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MAY 18 2016

Non-BJP states increase power project investment

  • Economic Times, ET Bureau / Hyderabad
  • Created: Wed 18th MAY 2016

State utilities, mostly from non-BJP-ruled states, have stepped up investment in power transmission projects, offering timely payments and even performance bonus to lure big players, said Vimal Kejriwal, managing director of RPG Group's KEC International.

 KEC International accounts for almost 20% of engineering, procurement and construction (EPC) jobs awarded by the central power transmission utility Power Grid Corporation. Bigger players have shied away from projects awarded by state electricity boards (SEBs) as they were small jobs and payments were often delayed. "There was huge investment in generation but the corresponding investment had not happened in transmission.

 We now see states catching up with huge work coming up for bidding," Kejriwal told ETin an interview. "Surprisingly, these are mostly non-BJP states, probably because they were not spending as much earlier and are making up for it." He said non-BJP ruled states like Karnataka, Tamil Nadu, Andhra Pradesh, Telangana, West Bengal, Orissa, UP and Bihar have stepped up investments in power transmission, while orders from Gujarat and Maharashtra remain muted.

 States like West Bengal are even offering interest-free advance payment for some projects, while Karnataka has paid early completion bonus for a project. "Earlier, SEB projects were local contractors' game, now that they are giving big orders, it's attractive for bigger players like us. Payments from them have improved too.

 Our receivables cycle from SEBs is as much as that from PGCIL. We don't need to chase them for payments," he said. The central government has launched the Ujjwal Discom Assurance Yojana, or Uday, to facilitate revival of discoms which have been struggling with losses and mounting debt. Jharkhand, Chhattisgarh, Rajasthan and even non-BJP-ruled states such as Uttar Pradesh have joined the scheme, which is aimed at reducing their financial stress and improving efficiency.

 This is likely to improve their ability to pay and also boost investment in the transmission sector. "The good news is power tariff is coming down. And while Uday benefits are yet to come, it has generated enough goodwill that discoms have increased power purchase on the hope that power would be available at cheap rates and the Centre would invest in strengthening the network," Kejriwal said. KEC International is also increasing thrust on fledgling businesses like EPC jobs for solar power and railways.

 While power transmission and distribution will continue to be the core business, these fast growing businesses will help the company reduce business risks. Over the next two years, the share of power T&D to the company's revenue may decline to 70-75%, from 85% now, the CEO said.

 "Solar EPC business had revenue of Rs 100 crore last year, which may grow 3-5 times in a year. We are very upbeat on railway projects where we are lowest bidders for a significant number of projects. This business may double is size this year and then again next year," he said.

 In a report last week, HDFC Securities said, "KEC is likely to witness a sharp improvement in profitability over the next two years owing to an improvement in the margin profile. The order inflow will remain strong, given the high visibility on the transmission capex in the country and KEC's strong positioning in the international market."


Himachal Pradesh Rajasthan Uttar Pradesh RAILWAYS RPG Power Trading Company Gujarat Maharashtra Bihar Jharkhand West Bengal Andhra Pradesh Karnataka Tamil Nadu Telangana Power Grid Grid Tariff Orissa United States State Electricity Board Power Electricity solar power Solar

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