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Government department told to set rules for Foreign Direct Investment in power exchanges

According to reports, the government has set the ball rolling for foreign direct investment (FDI) in power exchanges. The  finance ministry has asked the department of industrial policy and promotion to design a  FDI policy for  power exchanges on the lines of commodity exchanges. “There is a need for clear FDI regime for power exchanges. And since these are akin to  commodity exchanges a similar structure should be considered,” said an official privy to the deliberations.

The finance ministry, that houses the  foreign investment promotion board, has written to the  DIPP, that formulates the FDI policy on this issue, the official said, adding that the forthcoming FDI circular due in a month could indicate the policy direction.

At present, FDI in power exchanges is not explicitly banned but the rules not specifically provide for foreign investment on the lines of commodity exchanges. FDI is permitted in power exchanges up to 49%. Experts say such a clarification is required to provide certainty but said there is a need to relook at the negative list concept followed in the FDI policy as the foreign exchange management act works on positive list concept. “The current scheme of FDI policy contemplates the concept of negative list… In light of the evolving business scenario, the negative list itself needs to be relooked,” the official said. Negative list stipulates that sectors not mentioned in it are the ones in which FDI is permitted.
The trigger for the finance ministry’s missive was a recent FDI proposal from Multiples Private Equity, promoted by Renuka Ramnath, to pick up minority stake in Financial Technologies-promoted  Indian Energy Exchange (IEX). The proposal, which was put on hold, may get FIPB’s green signal anytime soon, the official said.
But, the industry favours up to 100% FDI in the exchanges. “Trading on the exchange is 100% physical delivery based and only 2% of the total generation is traded through any exchange,” said an official with an exchange. Moreover, he said sector was under close regulation of the Central Electricity and Regulatory Commission. Currently, India has two power exchanges, the other being National Stock Exchange-promoted Power Exchange India.

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