Reliance Infra-Yuaning Quality Problems Expect cost over-runs, project delays and non compliance with PPA terms for supply of generated power as Equipment and Thermal Coal prices soar. The reliance upon Chinese Equipment imports may not help matters either as the Yuan appreciates against the Dollar and the Rupee. All ADAG stocks are sells-these include RCap, RPower, Rel Infra, Reliance Industrial Infra and Adlabs. The Yamunanagar Thermal Plant, being executed by Reliance Infra as EPC, has reported within months of installation, a fire. This unit was supplied by a Chinese entity Shanghai Electric, and was displayed to a host of Analysts from foreign brokerages as a Reliance Infra showpiece. Well, the showpiece does not seem to be without its flaws and only strengthens the Indian experience with Equipment supplied by DongFang. DongFangs Turbines supplied for the Sagardigih plant in March this year, developed cracks on operationalisation. The two instances have raised concerns that equipment supplied by Chinese manufacturers is of inferior quality and the ADAG power troika Reliance Infra, Reliance Industrial Infra and R-Power are resorting to cheap Chinese imports in the effort to comply with the low cost power supply and capital cost bids they have made for UMPPs and the Power plants being put up under their own ambit. The ADAG group is not however alone in relying upon Chinese power equipment. Power project developers planning to use Chinese power equipment include Lanco, Reliance Power, JSW Energy, Sterlite Energy, Adani Power and others. It is likely that the GOI will ask foreign manufacturers to set up manufacturing facilities in India, in addition to providing performance guarantees. The first utility scale power project (300MW) set up by Chinese equipment suppliers (Dongfang) which was commissioned in Mar 2008 has run into problems. Cracks have been detected in the blades and diaphgram of the Low Pressure (LP) turbine. Some blades have come out of their slots and the plant has been stalled within two months of commissioning. Earlier, sub-utility scale power equipment supplied by some Chinese suppliers to an Indian metals giant had also faced quality problems within first few months. The fact that quality problems are being witnessed in first few months of operations itself, is a serious issue for equipment which is supposed to last 25-30 years. Discussions with industry experts reveals that this problem is due to power workmanship and less stringent quality control norms for materials used in the turbines. A number of Institutional Investors too have highlighted the quality issues with Chinese power equipment in earlier reports after visits to manufacturing plants of Chinese equipment suppliers. Following these problems CEA (Central Electricity Authority) is considering an audit of the Chinese equipment being supplied to India. The audit will be aimed at assessing whether the equipment can work well in Indian conditions. Interestingly the banks funding the power projects using Chinese equipment have also decided to ask for more stringent performance guarantees. Earlier the equipment suppliers could have got away with some small penalties for non-performance. In some cases performance guarantees are offered but are not enforcable in India as the arbitration jurisdiction is in China. This is set to change going forward and may result in further increase in the price of Chinese power equipment, which has already gone up by 15-20 per cent in the last 12-18 months.
Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. -- Posted By Ronald Chisley to Investor Forums at 9/15/2008 10:49:00 AM --~--~---------~--~----~------------~-------~--~----~ Get latest market updates & search internet right from your browser-download our toolbar here- http://investorline.ourtoolbar.com/ Visit our site at – http://investorline.co.in/ Newsroom: http://newsroom.investorline.co.in/ Learning Center- http://learning.investorline.co.in/ Mutual funds - http://mutualfunds.investorline.co.in/ Life Insurance - http://insurance.investorline.co.in/ Investor Journal - http://research.investorline.co.in/ Newscatcher- http://catcher.investorline.co.in/ Interested in Financial Planning-Let us Contact you- http://spreadsheets.google.com/viewform?key=pb_z4f1_zGMg4iBBFT3-SWQ&email=true If you like the site then promote it here- https://www.freetellafriend.com/tell/?url=http://investorline.co.in/blogs/news Create your own free blog on- http://investorline.co.in/blogger Visit this group at http://groups.google.com/group/india-investor -~----------~----~----~----~------~----~------~--~---
