Due diligence vital for reward in India’s power sector

India’s economic growth has been spectacular in recent years, gaining a reputation as one of the fastest growing economies in the world. GDP increased 7.6% in 2015, surpassing China and becoming the No. 1 growing economic force worldwide. However, power supply in India has not met with equally vigorous growth, and can pose serious restrictions on the nation’s overall development.

HUGE GAP IN SUPPLY

Among the 1.2 billion people living in India, 80% have access to electricity. But power shortage is still very common in most areas of the country, including New Delhi. Only a few districts are guaranteed to have a 24-hour continuous supply of power. India mainly uses thermal power, with coal power plants generating more than 80% of the country’s total capacity. However, India does not have rich coal reserves, and its coal power generation sector heavily depends on imports.

Hydropower resources are rich in India, especially in the northern and north-eastern areas. Nowadays, hydropower makes up to 15% of the country’s total capacity. Hydro project development is expected to flourish in the future. The Indian government promised in October 2015 that it would reduce greenhouse gas emissions by 33-35% in the next 15 years. Therefore alternative power generation, such as solar, wind and nuclear power, is now encouraged and promoted.

In recent years, India has been a preferred destination for foreign investment. More and more, Chinese enterprises are becoming interested in local power projects. The huge electricity market potential is working like a magnet for Chinese companies that are eagerly looking for new investment opportunities to put their rapidly accumulated wealth to work. However, as a proven principle, where there are opportunities, there are also risks and challenges.

WANG JIHONG is a partner and LIU YING is an associate at Zhong Lun Law Firm