Hyderabad: In order to meet the growing demand for auxiliary equipment used in power plants, Hyderabad-based infrastructure company Nagarjuna Construction Co. Ltd (NCC) is planning to enter the segment with an overseas partner.
Equipment other than boilers, turbines and generators used in power plants fall under the auxiliary equipment category. Such equipment, including coal-handling plants, cooling towers, chimneys, air compressors and ash-handling plants, are also called balance of plant (BoP) equipment.
There has been a recent spurt in demand for BoP equipment, with the government aiming to add around 78,000MW of power capacity in the next five years at an investment of Rs5.75 trillion) to the country’s current installed capacity of 141,000MW.
The core critical equipment for power projects are being supplied by players such as General Electric Co., Alstom and Bharat Heavy Electricals Ltd, while there are only a handful of players in the BoP segment that include Larsen and Toubro Ltd, Punj Lloyd Ltd, Techpro Systems and BGR Energy Systems Ltd.
In fact, to address the issue of shortage of power plant equipment, the country’s biggest power producer, NTPC Ltd, recently announced a decision to enter equipment manufacturing through a joint venture with Bharat Forge Ltd. The venture would produce large turbines and generators as also auxiliary equipment.
NTPC, which currently has an installed capacity of 27,904MW and accounts for one-third of the country’s power generation, is planning to take its total capacity to more than 50,000MW over the next five years.
“We want to address the supply shortages of BoP equipment through EPC (engineering, procurement and construction) route and execute civil, mechanical and electrical works excluding the critical equipment for power projects,” said Y.D. Murthy, senior vice-president of finance at the Rs2,871 crore NCC.
“We do not have a technology partner as of now for BoP equipment services. We are talking to some Chinese companies now and would tie up with one of them shortly. Nevertheless, we have started bidding for BoP equipment contracts on our own,” Murthy added.
Though governments, both Central and state, are planning to add huge capacities, they are unable to execute them in time mainly due to a severe shortage of equipment, both critical and BoP equipment, said Ajay Jain, managing director of Andhra Pradesh Power Generation Corp. Ltd, the third largest state-owned power utility after NTPC and Maharashtra State Power Generation Corp. Ltd.
On the size of the opportunity in BoP equipment segment and EPC contracts, Murthy said, a 450MW project typically costs around Rs1,500 crore. Of this, the critical equipment costs Rs300-400 crore, while the EPC contracts cost Rs1,000-1,100 crore, which includes BoP equipment, civil, mechanical and electrical works.
“We are looking at the entire EPC contract that includes not just BoP equipment, but also the civil, mechanical and electrical works,” said Murthy.
Shailesh Kanani, analyst with Mumbai-based equity broking firm Angel Broking Ltd, said NCC’s move to enter the BoP equipment segment through EPC route was part of its strategy to tap new verticals to ensure revenue growth and profit margin expansion.
“BoP equipment segment through EPC route offers high margins compared to normal construction activity and there is a huge supply gap for BoP equipment in the country now. Even if the government succeeds in executing only 60-70% of (the planned) power capacity addition in the next five years, there would be huge opportunity in the BoP equipment segment,” he added.