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Power gear makers fear project delays due to de-allocation

Larsen & Toubro, Thermax and other capital goods companies that spent crores to set up core power equipment making units fear the de-allocation of coal blocks would defer new projects by a year or even more, with the Supreme Court verdict dashing their hopes of an early revival of the sector.

"There is terrific pressure on our manufacturing capacity due to lack of visibility for new projects. We are trying to pick orders, but these are small projects since not too many countries are building thermal power projects. This will not be enough for the industry to achieve breakeven," MS Unnikrishnan, MD and CEO, Thermax, told ET.

Firms like L&T, JSW Energy, Bharat Forge, Thermax, BGR Energy, among others formed joint ventures with foreign partners and invested big to set up units to manufacture thermal power boilers and turbine generators in India. But the last two years have been tough for these new units as projects have been stalled or even cancelled due to issues relating to fuel availability, financing or approvals, and land acquisition. Experts peg their combined loss at over Rs 1,000 crore a year due to lack of orders.

"The coal block de-allocation will certainly affect visibility of new power projects, however it does not matter much as the industry has been anyway running at low capacity in the last 2-3 years due to lack of orders. We were expecting that with the new government coming in, new orders would come too, but now it seems it would take one more year for the recovery of the power sector," said Shailendra Roy,  director and senior executive vice president (power, minerals & metals) at Larsen & Toubro.

Muted cash flows and lack of new orders may jeopardise loans taken by manufacturers for financing these units. Some industry executives said, on the condition of anonymity, that banks have been "tweeking" repayment schedule of some of these units but now it may require a restructuring to avoid them from becoming non-performing assets. JVs, which have parents with strong balance sheet, may be better placed to deal with financial crunch. Last month, the SC said all coal blocks, but four, of the 218 coal blocks allocated since 1993 would be cancelled since the process followed by the government was arbitrary and illegal.

Executives from capital goods companies believethe entire process that would run up to power generators awarding projects would take more than a year. The only orders they can grab would be the ones tendered by state-run NTPC. BTG makers said they are unable to sell equipment in foreign market as only China and India are still adding significant thermal power capacity and the former is unlikely to buy from India as its local equipment are much cheaper.

Source: The Economic Times