Infrastructure - Power

The power sector is high on India’s priority as it offers tremendous potential for investing companies based on the sheer size of the market and the returns available on investment capital. Since independence in 1947, the power generating capacity in India has increased over 59-fold, from 1,362 megawatts (MW) to 81,000 MW in 1995. Presently thermal plants account for 74% of total power generation, hydroelectric plants for 24% and nuclear plants generate the remaining 2%. Currently approximately 85% of India's 560,000 villages have electricity and there is a nationwide network for the transfer and distribution of power to all parts of the country.

The Central Government has identified a number of new initiatives to give a new thrust to the power sector. The government has agreed to set up a power trading corporation, which would be a centralized

agency to trade in power. The proposed corporation could purchase power from large projects and trade in it at the inter-state level.

In view of the paucity of resources and the need to bridge the gap between the rapidly growing demand and supply, the Government has undertaken a policy to encourage greater investments by private enterprises in this sector. Incentives include:

• Generation and distribution power projects of any type and size are allowed.

• Foreign equity participation can be as high as 100%.

• Return on equity of up to 16% is assured at 68.5% PLF for thermal power plants (with the possibility of earning higher returns for higher PLF). Similar incentives are provided for hydroelectric power projects.

• A renewable license period of 30 years has been set.

• Import duty at the concessional rate of 20% has been set for import of equipment.

• The Government allows a 5-year tax holiday for power generating projects with an additional 5 years in which a deduction of 30% of taxable profits is allowed.