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AES decides to stay put in India

March 08, 2004 07:42 IST

The $8.4 billion power transnational AES Corporation has dropped its plan to quit India. The reversal of position by the United States-based company was triggered off by the passage of the Electricity Act, 2003. This is the first concrete gain for India after the Act was passed.

The country had witnessed the exodus of power sector multinationals such as Cogentrix, PowerGen and National Power. Other multinationals such as CMS and the bankrupt Enron Corp too had announced plans to quit the country.

Even though AES never officially announced its plan to leave India, it was widely known that the company had put its 49 per cent stake in Orissa Power Generation Corporation on the block.

It had also entered into a confidentiality pact with Tata Power and went through a due diligence exercise. However, the sale did not go through for reasons that were never made public by both sides.

"AES views the Electricity Act as a very encouraging sign and has now decided to stay on in India and expand here. The company is especially happy with the provisions in the Act which allow the sale of power directly to consumers. This means that as soon as this provision comes into force, companies need not depend on the loss-making state electricity boards for their revenue," sources familiar with the development said. AES had payment-related disputes with the Orissa government.

The AES decision is particularly significant in the backdrop of the Union government's ambitious plan of adding 1,00,000 mw by 2012. It is widely accepted that this would be impossible without the participation of multinationals.

AES is present in India through its arm AES Transpower, which holds 49 per cent stake in OPGC and 51 per cent stake in Cesco, which distributes power to central Orissa.

Globally, the company delivers 45,000 mw to customers in 27 countries through 116 power facilities and 17 distribution companies. It has a work force of around 30,000 people.

"AES is very positive about the Electricity Act 2003 but we never really had any plans to quit India," H Jaisinghani, vice-president of AES Corporation and the Asian head of the transnational's operations, told Business Standard.

India opened the power sector to foreign direct investment in the early 1990s, ushering in a host of multinationals. However, owing to a lack of clarity in policy, which led to indefinite delays, most of these multinationals slowly pulled out.

Matters were compounded further by the poor financial health of state electricity boards, which under the law were the sole buyers of power.

Despite payment security mechanisms like government guarantees, transnationals were not convinced about the ability of SEBs to pay their dues and they exited.

Plugging in again

  • First concrete gain for the country after the passage of the new Electricity Act.
  • AES' decision significant in the backdrop of the government's ambitious plan to add 1,00,000 mw by 2012. Lack of clarity in government policy led to exodus of power multinationals in 1990s.


S Ravindran in Mumbai