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China powers up South India

April 13, 2012

With India’s energy consumption about to burn up more fuel than every before, Power Construction Corporation of China has signed a US$2.4 billion contract with Infrastructure Leasing & Financial Services Limited (IL&FS) to build the second phase of a massive coal-fired power complex in southern India. The deal is an EPC contract, meaning Power Construction Corp will be responsible for engineering, procurement and construction. The project is expected to create more than 10,000 jobs in India and use power equipment made in China. 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.

This isn’t the first time that a Chinese power company has inked a deal for EPC of a power plant in India. Shanghai Electric and Reliance Power too have signed a similar deal for power generation across Western India. Headquartered in Beijing Power Construction Corp will build four generators each with a capacity of 660 megawatts. IL&FS plans to fuel the plant with coal from Indonesia, Australia and South Africa where it has mines. The first phase of the plant included two generators each with capacity of 600 MW. 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.

Coal has been a very unstable commodity in India, where the government has banned the export of coal from several major markets like Karnataka due to corruption and illegal mining activities. The upward revision of Indonesian coal has further left coal supplies in India relatively dry, furthermore, the coal that Indian mines and exports to China, which comprises one of India’s largest exports to China is a low grade version, of which only China has the capability to extract energy from. While a majority of India’s power generation is coal based the industry lacks proper monitoring and policies on pricing, supply chain and mining.

On the other hand, Chinese companies, who are skilled at obtaining energy from coal, also China’s largest source of energy have been expanding rapidly in the region. Backed by deep state government pockets, Chinese power companies have set up several plants across India and are successfully lighting up thousands of Indian homes. Where earlier there was suspicion of Beijing controlled companies entering the Indian power sector, it has now become India’s supplier of choice.

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