Striking the biggest deal yet between a Chinese and private Indian company, Anil Ambani, Chairman, Reliance ADAG, of which Reliance Power is a part announced on Thursday that it has given a US$8.3-billion contract to Shanghai Electric Group Co Ltd (SEC) for supply of 36 coal-fired thermal power generation units, spare parts and related services over a 10-year period.
This is the second deal between the energy conglomerates and takes the total deal size between Reliance Power and the Chinese power equipment maker over the past couple of years to US$10 billion. Shanghai Electric and Reliance Power had earlier in August 2008 signed a US$1 billion framework agreement for long-term cooperation, wherein Shanghai Electric would help Reliance Infrastructure set up power plant equipment including boilers, turbines and generators (BTG) in India.
According to new reports, SEC will supply boiler, turbine and generator packages for 30,000 MW capacity of coal-based power at six plants over the next three years equivalent to about 18 percent of India’s current installed capacity. The deal includes the 3,960-MW ultra mega power project at Krishnapatnam, the 5,940-MW project in Chitrangi, and the 3,960-MW project in Tilaiya.
The project is being financed by Bank of China, China Development Bank, the Export-Import Bank of China and Industrial and Commercial Bank of China. The agreement with the Chinese banks allows Reliance Power to get financing for importing Chinese equipment for up to US$12 billion.
SEC’s President, Mr Zheng Jianhua, said that the company plans to set up a research and development centre, a training facility for those working in power plants and a manufacturing unit in India.
“India is a fast growing market and we want to have a bigger share for which we are planning to make significant investments. For the manufacturing unit we are doing our due diligence on the route to take. If we decide to go through a joint venture with a local partner then Reliance will be our first choice,” Mr Zheng told the Hindu Business Line.
By sealing this deal, China is breaking into the top ranks of global power-equipment exporters. As the market for coal-fired generators in China declines due to government led environmental concerns, Chinese power equipment manufactures are looking to set up shop overseas. Chinese manufacturers have recently been seen targeting the developing world for orders outside China, such as India, the Middle East and Southeast Asia
This contract for coal plant turbines dwarfs the US$750 million contract Reliance inked with GE last week for gas turbine power equipment. GE doesn’t have a large presence in coal-based turbines, but it has roughly 40 percent of the global market share for gas turbine power equipment. It is likely to face competition in gas turbines from Chinese power equipment firms in the future.
Although China-India relations on power equipment remain hot and sour, it remains a fact that China is India’s best option to source critical power equipment from. According to the Central Electricity Authority India faced power shortages of as much as 10.7 percent during peak hours in August. The current installed generation capacity is about 165,000 megawatts. New Delhi has pledged to provide electricity nationwide by 2012, which would require an installed generation capacity of 200 gigawatts to sustain economic growth of 8 percent, according to the power ministry.