as per the 12th Plan estimates, Ramesh Chandak, MD and CEO, KEC, tells R Srinivasan, as he speaks of getting into more eBOP operations.
The MD and CEO of the Rs 4,000 crore company spoke to us about plans to get into the Rs 57,600 crore balance of plant space, scope of such operations and their present electrical BoP (eBOP) project worth Rs 40 crore for a National Mineral Development Corporation power plant in Chattisgarh, among other developments. Excerpts of the interview:
What is the current size of the market for balance of plant (BOP) operations and what is the growth rate of this industry?
The BOP consists of major sub-systems including coal-handling systems, ash handling systems, water treatment, cooling tower, fuel-oil systems, effluent treatment and switchyards. Each of the BOP activities consists of components including civil works, structural works, electro-mechanical equipment, control and instrumentation. The 12th Plan estimates an investment of Rs 576,000 crore for power generation of which 10 per cent accounting for the BOP segment translates to a Rs 57,600 crore market for the 12th Plan period of 2012-17.
KEC, one of the world’s leading transmission tower makers, hopes to become a full-fledged balance of plant (BoP) contractor in a year. What is the scope for BOP operations and to what extent will it improve the company’s bottom-lines?
The company has the advantage of having been in the infrastructure EPC space in the last few decades. We have strength of project and construction management after having executed projects in over 45 countries. We are present in the transmission and distribution segment of the power sector through transmission towers, substations, rural electrification and cables. As a backward integration to generation, we believe the BoP segment gives a tremendous opportunity to companies like ours. We are currently in the electrical Balance of Plant (eBOP) space.
What is the scope of profitability if a company were to get into the boiler turbine generator (BTG) space?
The 12th Plan has a target of capacity addition of 100,000 MW during the period of 2012-17. Even if we were to consider 70 per cent from thermal generation, this is an attractive segment in the power sector with inherent growth prospects. However, given the capital intensive nature of the BTG space, our company will not presently look at entering the BTG segment.
Private power developers award composite BoP contracts while state-run companies prefer splitting the package. Which is most profitable and why?
The BoP segment consists of a number of elements and splitting the order means dealing with more vendors. On the other hand, giving a composite order means dealing with lesser vendors. There is no major impact on profitability by giving a composite order or splitting the package.
In view of the country’s massive capacity addition target, how do you intend to leverage the 65 per cent orders in transmission and especially with PowerGrid Corporation, which accounts for 15 per cent of the order backlog and has earmarked a capex of Rs 58,000 crore for nine high-capacity transmission corridors?
Our company is a world-class EPC company and has been a pioneer in high transmission lines and has an excellent track record for execution in the last six decades. It has partnered PowerGrid Corporation in design, testing and execution of 800 kV Tehri–Meerut circuit I and circuit II.
The first 765 kV Sipat–Seoni transmission line charged at 765 kV was executed by our company. Presently, the company is executing the first 1,200 kV D/C test line at the Bina substation, which is a test line of 0.9 km inside the boundaries of the Bina substation. We are in various stages of execution of high transmission lines be it 500 kV, 765 kV and 800 kV in different parts of the country.
The company has overall eight factories with lattice tower manufacturing in three factories in India, one in Mexico and one in Brazil. The total manufacturing capacity is 311,000 mt (including value-added partners of 60,000 mt). The company also has three factories for cable manufacturing. The transmission line equipment industry is fully geared to achieve these demanding targets and the industry has kept abreast with global standards in product technology and quality standards and invested enough to create adequate manufacturing capacities to cater to the increased demand of power equipment anticipated on account of the required levels of high growth in the Indian power sector.
How can delays in acquiring BoP material and issues due to construction contracts, which hamper the timely completion of power projects, be overcome?
There is a need for timely release of civil construction drawings from consultants and construction agencies to avoid delays.
Adequate availability of construction machinery at the project site with proper deployment of both skilled and unskilled labour can go a long way in ensuring timely completion of power projects. With several measures taken by the Central Electricity Authority (CEA) of having revised pre-qualification to allow entry of new players in this market, there do not seem to be any likely delays in the BoP space.
KEC, a RPG group company and a global leader in the power transmission engineering, procurement and construction (EPC) business, won orders in the substation and transmission space to the tune of Rs 250 crore last year. The company entered the elite club of 400 kV substation segment by securing its first-ever 400 kV substation order from PowerGrid Corporation of India (PGCIL) on a turnkey basis. In September 2010, KEC acquired SAE Towers, making it the largest steel lattice tower manufacturer in the world.
Recently, Ramesh Chandak, Managing Director and Chief Executive Officer, KEC, said, “The company hopes to become a full-fledged balance of plant (BoP) contractor in a year.” The RPG-group company is presently executing one electrical BoP (eBoP) project worth Rs 40 crore for a National Mineral Development Corporation (NMDC) power plant in Chhattisgarh. This is the company’s first eBoP order which it bagged in January. He said that the company has bid for more eBoP contracts and that they will slowly start bidding for the entire BoP package.