Global Financial Crisis Cuts into BHEL's Plans for 10,000 Megawatts by 2011

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Researched by Industrial Info Resources (Sugar Land, Texas)--Bharat Heavy Electricals Limited (BSE:500103) (New Delhi), a state-operated power generation equipment manufacturer, has announced plans to develop eight 800-megawatt (MW) power generation units. The units would be set up in partnership with the state governments of Andhra Pradesh, Gujarat, Karnataka and Tamil Nadu. BHEL plans to set up the projects using supercritical technology, which is known to improve plant efficiency and reduce carbon-dioxide emissions. The eco-friendly technology helps in economies of scale, as well.

BHEL decided to implement the projects with state governments to ensure continuous orders for the company and also to keep ahead of potential rivals. The company, however, is apprehensive about the funds required to buy equity in the projects. The company fears that the current liquidity crisis will make raising funds an issue. The projects will require an investment of about $7.7 billion. BHEL will hold a 26% stake in each project, except the project in Tamil Nadu where it will hold a 50% stake. The company has already formed a 50:50 joint venture with the Tamil Nadu Electricity Board (Chennai, Tamil Nadu) that will set up a 1,600-MW thermal power plant in Udangudi, Tamil Nadu. It will be the state's first supercritical power project.

The effects of the global financial crisis are already visible in the infrastructure sector. A number of companies that have been shortlisted to bid for the 4,000-MW Tilaiya power project in Jharkhand have asked the Power Finance Corporation Limited (BSE:532810) (Mumbai, Maharashtra), which is overseeing the awarding of the project, to postpone the next round of bidding. The companies fear that they will not be able to generate the necessary funds, considering the current credit market.

BHEL currently is the only company in India that has the capacity to manufacture turbines and boilers of 800 MW or more, and the company plans to have a greater presence in the Power Industry. BHEL has a manufacturing capacity of 10,000 MW. It intends to invest about $1 billion to ramp up its capacity to 20,000 MW by 2011. However, the current financial situation will force the company to wait and watch with regard to its greenfield projects. All brownfield expansion projects will progress as scheduled.

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