China power giant inks $2.4-bln India project

HONG KONG/NEW DELHI Fri Apr 13, 2012 5:16pm IST

The sun sets behind electric pylons in Allahabad February 22, 2006. REUTERS/Jitendra Prakash/Files

The sun sets behind electric pylons in Allahabad February 22, 2006.

Credit: Reuters/Jitendra Prakash/Files

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HONG KONG/NEW DELHI (Reuters) - Power Construction Corporation of China has signed a $2.4 billion contract to build the second phase of a massive coal-fired power complex in southern India to help meet soaring local demand for electricity, the firm said on Friday.

China has been playing an active role in power project construction overseas, particularly in developing countries, taking advantage of state financing as well as experience and technology acquired through three decades of economic boom.

Many Indian power companies have been ordering equipment from overseas, especially from China, as India's power gear makers have struggled to compete on price. After losing out to Chinese rivals, Indian manufacturers have been lobbying the government to impose duty on equipment imports.

The second phase of the project for India's Infrastructure Leasing & Financial Services Limited (IL&FS) will include the addition of four generators each of capacity 660 megawatts (MW), the Chinese group said on its website.

The deal is an EPC contract, meaning Power Construction Corp will be responsible for engineering, procurement and construction. It said the project will create more than 10,000 jobs in India and use power equipment made in China.

Power Construction Corp, a sprawling enterprise under the direct supervision of China's central government, was created last year through a state-dictated merger of dozens of domestic survey and design institutions, power construction companies and equipment manufacturers.

The group, parent of Chinese dam builder Sinohydro Group (601669.SS) that was listed in Shanghai in October following a $2.1 billion initial public offering, aims to list itself as well, Chinese media have said.

Power Construction Corp, with total assets of 196 billion yuan and 200,000 employees at the end of 2010, said it generated total profits of 6.47 billion yuan on revenue of 160 billion in 2010.

Its strategy is to "become a world famous corporation with strong international competitiveness," it says.

INDIA COAL SHORTAGE

IL&FS said it would import coal from Indonesia, Australia and South Africa to fuel the plant, the first phase of which included two generators each with capacity of 600 MW, and is scheduled to commence commercial operations by June next year. It has acquired a mine in Indonesia to supply the generators.

IL&FS plans to sell the power from the project to state-run distribution companies on a long-term basis as well as in the open market.

Indian newspaper The Financial Express, citing an unnamed source, reported in March that Singapore-based Ascol, a consortium of four private equity investors, planned to buy control of the project's operator -- IL&FS Tamil Nadu Power Company that is a unit of IL&FS.

Officials at IL&FS Tamil Nadu Power and Ascol were not immediately available for comment.

Coal fuels more than half of India's power capacity of 191,000 MW and will be required for 85 percent of the 76,000 MW additional capacity targeted to be added in the next five years.

About 9,000 megawatts, nearly 10 percent of India's total coal-fired generating capacity, became unviable last year after Indonesia changed rules on coal prices. These plants have long-term agreements to sell power to states and no flexibility to pass on increased costs.

Slow environmental clearances and land acquisition have led to stagnating coal output in the country and have increased dependence on imports. State-run Coal India (COAL.NS), which accounts for 80 percent of India's coal output, produced about 436 million tonnes in 2011/12, missing a scaled-down target.

(Reporting by Charlie Zhu and Sanjeev Choudhary; Editing by Clarence Fernandez)

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