India Approves 100% Foreign Investment in Power Sector, Plans to Import Power from Bhutan

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Indian Government recently approved 100% foreign direct investment (FDI) in the power sector for projects involving generation, transmission and distribution of power. However, nuclear power projects are not included in this sanction. The government has also not fixed any targets for FDI, since capital inflow will depend on the prevailing investment climate and the confidence of investors, which is not upbeat in the present global economic recession. Jairam Ramesh, Minister of Power, said that the government is taking several initiatives to attract FDI in the power sector.

Ramesh also announced that India has entered into a written agreement with the Royal Government of Bhutan to import 5,000 megawatts (MW) of power from the country by 2020. India will be involved in the development of hydropower projects in Bhutan to facilitate imports. In 2006, India and Bhutan entered into agreements to facilitate and promote the development of hydropower projects and allied transmission systems. The two countries also agreed to promote trade in power through participation from public and private sector firms. Bhutan's FDI policies permit overseas firms to set up a wholly owned company in the country for the implementation of power projects with capacities exceeding 100 MW.

Indian firms are trying to capitalize on Bhutan's efforts to liberalize its power sector as India is positioned as the sole viable market for power generation in Bhutan. In July this year, Tata Power Company Limited (BOM:500400) (Mumbai) entered into a partnership with the Government of Bhutan to develop a run-of-the-river hydropower project with a capacity of 114 MW on the Dagachhu River. The firm also picked up a 26% stake in Dagachhu Hydro Power Corporation Limited, a special purpose vehicle set up to execute the project. Druk Green Power Corporation Limited (Thimphu, Bhutan) is the main developer of the project. Power generated from the project will be transmitted via the Tala Transmission Link into India's eastern regional grid and purchased by Tata Power Trading Company Limited (Mumbai), a wholly owned subsidiary of Tata Power Company.

Essar Power Limited (Mumbai) also announced plans to set up a 500-MW hydropower project in Bhutan at an estimated cost of more than $840 million. Reports indicated that Essar Power would set up the project either independently on a build-own-operate-transfer basis or in partnership with the government of Bhutan. The majority of the power generated will be imported to India.

Speaking in the context of the upcoming Ultra Mega Power Projects of 4,000 MW each at various locations in the country, Ramesh specified that the Ministry of Power would adopt a tariff-based competitive bidding route to accelerate the development of these projects. The power plants would be based on supercritical technology and would be developed at pithead or coastal locations with easy access to coal blocks, availability of water, and land with connectivity to road and rail networks.

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