BHEL Wins $630 Million Plant Package Order for 1,200-Megawatt Malwa Thermal Power Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Bharat Heavy Electricals Limited (BSE:500103) (BHEL) (Mumbai, India), a state-run power equipment manufacturer, has secured a $630 million contract from the Madhya Pradesh Power Generating Company Limited (MPPGCL) (Jabalpur, Madhya Pradesh) to install the main plant package for MPPGCL's 1,200-megawatt (MW) Malwa thermal power project. Under the contract, BHEL will supply two turbine and generator packages of 600 MW each, the first of which is scheduled for commissioning in 39 months by March 2012. The second will go on stream in 43 months by July 2012. The total cost of the project is estimated at $905 million.

The deal with MPPGCL marks the first order secured by BHEL in Madhya Pradesh for its new 600-MW steam turbine and generator units. According to the terms of the contract, the firm will be responsible for basic design, engineering, production, supply, installation and commissioning of steam turbines, boilers, generators and allied auxiliary components, and the supply of control and instrumentation components for the power plant. BHEL will also undertake civil works for the main power plant.

BHEL outbid Chinese firms in an international competitive bidding process to secure the deal. The suitability of equipment supplied by Chinese manufacturers for Indian power projects has been repeatedly questioned in the last few years. In late 2008, the issue resurfaced when turbine blades at a 300-MW unit of the Sagardighi thermal power plant in West Bengal collapsed within weeks of the unit going on stream. Further, the equipment supplier for the project, Dongfang Electric Corporation Limited (SHA:600875) (Chengdu, China), took about 81 days to address the failure and resume normal plant operations.

Chinese power firms have been able to penetrate the Indian power sector not only because of inadequate manufacturing capacity in India but also because of their ability to quote inexpensive rates, about 10% to 15% less than the best price that could be afforded by India's leadings players, such as BHEL, in bidding processes. While this has been attributed to economies of scale, mass production, and low cost of manufacture in China, industry experts said that certain equipment manufacturers cut corners to save costs, a tactic that not only lowered product quality but could also prove disastrous in the case of an emergency. Experts also pointed out that if Chinese manufacturers were mandated to provide equipment customized to Indian operating conditions and standards, they would not be able to supply equipment at inexpensive rates.

In August 2008, it was reported that Chinese firms had secured 22% of the total equipment orders that had been placed for 72,000 MW out of the then-envisaged capacity addition target of 78,000 MW for the ongoing Eleventh Five-Year Plan period, 2007-12. Jairam Ramesh, India's Minister of State for Commerce and Power, had indicated that he would not like this trend to continue in the next five-year plan period, 2013-18.

Following the incident in West Bengal, the Central Electricity Authority (CEA) undertook a study of utilities that had commissioned their power plants using equipment imported from China. A study based on the evaluation of four units of 135 MW each at the Korba captive plant of Bharat Aluminium Company Limited (New Delhi) reported a "general satisfactory" feedback on the power plant but voiced concerns over the quality of some components, including turbines installed at the plant. The report further stated that leading Chinese manufacturers such as Dongfang, Shanghai Electric Power Company Limited (SHA:600021) (Shanghai, China), and Harbin Power Equipment Company Limited (HKG:1133) (Harbin, China) did not respond to the CEA's request for technical information.

Earlier this month, BHEL demanded that the Indian government levy a minimum customs duty of 10% on power equipment imports to enable the firm to win domestic orders. There is currently no import duty on raw material procured from overseas for the country's power sector. BHEL has an established manufacturing capacity of 10,000 MW per year for developing thermal power plant components with ratings of up to 1,000 MW that can operate on imported as well as locally procured coal. The firm recently introduced plant packages with ratings of 270 MW, 525 MW and 600 MW and has secured orders for 85 packages of the 500-600 MW rating. The firm plans to expand its manufacturing capacity to 15,000 MW per year by the end of 2009 and further to 20,000 MW per year by the end of 2011.

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