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Editorial | September 2011

Desicions...or lack thereof

As Power Today turns three this month, it is time to take note of the biggest and the best of the power companies. Do not miss the Power List 2011 in this issue, along with the analyses and stories!

Meanwhile, however, foreign investment in our power sector continues to worry experts, and with good reason. Cumulatively, the sector has witnessed FDI inflow of just $5.9 billion between April 2000 and March 2011. As both Power Finance Corporation (PFC) and it competitor Rural Electrification Corporation (REC) are going the ECB route - PFC has sought permission to borrow $1 billion (approximately Rs 4,300 crore) while REC's plans, too, are around that figure for the current fiscal. Recently, NTPC has said that lack of "politico-administrative" support to tackle commercial losses and poor health of government utilities are among the main reasons for low FDI inflows into the Indian power sector.

Lack of political decision making has been doing the rounds in the industry-not in power alone, but in infrastructure overall-as the number one culprit for an increasingly lackadaisical response from investors, both domestic and international. As if to bear testimony to this factor, Tata Power announced late August that slow growth has forced the company to seek overseas markets. Among the reasons the company listed were non-availability of land, farmers' opposition to land acquisition, delays in securing environment clearances, non-availability of domestic gas and coal linkages and increasing imported coal prices. With coal price hikes, experts believe coal-based captive power generation may no longer be lucrative. One more peril of importing coal popped up as Indonesia refused to sell coal for the Mundra UMPP at less than prevailing international prices-often 40-60 per cent more than domestic prices. So, predictably, the next two decades could belong to nuclear and gas-fired projects. In order to capitalise on it, however, firm steps in shale gas and international acquisitions need to be taken now rather than later.

Ironically, recent attempts to disrupt and rethink policies have only exacerbated the confidence in the investor. For example, a new and contentious Mining Bill makes its way to the Parliament, entailing a 26 per cent profit share with landowners. The hapless Land Acquisition Bill, too, faces a similar limbo-like situation in the minds of investors. For those who invest from abroad, it is already hard enough to often not be able to invest directly-because of policies or because they cannot document huge amounts of bribes that have become a part of the fabric.

Similarly, the Anna Hazare movement, while it may have resulted in putting policymaking in order, may have further forced the brakes on FDI via dealing a blow to the government's credibility. The protests, with media images showcasing the juicy story to the world as a national, mass movement, are more than likely to stall investors for a while. The government's quintessential silence can be a deterrent in itself in an era of seeking investment, and in an age when the vehicles of communication are not the problem.

Whether the factors are related to policy, global economy or a purportedly social movement, the effect will set a momentum of slowdown that has historically taken its time to turn around. Time has never been as ripe as it is now in years for active and firm policy decisions.

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