Sanctions Unlikely To Hit Local Power Players

The power sector will not be affected significantly in the long-term by economic sanctions imposed after it conducted a series of nuclear tests last week, analysts said. There is a huge market in the country (for electricity) and companies are interested in accessing it, said Harry Dhaul, director general of the Independent Power Producers Association of India.

There will be no long-term impact from the sanctions on financing of power projects.

The government has estimated that demand for electricity in the Ninth Plan would increase to 50,510 crore kilowatt hours (kwh) in 2001-02 (April-March) from 32,700 crore kwh in 1996-97.

 

Generating capacity to meet this requirement would have to climb to 1,31,342 megawatts (mw) by 2001-02 from 84,912 mw in 1996-97, it has said.

US president Bill Clinton on Wednesday imposed sanctions that Washington said could cover an estimated $20 billion in loans, aid and credit guarantees after India carried out five underground nuclear tests. Japan, New Delhis biggest donor, has ordered a block on around $1 billion of aid loans, although no official figure has been released.

The precise impact of sanctions on capital flows into India is still being worked out and analysts say the effect could be much less than initially feared.

The sanctions by the United States and Japan had raised doubts about the World Banks future assistance to the countrys development projects but these were eased to some extent later in the week.

The World Banks vice-president for the south-Asia region Meiko Nishimizu on Saturday said aid committed by the bank to Indian states would continue to be disbursed. The IBRD currently lends to several state governments to carry out electricity sector reforms.

In the short-term, interest rates on dollar loans would go up, analysts said, but added it was too early to be specific. Those projects which were aiming for US funding through export-import (Exim) Bank credit or guarantees may now find it difficult to do so, except for projects which have already been cleared, said S D Kulkarni, managing director and CEO of engineering conglomerate Larsen & Toubro.

Such projects will have to look for alternate sources of finance. This may have an effect of delaying these projects further, he added.

Kulkarni said it was unclear how much risk premiums on foreign borrowings would rise.

Power Finance Corporation, which is in the market with seven-year paper worth $100 million, did not hike its rate after completing the marketing of the issue on Friday. The firm had fixed a rate of 115 basis points over Libor before the sanctions were announced.

Analysts said the power sector would be among the big beneficiaries from the nations move to push through projects involving investments by western multinationals in order to dilute the effect of the sanctions. A senior government official said foreign investment and infrastructure proposals would be rushed through the normally painstaking process of approval.(Reuters)

On Thursday, cleared counter-guarantees for three fast-track power projects.

These were the 1,040 mw Vishakapatnam plant in Andhra Pradesh; the 250 mw Neyveli project in the southern state of Tamil Nadu; and the 1,082 mw Bhadravati project in Maharashtra.

The Vishakapatnam project is being developed by the Hinduja National Power Corp Ltd and the UKs National Power Plc.

The Neyveli plant is being set up by US-based ST Power Systems Inc and the Bhadravati project is promoted by Ispat Alloys, Frances Electricite de France and GEC Alsthom group.

The government will pull out all stops to push through projects now, said an official from a European power firm.

In a situation like this, the new budget is expected to be very good with focus on smoothening the path for infrastructure sector projects including power.

India started opening up the generation part of its electricity sector to private investors in 1991.