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Challenges of Equipment Supply in the Power Sector, Shri R V Shahi, Former Secretary, na

The Working Group on Power for the Eleventh Plan recommended a capacity addition of about 67,000 MW. This was based on the status of progress on (a) projects which had already been awarded and work had started, (b) projects which had all the preparatory work completed and were sure to be awarded by March 2007, and (c) projects which were still at Tender stage and were promised by the concerned organizations for awards during early months of 2007-08. If this did not happen, to that extent the targets of 67,000 MW needed to be revisited. We were quite clear that if project construction did not commence latest by middle of 2007, such projects should not be included in the target.

Since a number of projects, which were expected to be commissioned in the last year of the Tenth Plan i.e. 2006-07, slipped to the first year of the Eleventh Plan, about 11,000 MW capacity of such projects got added, and accordingly the target for Eleventh Plan became about 78,000 MW. The break up of this capacity as per the website of the CEA, as in May, 2009 is as follows:

Thermal 59,693
Hydro 15,627
Nuclear 3,380
Total 78,700 MW

Out of these, projects with total capacity of 9,263 MW were commissioned in the year 2007-08. These projects were the same which slipped from the last year of the Tenth Plan. In fact, some of the projects which slipped in the Tenth Plan were not completed even in the first year of the Eleventh Plan. During the year 2008-09, only 3,454 MW could be commissioned. This means that projects originally targeted for Eleventh Plan, both for the years 2007-08 and 2008-09 were not attended to by the equipment suppliers and contracting agencies. They could only concentrate on the projects of Tenth Plan which had slipped.

Completion of power generation projects as per the targets has always been a matter of great concern. Normally, it has not been possible to complete more than 50 to 60% of the targets in the Five Year Plans. In the Tenth Plan, we went into details of the reasons and also attempted mid course corrections. Some of the important reasons which could be identified are as follows:

  1. Normally power projects have a cycle time of four to six years from commencement of construction to commissioning - in the case of thermal, it is shorter and in the case of hydro it is five to six years. If we add the initial preparatory portion of the project cycle, the schedule would be five years for thermal and seven to eight years for hydro projects. We found that the targets which are slated did not appropriately capture these cycle times.

  2. For example, for the Tenth Plan, in the beginning in April 2002, we had about 20,000 MW capacity under construction. One could expect that almost all of these (barring recently started hydro projects) could be expected to be commissioned. In addition, a few more short gestation projects in the thermal category, which could be commenced in the first year of the Tenth Plan, could also be commissioned. This is exactly what happened.

  3. Though, in the subsequent years in the Tenth Plan, a lot of orders were placed on BHEL and others, because of bunching of targeted commissioning towards the last two years of the Tenth Plan, the equipment suppliers could not cope with the orders.

  4. Learning from these experiences we started focusing on placement of orders, so that by the time we complete Tenth Plan a large number of projects are under construction which could be expected in the Eleventh Plan. In the most simplistic way we could even generalize that what we prepare, in a concrete manner and start in one Plan, we may expect to get them on the grid in the next Plan.

  5. A detailed analysis during the last three years of the Tenth Plan indicated that the domestic equipment manufacturing sector is totally inadequate to handle anything more than 20,000 MW in a five year period. Quite often the exponential growth in the power generation capacity of China is referred to. China has been able to have a generation capacity base of about 750,000 MW mainly in last about thirty years. They were able to commission almost 60,000 to 70,000 MW per year during certain periods. We must also note the fact that to accomplish such a large scale expansion, China has a power equipment manufacturing capacity of the order of 70,000 MW per year as compared to 4,000 MW that we had during Tenth Plan. Constant persuasion and pressure on BHEL, reinforced by regular monitoring by Power Ministry during 2004-06, could only lead to BHEL agreeing to expand its capacity to about 10,000 MW per year, with the schedule that this would be achieved by March, 2007. This slipped and they have been able to achieve a capacity base of 8,000 MW per year only in the beginning of 2008.

  6. Sectoral planning is addressed by respective Ministries and their Corporations. Inter-sectoral mismatches, particularly when we are scaling up infrastructural expansions, are the responsibility of the apex level organization viz. Planning Commission. It is not that, these mismatches did not exist in the past. In fact, mismatches in port capacities, railway transportation, railway wagons, fuel (coal, gas), always existed. What, however, is the common experience now is the scale of mismatches and, therefore, the intensity of adverse impact. For the country to be targeting and accomplishing 70 to 100,000 MW every five year, the domestic manufacturing capacity must correspond to atleast 80% of this volume. This has been the single most important contributor to the inordinate delays in meeting the delivery schedules leading to serious shortfalls in meeting the capacity addition targets.

  7. Experiences have also shown that manufacturers of Balance of Plants (BOP) are equally, if not more, inadequately equipped. In many cases, these mismatches have delayed considerably the commissioning of projects, and in any case in successful commercial operation of the plant. This has been true even in cases where the main plant manufacturers like BHEL have taken total turn key contracts. In view of inadequacies in manufacturing capacities in BOP and also their capability to construct and commission, even BHEL has been unable to address fully the BOP portion.

  8. Coupled with the problem of delayed deliveries of plant and machinery has also been the issue of construction and commissioning capability. Lack of suitably qualified and experienced contracting and commissioning agencies has further compounded the delay in project completion over and above the delays that occur on account of out of tune and delayed deliveries of equipment.

India Tech Foundation had a one day National Convention "Power for All - Last Mile Power Generation Challenges and the Road Map" at Mumbai on July 10-11, 2009. I had the opportunity to chair the Sessions on "Equipment and Services" and Panel discussion on "Financing and Policy Issues". In the Session on Equipment and Services we had two excellent and comprehensive presentations - one by the Executive Director of BHEL and another by the Managing Director and CEO of L&T Power. Salient points of the presentations are outlined below:

  • BHEL accounts for about 65% of the total installed power generation capacity in the country, the balance having been supplied by other equipment manufacturer, mostly from abroad. This means that BHEL has installed nearly 100,000 MW in its entire period.

  • Performance of BHEL Units has been reasonably satisfactory. With about 65% of the total installed capacity, the contribution by the power plants set up by BHEL is nearly 73% of the total power generation. This means that on an average, taking the entire capacity into account, performance of BHEL plants have been comparatively better.

  • This is adequately reflected by the levels of Plant Load Factor achieved by BHEL. While the national average Plant Load Factor is about 77%, overall BHEL Units have delivered the Plant Load Factor of over 80%.

  • In a period of just four years, the turn over of BHEL has increased from Rs. 10,330 Crores to Rs. 28,100 Crores in the year 2008-09. The order book position has improved even faster. The orders booked in the year 2004-05 were of the order of Rs. 18,230 Crores, it has increase to almost Rs. 60,000 Crores in the year 2008-09. Outstanding order at the end of 2008-09 is more than Rs. 1,17,000 Crores (approximately 24 billion U.S. $).

  • There was a time, just ten years ago, when the business mix of BHEL was shifting towards other industry sectors. At present, almost 75% of BHEL's business is in the power sector. This is primarily on account of overwhelming interests of all the private business groups of India as also the massive expansion programmes of the public sector companies, in the power industry.

  • The capacity expansion programmes initiated by BHEL include enhancement of manufacturing capacity, better asset management, upgradation and re-building of existing facilities through reconditioning and retrofitting, technology tie-ups with world leaders and strategic collaborations through joint ventures.

  • The Capacity Augmentation Plan started in 2004-05 consists of Phase-1 leading to a capacity of 10,000 MW by December, 2007 at an investment of Rs. 960 Crores, Phase-2 leading to the annual capacity of 15,000 MW by December, 2009 at a cost of Rs. 3,200 Crores and Phase-3 leading to the annual capacity of 20,000 MW by December, 2011 at a cost of Rs. 1,600 Crores.

  • L&T Presentation brought out that as in 2010 the country would have manufacturing capability in the field of boiler and auxiliaries, of the order of 17,000 MW (BHEL - 10,000 MW, L&T & MHI - 4,000 MW, Thermax - 3,000 MW). The corresponding figures by 2015 may rise to 30,000 MW (BHEL - 15,000 MW, L&T & MHI - 6,000 MW, Thermax - 3,000 MW, others - 6,000 MW). In the area of turbine and generator, in the year 2010 the capacity would be of the order of 14,000 MW (BHEL - 10,000 MW and L&T & MHI - 4,000 MW). This may rise to 30,000 MW by the year 2015 (BHEL - 15,000 MW, L&T & MHI - 6,000 MW, Toshiba & JSW - 3,000 MW, Alsthom & Bharatforge - 3,000 MW, others - 3,000 MW.

  • This presentation also brought out the rationale of substantially enhancing the domestic equipment manufacturing capacity and highlighted:

  1. The domestic market is large and is going to expand very rapidly in coming years. India should aspire to become the second largest producer of power plant equipment.

  2. Domestic manufacturing, if properly planned and executed, can lead to significant reduction in the capital cost of power plant.

  3. In addition to the initial capital cost, which may be more economical, the life cycle support by way of spare parts and maintenance etc. would prove to be more effective and economical.

  4. Expansions in the manufacturing base of power plant machinery will inevitably lead to much larger growth of local industries and ancillaries, leading to not only economical support to the main plant but also large scale employment.

  5. Near self reliance in the crucial and strategic sector like power is essential and, therefore, large scale expansion of manufacturing would go a long way in attainment of the targeted growth of economy in the country.

  • L&T has also developed the in-house capability to execute balance of plant works and has covered areas like coal handling, chimneys, water systems, fuel oil systems etc.

  • Both these presentations bring out that in a few years time from now the manufacturing capacity in respect of main plants may be adequate to cope with the proposed expansions in the power sector. However, there is a word of caution. BHEL expansion programmes, which were initiated on account of persuasion and pressure by the Power Ministry in the year 2004, did not meet the deadline committed. It was expected that by March, 2007 BHEL would have expanded their factories, so as to deliver an annual capacity of 10,000 MW. This could happen more than a year behind schedule. Even now, it is understood that the manufacturing capacity on turbine/generator side is not more than 8,000 MW. Unless the plans made by BHEL, L&T & MHI and others are properly monitored, the targets indicated in these presentations may not materialize, in which case targeted capacity additions in the power sector may also suffer. Eleventh Plan projects are already facing these problems. Tenth Plan suffered badly as already mentioned.

  • From the power sector group, a more practical approach is necessary to lay down the qualifying requirements in the tender. If the manufacturing capacity has to rise, new agencies will have to be developed. Unless the customer generating companies adopt a pragmatic view to encourage such new manufacturing facilities, the required capacity would not get developed and the ultimate sufferer will be none other than the power sector itself. This is more true for balance of plants. We have suffered for years on systems like coal handling, ash handling plants etc., and yet our rigidity in respect of qualifying criteria has been restrictive enough not to permit entry of new players. Approach of private sector generating companies, in this regard, has been somewhat more encouraging, but public sector companies must take a share of blame for the prevailing situation specially in the field of balance of plants.

  • As mentioned, the delays in power project commissioning get compounded by inadequacies on the side of construction and commissioning agencies. Just as it should be the responsibility of powers generating companies and main plant manufacturers together to see that domestic manufacturing base expands, it should be responsibility of manufacturers to see that adequate number of construction and commissioning agencies are developed. Both these areas are challenging and they need a systematic and an institutionalized arrangement to address them.

  • The amount of noise that has been made by the power sector generating entities and Power Ministry about inadequacies and indifference on the part of manufacturers has, no doubt, led to a new awakening. This requires to be revisited constantly, so that in tune with the enhancing requirements over the years, sufficient advance actions are taken by the manufacturing sector to cope with the increasing demands of the generating utilities. BHEL had an annual order of about Rs. 18,000 Crores in the year 2004-05. Even then, mismatches in its capacity and capability in different factories and also in its construction groups were significantly visible. The annual order has risen to almost Rs. 60,000 Crores, almost 3 ? times. Has the manufacturing infrastructure and construction capability, which were already under strain five years ago, increased by 3 ? times? As a matter of fact, it has not even doubled. There lies the answer as to why almost every project gets into the problem of unduly delayed supplies and then unduly delayed construction and commissioning followed by considerably delayed commercial operations.

A point which definitely needs to be mentioned relates to the inputs needed by the power plant manufacturing facilities. It should not happen that just as power sector has continued to be let down by the equipment manufacturers and their associate construction agencies, when the sector's growth plan has entered a new orbit, when the manufacturing sector prepares for a massive augmentation, they are let down by input industries like steel, transport etc. An integrated planning is essential. It is in this context that the Planning Commission of India has to redefine, in a more meaningful and effective way, its role for long term planning. Intra sector planning is done by the respective Ministries, though Planning Commission also gets into it. Inter-sectoral Planning does rightly belong to Planning Commission. Even at somewhat conservative rates of expansion, in the recent years, serious mismatches in fuel sector, port, transport, steel etc. have surfaced. These mismatches are going to be of much larger dimensions in coming years and they need to be addressed. Many projects did not come up as targeted. Still we have a number of examples of cutting on generation due to coal shortage. If the projects had been commissioned, many of them would remain idle for want of fuel. Import of coal would, no doubt, play a supplementary role. But, coal sector will need to gear up to match the expansion of power industry. In this context, a few statements of the new Coal Minister Shri Sriprakash Jaiswal is heartening and encouraging. He does want to launch a few new initiatives.

After two years of Eleventh Plan, we need to examine critically each power project, alongwith the respective equipment suppliers, and arrive at a consolidated list of what can be achieved and what needs to get postponed beyond Eleventh Plan. Previous experience shows that suppliers tried to confuse priorities and in the process even projects which were certain got delayed due to mix up of focus and priorities. With their limited resources, they could not complete even better placed projects as they tried to please every one. We should not repeat this mistake. Top teams of manufacturers and contractors must assess objectively the ground realities in their factories, dispatch and transportation, construction and commissioning capabilities and other relevant factors. Commitments which cannot be met need not be made. It is better to focus on 55,000 MW (or so), which have definite chances (with zero tolerance) to be done, and complete them, rather than trying entire 78,000 MW and in the process end up with not even 50,000 MW. It is not to say that we forget about the balance over 20,000 MW; we only need to realign focus and priorities and rework the schedules.