Mumbai: Germany’s development finance institution, Deutsche Investitions-und Entwicklungsgesellschaft mbH, or DEG, is seeking to foster partnerships between private Indian and Nepalese power generation and transmission companies, a top executive at the project financier said. DEG is a member of KfW Bankengruppe (KfW banking group).
Dark spot: India required 109,809MW of power between April and January but only 94,634MW was available, according to CEA data. Hemant Mishra / Mint
“As part of our regional focus we are interested in establishing and partnering with new hydro power projects in Nepal that could export to India,” Turan Caglayan, head of new business in Asia at DEG said on Tuesday. “To this end, we have been talking to Nepalese and Indian companies that have had experience in producing and transmitting power.”
He did not want to name the companies involved as the talks are in preliminary stages.
DEG funds investments of private companies in developing countries that contribute to sustainable economic growth and improved living conditions.
India required 109,809MW of power between April and January, but only 94,634MW was available, data on the Central Electricity Authority’s website shows.
India has an installed power generation capacity of 147,000MW and aims to add 78,577MW by 2012. The current shortage in the system is around 12%. The government expects a Rs4.51 trillion funding shortfall in adding generating capacity during the 11th Plan, according to the power ministry.
“Though Nepal (too) has a power deficit now, it (DEG’s plans) is a highly feasible proposition because the potential to generate hydro power in Nepal is much higher than it is in India,” said an analyst at a domestic broking firm, wanting not to be named. “If these projects materialize, Nepal will be in a position to bridge its own deficit and have excess power to export.”
But Nepal cannot finance a project on its own, said Anish De, chief executive officer of Mercados EMI, an energy consulting firm. “It needs external sources, and this could be a mutually beneficial partnership.”
The idea of importing power is not new for India. Powerlinks Transmission Ltd, a joint venture between Tata Power Co. Ltd and Power Grid Corp. of India Ltd, has been transmitting power from the 1,020MW Tata Hydro Electric Power Project in Bhutan to Delhi since 2006.
The Union government is already working towards promoting partnerships between the Indian and Nepalese power sectors.
PTC India Ltd, a government-initiated public-private partnership, had signed a memorandum of understanding with the Nepal Electricity Authority in November to export 60MW of power from India to Nepal, apart from the 50-60MW it already exports. The government also allowed PTC India to pick a 30% stake in the newly formed Power Trading Corp. of Nepal.
Besides, the government has been monitoring the progress of the 170km power transmission line being set up by Infrastructure Leasing and Financial Services Ltd and the Nepal Electricity Authority between Dhelkabar in Nepal and Muzzafarpur in Bihar. This is to facilitate the import of power by India from Nepal by 2012-13.
That said, funding sources for new projects have been drying up. “The only funding available to the power sector is from domestic banks and financial institutions,” Pramod Menon, chief financial officer of JSW Energy Ltd, a power generation firm, said on Tuesday at the first anniversary function of BanyanTree Finance Pvt. Ltd, a mezzanine fund. “While at one end, there are banks touching their exposure limits to the power sector, at the other, many are willing to extend loans only for 10 years, whereas the requirement is probably for 15 years.”
Menon added that equity financing was also drying, with private equity funds becoming more cautious about deploying their money and the capital markets virtually shut.
DEG’s deep pockets come as a bright spot.
DEG, comparable to the International Finance Corp., the World Bank arm that funds development projects in the private sector, has been active in India for about 30 years now. It spent its first decade in the country financing projects by German ventures.
The lender was allowed to finance purely domestic projects from 1988 and currently has an exposure of €360 million (Rs2,469.6 crore) to India.
Power aside, DEG’s Caglayan is optimistic about the infrastructure sector as a whole.
“India lacks infrastructure. Regardless of whether it’s equity or debt, neither the government nor the domestic banks are able to provide the necessary finances. That’s where development financial institutions such as DEG come in,” he said. “Though we understand that it’s not the best of times to experiment and go after innovative ideas, we are in principle willing to take higher risks, provided we understand them and are able to price them.”
Besides, infrastructure also fits in with DEG’s newborn strategy. “About 12 months ago, we were focused on companies that earned much of their revenues in foreign exchange (export-led companies). That has changed, and now our focus is on companies that cater to domestic demand,” added Caglayan.
Utpal Bhaskar contributed to this story.