Friday, September 14, 2012

Policy on Foreign Investment in Power Trading Exchanges
The Cabinet Committee on Economic Affairs has approved the proposal of the Department of Industrial Policy & Promotion for permitting foreign investment up to 49 percent, in Power Trading Exchanges.

The CCEA has decided to permit foreign investment, up to 49 percent (FDI & FII) [FDI limit of 26 per cent and FII limit of 23 per cent of the paid-up capital], in Power Trading Exchanges, in compliance with SEBI Regulations; Central Electricity Regulatory Commission (Power Market) Regulations, 2010; and other applicable laws/ regulations; security and other conditionalities. FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route. This is subject to the conditions that FII purchases shall be restricted to secondary market only, and no non-resident investor/ entity, including persons acting in concert, holding more than 5 percent of the equity in these companies.

The approval is expected to strengthen the power trading exchanges and to enhance the availability of power, as well as improve its distribution for inclusive development. Introduction of global best practices, concomitant with the induction of FDI, is expected to lead to higher service standards in power trading exchanges.

As per extant policy, FDI, up to 100 percent, under the automatic route, is permitted in the power sector (except atomic energy). This includes generation, transmission and distribution of electricity as well as power trading, subject to the provisions of the Electricity Act, 2003. There is, however, no specific dispensation, under FDI policy, for power trading exchanges. The extant FDI policy permits foreign investment, up to 49 percent (FDI & FII) [FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital], in infrastructure companies in securities markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations. While FII investment is on the automatic route, FDI is allowed under the government approval route. Foreign investment in commodity exchanges is also allowed on the same lines.

Power trading is the purchase of electricity for resale thereof, while a power trading exchange provides an organized platform for fair, neutral, efficient and robust price discovery; extensive and quick price dissemination; and price risk management for the generators, distributors, traders, consumers and other stakeholders in the power sector. Power trading exchanges are transparent electronic platforms which help promote competition in power markets. They are in a nascent stage of development in India. In view of the functions they perform, as also their utility in the transfer of power from surplus to deficit areas, these exchanges need to be promoted, through greater investment and induction of global best practices, modern management skills and latest technology. Hence, there was a felt need to allow foreign investment into these exchanges. 

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