Indian Government Announces Norms for Foreign Investment in Supercritical Power-Equipment Manufacturing

The Indian government recently announced a new proposal specifying norms for foreign companies interested in setting up supercritical power-equipment manufacturing facilities in the country. Industrial Info Resources (Sugar Land, TX) reports that foreign companies will be required to invest a minimum of $20.6 million as initial capital in an Indian subsidiary or joint venture in order to begin operations. The initiative is aimed at attracting foreign direct investment only from serious players in the sector.

The government also plans to include a minimum capitalization clause for the $4.3 billion bulk tender to procure supercritical power equipment with capacities of 660 megawatts (MW) each for thermal plants belonging to NTPC Limited (New Delhi) and Damodar Valley Corporation (DVC) (Kolkata). The tender will invite bids for 11 boilers and 11 turbines with a capacity of 660 MW each. Out of these 11 units, nine will be for NTPC, while the remaining two will be used by DVC. The lowest bidder will win the order for six units. The government plans to initially test the new tender guidelines for this bulk order before extending it to other tenders for supercritical equipment in the future.

Currently, India does not have any domestic supercritical equipment-manufacturing facilities, but a number of joint ventures between Indian companies and international power companies will soon see domestic equipment manufacture launched. Power plants that use supercritical equipment and technology are more fuel efficient and produce nearly 3-4 percent more power per unit of coal. With India facing acute coal shortages, using supercritical technology has become important. The bulk tender is an initiative by the government to establish domestic manufacturing facilities and bring new technology into the country.

In May 2009, the government released a proposal requiring foreign companies that were planning to set up a supercritical power-equipment manufacturing plant to own 75 percent or more of the land for the project in order to participate in the bidding process. In addition, the Indian subsidiary or joint venture of the participating foreign companies will have to submit a bank guarantee for $18.5 million at the time of bidding. These clauses are intended to restrict the tendering process to serious contenders.

Foreign companies interested in building a supercritical manufacturing unit will have to pay an initial capital of about $10 million to either an Indian subsidiary or joint venture entity of the company. If the bidder wins the project, then the company will have to double the capital investment in the investing company to $20.6 million by the date the project is awarded. The government has also included a seven-year lock-in period on equity investment for foreign companies. This norm is further likely to discourage companies that do not have a significant presence in the country.

Five Indian and joint venture companies are keen to participate in the bulk tendering process for supercritical equipment. These include Bharat Heavy Electricals Limited (BHEL) (New Delhi), Larsen & Toubro Limited (Mumbai), Mitsubishi Corporation (Tokyo, Japan), Alstom SA (Levallois-Perret, France), Bharat Forge Limited (Pune, Maharashtra), Toshiba Corporation (Tokyo), JSW Steel Limited (Mumbai) and Ansaldo Caldaie SpA (Milan, Italy).

State-owned BHEL, India's largest equipment manufacturer and engineering company in the power sector, is the only company that currently produces large-scale power equipment in the country. The current congress-led United Progressive Alliance government plans to build new power plants capable of generating 92,000 MW by 2012 as part of the Eleventh Five-Year Plan (2007-2012). A large part of this ambitious target will fall under the supercritical category. However, BHEL's limited infrastructure to manufacture power equipment is acting as a deterrent to boosting India's power generation capacity. BHEL's present infrastructure has an annual capacity to produce equipment that can generate 10,000 MW of power. As per the Ministry of Heavy Industries, this capacity will be augmented to 15,000 MW by the end of this year and to 20,000 MW by 2012.

According to the Central Electricity Authority (New Delhi), the state-owned statutory organization for regulating the country's power sector, an estimated 33,000 MW of power equipment manufacturing capacity will be added by 2015. While new capacity addition will give an impetus to achieving India's power generation targets for the current and following five-year plans, it is also expected to end BHEL's monopoly in the sector.