INDIA, UNDER PRIME Minister Narendra Modi, is embarking on a renewable energy drive of staggering ambition. He’s aiming to ramp up energy production from renewables to a massive 200GW by 2022. The scale of that ambition is vast: the current levels of energy derived in India from renewable energy – largely consisting of wind and solar power – is estimated at around 6GW.
Having this ambition is unquestionably the right thing. India is a country where about a quarter of households have no electricity connection and where coal and oil-fired power stations churn out reams of pollution.
How much of it turns out to be hubris or just plain wishful thinking on Mr Modi’s part we will know over the next five to seven years.
As a man famed for turning around the state of Gujarat by emulating the efficiency of Singapore’s economy, Mr Modi’s plan to take India’s power sector down the green route is not to be sniffed at.
But he just last week encountered the bugbear that all project finance professionals habitually scream about: land acquisition. Indeed if there were to be a motto of the project finance power sector it would be: “It’s all about the land, stupid.”
Modi’s Centre coalition has attempted to tweak the 2013 Land Acquisition Act to make it easier for project sponsors to purchase land and help facilitate his grand infrastructure plans.
But last week the proposed legislation ran into objections from the Congress party-led opposition. They described the Land Bill currently being debated in India’s parliament as being skewed in favour of industry.
OPPOSITION POLITICIANS POINTED out the likelihood that local farmers, from whom most of the land is purchased for power projects in India, might become more than vocal in their protests at the proposed bill. As a result, Mr Modi has been forced to water down his proposed amendment.
The bill is being tweaked to give power to local states to pass land reform legislation that will help facilitate infrastructure projects. Sweeteners had been included in the bill to appeal to farmers and other owners of rural land.
These include allowing for the sale of land earmarked for projects by as much as four times above market value, a sliding scale such that the land would be valued more highly the further it is away from urban centres, and the provision of one job for every family displaced by the land acquisition.
These seemed pretty sound proposals, but their enactment now lies in the hands of regional governments that must draft their own laws on land acquisition. The story is that the big states – Gujarat, Rajasthan and Maharashtra – are already laying out draft proposals to help Mr Modi fulfil his India infrastructure dream.
It won’t be easy. India is notorious for its red tape, its local power factions and other vested interests, which have a habit of standing in the way of much-needed infrastructure projects.
India is notorious for its red tape, its local power factions and other vested interests
ONE CAN ALMOST hear Mr Modi seething. What could be achieved when he lorded it over Gujarat is not so easy to replicate on a national level and he is probably now feeling that his grand designs have already been atomised.
But there are, perhaps, reasons to be cheerful. In a recent report Deutsche Bank claimed that around US$35bn is being earmarked for the Indian solar energy sector by would-be investors.
The 200GW of renewable energy Mr Modi is targeting by 2020-22 translates to around US$200bn of investment. Japan’s Softbank has signed up for US$20bn, and India’s Adani to another US$10bn.
That should pique the interest of the global finance industry, in the knowledge that India’s banks are nursing damaged balance sheets and need to restructure a vast pile of non-performing loans.
Short of some substantial capital injections, there is no way they can stump up the oodles of cash needed to turn Mr Modi’s vision into a reality.
Indeed, the one thing that has always struck me about India’s legendary need for infrastructure is how piddling the deals are that do make it to market.
A supercharged deal-generating machine is required if any dent is to be made into Mr Modi’s gargantuan renewable energy target. With offshore lending in Asia down by 15% this year on the back of regulatory strictures and concomitant balance sheet conservatism at US and European banks, the vast sums required seem unlikely to come from that channel.
Perhaps there’s hope in the form of project finance bonds, where I’m told around a dozen issuers are waiting in the wings. And there are always Green bonds, where a ready pool of socially responsible investors sits waiting to invest. The bulk of that money sits in Scandinavian SRI funds, but their vetting standards are high.
If Mr Modi’s vision is to be realised he will have to hope that India’s state legislatures frame the right rules, specifically regarding environmental and social impacts. The bar is high and India can ill afford to fall short.
