Reliance Power, Shanghai Electric ink record deal for equipment

In the largest-ever deal between an Indian and a Chinese company, Reliance Power and Chinese power equipment maker Shanghai Electric (SEC) on Thursday signed an $8.29 billion (Rs36,741 crore) agreement in Shanghai for the supply of 36 coal-fired plants to Reliance Power, with a combined capacity of 24,000 MW.

Reliance Anil Dhirubhai Ambani Group chairman Anil Ambani called the deal 'historic' and expressed the hope that it would help Reliance Power to emerge as ''the most valuable power company in India in the coming years''.

SEC president Zheng Jianhua said that the company was planning to set up an equipment manufacturing facility in India through the joint venture route. He refused to set a timeframe for it or reveal the size of the project, but said the move followed a re-thinking on the whole model of investing in India.

''We are doing the due diligence. We have the options of entering India directly or through a partner. If we opt for the partner route, Reliance Power would be the first we would consider,'' he said.

The Chinese company has already supplied 6,000 MW of generation equipment to Reliance Power's Sasan, Rosa and Butibori projects under a 2008 deal. With Thursday's deal, the engagement between the two companies would be of the order of $10 billion.

The 36 units of 550 mw would be used by the Reliance Power's upcoming projects, including the ultra mega ones at Krishnapatnam and Tilaiya. The financing for the boiler, turbine and generator (BTG) packages, including super critical technology, would be done by Chinese institutions Bank of China, China Development Bank, Industrial and Commercial Bank of China and Export Import Bank of China. Reliance Power and SRC signed a memorandum of understanding (MoU) to cover the financing for Chinese exports up to $12 billion to India.

Observers say the deal could not have gone through unless the four large Chinese financial institutions had financed it. The Chinese banks and FIs are also talking to other infrastructure companies in India for financing their deals involving Chinese exports, reports said.

Thus apart from its size, Reliance ADAG's contract with SEC is also significant because it could become a trendsetter of sorts, encouraging other Indian power companies to shop for capital equipment in a country that is already on its way to becoming one the world's largest suppliers of key capital equipment for the core infrastructure sector. (See: Reliance Power to buy equipment worth $2.2 billion from GE)