Six Overseas Firms Vie for Reliance Power's $415 Million Contract for 3,960-Megawatt Sasan UMPP

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Researched by Industrial Info Resources (Sugar Land, Texas)--P&H Mining Equipment Incorporated (Milwaukee, Wisconsin) and Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois), two U.S.-based global equipment manufacturers, are among six firms in the race to secure supply orders for mining equipment from Reliance Power Limited (BSE:532929) (Mumbai) for the 3,960-megawatt (MW) ultra-mega power project (UMPP) in Sasan, Madhya Pradesh. Other firms in the fray for the mega contract, estimated to be worth more than $415 million, are Production Association Belaz (Zhodzino, Belarus), Taiyuan Heavy Industry Company Limited (SHA:600169) (Taiyuan, China), Komatsu Limited (OTC:KMTUY) (Tokyo, Japan), and Uralmash (Yekaterinburg, Russia). Reliance Power expects to place the order within two weeks.

Reliance Power is developing two captive coal blocks at Moher and the Moher Amlohri extension, and is expected to spend $623 million in development and operations of the open-cast coal mine, which is the largest in India. The Indian Ministry of Coal has approved the mine plan for the two coal blocks. Reliance Power is also awaiting clearance from the ministry for the development of the Chhatrasal coal block in Madhya Pradesh. With combined reserves of more than 700 million tons, the three coal mines would be able to supply 15 million to 16 million tons per year of coal required by the Sasan UMPP.

The mega-contract will consist of orders for electric shovels, draglines, off-highway haul trucks, and other mining equipment. It is reported to be the largest in terms of size in the recent history of the domestic mining industry, and will see the use of several types of mining equipment for the first time in the country's history. Equipment manufacturers who have expressed interest in the contract have agreed to organize export financing from their respective countries.

Reliance Power is also in the process of placing orders for mining equipment for the 4,000-MW Tilaiya UMPP in Jharkhand, where the firm has secured captive coal mines. Companies that secure the mining equipment supply contract for the Sasan UMPP are expected to emerge as the favorites for a similar contract for the Tilaiya UMPP. Uralmash and Taiyuan Heavy Industry are reported to be the frontrunners in the race to secure orders for supplying draglines and electric shovels for the Sasan UMPP.

Reliance Power is executing the Sasan UMPP on a fast-track basis. The project has achieved financial closure, land acquisition, and requisite environmental clearance. The project originally was scheduled for commissioning between May 2013 and April 2016. However, in May last year, the firm committed to the Central Electricity Authority (New Delhi) and the Union Ministry of Power to advance the commissioning schedule of the project by three years. Accordingly, the first unit of 660 MW is scheduled for commissioning in December 2011, followed by four units being commissioned at intervals of three months each between March and December 2012, while the sixth unit is scheduled for commissioning in March 2013.

Reliance Power secured the contract for developing the Tilaiya UMPP in January this year. The project is scheduled for commissioning in 2015. In addition to the Sasan and Tilaiya UMPPs, the company is developing the Krishnapatnam UMPP in Andhra Pradesh. This project is scheduled for commissioning in stages between September 2013 and October 2015.

For the Sasan UMPP, Reliance Power awarded contracts for six units of 660 MW each to Shanghai Electric Group Company Limited (SHA:601727) (Shanghai, China). The firm is yet to award power equipment supply contracts for the Tilaiya and Krishnapatnam UMPPs. Tata Power Company Limited (BSE:500400) (Mumbai), which is developing the 4,000-MW Mundra UMPP in Gujarat, has placed orders for five units of 800 MW each with Doosan Heavy Industry and Construction Company (SEO:034020) (Gyeongsahngnam-Do, South Korea) and Hitachi Limited (NYSE:HIT) (Tokyo, Japan).

The Indian Ministry of Power has proposed making it mandatory for UMPP bidders to procure equipment from domestic suppliers. Indian power projects have procured 43 supercritical boiler-turbine-generator units so far, of which 26 orders were bagged by China, eight by Korea, three by Russia, and two by Italy. Domestic power equipment suppliers have received orders for only four units. While domestic manufacturers such as Bharat Heavy Electricals Limited (BSE:500103) (BHEL) (Mumbai) and Larsen & Toubro Limited (BSE:500510) (Mumbai) have welcomed the move, electricity generators are apprehensive that the Indian market does not have the requisite manufacturing capacity and that such a move would lead to BHEL monopolizing the sector and render the market anti-competitive.

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