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Foreign Direct Investment In Power Sector

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Foreign Direct Investment In Power Sector By: Swarnima Bhardwaj Intent and Objective of FDI It is the intent and objective of the Government of India to attract and ... – PowerPoint PPT presentation

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Title: Foreign Direct Investment In Power Sector


1
Foreign Direct Investment In Power Sector
By Swarnima Bhardwaj
2
Intent and Objective of FDI
  • It is the intent and objective of the Government
    of India to attract and promote Foreign Direct
    Investment in order to supplement domestic
    capital, technology and skills, for accelerated
    economic growth.
  • Foreign Direct Investment, as distinguished from
    portfolio investment, has the connotation of
    establishing a lasting interest in an
    enterprise that is resident in an economy other
    than that of the investor.
  • The Government has put in place a policy
    framework on Foreign Direct Investment, which is
    transparent, predictable and easily
    comprehensible.

3
Equity Inflows to India
4
Power Sector Indian Position
  • The power sector ranked sixth among the leading
    sectors of the Indian economy.
  • It attracted US 4.6 billion in Foreign Direct
    Investment (FDI) since 2000, according to the
    Ministry of Commerce and Industry's Department of
    Industrial Policy Promotion (DIPP).
  • In India, up to 100 FDI is allowed in respect of
    projects relating to electricity generation,
    transmission and distribution, other than atomic
    reactor power plants.
  • There is no limit on the project cost and quantum
    of foreign direct investment.

5
Present Position
  • As per extant policy, Foreign Direct Investment
    (FDI) up to 100 is permitted in the power
    sector, under the automatic route, for
  • i) Generation and transmission of electric
    energy produced in hydro
    electric, coal/lignite based thermal, oil based
    thermal and gas based thermal power plants
  • ii) Non-Conventional Energy Generation and
    Distribution iii) Distribution of elective
    energy to households, industrial, commercial
    and other users
  • v) Power Trading

6
Revised Position
  • The Government of India has reviewed the position
    and decided to permit foreign investment, up to
    49, in Power Exchanges, registered under the
    Central Electricity Regulatory Commission (Power
    Market) Regulations, 2010, as below
  • Such foreign investment would be subject to an
    FDI limit of 26 per cent and an FII limit of 23
    per cent of the paid-up capital
  • (ii) FII investments would be permitted under the
    automatic route and FDI would be permitted under
    the government approval route
  • (iii) FII purchases shall be restricted to
    secondary market only
  • (iv) No non-resident investor/ entity, including
    persons acting in concert, will hold more than 5
    of the equity in these companies and
  • (v) The foreign investment would be in compliance
    with SEBI Regulations other applicable laws/
    regulations security and other conditionality.

7
FDI INFLOWS IN POWER SECTOR (from Apr 2000 to
Oct 2012)
Subsectors Amount of FDI inflows Amount of FDI inflows
Rupees (in crores) US (in million) age with total FDI inflows in Power Sector
Power 35,159.94 7655.60 4.04
8
Major players
Foreign Players Indian Partners
1. Steag energy Services Hinduja Energy India
2. Mitsubishi Heavy Industries Ltd., Japan LT ,Gujarat
3. Hitachi, Japan BGR, Tamil Nadu
4. Toshiba, Japan JSW, Tamil Nadu
5. Alstom, France Bharat Forge, Gujarat
6. Ansaldo Caldie, Italy Gammon, Tamil Nadu
7. Babcock Wilcox, USA Thermax, Maharashtra
8. Hitachi Power Europe GmbH (Germany) BGR, Tamil Nadu
9. Doosan, Korea (100 FDI) -
9
Power Sector Advantages
  • Economic growth- This is one of the major
    sectors, which is enormously benefited from
    foreign direct investment.
  • Employment and skill levels- FDI has also ensured
    a number of employment opportunities by aiding
    the setting up of industrial units in various
    corners of India.
  • Technology diffusion and knowledge transfer- FDI
    apparently helps in the outsourcing of knowledge
    from India especially in the Information
    Technology sector. It helps in developing the
    know-how process in India in terms of enhancing
    the technological advancement in India.
  • Linkages and spillover to domestic firms- Various
    foreign firms are now occupying a position in the
    Indian market through Joint Ventures and
    collaboration concerns. The maximum amount of the
    profits gained by the foreign firms through these
    joint ventures is spent on the Indian market.

10
Power Sector Disadvantages
  • Profit distribution, investment ratios are not
    fixed
  • An economically backward class person suffers
    from price raise
  • Retailer faces loss in business
  • Market places are situated too far which
    increases traveling expenses
  • Workers safety and policies are not mentioned
    clearly
  • Inflation may be increased

11
INCREASE IN EQUITY INFLOWS IN POWER SECTOR
STARTING FROM APRIL, 2000 IN A PERIOD FROM
JAN-OCT, 2012
12
INCREASE IN PERCENTAGE (with total FDI) OF EQUITY
INFLOWS IN POWER SECTOR STARTING FROM APRIL, 2000
IN A PERIOD FROM JAN-OCT, 2012
13
Investment Policy Updates
  • The Ministry of Power, Government of India has
    initiated several policies to promote and garner
    investments in the power sector.
  • Some of the prominent policies which have boosted
    the private player's confidence in the sector
    are
  • National Electricity Policy
  • Ultra Mega Power Project Policy
  • Mega Power Policy
  • CERC Policy (Central Electricity Regulatory
    Commission)
  • Tariff Policy

14
National Electricity Policy
National Electricity Policy
  • Aims and Objectives
  • Availability of Power - Demand to be fully met by
    2012. Energy and peaking shortages to be overcome
    and adequate spinning reserve to be available.
  • Supply of Reliable and Quality Power of specified
    standards in an efficient manner and at
    reasonable rates.
  • Per capita availability of electricity to be
    increased to over 1000 units by 2012.
  • Minimum lifeline consumption of 1
    unit/household/day as a merit good by year 2012.
  • Financial Turnaround and Commercial Viability of
    Electricity Sector.
  • Access to Electricity - Available for all
    households in next five years
  • Protection of consumers interests.

15
Ultra Mega Power Project Policy
  • There are 5 major ultra mega power projects
  • Sasan Ultra Mega Project
  • Mundra Ultra Mega Project
  • Akaltara Ultra Mega Project
  • Karnataka Ultra mega project
  • Maharashtra Ultra Mega project

16
CERC policy
  • The Commission intends to
  • promote competition, efficiency and economy in
    bulk power markets
  • improve the quality of supply
  • promote investments
  • advise government on the removal of institutional
    barriers to bridge the demand-supply gap and
  • foster the interests of consumers

17
Tariff Policy
  • The objectives of this tariff policy are to
  • Ensure availability of electricity to consumers
    at reasonable and competitive rates
  • Ensure financial viability of the sector and
    attract investments
  • Promote transparency, consistency and
    predictability in regulatory approaches across
    jurisdictions and minimize perceptions of
    regulatory risks
  • Promote competition, efficiency in operations and
    improvement in quality of supply.

18
Conclusion
  • The Indian power sector, marked by years of under
    investment and ever increasing demands can
    leapfrog by infusion of FDI.
  • India has the potential to attract far more FDI
    in the power sector as compared to less than 4
    of the nation's total FDI that it attracts at
    present.
  • The root of the problem is as much a question of
    inadequate reforms as it is of insufficient
    investment inflow.

19
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