Next month, L&T Power will deliver the first set of equipment made by it for AP Genco for a Rs 1,700-crore order, two months ahead of schedule. Ravi Uppal, CEO & MD, tells FE?s Shobhana Subramanian, the addressable market for generation equipment would be in the region of 20,000 mw a year. Excerpts:
When are you planning to increase the capacity of the Hazira plant from 4,000 mw to 6000 mw?
One, we see steady demand and believe there is a case to take it up to 6,000 mw. We have Rs 26,000-crore worth of order for equipment, so the capacity of 4,000 mw seems to be enough at present. We offer customers an assortment of solutions but we focus on orders that have a high component of turbines and generators that we make ourselves. We would like to be sure that the demand is here to stay. India needs more power than it has planned for but sometime there can be rapid changes in the external environment and things can come to a halt. Having seen the past, we are cautious but we can scale up fast. We are also trying to develop the outsourcing model but qualifying the vendors takes time. So when we go from 4,000 mw to 6,000 mw it doesn?t mean we?ll do everything in-house.
Will L&T power be running power plants?
We will not run the power plants we will build it, we are a contractor. Neither will we be getting into transmission and distribution space which is handled by other group companies. In L&T Power, on a blended basis, depending on whether the megawatts come from an EPC package or otherwise, we should earn anything above Rs 3 crore per megawatt. We have invested Rs 3,500 crore so far and as of now, we don?t need any resources. If we do we would in all probability look to source funds internally. We haven?t thought of listing the company at the moment because we want to sweat our assets.
Some of the newer projects have pencilled in rates of Rs 7 per unit or so for merchant power sales. Do you believe these are realistic?
India will be short of power for many years to come. China has 87,500 mw of capacity and their demographics is the same as ours but we?re not planning to add more than 20-25,000 mw a year. Merchant rates would depend on the mix of demand, whether industrial, commercial, agricultural or domestic. Industrial and commercial users will be willing to paying Rs 5.50 or Rs 6 but domestic consumers won?t be willing to pay that. Also, what is the alternative for commercial units if they don?t get power from the grid? Generation from diesel units costs Rs 11 per unit, so companies will be willing to pay even Rs 9 or 10 per unit. That would be the cut off. But producers of power should be happy if they get around Rs 5-7 as merchant rates because the cost of production even with imported fuel is between Rs 3-3.50 and if you?re using coal from the pithead it?s about Rs 2-2.25 per unit.
What is the addressable market for power generation equipment in India?
I believe that the aggregate capacity that will ordered every year is between 20-25,000 mw. In 2009-10, around 20,000 mw worth of orders were placed and the number will be similar this year.