CII – National Seminar on “Capabilities, Opportunities and Challenges in Boiler, Turbine and Generator (BTG) Industry

Plenary Session II:

“Investment, Opportunities and Challenges in Turbines & Generators Sector”

25th September 2013, New Delhi Kamlesh Baradia Tendering Director – Steam Plants ALSTOM

“Investment, Opportunities and Challenges in Turbines & Generators Sector”

Presentation Sequence:

Introduction

Key Challenges

Investments in TG Manufacturing Sector

Opportunities & Possible Solutions

Conclusion

Q&A

Introduction:

The Economy is in Recession….?

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GDP Growth (in %)

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China

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kWh

Per Capita Elec. Consumption:

Drastic shrinkage of Power Market GDP Growth is at a Decade low Per Capita Consumption is increasing Peak Electricity deficit of >13-14% Rupee Depreciation Governance Issues

Introduction

High GDP growth, low per capita power consumption -> substantial capacity addition needed

India is one of the largest market for coal fired power plants

• Initiative by Government of India to indigenize manufacturing of critical equipment (Steam turbine Generator and Steam Generators)

• Introduction of Phased Manufacturing Program (PMP) in 2009

• Several major OEMs including Alstom have invested in the Country and setting

up local manufacturing capabilities and facilities

o Leaders in their fields, ALSTOM & Bharat Forge set up Turbine & Generator

manufacturing Joint Venture in 2009

o ALSTOM holds 51% equity in the JV, while the balance 49% is held by Bharat Forge

o ABFPL offers complete turnkey solutions for Turbine Generator Islands with state of the art STG sets and customer specific packaged solutions

o Equipment is adapted to regulatory requirements (CEA, Indian Grid Code)

o Welded Rotor Design – Optimal material selection for every part of the rotor No failure in over 80 years of operation

o Shrink Ring Design – Highly suitable for Super & Ultra Supercritical steam conditions, No casing distortions in operation

ABFPL is committed to leverage high technology and innovation to deliver the most efficient & environmentally friendly power equipment

About ALSTOM + Bharat Forge in India:

ABFPL manufacturing facility will be one of the best manufacturing facilities in the ALSTOM global system

About the manufacturing facility:

ABFPL is setting up a state of the art

Manufacturing facility in the Western state of

Gujarat at Sanand near Ahmedabad (~40 kms)

Construction is in full swing and production will

commence from April 2015

Modern facility with most advanced Machine

tools, Generator Running Test, Rotor Balancing

Facility and Fabrication facilities

Manufacturing facility is compliant to Phased

Manufacturing Program (PMP)

This state of the art integrated manufacturing

facility will have an annual manufacturing

capacity of 5,000 MW

Investment of ~1,700 Cr. For setting up the

facility

Key Challenges:

Fuel Related Issues: >50% of 225GW (80% of total units) of power in India is

generated through coal Stringent rules and governance issues regarding coal

linkages and award of blocks has left utilities and developers struggling

No major growth in the IPP’s due to Fuel issues >250MTPA shortfall per annum forecasted in 2016-17

(Ministry of Coal)

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0.50%

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Coal Production to Reserve Ratio

Land Acquisition Problems

Issues due to non-availability or part availability of land for Thermal power projects Large amount of Clearances to be obtained by developers (MoEF, Forests, Aviation,

others) Regulatory delays need to be streamlined by State & Central Govt.’s

Statutory Clearance Issues:

Project related clearances need to be fast tracked through single window or equivalent mechanism, even formation of Cabinet Committee on Investment under PM has not been able to fast track projects

Key Challenges:

Poor Financial Health of Distribution Companies

Extremely cautious lenders due to business models of power projects Due to above combined issues like coal, land, clearances, PPA’s with utilities, Business

plans of developers are being thoroughly scrutinized

Transport and Logistics issues related to power equipment: Poor infrastructure for moving of heavy ODC cargo on roads and highways, bridges and

crossings are in a poor shape Expensive and Temporary bypasses need to be created in large numbers per project Revised guidelines issued by Ministry of Road Transport & Highways (MoRTH) needs to

be implemented and followed

Key Challenges:

Shrinking Power Market: Due to above mentioned

fundamental factors, the power market in India has dramatically shrunk in size from FY 10-11 levels

The number of projects NTP’ed in the period 2012-13 has exerted immense pressure on power equipment manufacturers

Has led to a brutal and unrealistic price war in the Power equipment market

Overcapacity in Power Equipment manufacturing industry: Stipulations by CEA for Phased Manufacturing Program (PMP) to indigenize the power

equipment market has led to all major OEM’s to set up JV’s in India Each JV has/is been set up with an installed capacity of >3000 MW/Annum of

capacity, this is in addition to BHEL’s already existing >5000MW capacity Due to shrinkage in the market to all time low levels, the overcapacity of

manufacturing is putting a tremendous pressure on manufacturers

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Key Challenges:

Development of local vendor base for Critical bought out items: Large scope of items such as High capacity Pumps like Boiler Feed pump, Boiler feed

pump drive turbine, critical/HP piping etc. need to be sourced from abroad due to stringent vendor qualification requirements stipulated by most of the Central/ State Utilities Vendors and manufacturers (intl. OEM’s) must set up shop in India

Opportunities & Possible Solutions:

Strengthen Policy Measures: Measures to protect the domestic industry must be ensured by the government, the

imposition of ~22% Customs Duty on Imported Power equipment by the Government is a welcome move (2012)

Resolve Fuel Related Issues Streamlining process of allocation of Fuel linkages and award of Coal blocks is a must Intervention of High technologies in Coal mining to increase production must be brought Coal production to reserve ratio (0.94% in India) must be improved to feed the sector

Solve Land & Statutory Clearance issues: This would improve the investor climate in this industry and hence promote new

investment in the power sector, this may improve the condition of the domestic industry

Improve the health of Distribution companies: Make the distribution business viable such that downstream generation and

transmission businesses are able to recover revenues Reduction in creditor days within manageable limits in specific states is required Liquidation of outstanding payables, Financial restructuring is a must

Opportunities & Possible Solutions:

Improve the Transport & Logistics dynamics in the Country:

Roads, Highways and Bridges need to be improved and designed in order to hande upto 350-500MT of weight (Typical weight range of 660-1200MW Stator)

Development of Inland waterways for efficient inland transportation Development of Coastal Barging regulations and All weather jetty’s

Protecting the interests of Domestic equipment manufacturing companies:

Protecting the interests of domestic power equipment companies is required; huge sums of money and FDI has been brought in due to building up of local capacity

Extremely limited market opportunity size has led to a unhealthy competition

Financing & Credit availability: Banks are being extremely cautious due to many IPP’s being declared as NPA’s Support needs to be assured to banks in order to increase their exposure in the sector

Development of Indian Vendor base for Raw Material & Bought out’s: This is essential to remain competitive in the current scenario Steps must be taken to ensure the development of this local vendor base Assistance for proven-ness criteria / Qualification issues need to be solved in order to

promote the local industry

Conclusion:

Thanks to GOI’s initiate of PMP, all major OEMs are now present in the country bringing latest technology to the Country

Power environment needs to be further developed to create ample opportunities and

healthy competition to meet the growing demands of the country

Steam Turbine for Most Advanced Cycles

Thank You!