Buoyed by spiralling demand and recent bilateral agreements, India’s power and defence sectors are primed for growth. Regulatory roadblocks and political tussles continue to frustrate investors, but the long-term opportunities are immense. Alfred Romann reports

India’s economic reforms in 1991 began with the power sector, and the now-infamous Dabhol project on which the first generation of Indian energy lawyers cut their teeth. The natural gas power plant was shut down following a payment dispute between majority owner Enron and its only customer (and minority stakeholder), the Maharashtra State Electricity Board. The process of rehabilitating Dabhol involved more than 40 different litigations over four years in five countries, not to mention several international arbitrations.

Thankfully the investment environment in India’s power sector has become more cordial since the Dabhol days and demand has reached a new peak. Kirtee Kapoor, head of the India practice at Davis Polk, says about 30% of his firm’s M&A work in India is now in the power sector, which is unprecedented; he is currently working on four deals himself. “There is something clearly afoot,” he says.

The Indian government is planning a significant increase in generation capacity over the next three years, with US$50-60 billion likely to be spent on projects that will keep investors’ lawyers busy in India and overseas. This is despite considerable hurdles lying in the path of would-be investors, including a complicated legal framework and political tussles between central and state governments.

Underpowered growth

India is ostensibly among the largest power producers and users in the world, but as Sumeet Kachwaha, a partner at Kachwaha & Partners, notes, “this statistic is totally misleading because our per capita [power use] is among the lowest in the world.”

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