Shanghai Electric $10 Billion Order From India Signals China Export Surge
Shanghai Electric Group Co.’s $10 billion contract to supply coal-fired generators to India’s Reliance Power Ltd. shows Chinese equipment makers are increasing exports as the domestic market shrinks because of government measures to curb pollution, analysts said.
The share of revenue from exports has almost doubled at Shanghai Electric, China’s biggest power-equipment maker by market value, and Harbin Power Equipment Co. as they compete with global rivals led by General Electric Co. Reliance Power’s order may be the world’s largest for generators, the company controlled by Indian billionaire Anil Ambani said yesterday.
“Chinese manufacturers are targeting the developing world for orders outside China, such as India, the Middle East and Southeast Asia,” said Simon Jiang, an analyst at Guotai Junan Securities HK Ltd. “They have a real advantage over competitors from the developed world because their costs are lower. And the technology now matches that in the West.”
China’s investment in power plants may fall “slightly” this year to 660 billion yuan ($99 billion) as the government chases energy-efficiency targets and pollution goals, the China Electricity Council said in a statement today. The country will invest mainly in power plants fueled by clean energy resources this year, according to the council.
Shanghai Electric got 16 percent of its revenue from overseas sales last year, compared with 8.25 percent in 2007. Harbin Power, listed in Hong Kong, received 15 percent of its revenue from abroad, from 7.8 percent in 2007.
The company must venture overseas because the market for coal-fired generators in China will decline as the government tackles pollution, said Dave Dai, an analyst at Daiwa Securities Capital Markets in Hong Kong.
Power Capacity Expansion
Shares of Shanghai Electric surged 39 percent in Hong Kong this year, beating the 5.4 percent gain in the benchmark Hang Seng Index. The power equipment maker climbed 1.9 percent to HK$5 at the midday break. Reliance Power rose 3 percent to 157.5 rupees in Mumbai at 11:29 a.m. local time.
Shanghai Electric will supply a total of 30,000 megawatts of generation equipment over the next three years, equivalent to about 18 percent of India’s current installed capacity, Reliance Power said in a statement yesterday. For the deal, Reliance Power signed a $12 billion financing agreement with Chinese banks in Shanghai.
“The strategic cooperation between Reliance Power and leading global suppliers like Shanghai Electric will enable faster project execution of our projects,” Reliance Power Chief Executive Officer J.P. Chalsani said in the statement, adding that deliveries have already started. An ultra mega power project is capable of generating 4,000 megawatts.
Infrastructure Spending
The equipment will be delivered to Krishnapatnam ultra mega power project, Chitrangi power project and Tilaiya ultra mega power project, Chalsani said in an interview in Shanghai yesterday. Some equipment has already been delivered to the Rosa, Butibori and Sasan plants, he said.
The Shanghai Electric deal surpassed the supply contract Reliance Power signed with GE, said the world’s biggest producer of power-plant equipment on Oct. 25. Under a deal exceeding more than $750 million in value, GE will deliver gas and steam turbines that will be used to expand the capacity of a Reliance Power plant.
India, ranked below war-ravaged Ivory Coast and Sri Lanka for the quality of infrastructure, plans to spend $1.5 trillion in the decade to 2017 to build roads, ports and power plants. Prime Minister Manmohan Singh on March 23 asked companies and investors to fund half the planned $1 trillion budgeted for the five years starting April 2012.
Indian Power Demand
The country’s $1.3 trillion economy grew at 8.8 percent in the three months ended June, the fastest pace in 2 1/2 years. India faced power shortages of as much as 10.7 percent during peak hours in August, the Central Electricity Authority said. Current installed generation capacity is about 165,000 megawatts.
The government has pledged to provide electricity nationwide by 2012, which would require an installed generation capacity of 200 gigawatts to sustain economic growth of 8 percent, according to the power ministry.
To contact the Bloomberg staff on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net; John Duce in Hong Kong at Jduce1@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editors responsible for this story: Clyde Russell at crussell7@bloomberg.net; Amit Prakash at aprakash1@bloomberg.net.
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