Despite the liberal incentives for foreign investment in power generation, like 100% FDI under automatic approval scheme, 16% assured, post-tax return on equity in current dollars, five-year tax holiday, fuel price as pass through in the tariff, minimum off-take guarantee, payment guarantees by central/state governments, additional payment security by way of escrow account and so on, foreign investments in this sector have been a mere trickle. It is interesting to note that it was the generation sector which was opened first to FDI when the rate of growth of generating capacity was impressive without much private sector participation. The problems faced by the sector lie elsewhere and cannot be set right by FDI. This article focuses on the motivations for inviting FDI in power sector, the outcome of incentivization and reforms, an analysis of the current state of affairs and in conclusion, whether we need FDI in power sector.
In India, we have gone through all the motions. In 1992, private participation in power generation was permitted with generous incentives. Reforms were initiated in various states by way of unbundling the State Electricity Board (SEB), corporatizing generation and distribution entities, setting up State Electricity Regulatory Commissions (SERCs), breaking up the distribution entity and privatizing them and so on. However, after nearly a decade, the benefits are a mere trickle, whether one measures in terms of improvement in efficiency of the sector or increase in competition in generation and distribution or in terms of actual inflows of Foreign Direct Investment (FDI) in power sector.
The power generating capacity in India expanded from 1450 MW in the 1950s to over 100,000 MW at the turn of the centurya 70-fold growth in a 50-year span. A remarkable achievement no doubt and more remarkable considering that all this growth has happened with insignificant FDI. The average annual growth rate during this period was a healthy 9%. If one were to consider the period 1975-76 to 1989-90, the period when the central sector utilities were established (National Thermal Power Corporation and National Hydroelectric Power Corporation) and their capacity additions outpaced the capacity additions by state sector utilities. |
