India Equity Research | Power Sector Update

POWER
80,010 MW in XI plan a mirage? April 22, 2009

Slippages rising; CEA targets 53,379 MW addition in FY11 and FY12 Shankar.K
+91-22-4040 7412
According to the Central Electricity Authority (CEA) data, in the XI Plan period (FY08-
shankar.k@edelcap.com
12) so far only 12,717 MW of the targeted 80,010 MW has been commissioned.
Current targets for FY10, FY11, and FY12 are 13,914 MW, 24,327 MW, and 29,052
Abhishek Bhandari
MW, respectively; six months ago the targets were 20,658 MW, 16,530 MW, and
+91-22-4063 5496
17,597 MW, respectively, indicating that 67% of the five year target has to be met in
abhishek.bhandari@edelcap.com
FY11 and FY12 due to delays.

EPC and BoP key reasons behind delays and not funding

Contrary to the widely held view, funding is not the key reason behind delays as only
1,890 MW—Rosa II (600 MW), Bongaigaon (750 MW), and Goindwal Sahib (540
MW)—are yet to attain financial closure. Of 67,293 MW under construction, CEA
highlights that 24,043 MW is on track so far. Of the balance, EPC and BOP related
factors account for delays in 16,165 MW, environmental issues in 5,400 MW, fuel
related issues in 2,524 MW, and state government related factors account for delays in
2,000 MW. No reasons are given for delay in 11,476 MW.

3,980 MW NTPC projects deferred; UMPPs added to feasible projects list

As per the latest CEA data, NTPC is expected to add only 15,440 MW by FY12
compared to 19,420 MW earlier. It has already commissioned 2,490 MW and expects
to commission the balance by FY12E. The projects that have been delayed beyond
FY12 are Barh (1,980 MW) and Mauda (1,000 MW). New projects that have been
added to the feasible projects list include Sasan UMPP (1,320 MW), Mundra UMPP
(1,600 MW), Rosa Stage II (600 MW), and JSW Ratnagiri (1,200 MW).

Chinese players eating into BHEL’s pie

Of the 12,717 MW commissioned so far, BHEL has executed 8,624 MW (68% market
share) and Chinese players have executed 1,500 MW (12% market share). Of the
67,293 MW under construction, BHEL is executing 38,579 MW (59%) while Chinese
players are executing 10,403 MW (15%) indicating an erosion in BHEL’s market share.
49% BHEL projects and 24% Chinese projects have been delayed by more than six
months

Impact on listed entities

On an aggregate basis, 12 listed players are expected to add 32,083 MW (31,887 MW

earlier) during the XI Plan period. NTPC with a slippage of 3,980 MW to 15,440 MW by
FY12 (19,420 MW earlier and company’s target of 22,400 MW) is the most impacted
by delays, while Reliance Power with 2,520 MW (earlier 600 MW), Tata Power with
2,900 MW (earlier 1,300 MW), and Lanco Infratech with 3,251 MW (2,685 MW) are
likely to benefit due to rise in commissioning during the plan period. We maintain our
REDUCE recommendation on NTPC and ACCUMULATE rating on Lanco Infratech and
Tata Power.

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Revised capacity addition schedule

Table 1: Revised capacity addition schedule

(MW)
FY08 FY09 FY10 FY11 FY12 Beyond FY12 Total
Type Earlier Now Earlier Now Earlier Now Earlier Now Earlier Now Earlier Now Earlier Now
COAL 4,270 5,620 7,170 2,010 13,495 7,965 13,365 16,270 11,190 19,665 0 0 49,490 51,530
GAS/LNG 1,092 1,000 1,661 475 787 2,809 1,500 2,303 726 726 0 0 5,766 7,313
HYDRO 2,423 2,423 917 969 2,671 845 1,165 2,609 6,341 8,661 2,000 0 15,517 15,507
LIGNITE 0 0 575 0 1,705 1,635 0 645 0 0 0 0 2,280 2,280
NUCLEAR 220 220 660 0 2,000 660 500 2,500 0 0 0 0 3,380 3,380
Total 8,005 9,263 10,983 3,454 20,658 13,914 16,530 24,327 18,257 29,052 2,000 0 76,433 80,009
Source: CEA, Edelweiss research

Following are the key changes that can be noticed from the above table:

1. Capacity addition targets have slipped. In FY09, only 3,454 MW was commissioned
versus an expectation of 10,983 MW earlier. While the target for FY10 has been reduced,
targets for FY11 and FY12 have increased, indicating higher slippages.

2. A few projects have been dropped and a few others have been added to the list of
possible capacity addition (target revised from 76,433 MW to 80,009 MW). New additions
include Sasan UMPP (1,320 MW), Mundra UMPP (1,600 MW), Rosa Stage II (600 MW),
and JSW Ratnagiri (1,200 MW).

3. Similarly, projects that have been delayed from XI Plan to XII Plan are NTPC’s Barh-I
unit 3 (660 MW), Barh-II (1,320 MW), and Mauda (1,000 MW) power plants. One 500
MW unit at Farakka has been scrapped and one 500 MW Kahalgaon unit has been
reclassified as commissioned before FY08.

4. Few capacities have been reclassified as commissioned in FY08, hence, the number has
increased from 8,005 MW to 9,263 MW. Hydro projects amounting to 2,000 MW which
were earlier to be commissioned in FY13-14 have been reclassified as to be
commissioned in FY12. We believe these projects will still come in FY12-13E as stated by
CEA’s hydro projects tracker.

Slippages have increased

The following table details the fuel wise break up of the project pipeline. The key worrying
sign is the sharp rise in coal-based projects getting delayed by up to six months from 9,280
MW in September 2008 to 20,096 MW now.

Commissioning of coal and hydro projects amounting to 11,560 MW and 8,490 MW,
respectively, which have been delayed by six months are key to enable India achieve its
target capacity addition programme.

Table 2: Delays across various fuel types

(MW)
Commissioned No delay 1-6 months > 6 months Total
Type Earlier Now Earlier Now Earlier Now Earlier Now Earlier Now
Coal 6,620 7,630 27,285 10,210 8,405 20,760 7,180 12,930 49,490 51,530
Gas/LNG 1,092 1,475 2,637 2,548 - 866 2,037 2,424 5,766 7,313
Hydro 2,712 3,392 4,865 3,426 - 199 7,940 8,490 15,517 15,507
Lignite - - 1,080 675 875 405 325 1,200 2,280 2,280
Nuclear 220 220 3,160 500 - - 2,660 3,380 3,380
Total 10,644 12,717 39,027 17,359 9,280 22,230 17,482 27,704 76,433 80,010
Source: CEA, Edelweiss research

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EPC and BOP issues key reasons behind delays

The following table details the reasons for delay in capacity addition as reported by CEA.

Table 3: Reasons for delay

(MW)
Reasons for delay Earlier Now
Ahead of schedule 1,100 0
BOP delay 6,240 7,780
Civil work delay 550 100
Coal linkage 850 850
E&M delay 306 306
Environmental clearance 0 1,000
EPC delay 8,795 8,385
Extreme weather 1,260 1,330
Force majeure 292 292
Gas unavailability 2,037 1,674
Land acquisition 0 1,750
Lack of water 500 0
Lack of water and BOP problem 500 0
Landslide 240 240
No reason given/Too early to comment 11,271 11,476
Natural cause 920 920
No delay 26,546 24,043
Poor geological conditions 1,112 1,112
Protests 1,000 1,000
State government issue 2,000 2,000
Shortage of manpower 0 1,500
Startup power supply 0 1,015
Traffic congestion 520 520
Total 66,039 67,293
Source: CEA, Edelweiss research

A few thoughts on the same:

1. 11,476MW projects out of 67,293 MW, have not reported any reasons for delays.

2. Key reasons for delays continue to be EPC and BOP issues.

3. Issues pertaining to land acquisition, manpower and environmental clearances (4,250

MW) have emerged as new reasons for delays, while water related issues have been
resolved.

4. State government support (approvals and local protests) is likely to remain for some
more time considering it is election time.

5. Fuel issue is expected to be resolved with KG basin gas flowing in and the Ministry of
Power likely to help in getting linkages.

6. Other industry sources indicate that only 1,890 MW of 80,010 MW has not achieved
financial closure. This dispels the fear of delay in capacity addition due to absence of
financial closure.

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Power

Update on EPC players

The following table shows the breakup of capacity with various EPC contractors.

Table 4: Capacity under execution in XIth plan with various EPC contractors
(MW)
Commissioned Under Construction Total
EPC Contractor Earlier Now Earlier Now Earlier Now
ALSTOM 0 0 3,000 3,408 3,000 3,408
BGR Energy 0 0 600 600 600 600
BHEL 7,078 8,414 43,427 38,369 50,505 46,783
BHEL + ITOCHU, JAPAN 210 210 210 210 420 420
China 0 0 0 108 0 108
CMEC China 0 78 0 156 0 234
Dongfang 300 900 3,530 3,525 3,830 4,425
Doosan, Power machines 0 0 1,980 1,980 1,980 1,980
Doosan, Toshiba 0 0 0 1,600 0 1,600
GEA Energy System 92 92 0 0 92 92
GE, Harbin 0 0 0 366 0 366
LITOSROJ & KONCAR 0 0 0 60 0 60
Nissho Iwai Corp, Japan 250 250 0 0 250 250
Power Machines, Russia 150 150 0 0 150 150
SCMEC China 0 0 1,320 1,320 1,320 1,320
SEPCO III China 0 0 1,920 1,920 1,920 1,920
Shanghai Electric 600 600 3,300 6,720 3,900 7,320
Siemens 0 383 1,128 765 1,128 1,148
Tata Projects 0 0 1,000 1,000 1,000 1,000
Technoprom Export Russia 0 0 1,980 1,320 1,980 1,320
Toshiba 1,410 1,410 0 0 1,410 1,410
VA Tech 0 230 200 1,416 200 1,646
Voith Siemens 304 0 1,700 1,700 2,004 1,700
Zelan Malaysia, Dongfang 0 0 600 600 600 600
(blank) 145 150 145 150
Total 10,394 12,717 66,039 67,293 76,433 80,010
Source: CEA, Edelweiss research

Key takeaways are:

1. BHEL’s capacity under construction has reduced due to delays in Mauda and Barh-II
projects to FY13.

2. Overall share of Chinese equipment manufacturers in the projects in XIth plan is 19%
and that of Korean manufacturers is 5%.

3. While BHEL had a 68% market share in the projects commissioned so far, it drops to
59% share in the projects under construction. Similarly, the share of Chinese players has
increased from 12% in commissioned projects to 15% in the projects under construction.

4. 49% of BHEL’s and 24% of Chinese player’s capacity under execution are delayed by
more than six months.

Capacity being added by listed players

Private sector is not insulated from delays but the extent is significantly lower:

1. Reliance Power is the only entity whose projects are running on/ahead of schedule.

2. Tata Power is clocking 100% achievement so far. CESC also expected to meet its target
in FY10. Capacity addition albeit being small (250 MW each).

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3. In FY09, the biggest issue was fuel linkage (gas) due to which a couple of private sector
projects could not be commissioned.

4. Amongst the 15,810 MW being executed by private players, EPC contracts have been
awarded as follows—BHEL 14%, Chinese 62%, and others 24%.

Table 5: Capacity addition by listed players in XIth plan

(MW)
FY08 FY09 FY10 FY11 FY12 Total
Company Earlier Now Earlier Now Earlier Now Earlier Now Earlier Now Earlier Now
ADANI 0 0 0 0 1,980 660 0 660 660 1,320 2,640 2,640
CESC 0 0 0 0 250 250 0 0 0 0 250 250
GIPCL 0 0 0 0 250 125 0 125 0 0 250 250
GVK 0 0 464 0 0 464 0 0 800 870 1,264 1,334
JSPL 1,000 750 0 250 0 0 0 0 0 0 1,000 1,000
LANCO 0 0 300 0 370 966 1,515 1,085 500 1,200 2,685 3,251
NLC 0 0 375 0 375 500 0 250 0 0 750 750
NTPC 740 1,740 2,500 750 4,760 1,900 4,285 4,610 7,135 6,440 19,420 15,440
RPOWER 0 0 0 0 0 300 600 300 0 1,920 600 2,520
STERLITE 0 0 0 0 600 0 0 600 0 0 600 600
TATAPOWER 0 0 250 250 0 0 525 525 525 2,125 1,300 2,900
TORRENT 752 383 376 765 1,128 1,148
Total 1,740 2,490 4,641 1,633 8,961 5,930 6,925 8,155 9,620 13,875 31,887 32,083
Source: CEA, Edelweiss research

The changes in capacity addition by listed entities can be accounted for as follows:

1. Two units each of Sasan and Mundra UMPP are expected to be commissioned in XI Plan,
which has increased the capacity addition by RPower and Tata Power, respectively.

2. A few projects of NTPC (Mauda, Barh-II, and one unit of Barh-I) have been delayed to
FY13. This has accounted for the decline in the capacity being added by NTPC in XI Plan.

Conclusion: 80,010 MW target unlikely to be achieved

1. Achievement of 80,010 MW target in XIth Plan seems unlikely. Out of the 53,379 MW
being added in FY11 and FY12, 11,270 MW is hydro projects.

2. 11,476 MW projects out of 53,379 MW to be commissioned in FY11 and FY12 have not
reported delays as of now. We believe these projects will start reporting delays in due
course as happened with projects for FY09 and FY10.

3. NTPC’s possible capacity addition of 15,440 MW by FY12 looks very tight. It has been
able to commission only 2,490 MW till now.

4. Support from government (both Centre and state) crucial to achieve the target.

5. Foreign competition in EPC will remain in some form. BHEL has been able to maintain
high market share so far; but performance of Chinese equipment will be the key to
sustain the same going forward.

Edelweiss Securities Limited

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Power
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Coverage group(s) of stocks by primary analyst(s): Power:

Adani Enterprises, CESC, GMR Infrastructure, GVK Power, Lanco Infratech, NTPC, Power Grid Corporation, Reliance Infrastructure and Tata
Power

Recent Research

Date Company Title Price (INR) Recos

09-Apr-09 GMR Realty check; 108 Reduce

Infrastructure Event Update

08-Apr-09 NTPC Muted growth; 197 Reduce

Visit Note

02-Mar-09 Power Grid Slow ramp-up of 92 Reduce

Corporation telecom business;
Visit Note

05-Feb-09 GMR Trying times; 70 Under

Infrastructure Result Update Review

Distribution of Ratings / Market Cap Rating Interpretation

Edelweiss Research Coverage Universe Rating Expected to

Buy Accumulate Reduce Sell Total Buy appreciate more than 20% over a 12-month period

Rating Distribution* 48 44 23 8 126

Accumulate appreciate up to 20% over a 12-month period
* 3 stocks under review / 0 rating withheld
Reduce depreciate up to 10% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn

Market Cap (INR) 61 36 29 Sell depreciate more than 10% over a 12-month period

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