Surge in Investment Recharges India’s Sputtering Power Sector : Investors Betting That There Are Brighter Days Ahead

Though the power sector is one of the most important parts of a country’s infrastructure, it has always struggled in India. Confusing Government regulations, overlapping jurisdictions and state interference in what companies can charge have all made it difficult for power companies to modernise and expand. Investors and executives are hoping the new leaders and New Delhi can use their election mandate to push through the spending and revamping the industry needs…


investors-betting-that-therInvestors are ploughing money into India’s energy sector again, betting that there are brighter days ahead as the country’s new Government clears the path for power producers and distributors. India’s utilities and energy companies—which have struggled for years with high Government restrictions and low returns—have attracted a total of $2.61 billion in investment so far this year, according to data from Dealogic. The last time the sector attracted so much money was before the global financial crisis, when $2.67 billion was invested over the same period in 2006.
“People expect the economy to grow,” said Tan Cheng Guan, an executive vice president at Singapore utilities company Sembcorp Industries Ltd. which invested $204 million this year, buying stakes in two Indian power plants. India needs its power sector to expand to boost economic growth. In the fiscal year that ended March 31, the economy grew just 4.7 per cent, marking the first time in two and a half decades that India’s economy expanded by less than 5 per cent for two years in a row. This year the Government expects the economy to grow around 5.8 per cent. Though the power sector is one of the most important parts of a country’s infrastructure, it has always struggled in India. Confusing Government regulations, overlapping jurisdictions and state interference in what companies can charge have all made it difficult for power companies to modernise and expand. Recent Government restrictions on coal mining have shrunk the amount of affordable coal available. Meanwhile electricity is too often stolen by poor consumers and given away by politicians looking to get re-elected.
“The first thing (the Government) will have to fix is power to get the economy to recover,” said Mr. Guan. Investors and executives are hoping the new leaders and New Delhi can use their election mandate to push through the spending and revamping the industry needs. The Bharatiya Janata Party won an unprecedented majority of the seats in the lower house of Parliament in spring elections. Optimists are hoping the new Prime Minister, Narendra Modi, will succeed in untangling India’s power problems where previous Prime Ministers have failed. When he was Chief Minister, the western State of Gujarat became one of the few States in India with an excess of power.
In additional to a more powerful Prime Minister, analysts say deals are getting done now because power entrepreneurs are struggling with debt and willing to sell stakes at more reasonable prices. “Valuations are attractive,” said Debasish Mishra, a senior director at Deloitte Touche TohmatsuIndia Pvt. While many of the deals were done before the BJP officially took over, the pace of investment seems to be accelerating. In July, Reliance Power Ltd. said it would buy Jaypee Group’s hydroelectric-power business. Reliance didn’t say how much it was paying for the plants, but said it values them at around 100 billion rupees ($1.6 billion).
Earlier this month, Hyderabad-based Lanco Infratech Ltd. sold a thermal power plant to Gujarat-based Adani Power Ltd. for about 60 billion rupees ($982 million) to reduce its $6 billion debt. Meanwhile Dutch pension fund APG Asset Management N.V. which has joined forces with Indian pharmaceutical and real estate group Piramal Enterprises Ltd. to provide about $1 billion in structured financing to infrastructure companies is looking for power deals. “We are talking to two or three firms that need the last-mile funding,” said Jayesh Desai, Piramal’s co-head of structured investments.
– WSJ


Indians Keep Faith With Modi, Best Hope For Economy

More than 70 per cent of Indians are satisfied with the leadership of Prime Minister Narendra Modi since he took office nearly three months ago, an opinion poll showed, seeing in him the best hope to put the economy back on track… The poll of 12,430 people conducted across Indiafound that support for Modi’s Bharatiya Janata Party had increased since it won the biggest election mandate in three decades…

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The ‘Mood of the Nation Poll’ by ‘India Today-Hansa Research’ stands out in contrast with the disappointment that top political economists, including those who advised the Modi campaign, have voiced over his failure to announce big bang reforms. The poll of 12,430 people conducted across India found that support for Modi’s Bharatiya Janata Party had increased since it won the biggest election mandate in three decades. The vote share of the BJP and its allies would jump to 40 per cent from 31 per cent if a fresh election were held now, the survey showed, in a break from tradition in India’s volatile politics where discontent with incumbent Governments quickly sets in, especially when expectations are high.
After assuming power, Modi has repeatedly vowed to fire up the bureaucracy by cutting red tape and curbing corruption, as his Government attempts to revive Asia’s third-largest economy from its longest phase of sub-par growth in decades. While some visible signs of recovery have emerged, Modi has not announced any sweeping market reforms, with critics saying he has scored high on oratory but low on delivery of his election campaign promises. But 65 per cent of those surveyed believed Modi will put the economy back on track in six months and that his party was the best bet for development.
“As the 100-day mark of the Government draws near, the nation thinks that Narendra Modi is keeping his word, and would vote in a saffron-led Government with even more lawmakers than it did during the May elections,” Mail Today, a group newspaper, said on the findings of the survey.
Source: Reuters

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