Investment

$8.29b power deal signed

By Liu Yiyu and Wang Ying (China Daily)
Updated: 2010-10-29 08:07

Shanghai Electric to supply services, equipment to India's Reliance ADA

Beijing - Shanghai Electric Group, one of the country's three largest power equipment makers, signed an $8.29 billion deal on Thursday with India's Reliance ADA Group for the supply of power equipment and related services over a 10-year period.

Shanghai Electric will sell 36 660-megawatt (mW) thermal power generation units, as well as spare parts for three power stations to Reliance at the rate of three to four units a year starting from 2011, the company said in a statement to the Hong Kong stock exchange.

Shanghai Electric said this contract is its largest and will enhance its market share in India's power market, bringing annual sales revenue of about $500 million to $600 million, or 6 to 7 percent of its total revenue for 2009.

J. P. Chalsani, chief exeutive officer of Reliance Power said: "The strategic cooperation between Reliance Power and a leading global supplier like Shanghai Electric will enable faster execution of our projects."

The supply of boiler, turbine, and generator packages has stared and will be completed over the next three years, according to Reliance.

Another company filing showed that Shanghai Electric Group recorded a 33.2 percent year-on-year increase in the third quarter with a profit of 945 million yuan ($142 million).

Its shares rose by up to 7.43 percent, the highest since April 2008.

About 84 percent of Shanghai Electric's revenue came from China last year and just over 16 percent from overseas.

Indian power companies have placed orders for overseas equipment to generate 26,000 mW annually because of the slow delivery cycle of local manufacturers to meet growing demand.

The main Chinese suppliers include Shanghai Electric, Dongfang Electric and Harbin Electric. Indian buyers include industrial groups Reliance, Essar, Adani, KSK Industries, JSW Energy and Jindal Steel & Power.

The deal came after India's government turned down an earlier proposal to impose duties on power equipment imported from China.

India was proposing to levy a 14 percent duty on power equipment imported from China in September, citing the reason that local power equipment producers, such as Bharat Heavy Electricals Ltd and Larsen & Toubro Ltd, are facing increasingly fierce competition from Chinese power equipment makers, which are selling products at prices that are at least 15 percent lower.

But the proposal was rejected recently because it would result in a shortfall in the capacity addition target in the 11th Five-Year Plan (2006-2010).

India has a huge energy deficit, as supply is always one step behind its fast-growing economy. It has a peak power shortage of 12 percent.

India has a power generation capacity of 153,000 mW and expects to add an additional 62,000 mW by 2012. But india does not have enough equipment production capacity to achieve that goal, forcing it to look to China to help fill the gap.

China has won projects of 36,800 mW in the last two years, equivalent to more than half the added capacity India is aiming at by 2012.