Power equipment makers in for slow orders

Domestic power equipment manufacturers like BHEL and L&T Mitsubishi may see a slower flow of orders in the short term due to challenges troubling the sector.

An initiative by the government to support the domestic industry by way of a bulk order from state-owned NTPC, is also fraught with delays. The tender said only those companies having domestic manufacturing facilities could participate. The order for 11 sets of

660 megawatts (Mw) was initiated in October 2009, but there has been very slow progress due to litigation. While turbine and generator sets have been awarded, the contract for boilers is yet to be. “Though the long-term demand outlook is good, in the last six months not many projects have been financially closed due to a number of uncertainties and this is likely to continue,” said Sabyasachi Majumdar, vice-president at rating agency Icra.

Icra, in its report on the domestic boiler, turbine and generator (BTG) industry, said fuel worries in the sector might lead to delayed order placement. The report said progress had slowed because of various reasons like a likely fall in the incremental output of Coal India, slow progress in development of captive coal blocks, and a growing uncertainty on future coal availability due to the Ministry of Environment and Forests. Weak finances of state electricity boards has also taken a toll on investment decisions of power generators, as the offtake of power has come under question.

“Moreover, IPPs are increasingly exposed to execution, regulatory and geopolitical risks in case of coal assets acquired abroad,” the report said. These worries have already started taking a toll on BHEL’s orders which slipped by 77 per cent year-on-year in the first quarter.

OVER-CAPACITY
This possible slowing in orders is coming at a time when the sector is adding capacity. BHEL is planning to augment its capacity to 20,000 Mw from 15,000 Mw by the end of the current financial year. The L&T-Mitsubishi joint venture already has a capacity of 4,000 Mw and had said that they could ramp it up to 6,000 Mw depending on the inflow of orders.

Among the Indian and international companies setting up incremental capacity in the country are US major GE Engineering, Korean company Doosan, and joint ventures like Thermax-Babcock, BGR-Hitachi, Bharat Forge-Alstom, and JSW-Toshiba. The overall annual capacity of the BTG industry is expected to rise considerably over the next two years to about 35,000 Mw. The expected annual demand is around 15,000 Mw, which could lead to over-capacity. Majumdar said they were expecting high capacity utilisation for these new units.

CHINA THREAT
All this is bad news for the domestic power equipment sector which is already fighting a tough battle with Chinese manufacturers who have already bagged many private sector orders. China is likely to become more aggressive in the Indian market, as there is a likely slowdown in the demand for China-based coal capacity.

Experts say domestic BTG companies should be able to make a cut in the private sector as well. Until now, many orders they have received are from the state utilities. “While only a few private sector independent power producers (IPPs) such as Bajaj Hindusthan and Jaiprakash Power Ventures have awarded orders to domestic participants in the super-critical segment so far, the quantum of such orders still remains low. Hence, the ability of domestic companies to bag such orders from private sector IPPs remains important,” the Icra report said.