AES to build two power plants in India worth $2.8 billion

Plans to build two power plants with a total investment of $2.8 billion will make AES Corporation (Arlington, Va.) the biggest foreign player in the Indian power sector since the ill-fated entry of Enron at the turn of the century.

The company will make a direct investment of $400 million of $1.4 billion into a 1,200-megawatt plant in Chhattisgarh with $1 billion to be raised in loans. The acquisition of land for the project is in the final stages. Financing discussions are being held with the World Bank's International Finance Corporation and local lending institutions and companies, including ICICI Bank, the country's largest private-sector bank.

In the resource-rich eastern state of Orissa, AES will undertake a $1.4 billion expansion on an existing power plant it commissioned in 1998 in a joint venture with the state government. The two partners will invest $400 million in the expansion projects and obtain financing for the remaining balance. In 2006, the power plant made a profit of $36 million.

The Enron debacle left a residual nervousness on the part of foreign power companies to face the regulatory and politically charged approval processes for projects. Local residents' resistance to land acquisition for power plant sites erupts regularly and is coupled with environmental concerns about large projects. AES generates the major part of its revenue from the operation of worldwide projects outside North America and has the operating record of the Orissa plant to refer to.

India is targeting the doubling of power generation capacity between 2005 and 2030 to serve the population, which currently stands at 1.1 billion. In order to attract more foreign investments in power projects, the country has been reforming the regulation of the power sector and has introduced competitive bidding and more transparency in the tender-awarding process.

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