FT : India Plans Massive Power Infrastructure Upgrade

Monday, July 27, 2009

On an arid expanse of coastline on India’s western coast, near Pakistan, the giant smokestacks of what will soon become one of the world’s largest power plant complexes loom from the scrubland.  Inside the bright blue steel and concrete construction, Chinese workers from the contractors supplying the boilers, turbines, generators and other equipment bustle alongside their Indian counterparts as they rush to meet the project’s ambitious deadlines.  Adani Power plans to bring on line one each of the plant’s projected four 330MW units every three months and one each of five 660MW units every four months, until the entire 4,620MW capacity comes online in the next few years.  The Chinese-style scale and pace of construction of the plant and the surrounding Mundra Port and Special Economic Zone, which includes a container and bulk cargo port, is the kind of infrastructure initiative many say is long overdue in India.  “The speed [of development] is not picking up to what is required, whether it be power or airports or railways,” says Gautam Adani, Adani Group’s chairman and one of the wealthiest businessmen based in the state of Gujarat, in an interview with the Financial Times.  “Certain sectors have done well, such as telecoms, but in the rest … there is still a wide gap between the demand and the supply side.”  Investors will soon have the opportunity to vote on whether the Adani approach to infrastructure construction makes sense.  The company, in which 3i of the UK has invested about $250m, is seeking to raise as much as $600m in an initial public offering.  The IPO will be the first in India of any size since rival Reliance Power raised $3bn in the country’s largest listing yet, in January 2008.  If the offering is successful, India’s rush to raise new equity to finance big-ticket infrastructure pro­jects, which was all but ­stymied by the global financial crisis, will be reborn with vigour.  “It is a very important project,” says Bhargav Buddhadev, an analyst at Noble Group.  “India has to put in several such projects if it is to become a power-surplus country.” 

Adani first settled on the idea of building a port at Mundra in the mid-1990s.  The windswept wasteland had two big advantages: it is one of the best natural deep draught ports on India’s west coast and is scarcely populated, making it easier to develop.  The port is the centrepiece of the 14,000-acre planned special economic zone for heavy industries, with operation of the four berths divided between Dubai’s DP World and Adani.  In the year ended March 2009 the port shifted 35m tonnes of bulk cargo, such as coal, as well as containers, steel pipes, cars and other goods.  This is forecast to increase by almost a third this year to 45mt and by 2013 to 100mt a year.  In the longer term, the port is expected to become a vast facility, with 50 berths and the capacity to import 50m tonnes of coal a year for Adani’s power plant and another 4,000MW facility being built there by the Tata Group.

Mr Adani is hoping to duplicate Mundra at several locations elsewhere in the country, especially on the less developed east coast.  Adani Power is also developing another power plant serving Maharashtra, the highly industrialised state that contains Mumbai.  “Our target by 2020 is a minimum 20,000MW,” Mr Adani says.  This would require $25bn-$30bn of investment over the next seven to 10 years.  But analysts caution that Mr Adani’s vision comes with its own risks.  Much of the coal is being supplied through the parent company, Adani Enterprises, exposing investors in the downstream projects to related party transactions.  The company is also sourcing a lot of its coal from Indonesia, a politically volatile country.  The presence of blue-chip investors such as 3i, however, will provide comfort for foreign institutions.

Reference : http://www.ft.com/cms/s/0/66d28f84-76e8-11de-b23c-00144feabdc0

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