projects initiative.

The government of India has recently emphasised on implementing several ultra mega power projects through an international competitive bidding process. TPC has recently qualified for the Ultra Mega Power Projects at Sasan in Madhya Pradesh and Mundra in Gujarat.

Powering growth

Considering the higher potential for renewable energy generation such as wind power, the company is aiming to generate about 100 mw annually from wind power by 2008. It is currently generating about 17 mw from wind power.

The company's power trading subsidiary, Power Trading Co, has traded about 675 m kwh in FY06. The company has planned to bid for more transmission projects, and plans to enter into distribution in other states.

Tata Power, in the past, has executed captive power projects for one of its sister concern company and one of India's largest steel manufacturer, Tata Steel. Considering Tata Steel's expansion plans for increasing its steel production, TPC will be further benefited while setting up of new power facilities for the company.

North Delhi Power Limited (NDPL), one of the Tata Power companies with 49% stake, is operating in north Delhi distribution circle. NDPL has successfully brought down its technical and commercial losses to around 28%. For FY06, the company has generated a net profit of Rs 120 crore. The turnaround of this company in the past and its future potential gives Tata Power more advantage in case of privatisation of power distribution in the other states of the country.

Outlook

The company is in the implementation phase of several new power projects. The sequential commissioning of these projects over a four-year period will augur well for the future growth of the company. It will also be able to improve its operating efficiency by way of securing raw material supply, especially coal. Participation in the ultra mega power projects and also implementing company's own mega power plants will improve its size of operation. Though, in the short term the availability of gas is likely to be a key constraint for the industry. But it will be sorted out in the long run with new gas discoveries in the KG basin, India.

—The author does not have any investments in the company

Akshay

Power Sector - India is waiting for more investments

By Dr. Uday Lal Pai
Exclusively for IvestorIdeas.com
posted August 01, 2006

The rapid growth in Indian economy would require an exponential growth in the Power generation. With economic development and a decline in the population below the poverty line, per capita electricity consumption is bound to increase.

India's power market is growing faster than most of the other countries. With an installed generation capacity of 123 GW, generation of more than 600 billion kWh, and a transmission & distribution network of more than 6.3 million circuit kilometers, India has today emerged as the fifth largest power market in the world.

Power Sector - India is waiting for more investments

The rapid growth in Indian economy would require an exponential growth in the Power generation. With economic development and a decline in the population below the poverty line, per capita electricity consumption is bound to increase.

India's power market is growing faster than most of the other countries. With an installed generation capacity of 123 GW, generation of more than 600 billion kWh, and a transmission & distribution network of more than 6.3 million circuit kilometers, India has today emerged as the fifth largest power market in the world.

It is estimated that per capita consumption of Power per year would increase from 650KWH in 2006 to 1000 KWH in 2012 growing at a rate of 7.41%. At the same capacity power generation would also increase from 124.31 thousand MW to 205 thousand MW.

In the past, the power sector growth has not kept pace with the economic expansion and this has resulted in India experiencing a 13 percent shortage in peak capacity and 8 percent in energy terms, on an overall basis. Although India currently has a very low per capita consumption of power, the current capacity is not adequate to meet the demand. Significant investment opportunities exist in all segments within the power sector.

So keeping in mind the socio-economic factors in the country, it is projected that India will need to target doubling its generation capacity from 2002 to 2012, with an associated increase in transmission and distribution infrastructure. The investment requirement in the sector is projected at over US$ 300 billion over this period.

The power industry structure in India

The power system in India is organized as five geographical regions for administrative purposes, management of transmission systems (regional grids), load dispatch functions and for the purpose of balancing & settling of inter-state energy transactions. The five regional grids are connected by high voltage AC & DC transmission lines thus forming a unified national grid catering to the inter-state & inter-region transfer of electricity.

The Sector has been receiving adequate priority ever since the process of planned development began in 1950. The Power Sector has been getting 18-20% of the total Public Sector outlay in initial plan periods. Remarkable growth and progress have led to extensive use of electricity in all the sectors of economy in the successive five years plans.

During the four and a half decades since independence Power generating capacity in the country has increased by more than thirty times. Electricity generation has increased more than fifty times. About 15 million farmers use subsidized electricity today and about 50 million Indian households' are electrified. The number of consumers connected to the Indian power grid is 75 million which the pre-independence figure is Fifty times.

The most important cause of the problems being faced in the power sector is the irrational and non-remunerative tariff structure. Although the tariff is fixed and realized by government's state electricity boards (SEBs), the State Governments have constantly interfered in tariff setting without subsidizing SEBs for the losses arising out of State Governments' desire to provide power at concessional rates to certain sectors, especially agriculture. Power Supply to agriculture and domestic consumers is heavily subsidized. The SEBs, in the process, have been incurring heavy losses.

Facts and figures about the physical growth of India's power system may sound hollow and deceptive in the background of common perceptions about the proverbial inefficiencies of the SEBs, the financial losses incurred by them and the perpetual power crisis that is being endlessly debated all over the country. If the SEBs were to continue to operate on the same lines, their internal resources generation during the next ten years will be negative, being of the order of (-) $ 18 billion.

Average transmission and distribution losses (T&D) exceed 25% of total power generation compared to less than 15% for developing economies. The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage. It is true that there are crippling electricity shortages pan-India and an ever lengthening investment back-log to boot. But reform of distribution is critical for turnaround in power. Already, annual distribution losses are in the tens of thousands of millions, almost 1.5% of GDP. A recent report in fact estimated overall billing efficiency at no more than 55%, and collection efficiency at an atrocious 41% of the total power generated!

Driven by the requirement to enhance the budgetary allocations to social sectors to meet the emerging requirements of sustainable growth, the Government has envisaged a manifold increase in the role of the private sector in the financing and operations of the power sector.

Opening up and conducive policies

Significant structural and regulatory reforms have paved the way for increased private sector participation in all aspects of the sector. Many of the legal and regulatory requirements to enable this are in place, while the operational provisions are in different stages of implementation in different states.

These policy initiatives are expected to improve conditions for attracting private investment, and Foreign Direct Investment, in the power sector. Broadly, 100 per cent foreign equity participation is allowed under the automatic approval route in all segments of the industry viz. generation (based on coal, gas, or hydro), transmission and retail distribution. For large generation projects, the Mega Power Policy extends incentives, such as capital import duty concessions, and the waiver of local levies to improve cost attractiveness.

All power projects are extended a tax holiday viz. the Income Tax Act which permits the deduction of 100 percent of profits of the generation, transmission or distribution company, for a period of 10 consecutive years out of 15 years from commencement, or from undertaking a substantial renovation or modernization of existing transmission lines. Thus, the policy provides the benefit of 100 per cent foreign investment in all segments of the industry, certain fiscal benefits, and a tax holiday.

The Electricity Act provides the necessary framework for broader participation in the power sector. Apart from the incumbent utilities, the new partners in developments are expected to be the captive generators, merchant plants, power traders, open access consumers, second distribution licensees, rural network operators, franchisees, etc.

The Electricity Act 2003 requires the Central Government to formulate, inter alia, the National Electricity Policy in consultation with the Central Electricity Authority (CEA) and state governments for the development of the power system based on the optimal utilization of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy.

Installed generation capacity has to increase by about 60,000 MW (from 125,000 MW to 185,000 MW), of this about 20-30,000 MW hydro. Investment programs estimated to cost US$100 billion, Generation - US$60 billion, Transmission & Distribution - US$40 billion. In addition, India has about 20,000 MW of existing thermal capacity to be rehabilitated and modernized, distribution networks to be upgraded and MIS strengthened and human resources to be revitalized.

In FY2005, the total power generation figures stood at 520 billion units as compared to 519 billion units in FY2004.

Private sector

Out of a total of 123,010 MW of power generation, the private sector contributes about 12,930 MW (10.55 per cent). The majority of the distribution businesses in the metros of Ahmedabad, Mumbai, Delhi, Kolkata and in most parts of the state of Orissa are owned by the private sector.

India has made significant efforts to attract private investment (particularly FDI) in the generation sector. A lot of interest was exhibited by foreign investors and some activity also took place in the form of the announcements and initial investments made. Some of the global giants who showed interest include Enron, GE, Bechtel, AES, Cogentrix, PSEG and El Paso Energy. Some of these (e.g. AES, CLP) continue to have investments in India and are evaluating opportunities in the post E-Act scenario. At different stages, the policy attracted considerable investor interest.

The policy changes with respect to open access and competition have attracted the interest of private capital in the sector. The investor community has demonstrated its confidence in the expected outcomes of the Electricity Act and related policy initiatives in the secondary market.

About 10 private sector power projects have achieved financial closure since the passage of the Electricity Act, and many Indian investors have drawn up plans for significant investments in the sector. More than 50 large private domestic companies are pursuing investments in the power sector.

For instance, Reliance Energy proposes to develop 5,600 MW gas based generation at Dadri (Uttar Pradesh), and 4000 MW gas based generation at Shahpur (Maharashtra).

Tata Power plans to set up 4,000 MW projects in Jharkhand. A 1,500-MW gas-fired project in Hazira, Gujarat proposed by Essar Power. Essar Group has also signed a MoU with the Madhya Pradesh government to set up a 1000 mw power plant.

1,115 MW Nagarjuna Power project by Nagarjuna group in Karnataka. 1,050-MW project in Surat (Gujarat) by Torrent group. The project has achieved financial closure, with IDFC lead-arranging the debt. Jaypee Group is setting up a 1,000 MW thermal power plant in Sidhi, Madhya Pradesh.

Call for investment

As said above, India's blueprint for the power sector envisages a capacity addition of 100,000 MW between 2002 & 2012, and a required associated investment for the transmission and distribution network. A similar substantial capital investment is required to develop the national grid, for renovation and modernization of inefficient and aging generation plants and network, for electrification of rural areas, and to improve adequacy, reliability and the quality of power supply.

An investment requirement of US$ 90 billion in generation of which US$ 19 billion is expected from the private sector . An investment requirement of US$ 90 billion in transmission and distribution of which nearly US$ 15 billion is needed for the National Grid . An investment of US$ 6 billion for the National Grid is expected to come from the private sector, the rest from the Central sector . The rest of the investment in transmission and distribution will be financed through a mix of the state and the private sector . Implies at least US$ 25 billion of investments from the private sector

The large capital and knowledge requirements cannot be met by the Government alone. Further, given the magnitude of actual and opportunity loss, these investments and efforts must be brought in at the earliest. A partnership and private & foreign investment is necessary to meet the rapidly growing demand and to achieve global standards in operating efficiency and quality of supply.

Need for foreign investments

Given its market opportunity and competitive positioning, India today is an attractive destination for foreign investment. Projects for electric generation, transmission and distribution are permitted foreign equity participation up to 100 per cent on the automatic approval route.

To facilitate the setting up of large sized power plants in the country and in order to derive the economies of scale, all inter-state projects with a capacity of 1000 MW and above for thermal and 500 MW and above for hydel projects are being treated as mega power projects, subject to the fulfillment of required terms and conditions, and will be extended the concessions of 'Zero' customs duty on the import of capital goods.

Two routes have been identified for encouraging private sector participation in transmission i.e. Joint Venture (JV) and Independent Power Transmission Company (IPTC) routes.

Major investors in the Indian power include CMS Energy, Unocal, Woodside Petroleum, Siemens, ABB, AES Transpower, Powergen, CLP, PSEG, Tractabel. CMS holds around 20 per cent stake in 235MW gas/naphtha fuelled combined cycle power project promoted by GVK Reddy group at Jegurupadu in Andhra Pradesh. This was the first fast track Independent Power Producers project to start operations in India.

CMS Energy and ABB are the major promoters of the 250MW lignite based power project at Neyveli, Tamil Nadu. The project has been commissioned in December, 2002. CMS Energy, along with Unocal, Woodside Petroleum and Siemens are part of a consortium which plans to set up a 1,885 MW LNG based power project at Ennore, Tamilnadu.

Conclusion

The power sector related stocks have significantly outperformed the CN Nifty (National Stock Exchange index), indicating the interest in the secondary capital market. The capital market has been successfully tapped by both public sector companies (NTPC Ltd. and Power Trading Company) and private sector ones (Jaiprakash Hydro-Power Limited).

The biggies of the power sector are warming up to the idea of investing in the hinterlands. State-owned NTPC Ltd and Reliance Energy Ltd are setting up electrification projects in the rural parts of the country, an area hitherto untouched by the bigger players.

According to market observers, India could hardly afford to stall the power sector reforms. "Political posturing apart, it is widely recognized that the sheer economic needs would drive the nation to overcome deficiencies in generation, transmission and distribution. China has also gone through the dilemma of preferences between power and the poor.

The large and rapidly growing power market in India has undergone a radical change in sector structure and form of regulation, opening immense investment opportunities. A large number of private power projects are in the pipeline.

The macro environment in the domestic power sector appears positive. With positive tariff policies and opening up of the private sector for transmission and distribution, the sector is likely to see heightened activity over the next couple of years.

Akshay

Analysis: India seeks hydropower funds
By Ambika Behal Aug 8, 2006, 11:35 GMT

WASHINGTON, DC, United States (UPI) -- With one of the world`s largest planning programs for renewable energy, India`s Ministry of Non-Conventional Energy Sources is inviting investment into a lucrative new market.

With a largely rural population base, hydropower is one of the resources pointing the way to an oil-free future, according to the Ministry of Non-Conventional Energy Sources.

The ministry says that India has a potential for installation of 45,000 megawatts of wind power capacity, but as of yet, only 1,870 MW has been installed.

India`s National Hydroelectric Power Corp. Ltd., a state-owned enterprise, says the country has economically and viably exploitable hydropower potential assessed at about 84,000 MW at 60 percent load factor and 148,700 MW installed capacity.

However, only about 22 percent of potential has been harnessed so far, with 33,000 MW installed. Of total energy requirements, hydropower meets about 2.2 percent.

'We have a number of companies who are installing wind-generating machinery,' said Sudhir Mohan, an adviser in the Indian Ministry of Non-Conventional Energy Sources. There is a large amount of investment through the private sector, he said, without which, the initiative would not be able to stand alone.

At present, 95 percent of installed wind power capacity is in the private sector. Wind power turbine equipment is being manufactured in India and is also being exported to other countries.

'India would need a total planned investment of approximately $110 billion during the 11th Five Year Plan (2007-2012), including for generation, transmission and distribution -- of the total, approximately $68 billion would be required for power generation,' said Sumitra Chowdhury, economic secretary at the Indian High Commission in Washington.

The Power Finance Corp. is supporting private power projects that participate in the private power development initiatives, Chowdhury said.

'Investor interest in the Indian power sector has gained momentum with the introduction of the Electricity Act 2003 and privatization of transmission and distribution,' she said.

The Indian Ministry of Power is also interested in expanding the country`s potential for hydropower use. 'We are not very dependent on gas, only for power generation; our mainstay is coal and hydropower,' said U.N. Panjiar, additional secretary to the ministry.

With volatile gas prices, he said that renewable projects are being encouraged. Under the Electricity Act of 2003, a certain percentage of proceeds are to be kept for renewables; 'There is definite support and encouragement,' he said.

'Even for the long-term security of the country it is better to depend on renewables, for bringing down costs, it is perhaps the best option with policy support,' he said.

Although there are not yet specific figures available for running only the hydropower sector, the country has renewed its interest in propelling investment in the sector forward through identifying and implementing new project sites.

India itself has undertaken several projects to kick-start the process of investment on a domestic level. Two federal-level public sector undertakings are engaged in major hydropower development and maintenance projects in the country -- the National Hydroelectric Power Corp. and North-Eastern Electric Power Corp. Additionally, three joint ventures between state and federal government there are working on several projects in the states of Himachal Pradesh, Uttar Pradesh and Madhya Pradesh.

Domestic private investment includes companies such as the Madras-based Shriram group, which recently announced a $238,095 investment for 2006 in the wind-power sector. The company says the investment was made because of tax benefits (90 percent depreciation in the first year) and an attractive returns post-payback period, highlighting governmental measures to encourage private financial input.

The U.S. Agency for International Development is working on energy-efficiency programs in India, focusing on streamlining the efficiency levels at which several programs in the country work. As the agency works at the policy level to upgrade energy-practice in India, more international firms are expected to enter and increase investment in energy initiatives such as hydropower.

'We (the United States) are hoping to add about $60 billion worth of hydropower investment,' said Debby Stone, director of trade promotion at the Washington-based U.S. Hydropower Council for International Development.

A private trade sector association that advocates hydroelectric power as a preferable energy option, the U.S. Hydropower Council has expressed interest in the large market that India has to offer in terms of hydropower investment potential and development.

'I think that India has more and more access to local capital as well, but it does not have quite as many private power opportunities as the foreign market does,' said Stone, commenting on prospectives available for external investment.

She said the U.S. Hydropower Council has approached USAID, with which they it is working on several investment mandates. The goal is to cement a government-to-government relationship, which opens doors for U.S.-based investors to understand the somewhat uncertain tendencies of the Indian policy framework.

Several projects have been successful, said Stone, 'but happening at a much slower rate than one would hope.' She expressed hope for the governmental relationship to improve project timeframes.

Citing several ongoing projects in the Indian states of Maharashtra and Himachal Pradesh, many new as well as rehabilitative projects are in progress, said Stone.

'We only have to hope no catastrophic event happens in India,' she said. 'The power industry is not for the weak-hearted, it`s a long-term thing.'

(Comments to energy@upi.com)

Copyright 2006 by United Press International

Akshay

Analysis: India's biomass power strategy

By KUSHAL JEENA
UPI Energy Correspondent

NEW DELHI, Aug. 17 (UPI) -- An Indian parliamentary committee on energy has asked the government to create an effective implementation strategy for biomass, with a view to making it available at an affordable price.

"The (federal) government should now evolve an effective implementation strategy for biomass power cogeneration program for maximum exploitation of biomass resources of the country with an objective to make biomass energy available at an affordable price to the common man," the parliamentary standing committee said in its recommendations.

The Indian parliament set up the committee as a watchdog for the Ministry of Non-Conventional Energy. The committee said it was not satisfied with the current slow approach of the department in tapping the huge biomass potential available in the country.

The committee said it felt that renewable energy, including bio-energy, should now be brought into the mainstream to meet and supplement energy demands in urban and rural areas. In its reports, it has come down heavily on the government for what it calls its fa