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Reliance and Shanghai Electric deal is just the start
- 14 years ago (2010-11-02)
- Junior Isles
Reliance Power’s $10 billion pact with Shangai Electric Group Co. for the supply of power generation equipment and related service contracts is the largest ever China-India power deal but could be only the beginning of similar deals by other Indian utilities.
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Reliance Power has ordered $10bn worth of power generation equipment from Shanghai Electric Group in a deal financed by several Chinese banks, including the Export-Import Bank of China.
Shanghai Electric, the largest power producer in Shanghai, will provide Reliance with 30 000MW of coal-based power capacity, valued at about $10bn, over the next three years.
Anil Ambani, the Indian billionaire and chairman of Reliance ADA, highlighted the growing trade partnership between the two largest Asian emerging economies by praising “the largest order in the history of the power sector . . . and the largest single business relationship between India and China”.
“This is not just about selling equipment,” said Mr Ambani, who described the deal with Shanghai Electric as a ‘strategic partnership’. Shanghai Electric will also provide spare parts, service and training, and may manufacture in India.
The deal includes 42 power generation units of 660MW each, six of which have already been delivered, according to Reliance.
India is only now realising the results of its drive to plug its power deficit, which began in earnest just four years ago. India wants to boost electricity output by 60 per cent in the Five-year Plan ending March 2012 to alleviate severe shortages and help drive its rapidly growing economy.
However there is insufficient domestic expertise and equipment to achieve its goal quickly. India only has five companies that manufacture power equipment for large thermal power plants. Low-cost Chinese equipment and contractors have proved to be a viable alternative.
Mr Ambani dismissed criticism that his company should have bought its equipment from Indian companies. “Indian manufacturers of power equipment are fully sold out until 2015. The scale and complexity of what we wanted to achieve was only possible through global sourcing”, he argued.
Indian investors, though, initially reacted with scepticism, sending Reliance Power stock down 2.4 per cent, though they seemed to have their fears allayed by details giving greater clarity about the funding for the equipment.
The Central Electricity Authority, India’s top planning body for power projects, had previously asked government-controlled power companies to use Indian equipment on all upcoming big projects, but this kind of deal seems likely to happen despite the Indian government’s reservations.
India’s heavy industries minister also said he wants government approval to impose safeguard duties on the import of Chinese power equipment in a bid to protect the interests of state-run equipment manufacturer Bharat Heavy Electrical Ltd.
The deal is the first big investment made by Reliance Power following the end of a bitter succession battle between the two Ambani brothers. Mukesh Ambani, who is ranked fourth in the Forbes global rich list with $29bn, and Anil Ambani, ranked 36th with $14bn, were involved in a public row that prevented Reliance Power from making any serious investment.
Trade between India and China has grown rapidly in the past decade, India-China bilateral trade in 2010 is expected to pass $60bn, making China India’s largest trading partner.
India is urgently trying to upgrade its infrastructure to boost and plans to boost its power generation capacity to 100 000 MW by 2017. However, it is currently behind on its targets, according to sector analysts.