POWER SECTOR OVERVIEW

VARUN GULATI EXECUTIVE (PS-MKTG)

INDIAN POWER SECTOR

An Overview

Introduction
Indian power-sector has come a long way since the installation of its first Power Plant a 130 kW hydro set which was set up at Darjeeling in West Bengal in the year 1897. At the time of independence, India had about 1363 MW commissioned capacity in utilities. Over the years it has expanded manifold and as on 31.03.2012, 180 GW of Utility sets stands commissioned in the Country, out of which 106 GW i.e. 59 % has been contributed by BHEL. BHELs entry in Power equipment in national scenario was marked by its first installation of coal based 30 MW set at Basin bridge in Tamil Nadu in the year 1969.

Installed Capacity since Independence

Introductioncontd.
Till 1950, about 37% of the installed capacity in the Utilities was in the public sector and about 63% was in the private sector. The Industrial Policy Resolution of 1956 envisaged the generation, transmission and distribution of power almost exclusively in the public sector. The Electricity (Supply) Act, 1948, provides an elaborate institutional frame work and financing norms of the performance of the electricity industry in the country. The Act envisaged creation of State Electricity Boards (SEBs) for planning and implementing the power development programmes in their respective States.

Introductioncontd.
(SEBs) for planning and implementing the power development programmes in their respective States. The Act also provided for creation of central generation companies for setting up and operating generating facilities in the Central Sector. The Central Electricity Authority constituted under the Act is responsible for power planning at the national level. From the Fifth Plan onwards i.e. 1974-79, the Government of India got itself involved in a big way in the generation and bulk transmission of power to supplement the efforts at the State level and took upon itself the responsibility of setting up large power projects to develop the coal and hydroelectric resources in the country as a supplementary effort in meeting the countrys power requirements.

Introductioncontd.
The National thermal Power Corporation (NTPC) and National Hydro-electric Power Corporation (NHPC) were set up for these purposes in 1975. North-Eastern Electric Power Corporation (NEEPCO) was set up in 1976 to implement the regional power projects in the North-East. Subsequently two more power generation corporations were set up in 1988 viz. Tehri Hydro Development Corporation (THDC) and Nathpa Jhakri Power Corporation (NJPC). To construct, operate and maintain the inter-State and interregional transmission systems the National Power Transmission Corporation (NPTC) was set up in 1989. The corporation was renamed as POWER GRID in 1992.

Introductioncontd.
The policy of liberalisation the Government of India announced in 1991 and consequent amendments in Electricity (Supply) Act have opened new vistas to involve private efforts and investments in electricity industry. Considerable emphasis had been placed on attracting private investment. In 1995, the policy for Mega power projects of capacity 1000 MW or more and supplying power to more than one state introduced. GOI has promulgated Electricity Regulatory Commission Act, 1998 for setting up of Independent Regulatory bodies both at the Central level and at the State level viz. The Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commission (SERCs) at the Central and the State levels respectively.

ELECTRICITY ACT 2003: ENABLED MARKET MODEL

Electricity Act 2003 moves the sector from Single Seller-Single Buyer to Multi-Seller-Multi Buyer Model by creating choice to the consumer.
Transmission Generation Genco Genco Genco

Open Access in Transmission Traders

Creating whole sale competition

Disco Distribution

Disco

Disco Creating Retail Competition

Open Access in Distribution Traders Customer Customer

Customer

POWER SECTOR MODEL OF INDIA

Centre Policy Plan Regulations Generation Transmission System Operations Distribution Trading Appeal Trading Licencee Appellate Tribunal MOP CEA CERC Central Generating Units CTU NRLDC RLDC GENCOs STU SLDC Distribution Licencee Trading Licencee Appellate Tribunal IPPs Some Private Players in Generation & Distribution State Government SERC State

REGULATIONS FOR INDIAN POWER SECTOR

Fuel-wise share of installed capacity in various countries

BHELs CONTRIBUTION IN INDIAN POWER SECTOR

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BHELs Share in Indias Installed Capacity

SEGMENT WISE COMMISSIONED CAPACITY (excluding RES) IN MW
Status as on 31.03.2011:

Category Non-BHEL

COAL 24534

GAS 13830

DIESEL NUCLEAR HYDRO 979 1740 20763

TOTAL 61847

BHEL

72455

4461

199

3340

17608

98064

All

96989

18291

1179

5080

38372

159911

BHEL's Share (%)

75%

24%

17%

66%

46%

61%

Fuel Wise Mix

BHEL Addition to Capacity (As on 31.03.2011)

Non-BHEL Addition to Capacity (As On 31.03.2011)

(Distribution Fuel Wise of 61847 MW Non BHEL Contribution)

(Distribution Fuel Wise of 98064 MW BHEL Contribution)

Diesel 0.2% Gas

Diesel 1.6% Gas 22.4%

Nuclear 2.8% Hydro 33.6%

Nuclear 3.4% Hydro 18.0%

4.5%

Coal 39.7%

Coal 73.9%

78% of Coal, 66% Nuclear and 55% of Hydro based MW commissioned for addition in utilities after the year 1969 is from BHEL sets.

BHEL POSITIONING IN POWER SECTOR

BHEL: Growth Profile

PERFORMANCE OF POWER SECTOR

XIth Plan Fuel Mix (Actual)
2% 10% 9% 79%
5%

XIIth Plan Fuel Mix (*)

6% 1%

Coal Gas Hydro Nuclear

88%

XIth Plan Market Share (Actual)

29579 54% 25385 46%

XIIth Plan Market Share

(*)

BHEL Others

50949, 49%

52379, 51%

(*) In addition, spill-over of ~18,000 MW of XI Plan to be added in XII Plan

TECHNICAL COMPETENCIES Superior Product Advantages- Global Benchmarking

Performance of 500 MW Sets Performance of 200-300 MW Sets

NERC member countries (North America, Canada, Europe part)

Source: North American Electric Reliability Council (NERC); 2009

BHEL Sets

TECHNICAL COMPETENCIES Superior Product Advantages- Indian Benchmarking

OPERATIONAL AVAILABILITY PLANT LOAD FACTOR AUXILIARY POWER CONSUMPTION FORCED OUTAGES

Source: CEA Review of Performance of Thermal Power Stations 2009-10

BHEL PAST PERFORMANCE

INSIGHTS INTO BHELS TRACK RECORD

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BHEL ORDER BOOK TREND: POWER SECTOR

2007-08
MW Rs. Crs.

2008-09
MW Rs. Crs.

2009-10
MW Rs. Crs. MW

2010-11
Rs. Crs. MW

2011-12
Rs. Crs.

Total Order Book EPC

14,556

38,712 20,001
52%

17,020 3,298
19%

44,407 10,379
23%

16,489 1,290
8%

40,110 5,423
14%

15,071 3,050
20%

44,341 11,546
26%

2,820 0
0%

11,762 0
0%

EPC Orders 6,047

42% Super-Critical Orders

SUPERC R IT IC A L

1,839
5%

1,320
8%

3,950
9%

1,980
12%

5,564
14%

6,400
42%

21,270
48%

1,320
47%

5,652
48%

SECTO R

Govt Sector 12,430

85%

34,711
90%

13,580
80%

37,037
83%

1,800
11%

6,298
16%

7,391
49%

25,699
58%

1,200
43%

7,371
63%

Private 2,126 Sector

15%

4,001
10%

3,440
20%

7,370
17%

14,689
89%

33,812
84%

7,680
51%

18,642
42%

1,620
57%

4,391
37%

BHEL RECENT SUPERCRITICAL WINS

Sl.No 1 2 3 4 5 6 7 8 9 Project Barh Bara Krishnapatnam Yeramarus Edlapur Bellary Lalitpur Mauda Singrauli Rating 2x660 MW 3x660 MW 2x800 MW 2x800 MW 1x800 MW 1x700 MW 3x660 MW 2x660 MW 2x660 MW Customer NTPC PPGCL APPDCL RPCL RPCL KPCL Bajaj Hindustan NTPC DBPL Scope SG & TG SG & TG SG EPC excl AHP &CHP SG & TG EPC SG & TG TG BTG Ordering Route ICB ICB outbidding L&T ICB outbidding L&T JV Route JV Route ICB outbidding L&T ICB outbidding Alstom ICB ICB

In addition to the above BHEL has emerged successful bidder for 2X660 MW Raghunathpur TG Pkg BHEL has emerged lowest bidder in ICB Tender of RRVUNL for Suratgarh 2x660 MW and Chhabra 2x660 MW EPC projects BHEL has formed JVC with TNEB for setting up 2X800 MW Udangudi TPS on EPC basis

BHEL SUPERCRITICAL JOINT VENTURES (JVs)

Sl. No 1 JV Company Name Udangudi Power Corporation Limited Raichur Power Corporation Limited Dada Dhuniwale Khandwa Power Ltd Latur Power Co mpany Ltd. Date of JVC Incorporation December, 2008 Project Name Udangudi Yeramarus KPCL January, 2009 Edlapur MPPGCL February, 2010 Khandwa 1x800 MW 2x800 MW 2x660 MW coal or 1500 MW gas based

Utility

Rating

TNEB

2x800 MW 2x800 MW

MAHAGENCO

January, 2011

Latur

BUSINESS ENVIRONMENT
CHOICES SHAPING BUSINESS FOR TODAY AND THE FUTURE

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KEY ISSUES- POWER SECTOR

Power Demand

Environmental Clearance

Efficient Technologies

Financing/ Funds Availability

Fuel Availability

Land Availability

Disadvantages for Domestic Industry

Market Attractiveness

Government Policies

Business Environment
Issue
Plan Projection and Ordering Status of Projects for targeted capacity addition target

Status
Sub-group for Demand Analysis of the Working Group on Power for 12th Plan constituted. Salient points of the report are:

Peak deficit and Energy deficit in 2010-11 w.r.t. end of 10th plan analyzed as:
Peak deficit: down from 13.8% to 10.3% Energy deficit down from 9.6% to 8.5%

Capacity addition (from conventional sources) projected as:

12th Plan 76,000 MW (Scenario I - Likely) & 1,06,774 MW (Scenario II) 13th Plan 95,400 MW (Scenario I) ; 85,000 MW (Scenario II) & 1,34,520 MW (Scenario III)

Coal based projects to have major share ( around 80 %) in 12th Plan. Orders aggregating to 1,03,328 MW already finalised for benefit in 12th Plan (excluding 11th Plan Spillover ~ 21,000 MW).

Business Environment contd.

Issue
Competition

Status

Domestic manufacturing capacities expected to exceed 35,000 MW p.a. by 2014-15. Doosan Heavy Industries (for Boilers) and Thermax (for Boilers) have announced plans to set up domestic manufacturing capacities for Super-critical equipment. Bids for 800 MW bulk tender opened. Response higher than in 11x660 MW tender: 660 MW: TG: 3 SG:3 800 MW: TG: 5 SG:5 (BHEL, Alstom BF & Toshiba-JSW) (BHEL, L&T MHI & BGR - Hitachi) (BHEL, BGR Hitachi, Alstom BF, ToshibaJSW & L&T - MHI) (BHEL, L&T - MHI, BGR Hitachi, Doosan & Thermax)

Aggressive pricing by new domestic manufacturers expected to set lower bench-mark for future prices ~20% reduction required to match the bench-mark level.

Business Environment contd.

Issue Competition contd.

Status

Post Tsunami, Japanese Government providing incentives to its manufacturers to boost economy through exports aggressive competition expected. Alstom and Shanghai Electric Group signed MoU for setting up a joint venture company for supply of boilers and spare parts.

Level Playing Field

Tariff measures recommended by Committee of Secretaries (5% CD; 10% CVD; 4% SAD) on imported equipment in July 2010 is expected to be implemented from March 2012.

Business Environment contd.

Issue Policy Issues Status

Government allows Indian companies which are in the infrastructure sector to avail of ECBs in Renminbi (RMB), under the approval route subject to an annual cap of USD one billion. Land acquisition Long delays faced in acquisition. Land acquisition getting costlier. Cabinet clears Land Acquisition Bill. Little progress on introducing mandatory condition of sourcing of equipment from domestic manufacturers with Phased Manufacturing Program (PMP) for UMPPs

Business Environment contd.

Issue
Constraints faced by Developers Fuel Availability

Status

Demand supply gap domestic coal projected to go up from 97 MT in 2012-13 to 292 MT (including 54 MT for projects based on imported fuel). Sharp increase in prices of imported coal due to tightening of mining and export norms by two major coal suppliers countries viz. Indonesia and Australia - Developers of UMPPs and tariff based bidding projects have approached Government for revision of tariff (Sasan UMPP of Reliance Power & Mundra UMPP of Tata Power). No commitment of Gas allocation to new Projects taken up by developers. Delay in environmental clearances affecting start of new projects.

Environment Clearances

Business Environment contd.

Issue Constraints faced by Developers contd. Funds Availability Ceiling limit of exposure for the Power sector approaching/ reached by major Banks - Financial Closures getting delayed, consequently delaying the placement of order. Merchant rates not as attractive as they used to be. Status

Market Attractiveness

32

COMPETITOR FOCUS
CHARTING NEW ROUTES

MAJOR PLAYERS ALONGWITH BHEL

TG manufacturer only. Came L1 in Bulk 660 tender
Bharat Forge/ Alstom

EPC capability. Manufacturing plant at Hazira. Bagged orders of Koradi and Krishnapatnam
L&T/MHI

BHEL

EPC capability. Participated in Bulk 660 SG tender

Ansaldo/ Gammon

INDIAN SUPERCRITICAL POWER MARKET

JSW/ Toshiba

TG manufacturer only. Came L3 in Bulk 660 tender. Bagged orders of Salaya EPC capability. Manufacturing base in Chennai

SG manufacturer only

Thermax/ Babcock Cethar/ Riley Doosan Chinese

BGR/ Hitachi

EPC capability. Manufacturing base in Chennai .Participated in Bulk 800 tender

SG manufacturer only

PLANNED DOMESTIC CAPCITY- TG

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2011-12 Doosan BGR-Hitachi Ansaldo Gammon Alstom/Bharat Forge Toshiba L&T/MHI BHEL 0 0 0 0 3,000 5,000 10,020 2012-13 0 0 0 5,000 3,000 6,000 13,020 2013-14 0 3,000 0 5,000 3,000 6,000 13020 2014-15 3,000 3,000 2,000 5,000 3,000 6,000 13020 2015-16 3,000 3,000 2,000 5,000 3,000 6,000 13020 2016-17 3,000 3,000 2,000 5,000 3,000 6,000 13020 Total 12th Plan 9,000 12,000 6,000 25,000 15,000 30,000 65,100 1,62,100

All figs in MW

TOTAL

18,020

27,020

30,020

35,020

35,020

35,020

PLANNED DOMESTIC CAPCITY- SG

40000 35000 30000 25000 20000 15000 10000 5000 0 2011-12 Doosan BGR/Hitachi Cethar/Riley Thermax/Babcock Ansaldo Gammon L&T/MHI BHEL 0 0 0 0 0 5000 12500 2012-13 0 0 0 0 0 6000 17500 2013-14 0 3000 0 0 0 6000 17500 2014-15 3000 3000 4000 3000 4000 6000 17500 2015-16 3000 3000 4000 3000 4000 6000 17500 2016-17 3000 3000 4000 3000 4000 6000 17500 Total 12th Plan 9000 12000 12000 9000 12000 30000 87500 1,71,500

All figs in MW

TOTAL

17,500

23,500

26,500

40,500

40,500

40,500

SUPERCRITICAL MARKET ANALYSIS

THERMAX ANSALDO GAMMON TOSHIBA CHINESE DOOSAN ALSTOM BHARAT FORGE CETHAR BGR HITACHI BHEL L&T

PARAMETER

EPC CAPABILITY EQUIPMENT FINANCING INDIGENIZATION NEWER RATING SETS (700/840 MW) MANUFACTURER AS DEVELOPER KNOWLEDGE OF INDIAN CONDITIONS

Very Low

Low

Medium

High

Very High

COMPETITOR ANALYSIS

Technical, Manufacturing Base, Quality, Project Management,

TOSHIBA JSW

L&T MHI

BHEL

ALSTOM BHARAT FORGE

ANSALDO GAMMON THERMAX

BGR HITACHI

CETHAR VESSELS

Price Levels, Product Portfolio, Delivery, Financing

STRATEGIES TO BE ADOPTED
MOVES ENABLING US TO WIN THE GAME

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SIX PRIORITY AREAS IDENTIFIED

Higher standardization of components

Re-establish monitoring systems Strengthen inter unit coordination TIMELY PROJECT DELIVERY

Fast track technology & product developmentIGCC, 765 kV transmission

1 6 People Development 4 3 2

Timely investments-well planned, scalable, competitive CAPACITY EXPANSION TO 20 GW

ENGINEERING & TECHNOLOGY

DIVERSIFICATION & GROWTH

Upgrade product range in thermal gas & hydro Nuclear, transportation, transmission, renewable energy

PRODUCT COST COMPETITIVENESS & QUALITY

Operations Improvement- Lean, DTC Zero quality issues in products & erection

CAPACITY AUGMENTATION PLAN

PHASE
Capital Expenditure Target Completion

Phase I
Rs 961 crores 2008

10,000 MW

Phase II
Rs 3200 crores Dec 2010

15,000 MW

Phase III
Rs 1600 crores Dec 2012

20,000 MW

PREPARING FOR FUTURE

91,900 Cr. (2016-17) 45,000 Cr. (2011-12)

18,739 Cr. (2006-07)

Capability & Capacity Enhancement

Investment Globalization Rs.4200 Crores Spares & R&D Human Services Resources Revenues Manpower Export Spend to to grow revenues to grow by increase by from to increase 4 times to 6 times to Rs.4700 42,000 to by 6 times Rs.900 crores 50,000 by to Rs.6700 crore 2011-12 crores

OTHER KEY INITIATIVES BEING TAKEN

Advanced Manufacturing Action TCA with Sheffield Forgemasters UK for LP Rotor

Vendor Base Expansion

Long term rate contracts for Steel etc

Outsourcing of low tech/ noncore manufacturing

Away Center Fabrication

Global Sourcing

Indigenization

Integrated Operations Improvements

POWER SECTOR MARKETING

OVERVIEW

4 4

Introduction
Marketing of BHELs products/Services is handled by following Business sectors: Power Sector (Marketing) : (PS-M) Industry Sector: For setting up of new utility Power projects in the country For product/ projects to meet the requirement of the industry (includes Captive power plant; switchyard of power plant) For products and projects in overseas market

International Operations:

Power Sector Marketing The changing structure.

2002: Power Sector Marketing

1985: Power Group Commercial Management (PG-CM) Early 80s: Thermal Group Commercial (TG-C) Power Group Commercial (PG-C)

1970s: Marketing and Sales Deptt. (MSD) (Single agency handling marketing of all Projects/products)

Major responsibilities of PS-Mktg (as per responsibility matrix) :

Till Mid 80s
Prior to formation of PMG
Securing orders; Project management, settlement of commercial issues during execution and facilitating cash collection

After Mid 80s

Formation of PMG
Above activities except Project Management

2000
With Increasing competition
Higher focus on Marketing and support to units and PMG during execution and contract closing

Marketing Structure:
Functional Chart of a Marketing Dept. of a Business Sector

Marketing

Planning, Finance, Systems

Business Development, Tendering & Order Booking

Commercial support to PMG & Units

BHEL MARKETING ACTIVITIES

INSIGHTS INTO BHELS WORK

4 9

Contribution of Marketing Function: + Maximize Market share; meet company's targets + Introduce new products in the market + Book orders to optimize shop loading, + Ensure cash flows as per budget, + Advance alert to units for facility development to meet emerging business requirements / new product lines, + Image building & Visibility enhancement + Network with Govt. & Clients to promote companys interests in policy development. + Alert units on competitors strategies, introductions etc and develop strategies new product

Marketing Activities:.
Business Development, Tendering & Order Booking : + Business Development Existing & New Products, Services + Customer relationship management + Advance alert on forthcoming businesses + Pre-Tender tie-ups & support for interaction with partner + Pre-selling activities with Clients / Consultants + Enquiry Handling and Bid preparation + Post bid negotiations / Clarifications / Price justification + Contract documentation & Signing + Release Internal orders, Price Allocation + Furnish Bank Guarantees + Realization of Initial Advance + Market feedback on Quality, Techno-commercial reqmts, HSE, delivery etc

Marketing Activities: .contd.

Planning, Finance, Systems : + Planning & Co-ordination with Govt., Clients, Consultants, Trade Bodies, others + Business Forecasting + Input to Management for strategy formulation + Preparation of Order Booking Budget - Units/Regions + Support to Corporate on following issues :
+ + + + + MOU, Parliament , Govt. support, Media etc Cash, Performance & Revenue Budgeting / Progress BG Limits, Provisioning Unit Loading & AMAs Balanced Score Card

+ Represent department in Management Review Meetings + Focus on optimizing Unit loading + Coordinate Training, Seminars, Exhibitions, Buyer meets

ORDER BOOKING STAGE

Order Booking Stage:

Nature of orders for BHEL + Negotiated Orders + Competitive Bidding

(Scope to be covered in both cases will be to suit customer requirements)

Order Booking Stage:

.contd..

Negotiated Orders Road Map/procedures

Scope is identified by customer or BHEL or jointly

Technical scope +Specification forwarded to customer

Scope + Technical specifications discussions and finalization

Price offer submission including Terms and conditions

Price Negotiations

Order finalization

Order Booking Stage:

.contd..

Competitive Bidding Road Map/procedures

Tender specifications Floated by customer

Techno-commercial Bid submission

Post-bid submission - Technical

Price bid opening

Price negotiations, if required

Placement of orders

Order Booking Stage:

.contd..

Requirement for Building strategies for Competitive Bid : + Knowledge of Strength/ weakness of self + Knowledge of Strength/ weakness of competitor + Time schedule which can be offered by self/competitior + Benefits available to BHEL/competitor Requirement for Competitive Bidding : + Pre-qualification requirements to be met + Selection of equipments to suit most competitive conditions + Prices to be competitive + BHEL bid to be Techno-commercially competitive after evaluation

Order Booking Stage:

Changes in Market Scenario

.contd..

Emergence in New competition in India Market: + Shanghai Electric, China + Dong Feng, China + Harbin, China + Doosan, Korea + Reliance (as EPC contractor) + L&T-MHI + JSW Toshiba + BGR Hitachi + Alstom - Bharat Forge + Ansaldo-Gammon + Thermax

Order Booking Stage:

.contd..

Efforts to be put for success in Competitive Bid: + Cost optimization + Technical optimization + To achieve above, close coordination between Technical & commercial aspects required

PROJECT EXECUTION STAGE

Project Execution Stage: + PS- Mktg in the first to enter the project and last to exit. + Pre-tender stage to contract closing + Tendering (Bidding) Stage + Post-bidding Pre award + Post award stage + Execution stage + Contract closing stage

THANK YOU

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