south asia regional initiative for energy integration

South Asia Regional Initiative for Energy Integration (SARI/EI)

Draft Terms of Reference of the 2nd TF-1 study on“ Regional Investment Policy Guidelines and Investment Framework for

promoting investment in Power Sector and Cross Border Electricity Trade Infrastructure Power Projects in South Asian Region ”

Combined Meeting of SARI/EI Task Forces

5th - 6th August, 2015 at New Delhi, India

8/4/2015 Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/ 1

Rajiv Ratna PandaSARI/EI/IRADe

Outline of Presentation


1

2

Back Ground

Objective of the study

3 Terms of Reference (TOR) of the Study

4 Deliverables

5 Timeline

Back Ground


Back Ground


Being Capital Intensive, Large Scale Investment is required.

Most of the countries have undertaken policy reforms and are encouraginginvestment.

Significant Cross Border Electricity Trade projects are being kick started.Bangladesh is stepping up its power import targets to 7000 MW.

Bangladesh has shown interest for making investment in hydro Power Projectsbeing developed in Nepal and Bhutan (Regional Investment). SAARC has conductedprefeasibility studies for Regional /Sub-regional Power Plant.

Inadequate large scale domestic finance (Lack of a robust integrated capital market inSAARC region). Need to leverage all source of finance for infrastructure(power)projects.

Need to create an investor friendly policy environment for promotion and protection of Investment. Draft SAARC agreement on promotion and protection of investment.

Source: http://www.thefinancialexpress-bd.com/2015/03/22/85970

Objective of the Study


Objective of the Study


The Key objective of the study is to :1) Review and Analyze the Current Investment Scenario/Investment trends

in South Asia and review the various Investment related prevailing Policies/Guidelines/Regulations/Frameworks prevailing in each South Asian Countries (SAC) related to Power Sector and Cross Border Electricity Trade

and

“ 2)Assess its impact on the investment in South Asian Power Sector and in particular on the Cross Border Electricity Trade Projects and

3) Develop an Regional Investment Policy Guidelines (IPGs) and a Regional

Investment Framework for Promoting Investment in South Asian

Power Sector (SAPS) particularly in Cross Border Electricity Trade Infrastructure Power Projects (CBETIPPs).

Scope of Work /Terms of Reference (ToR) of the Study:

8/4/2015 Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/7

Scope of Work /Terms of Reference (ToR) of the Study:

Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/ 88/4/2015

1.Review and Analyze the current investment scenario and investment trends in South AsianPower Sector (SAPS) and in particular on the Cross Border Electricity Trade Projects.

3.The above review and analysis will also include the variousLaws/Regulations/Policies/Provisions related to environment, Land Acquisition, Competitionlaws/policies, Trade policies, Taxation Policies, Corporate Tax Regimes, Royalty Regimes,Contract enforcement & Dispute Settlement Mechanisms, Policies related to Investmentpromotion & facilitation, Rehabilitation and Resettlement policies, etc. and its impact oninvestment in South Asian Power Sector and in CBETIPPs.

2.Review and Analyze Investment related policies/guidelines/regulations/frameworks etc.prevailing in each south Asian countries including FDI policies ,fiscal benefits, Incentives forInvestors (both domestic and foreign),standards for investment protection, security ofinvestment, policies on private sector participations and policies on Public PrivatePartnership (PPP) etc. related to in South Asian Power Sector (SAPS) and in particular on theCross Border Electricity Trade Projects.

Scope of Work /Terms of Reference (ToR) of the Study: Contd.


5.The review & analysis of investment policies/guidelines/regulationsshould cover specially on energy resources development particularlyrelating to Hydro power resource and associated transmissionInfrastructures.

6.Analyze the international best practices on investment policies/guidelines/regulations and institutional mechanisms for promotinginvestment and suggestion/ recommendation on the same.

4. Assess & Analyze the key concerns/issues of Investors, Lenders,MDBs, Project Developers for making investment in South AsianPower Sector and in particular in the CBETPs.



7.Based on the above review & analysis, develop a template covering

investment policy guidelines/regulations etc. containing a framework on keyingredients required for promoting investment in SA region/ CBETPPs.

9.Based on the above detailed analysis of various investment

policies/guidelines/regulation, suggest/ recommend the keyamendments/changes required to be made on the same to promote investmentin the SA region/ CBETIPPs.

8.Based on the above detailed analysis , develop an Regional Investment Policy

Guidelines and a regional investment framework for promoting investment inSA region/CBETPPs.



10.Prepare a time bound, practicable and doable strategy and roadmap (both

regional and each country wise) for implementation/adoption of suggestion /recommendations among SA countries.

Deliverables:


Deliverables:

8/4/2015 13

Deliverable

1

• Detailed Draft report on findings covering of the review and analysis of the investment policies/guidelines/regulations prevailing in South Asian Countries (SAC) and its impact on the investment in South Asian Power Sector and CBETIPs, Review of the international best practices etc. as per the TOR.

Deliverable

2

• Template covering investment policies/guidelines/regulations containing a framework on key ingredients for promoting investment in Power Sector in South Asian Countries and in CBETPPs.

Deliverable

3

• Detailed report on Key amendments/changes required to be made in investment policies/guidelines/regulations of each SA countries for promoting investment.

Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/

http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=YlZwNZL7oeYgfM&tbnid=t1nRSsnO6p1EQM:&ved=0CAUQjRw&url=http://hydroassoc.org/docs/NL-HTMLs/MarchNL-2013.htm&ei=u6BPU9PzLIeBrgfo1YDQDg&bvm=bv.64764171,d.bmk&psig=AFQjCNHDOqEvQ-ssmatWI9eIj2WTV-kAPA&ust=1397813793669606


Deliverables:

8/4/2015 14

Deliverable

4

• Regional Investment Policy Guidelines and Investment Framework for promoting investment in SA region/CBETPPs.

Deliverable

5

• Time bound, doable strategy and roadmap (both regional and each country wise) for implementation/adoption of suggestion and recommendations among SA countries.

Deliverable

6

• Final Report of the Study .




Time Line


Time Line

Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/8/4/2015 16

Time Line:

Tentative time line of the study is 6-8 months.

SARI/EI

Discussions and Suggestions

8/4/2015Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/

17

Thank You



Supporting Slides

Investment Scenario: Power Sector FDI in Bangladesh

38.51

58.467.3

69.82

45.58

4.2

5.1 5.2

4.4

3.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0

10

20

30

40

50

60

70

80

2010 2011 2012 2013 2014

Bangladesh: FDI Inflows (Net) in Power Sector in Million USD

Power Power Net FDI in (% of Total Net FDI Inflows)

Sources: Bangladesh Central Bank www.bangladesh-bank.org

Net FDI Inflows in Power Sector increased from 2010 till 2013 but declined in the year 2014.

FDI stocks in power as on end December ,2014 -Million US$ 592.51 (6.33 % of the total FDI stock )

0

500

1000

1500

2000

2500

End ofDecember

2010

End ofDecember

2011

End ofDecember

2012

End ofDecember

2013

End ofDecember

2014

FDI

STO

CK

IN

MIL

LIO

N(U

SD)$

Trend –Major Sector Wise Cumulative FDI Stock

Agriculture & Fishing Power

Gas & Petroleum Food Products

Textiles & Wearing Pharmaceuticals & Chemicals

Cement Trading

Sources: Bangladesh Central Bank www.bangladesh-bank.org

8/4/2015Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/

20

Investment Scenario : Energy Sector FDI in Nepal

4.75

1.23

3.00 2.76

11.19

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

in B

illio

n N

PR

Nepal Last 5 Fiscal Year-wise Sector-wise Trend of FDI

AGRO BASED CONSTRUCTIONENERGY BASED MANUFACTURINGMINERAL SERVICETOURISM

Energy sector receives highest FDI. Increasing Trends of FDI in Energy sector.

Nepal Earthquake : Requirement for Power Sector is -18.58 Billion NPR. (Public Sector -5.8 and Private Sector12.89 Billion NPR .

Private Sector Lead : On Generation 11.1 Billion NPR is expected from Private Sector

11.1 B NPR

(88% Total Generation

Requr.

1.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Generation Transmission Distrbution CivilStructures

Contigencies

Nepal Post Earth Quake: Reconstruction Requirements ( Billion NPR)

Total Public Private

8/4/2015


21

Investment Scenario :Energy Sector FDI in Pakistan and FDI in Bhutan

8/4/2015 Combined Meeting of Task Force/TOR/IPG/ /RAJIV/SARI/EI/IRADE/

9.5

-10.3

2.04.3

17.9

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

-200.0

-100.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0

2010-11 2011-12 2012-13 2013-14 2014-15

Power ,Oil & Gas -Foreign Investment inflows in Pakistan($Millions)

Oil & Gas

Power

FDI Inflow in Power( % Total FDI Inflow)

FDI Inflow in Oil & Gas ( % Total FDI Inflow)

Source: Board of Investment Pakistan

FDI in Power Sector is on increasing trend even though there is a 58.2% decrease in Net FDI in2014-2015 as compared to 2013-14.

FDI in Bhutan increased till 2012 . FDI stock is on increasing trend.

0

20

40

60

80

100

120

140

160

180

0

10

20

30

40

50

60

70

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bhutan FDI in Million USD

Bhutan( FDI Inflows in Million USD)

Bhutan( FDI Stock in Million USD)

22

Investment Scenario: FDI equity inflows in India


SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS

2012-13 2013-14 2014-15

(April- March)

2015-

2016(April,15-

May,15)

Cumulative Inflows (April

’00 - May ‘15)

SERVICES SECTOR **4,833 2,225

3253 48843202

CONSTRUCTION

DEVELOPMENT:TOWNSHIPS,

HOUSING, BUILT-UP

INFRASTRUCTURE

1,332 1,226 758 2

24066

TELECOMMUNICATIONS 304 1,307 2,895 364 17422

COMPUTER SOFTWARE &

HARDWARE 486 1,1262200 2273

17291

DRUGS & PHARMACEUTICALS1,123 1,279

1523 15913280

AUTOMOBILE INDUSTRY1,537 1,517

2570 100713390

CHEMICALS (OTHER THAN

FERTILIZERS) 292 878669 150

10487

POWER 536 1,066 657 1559712

METALLURGICAL INDUSTRIES1,466 568

472 748621

23

Foreign Investment Policy Regimes in South Asian Countries

Areas Bangladesh India Nepal Pakistan Sri Lanka Bhutan Maldivies

Repatriationof Profits

and tax onexpatriates

income

100% repatriation

of capital anddividends is

allowed

100% repatriation ofcapital, profits anddividend is allowed

after payment of tax

100% repatriation of

dividends and capital isallowed

100% repatriationof capital, dividend

and profits isallowed

i) 100% repatriation

of profits anddividend is allowed

ii) expatriatesincome is taxed at a concessional rate of 15% for 5 years

100% repatriation of

profits and dividend

subject to approval

100% repatrprofits and diallow

Minimumcapital

requirement

None US$2100 None Agriculture andinfrastructure:

$0.3mn

US$500,000 Manufacturing:US$$1Mn

Services: US$0.5 Mn

Non

EPZ statusYes, in some

designated areaYes, in some

designation area NoYes, in some

designated area Yes, country-wide

Protection ofForeign

Investment

i) Guaranteeagainst

nationalizationii) Internationalconvention forsettlement of

industrialdisputes

i) Settlement ofdisputes is govern bythe Indian Arbitration

Act 1940ii) UN Convention forthe recognition and

enforcement of foreignarbitral awards

i) Guarantee againstnational

ii) Dispute settlement

through mutualconsultations and

inaccordance with

thearbitration rules of

UNCommission on

International Trade Law

i) Guarantee againstnationalization

ii) Settlement ofdispute through the

InternationalCommission onSettlement of

InvestmentDisputes

i) Protection againstnationalization

under the bilateralinvestment

agreements andconstitutional

guaranteeii) International

Convention for theSettlement of

InvestmentDisputes

Outwarddirect

investment

All foreigninvestment

require priorapproval

Overall limit of $100million in one financial

year subject toapproval. Investmentby Indian nationals in

Pakistan was notpermitted under the

approval route.

Nor permission is given

for foreign investment for

Nepalese citizens except

by Only by government

notice

All foreigninvestment require

prior approval

All foreigninvestments require

prior approval.Priority to

investments whichpromote domestic

exportsStrict controls on allforeign investments

Strict controlforeign

inve

Source : IMF, Annual Report 2010 on Exchange Arrangements and Exchange Restrictions supplements by various country sources.

Foreign Investment Policy Regimes in South Asian Countries

Areas Bangladesh India Nepal Pakistan Sri Lanka Bhutan Maldivies

Limits onforeignEquity

Participation

Up to 51% in mostindustries;

Up to 24% in smallscale industries;

and 100% in export-oriented industries,power, electronic andsoftware technologyparks. Investment fromPakistan remainedprohibited until 1September 2012

100% foreign owned orjoint venture in all sectors,except for a negative list

industries

100% in all sectors.

100% in all sectors

74% in all sectors. 100 per cent equity share allowance in selected sectors is permitted.

100%

FiscalIncentives

i) Tax holiday for

7 yearsii) Tax

exemptionon royalties,interest on

foreign loans and

capital gains from

the transfers ofshares

iii) 5% importduty on capitalequipment andspare parts for

initial installation

i) Income tax holidayof 10 year for EPZ

firms and 5 year forother investors.

ii) Access to financefor export-oriented

industries atconfessional interest

ratesiii) Tax relief under

Avoidance of doubletaxation agreements

iv) 10 year income taxholiday for firmslocated in EPZ.

(i) Corporate tax rate forexport-oriented industries

is 8% of profit or0.5% of export earningsii) Corporate tax rate for

import competingindustries is 20%

iii) 2.5% duties on importsof M/E and spare parts

iv) 5-10% duties on mostindustrial intermediate

inputs refunded to export-oriented industries under

the duty draw back scheme

i) No custom duty

on imports of plant,

machinery &equipment

forexport-

oriented andhi-tech

industriesii) zero import

tariffon plant andmachinery

(notavailable locally)used for

agriculture

i) Exempted from

income tax oncapital gains

arisingfrom share transfersii) income

tax???iii) Duty draw

backfor export-oriented

industries

Selective taxexemption

No specifincenti

Source : IMF, Annual Report 2010 on Exchange Arrangements and Exchange Restrictions supplements by various country sources.

Investment Scenario : Intra Regional Investments in South Asia

26

Majority of FDI inflows are outside of Region.

Intra regional FDI has been limited.

Intra-regional investment constrained byrestrictive policies i.e. excluded sectors, equityrestrictions, lack of sufficient protection forinvestors, underutilisation of bilateralinvestment treaties and lack of strategicpromotion of intra-regional investment. (ADB andFICCI (2010).

However in recent past ,increase tendency inintraregional investment. In 2012 India investedUS $ 28 million in Bangladesh. Pakistan and SriLanka invested 9, 11 Million US $ inBangladesh.

Equity Financing : Total Equity Market sizeSAARC is US $ 716204 Million.

India has the highest equity turn overvalue US $690216 Million followed by Bangladesh (US $10693 Million ) and Pakistan (US $13675 Million)

Year Top 5 Sources of FDIShare of TOP 5 countries(%)

Share of Traditional

OECD countries(%)

No of Identified

source countries

India2010-2011

Maurititus, Singpaore,USA,Japan,Net

herlands65.4 27 100

Bangladesh 2010-2011

UK,USA,Hong Kong,South Korea and Egypt

61.3 51 44

Pakistan 2010-2011

USA,UAE,UK,Hong Kong and China

57.6 61 33

Nepal 2010-2011

India, China,South Korea, Japa and Canada

67 22 25

Sri Lanka 2010 USA,Malaysia,UAE 62 NA NA


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