India's New Electricity Bill and Multi-Billion Dollar Project Schedule Set Power Industry for Investment Boom Through 2020

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Written by Richard Finlayson, International Correspondent for Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Tracing the development of India's power projects and policies over the last two years has called for a 'fuzzy observation' technique which can take in procedural differences between the public and private sectors, the central government, and regional states, and tension between booming industrial growth and basic life needs of the poorest of the poor in a population of over one billion. A current catch-all phrase about India is that the country contains 33% of the world's computer analysts and 25% of the world's malnourished.

An announcement in New Delhi in the last week of July that the government is set to announce a new electricity policy by the end of August promises to clear some of the confusion. Reports say that the policy will focus on rural electrification, a reliable and cheap power supply across the country through competition between public and private sectors, and additional power generation. A draft of the policy has been circulated among the states, and the final draft will be submitted to the Indian cabinet after feedback has been received.

In January 2003, India had an installed generating capacity of 107,000 MW, as reported by the Central Electricity Authority. Seventy percent was thermal sourced from coal, gas, and liquid fuel; 25% was hydropower; 3% nuclear; and 2% wind. Out of the total installed capacity, 90% was owned by the public sector (60% under state governments and 30% by the central government), and the remaining 10% was in the private sector.

The new prime minister has been a champion of rates and finance reform in the industry for some years and will no doubt have taken note of International Energy Agency (IEA) estimates that India would require $665 billion in investments in the power sector during the period 2001 to 2030. The Indian Energy and Resources Institute follows the IEA in reporting that the government has an urgent need to create conditions by which this level of investment materializes, not only from government allocations and internal resource generation, but increasingly from private sector investments. They conclude that 'the provision of free power to any group of consumers cannot inspire an investor to sink his resources to provide inputs for a sick industry.'

At a time when the new Electricity Act is forthcoming and the supply gap is real, there is no lack of current new project activity in the industry having a target of at least 216,000 MW of generating capacity by 2012. A sample of some of the companies getting involved in these projects suggests that the target is achievable.

In fact, Industrialinfo.com is tracking 142 power projects in various stages of development in India. These projects represent greater than $68 billion in Total Investment Value.

Click on the image at right to view the India Power Projects Map.

It has just been announced that India's Oil and Natural Gas Corporation (ONGC) plans to sell an estimated 2,900 MW of power it hopes to generate from new projects to the Power Trading Corporation (PTC) The MoU (Memorandum of Understanding) between the two parties covers ONGC's existing generating stations and well heads stations which will be developed in isolated, marginal gas fields. Independent power project developers will lease the marginal fields, which include Dahej, 1,000 MW; Mangalore, 1,400 MW; and Tripura, 250-500 MW.

Essar Power Limited (Bombay) is planning plants in Andhra Pradesh and Gujurat to bring its installed capacity up to 2,000 MW by 2008/2009 and is exploring the possibility of setting another plant in Gujurat, adjacent to a refinery project. Essar is also planning to purchase a 1,200 MW plant in Scotland and relocate it in Jamnagar, Gujarat, and to set up a 250-300 MW plant at its high-grade pellets plant in Andhra Pradesh.

State-owned Bharat Heavy Electricals Limited (BHEL) (New Delhi) has received a $31 million order for a 120 MW hydropower project in Jammu and Kashmir. The 3x 40 MW project is expected to be running by 2007.

The National Hydropower Corporation (NHPC) agreed on 2,798 MW of hydropower projects with the state government in 2002. These projects include the 1,020 MW at Bursar and the 1,000 MW plant at Pakal Dul, in addition to smaller projects ranging from 330 MW to 18 MW.

BHEL is also constructing utilities and industrial power plants in the states of Orissa, Andhra Pradesh, Tamil Nadu, and Karnataka. In Tamil Nadu the company accounts for 4,500 MW of the total installed capacity of 5,100 MW.

With 70% of the power equipment industry, BHEL thrives on its position as a monopoly player in the thermal equipment segment (70% of India's coal production goes to thermal power generation) Only BHEL and Alstom have a local manufacturing base for generation equipment. Competition comes from international companies, such as Siemens, GE, and Chinese manufacturers with equipment imports. Alstom imports most of its equipment, including turbines. BHEL has technology agreements with multinationals, such as Siemens, and has the capacity to produce equipment up to 1,000 MW, but so far has not gone beyond 500 MW.

BHEL is looking to pick up equity and extend credit to power projects as part of its bidding strategy and will bid for the National Thermal Power Corporation’s (NTPC) new super-critical power projects using 660 MW technology. It has contracted a Russian company for the first project and is seeking the $2.3 billion Reliance Industries 3,740 MW gas-fed power project at Dadri. BHEL will rely on its tie-up with Siemens when entering the bidding for supercritical thermal projects in the 660-1,000 MW capacity range.

The captive power sector is competitive, with Thermax and Wartsila (India) as players. BHEL took 13% of this type of project in 2003/04 with orders worth R600 million. In the industry segment for products such as boilers, compressors and oil equipment, BHEL scores around 60%.

Services are a segment now offering good business opportunities. India's Central Electricity Authority (CEA) reports that at least 20% of the existing utilities with a capacity of 25,000 MW, includes imported sets, have outlived their lifespan of 20 years. The CEA says renovation and modernization can substantially increase the efficiency at just 14 to 15% of the cost of setting up a new plant and takes less than one third of the time. This presents a business opportunity of $3.2 billion, with a margin for the contractors of up to 15%. Joint ventures between Indian and international companies, such as Siemens and GE, are being developed to exploit this opportunity.

More hydropower projects are to be constructed in Himachai Pradesh and Uttaranchal, adding 2171 MW of clean power. The 500 MW Rampur project is already operational. Power from these projects feeds the capital, Delhi, and neighboring states.

Tata Power (Bombay) is planning to invest $1.3 billion in projects through 2009 and is looking to raise $500 million of the total with international partners and sources. A 330 MW hydro project at Shrinigar is going ahead, and a 120 MW power unit at Jojobera is already under construction. Tata has also applied for distribution licenses in the Bombay, region where it has a strong industrial base.

Moving on from a petrochemicals investment phase GAIL (Gas Authority of India Ltd)) is looking to invest $850 million to $1.1 billion over the next five years to create generating capacity of 1,000 to 1,500 MW. The company has submitted an expression of interest (EOI) to the government in Delhi to be a joint venture partner in the 1,000+ MW gas-based Bawana project. GAIL is also looking at setting up new power projects along its $5 billion national gas grid project. It is looking at 1050 MW project linked to a revived Ennore LNG project.

The company has already joined with Tata Power and BP to jointly bid for the Dhabol Power Company, when the process is rolled out. Gail has also acquired 12.6% of a 156 MW project in Gujurat State Energy Generation, with a view to leveraging its strengths in natural gas and LNG opportunities that exist in the power sector. It is also looking at clean coal technologies, through application of Shell's gasification technology, as an option for power plants where syn gas would provide distinct economical advantages, as compared to other fuels.

The Tamil Nadu Electricity Board (TNEB) and the NTPC have floated a 50/50 joint venture with $212 million seed capital to promote a 1,000 MW coal-fired power station in the port city of Ennore, which may use imported coal. Site studies are proceeding, leading to a detailed feasibility report. This follows the 1070 MW Videcon project being suspended because of a dispute with TNEB. With over 30,000 MW of new power brought into play in the first five years of the decade, Tamil Nadu has another 8,000 MW of projects in the process of being commissioned or nearing operational status. Upgrades of existing plants and the transmission system are being undertaken through 2007, with a total investment of around $2.2 billion.

The public utility Neyveli Lignite Corporation (NLC) is joining with the TNEB under an MoU to construct a 500 MW, $850 million coal-based power plant at Tuticorin. The announcement of this project was followed by NLC's being invited to construct a 1,000 MW project in Madhya Pradesh. NLC is also constructing a refinery residue-based power plant in collaboration with Chennai Petroleum Corporation. NLC has been granted mega status, which will allow capital equipment import at zero duty. This status includes the $1.7 billion plant in the Ib Valley of Orrissa.

Aban Power (Chennai) and its partner are developing a 120 MW natural gas combined-cycle plant to supply TNEB with power. The build-own-and-operate project will be commissioned at the end of this year in Thanjavur. Aban Power is also setting up a 120 MW natural gas-based plant near the Kattalum gas field and will sell the power output to TNEB. Aban operates 200 wind turbines in southern India.

Aban Construction has entered into a partnership with Tronoh Mines Malaysia and China's Shanghai Electric Corp to tender for power projects in India on a turnkey basis. Tronoh chief operating officer, Khoo Boo Cheong, said that the partnership had identified three power projects and would participate in bidding for the construction of the 600 to 750 MW power plants, with an estimated value of $600 million. The percentage stakes between the partners will be worked out in terms of expertise contribution, with the equipment supplier having the larger share.

In July, the Indian government finally gave the official approval to the setting up of nine new nuclear power plants, in view of increasing demand for power in the country. The nine projects have an investment value of $6.3 billion, and some are already under construction. Clearing the "fuzz" surrounding the projects, a 1999 study comparing nuclear and thermal power was quoted which suggested that electricity produced from nuclear power at distances of about 800 kilometers from the coal pitheads is a long-term cost effective option.

India is planning to have over 20,000 MW of nuclear capacity online by 2020. The nine plants are all expected to be completed by 2010 and include two large Russian reactors and a large prototype fast breeder reactor, which is part of the country's strategy to develop a fuel cycle that can utilize thorium. The nine projects will add 3,688 MW of capacity, followed in 2010 to 2020 by 26 plants, adding about 14,000 MW to capacity. In 2000, nuclear generated capacity was 2,493 MW.

Government and industry sources seem confident that the doubling of the country's generation capacity target by 2012 is on course, with 67% of targeted projects in place up to 2008. The new Electricity Bill can only clarify and assist the path ahead both for local operators and foreign investors and suppliers for the Indian power system.