NTPC opts for bulk equipment sourcing

Power generator to save up to Rs 2,500 crore.

NTPC, India’s largest power generator, is likely to save up to Rs 2,500 crore through bulk procurement of next generation power equipment, as part of its plan to double installed capacity over the next seven years, a top company official said.

The state-owned company is planning to bunch together its equipment order of 7-9 supercritical sets of 660 MW each, through which it is hoping to generate a discount of 5-10 per cent.

“Bulk ordering of such high capacity equipment provides benefits like building of huge spare inventory,” said R S Sharma, chairman and managing director, NTPC.

The bids for the supercritical equipment will be open for both the domestic and international manufacturers. “The bids will be opened from February-March and we hope that the orders are placed by June,” he added.

In the last one year, the equipment procurement cost has seen a huge increase mainly on account of increase in raw material prices like cement and steel. Thus, companies are looking at innovative ways to cut down project costs and bulk procurement is one of them.

In general, the price difference between a supercritical and a subcritical project is around 5 per cent and it occurs mainly on account of higher civil engineering cost, said an analyst in an accounting and consulting firm.

Therefore, if NTPC is able to generate 5 per cent savings from bulk procurement, it would be able to buy supercritical equipment at subcritical cost. Sharma mentioned that the average cost of commissioning a supercritical equipment comes around Rs 5.5 crore per MW of power generated.

This would mean that the company will have to spend a total of about Rs 25,000 crore for procuring the 7 supercritical equipment.

“The large volume discount of these orders will surely let us save at least about Rs 1,200-1,300 crore, 5 per cent of the total cost, which may go upto Rs 2,500 crore,” said the official. He, however, also added that there are other cost benefits that might accrue from such bulk orders.

“Another benefit of this (bulk ordering) will be that it attracts a large number of bigger players. While ordering for smaller projects requiring 2-3 equipment is able to attract only major players like Bhel and Russian companies, we are sure that such a bulk ordering will attract other global players like Japanese and German companies. If that happens our saving will go up to at least about 10 per cent — Rs 2,500 crore,” said the same official.

NTPC is planning to achieve a turnover of about Rs 100,000 crore by 2014 which currently stands at about Rs 37,000 crore.