As IPO looms, so does talk of manufacturing

As IPO looms, so does talk of manufacturing
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First Published: Fri, Jan 04 2008. 12 09 AM IST

Power centre: Reliance Energy’s Dahanu power station. This plant is run by the parent company of Reliance Power, which is coming out with an IPO later this month. The issue aims to raise around Rs11,0
Power centre: Reliance Energy’s Dahanu power station. This plant is run by the parent company of Reliance Power, which is coming out with an IPO later this month. The issue aims to raise around Rs11,0
Updated: Fri, Jan 04 2008. 12 09 AM IST
Ahead of floating an initial public offering (IPO) of shares to take advantage of—and fund—the two ultra mega power projects (UMPPs) it has won, Reliance Power Ltd is evaluating plans to start manufacturing power generation equipment.
“The company has not yet placed orders for its 4,000MW Sasan UMPP. It has also got the second UMPP at Krishnapattnam at Andhra Pradesh. With a lot of projects in its portfolio and with plans to bid for future projects, the company is considering enter(ing) the power generation equipment manufacturing business for boilers and turbines,” claims a power sector analyst who didn’t want to be identified.
Mint could not independently ascertain whether this was just a wish list on part of Reliance Power as it seeks to drum up investor interest for its IPO or if the company was in active conversations with any potential manufacturing technology partners for what will be, in any event, a long gestation project, assuming it happens.
Power centre: Reliance Energy’s Dahanu power station. This plant is run by the parent company of Reliance Power, which is coming out with an IPO later this month. The issue aims to raise around Rs11,000 crore.
Says Anish De, an associate director at consultant Ernst and Young: “Such a thing makes eminent sense since they are going to execute significant projects and have big plans for the sector. They already have an engineering, procurement, construction (EPC) wing and this line dovetails pretty well with it.”
Added a senior power ministry official, who didn’t want his name used: “They already have a supplier arrangement with Shanghai Electric Power Co. Ltd. However, manufacturing boilers and turbines will require technology transfer depending on the specifications they want to manufacture.”
A spokesman for the company, which is part of the Reliance Anil Dhirubhai Ambani Group, one of India’s largest conglomerates, declined to comment.
Several foreign suppliers, such as Mitsubishi Heavy Industries Ltd, Toshiba Corp., Hitachi Ltd, Dosan, Siemens AG, Alstom, LMZ (Russia), Technoprom (Russia) and Dongfang Electric Corp. have all said they would want to start manufacturing in India.
“These proposed facilities are to manufacture equipment with super critical technology capacities—660MW and 800MW—and (the companies) are in the process of identifying partners,” said the power ministry official.
Bharat Heavy Electricals Ltd is India’s only manufacturer of turbines of comparable capacity. It usually takes at least four years to set up new power equipment factories.
Reliance Power has projects with a total capacity of 28,941MW in its portfolio. Of these, projects totalling 941MW have already been commissioned. The rest are projects awarded to the company and in various stages of planning and execution.
Reliance Power plans to sell 10.1% of the company through an IPO later this month, potentially raising around Rs11,000 crore.
In a relatively short time, Reliance Power has become an important component of India’s huge power generation plans given the country’s ambitious target of adding around 78,577MW in the next five years.
But there is an equipment shortage across India, which could mean that the targets are unlikely to be met, as reported by Mint on 28 August.
India’s power generation capacity of 135,006MW is falling well short of its growth needs. Between 2002 and 2007, India added 20,950MW of generating capacity while the government’s target was 41,110MW.
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First Published: Fri, Jan 04 2008. 12 09 AM IST