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CLP May Reconsider Investments in India in conventional power, continue wind investments

According to reports, CLP Holdings  Ltd.–one of the largest foreign investors in India’s power sector–has threatened to “reconsider” its projects in the country, saying it is bleeding every day because of a fuel shortage, infrastructure bottlenecks and lack of policy initiatives to support growth.

The statement, made in a letter to Prime Minister Manmohan Singh, comes at a time when the country is trying to attract as much as $1 trillion of investments in infrastructure in the five years through March 2017.

The power industry is one of the focus areas as the government wants to bridge a huge gap in supply and demand to help speed up the country’s economic growth.

The hurdles that Hong Kong-based CLP is facing in India have “led to a serious loss of confidence amongst our shareholders and investors,” who are now questioning the “viability of our business in India,” Andrew Brandler, chief executive of the company, said in the letter written last month and reviewed by The Wall Street Journal recently.

“This pressure is mounting and the management needs to urgently find remedial solutions or reconsider present and future investments in the country,” he wrote in the letter.

Coal India Ltd., the state-run coal miner which has an agreement to supply the fuel to CLP’s 1.3-gigawatt project in northern Haryana state, hasn’t met its full contractual obligations, Mr. Brandler wrote.

He added that CLP is finding it increasingly difficult to sustain its operations in India, as “our profitability dips to alarming levels and we bleed financially on a daily basis.”

The Prime Minister’s Office recently forwarded the letter to Coal India, asking for a response “at the earliest,” two government officials said.

A Coal India executive said the company is preparing a reply to CLP’s letter and that it is likely to send it to the coal ministry by Wednesday evening.

“We are meeting our contractual obligation to the company,” he said. “Rest we will say in our response.”

Mr. Brandler didn’t respond to an email seeking comment.

CLP India Managing Director Rajiv Mishra said the company “is not contemplating exiting the Indian power sector.”

But until issues related to coal supply are resolved, it “would be difficult for us to justify further investments in the thermal power sector in India,” he told The Wall Street Journal Wednesday.

CLP, meanwhile, plans to focus its further India investment in the renewable-energy sector, especially to grow its existing wind energy portfolio, Mr. Mishra said.

CLP’s Indian unit runs wind farms with total capacity of about 500 megawatts. It also has a 655-MW gas-based power plant in Gujarat, which is affected by gas shortages.

Foreign investment in India’s power sector hasn’t really taken off, even though foreign companies are allowed to control 100% of Indian ventures.

A majority of electricity generation capacity is still in the hands of government entities such as NTPC Ltd.

One of the main issues hurting investment in the sector is the shortage of coal. More than half of India’s current power generation capacity and most of its planned projects are coal-based, making availability of the fuel critical to the industry’s growth.

However, Coal India, the monopoly supplier, isn’t able to increase output to meet rising demand due to delays in getting environmental and forestry clearances for new mining projects. Another impediment to increasing production is the lack of adequate road and rail connectivity to mining sites.

India’s demand-supply gap for coal this fiscal year through March is estimated to be 192 million metric tons. Shortage of coal has led several power producers to cut production and delay new projects.

This despite India having the world’s fourth-largest coal deposits at about 285 billion tons. It is also the third-largest producer of the dry fuel, with an annual output of about 550 million tons.

India is also facing a shortage in natural-gas supplies because of a drop in production from Reliance Industries Ltd.’s gas fields off the eastern coast. Because of the gas shortage, the power ministry advised utilities earlier this year not to set up new gas-based power stations until March 2016.

The country aims to expand its power generation capacity by 44% to 288 GW in the five-year period through March 2017. But, with fuel shortages hurting new projects, achieving that target will be tough.

Policymakers have been holding meetings for about a year to sort out the issues facing the coal and power sectors. But they have yet to take any concrete decisions to sort out the issues.

In his letter, Mr. Brandler said that when his company entered India in 2002, it saw significant opportunity in the country’s energy sector and was very optimistic and excited about its investments.

“But today, 10 years on, the reality is grim and disappointing,” the letter said.

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