Foreign firms find ally in MoF for hydel projects

NEW DELHI: The finance ministry has said foreign companies bidding for hydel power projects should not face any security-related restrictions.

Since 100% foreign direct investment (FDI) is allowed in hydel power, such restrictions are not logical, the ministry has said in response to suggestions from the home ministry and the security agencies, who have sought restrictions on foreign companies, primarily Chinese, in hydel projects in sensitive border states like Arunachal Pradesh and Jammu & Kashmir.

The issue came up for discussion at a top-level meeting convened by the Cabinet Secretariat, at which the ministry of power stressed on the difficulties in imposing security restrictions on foreign companies.

It was pointed out that multilateral lending agencies object to such restrictions in projects in which private parties are awarded contracts through international competitive bidding.

The argument of those opposed to restrictions was that limiting the number of bidders would mean less competitive bidding. Also, such curbs could be challenged at the World Trade Organization (WTO), if restrictions target only a few companies.

“The representative of the department of economic affairs indicated that 100% FDI through the automatic route with respect to all hydel projects is permitted. The existing system is robust and the work (contracts for hydel projects) should be awarded without any specific restriction in view of the commercial advantages accruing on account of participation of foreign companies,” says a government document detailing the deliberations.

The finance ministry also opposed country-specific approach to imposition of restrictions and suggested that such projects should be dealt with on a case-by-case basis. A time-frame should be set for security clearance, a representative of the ministry said.

However, the power ministry is opposed to dealing with such projects on a case-by-case basis. A non-discriminatory policy decision on participation of foreign companies in work packages of hydro-electric projects falling in sensitive areas should be drafted soon, a representative of the ministry said.

The power ministry also expressed the view that a clause on national security acceptable to multilateral funding agencies can be included in tender documents in the case of projects going through international competitive bidding.