Power major L&T Power had a fairly good year with order inflows of Rs 28 billion from Indian and overseas markets. Its order book is likely to grow further with orders expected to be placed for nearly 50 GW of new coal-based projects in the domestic market over the next five years. In a recent interview, Shailendra Roy, chief executive officer and managing director, L&T Power Limited, and whole-time director (power, heavy engineering and defence), Larsen & Toubro (L&T), shared his views on the company’s recent performance, plans, major focus areas and outlook for the sector. Excerpts…
What were the major highlights for L&T Power during the past year?
A cumulative capacity of 2,888 MW built by L&T Power attained commercial operation over the past one and a half years. This cumulative capacity comprises coal-based supercritical power plants – the first and second units of Maharashtra State Power Generation Company Limited’s 3×660 MW Koradi super thermal power plant (STPP) and the second unit of Andhra Pradesh Power Development Company Limited’s 2×800 MW STPP at Krishnapatnam – as well as GMR’s 2×384 MW gas-based Vemagiri combined cycle power plant (CCPP). We are currently executing the country’s first ultra-supercritical power project on a complete engineering, procurement and construction (EPC) basis for NTPC’s 2×660 MW Khargone thermal power project in Madhya Pradesh. L&T Power has also successfully expanded its footprint in neighbouring countries and is executing three gas-based CCPPs in Bangladesh on an EPC basis.
What has been the order inflow for the company’s power business during 2015-16 and in 2016-17 so far? What is the order guidance going forward?
L&T’s power business received orders of over Rs 28 billion in 2015-16. These include an EPC order from the Marubeni Corporation, Japan, for Bangladesh Power Development Board’s 400 MW Bibiyana III CCPP. In 2016-17 so far, we have received new orders through joint venture (JV) firms, including the steam generator package of Neyveli Uttar Pradesh Power Limited’s 3×660 MW Ghatampur thermal power plant (TPP) in Uttar Pradesh worth Rs 38.6 billion and other export jobs amounting to $71 million. Around 50 GW of new coal-based projects are expected to be awarded in the next five years.
What is the total portfolio of power projects with the company as a developer?
L&T’s power development portfolio consists of both thermal and hydel power projects. The 1,400 MW power plant at Rajpura, Punjab, was the first development project with supercritical technology to be owned and operated by L&T. The power plant has been running successfully for over two years, with a technical plant availability of over 90 per cent. Hydel projects with an aggregate capacity of 870 MW are at various stages of development.
What were some of the challenges faced by the company in the execution of the Rajpura project and how were they overcome?
The two units of the Rajpura project have been running successfully for more than two years. The first and second units began commercial operations in February 2014 and July 2014 respectively. While L&T completed the task well within the scheduled 48 months (first unit) and 54 months (second unit) on a complete EPC basis, the significance lies in the fact that the TPPs achieved their commercial operation date (COD) in a record time using indigenous supercritical boiler, turbine and generator equipment. The Rajpura plant is the first supercritical power project built by L&T on an EPC basis and almost 90 per cent of the equipment/system has been supplied through L&T’s internal units/capabilities.
One of the major challenges was the project location, which was found to be in the vicinity of Seismic Zone 4 at the site inspection stage. The project’s design had to, therefore, be completely reworked, taking into account various safety aspects. The other challenges faced during construction were addressed through planning and proactive management by the L&T team.
How has been the performance of the company’s supercritical equipment manufacturing facility in Gujarat? What is the current capacity utilisation of the plant?
L&T has an operational facility for manufacturing 5,000 MW of power generation equipment per annum. This includes steam generators, steam turbines, generators, electrostatic precipitators, fans and air preheaters. All the facilities are adequately loaded and are exporting consignments that conform to global standards. Notably, both our steam generator, and steam turbine and generator manufacturing facilities are executing export orders from Mitsubishi Hitachi Power Systems, including manufacturing pressure parts and turbines of 2×1,000 MW units for a plant in Indonesia. After having manufactured the first 800 MW steam turbine in India, our JV company has received this opportunity to execute the 1,000 MW supercritical steam turbine order.
What will be the company’s key focus areas going forward?
The company has recently drawn up Lakshya 2021, its quinquennial strategic plan. Under this exercise, major strategic initiatives have been identified that will lead the business to greater success. Besides projects, we have identified product and service exports as a major focus area. We have made significant progress in drawing overseas customers for our engineering wing as well as the supply of boiler and turbine components. We have also identified promising new geographies that will provide significant business opportunities and help diversify our project portfolio.
L&T has entered into licensing agreements with technology leaders in new areas like flue gas desulphurisation (FGD) and selective catalytic reduction (SCR), and is well placed to take advantage of this market as opportunities emerge owing to the stringent emission norms notified by the Ministry of Environment, Forest and Climate Change (MoEFCC).
What are the key challenges for the company?
India has state-of-the-art domestic manufacturing facilities with a capacity of 28-30 GW per annum for supercritical power generation equipment. However, against this, orders for a meagre 3.6 GW, 7.5 GW and 10.2 GW were awarded in 2013-14, 2014-15 and 2015-16 respectively. This has led to gross underutilisation of domestic manufacturing capacities, compelling equipment manufacturers to compromise on margins/profitability to bag orders in the shrunk market. The year also saw the rise of a troubling trend of multiple state-owned utilities placing orders on a nomination basis (close to 6 GW), bypassing the established norm of inviting competitive bids. We feel that fair and equal opportunities should be provided to all suppliers that are equally competent.
What is your long-term outlook for the sector?
The power sector is in a state of flux. The country’s growth and proactive government policies should provide it the much-needed boost. Despite the growth in renewable power generation, approximately 70 per cent of the total power generation is expected to be based on coal till 2025. Around 10-12 GW of coal-based power projects need to be installed annually over the next 8-10 years to match India’s projected GDP growth of 7-8 per cent. The gestation period from concept to commissioning for an industrial unit is three to four years, whereas the same for coal-based power plants is six to seven years. Hence, the required generation capacity should be in place before new industrial units become operational. GDP growth will be hindered if sufficient generation capacity is not planned well in advance.
Of the current installed thermal capacity, almost 36 GW is more than 30 years old. While these plants are fully depreciated, they are highly inefficient and contribute to significant pollution. Turbine heat rates or efficiency of new ultra-supercritical plants are approximately 30 per cent better than those of the old plants. Owing to revised environmental norms as per the gazette notification dated December 7, 2015 issued by the MoEFCC, the majority of these plants are likely to get decommissioned in the coming decade. The replacement of plants needs to be planned well in advance.
The situation is expected to see an improvement on the policy and economic fronts. On the policy side, the government has issued rules on environmental protection relating to emissions from coal-based power plants. These are expected to create new high-value business opportunities for FGD and SCR. L&T Power has readied itself to offer these as a part of its product portfolio. The Ujwal Discom Assurance Yojana is also expected to provide relief to the sector by de-stressing discoms’ balance sheets and reviving demand.
The primary concern, however, will continue to be the supply glut in the coal power generation equipment manufacturing segment. While this overcapacity will continue to keep prices under pressure, we expect the irrational pricing wars to ebb eventually as competitors are likely to bid responsibly because of the mounting financial distress evident from their books in 2015-16.
