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Interaction | November 2014

We expect a lot of consolidation

The growth in the BoP sector in the immediate future will remain calibrated, says Rakesh Amol, President - Infrastructure Business, KEC International Ltd.

With the government's push towards more power generation, how do you place the market outlook for Balance of Plant (BoP) systems?
While there is lot of optimism about this push and the general high level pitch that the new government is making in the public domain, at the ground, the immediate outlook in the generation sector itself does not seem to be very promising. The recent cancellation of coal blocks by the Supreme Court is a big dampener. A number of players in the Balance of Plant sector, who had a phenomenal order intake in the past years, are reeling under tremendous working capital stretch because of stuck inventory and huge receivables.

There have been instances in the past where plant commissioning has been held up due to deficiencies in BoP systems. How do you find the scenario playing out currently? Do you agree with the allegations?
This is partly correct and a lot of these issues were relating to system integration and selection, where many new developers in their endeavour to address their capex constraint could not optimally integrate the various packages of BoP. Going forward we see that credible players who can provide systems through latest technology that brings the life-cycle value to the developers with greater operational efficiency will lead the pack as partners to the BTG suppliers. We see a lot of BTG suppliers also getting into this segment as end-to-end solution providers for developers.

Do you think currently that there are enough opportunities available for the BoP sector in India? Which are the areas you think have maximum opportunities in the power sector itself?
The Generic BoP (Balance of Plant) sector has a wide connotation. In thermal plants it covers almost everything outside the BTG package (Boiler Turbine Generator), broadly under the Mechanical BoP and Electrical BoP covering a range of packages including Ash Handling system, Coal Handling systems; Fuel Oil Handling system, Circulating Water systems, cooling towers, Air Handling system, Environmental Control systems, switchyards and other related systems. A number of players in the past have been active in each of these packages primarily in an EPC profile. We expect a lot of consolidation, either through M&A or strategic alliances, happening between these players, as the mist over the regulatory issues in the sector clears. The growth in the sector, in the immediate future will remain calibrated.

Has the BoP market been developing fast enough to meet the growing demand for power? Is the BoP industry adhering to the inclusion of technological advanced mechanisation, making BoP work more simpler and easier?
In general, BoP market has a direct correlation to the power generation growth in the country. However, specific elements would be driven by a myriad of issues pertaining to each block and how the regulatory framework around this industry evolves. For instance, we envisage stricter environmental norms being enforced and in that situation the players in the air and fuel handling packages will have to move up the technology chain. Players who are at speed in assimilating these technologies shall certainly get a head-start when the sector opens and new capacities are announced.

What are the latest technology BoP contractors or for that matter the ones your company is currently using?
We have been a player in the E-BoP segment that integrates with our larger T&D business. There has been a constant upgardation of technology in this area driven predominantly either by regulatory enforcement or equipment-sizing issues faced due to layout & land constraints. Deployment of GIS is becoming a common feature in this package. Because of our immense global presence we have been at speed in assimilating these technologies through tie-ups and partnering with global players.

What are the issues and challenges that face players in the BoP space?
The current challenge faced by almost all players in this field is predominantly the uncertainty around the developers ability to realise the projects and meet the financial commitments. A lot of them are under huge financial stress because a number of stalled projects that for one reason or other are not able to see the light of day.

Has the growth of renewable energy capacity and generation given a boost to the sector?
Not really. However, the renewable sector has given a boost to a different generation of players who have certainly got benefited by the growth.

Have leading equipment suppliers been able to offer turnkey BoP solutions as against being restricted to standalone orders?
Yes, a number of players have taken this path in their EPC role. This has certainly helped in a seamless integration wherever interdependencies have been a factor. However, it would take some time to see how this really pans out on a larger dimension.

Analysts have opined that limited number of players in the BoP space has been a constraining factor restricting the growth of the industry. Are Indian conditions conducive for the growth of BoP?
Recently a number of EPC players, who were erstwhile large construction companies, got into this "avatar" of a BoP provider of one package or the other. However, in the absence of a robust technology partnership, very few have been able to move successfully up the value chain.

How has been the growth of your company in this space? Which are the projects that the company is currently undertaking? What is the current order book position?
Our company has taken a very calibrated approach and is currently focused in select E-BoP opportunities and some water-circulation systems. Going forward, it is our intent to immediately increase our footprint in the water intake and circulation packages of the M-BoP. We are also keenly watching this space in other packages and are evaluating opportunities and various options where we find synergies.

- Devarajan Mahadevan

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