BHEL to set up 2 power plants in Russia

Discussion in 'Europe and Russia' started by AVERAGE INDIAN, Nov 21, 2014.

  1. AVERAGE INDIAN

    AVERAGE INDIAN EXORCIST Senior Member

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    A formal agreement is expected in December, talks are on.

    State-run power equipment maker BHEL plans to expand its global footprint and is looking at building two thermal power plants with a total investment of Rs 3,000 crore in Russia. The move is aimed at de-risking company’s domestic operations that has been hit by shrinking margins and a slowdown in new orders.

    Officials of the energy ministries of India and Russia have been in discussions to strike a deal on setting up the power projects. It is proposed that BHEL take up the construction of two 240 mw units of a power plant in Ulan Ude, the capital of the Russian internal republic of Buryatia, as part of setting of a debt India owes to Russia.

    Sources said that a formal agreement is expected in December, when Russian president Vladmir Putin is expected in New Delhi for bilateral talks. Talks about the project have got delayed due to fund constraint and sanctions on Russia over the crisis in Ukraine.

    On its part, BHEL has shown interest in taking up the project, and has already held initial talks with officials of Buryatia, said a government official privy to the development. A senior official of BHEL also confirmed that talks were on and progress may be reported after the high level government-to-government negotiations between the two countries next month.

    As per the plan, the power equipment major would take up the entire construction of the project on engineering, procurement and construction (EPC) basis and hand it over to Buryatian government for running later. BHEL is likely to partner with state-owned entity of Buryatia for the project. Construction of the projects would start after the two governments approve the terms and conditions.

    The total investment in the project is expected to be in the range of $ 600 million, which both the parties would share equally. While BHEL would put in half of the project cost, in Russia's case their contribution of $300 million would be paid out of a Soviet-era debt that India owes to Russia, and which has now been regularised under a rouble-rupee agreement.

    This would be the first instance of an Indian company tapping the debt repayment fund that has been created to clear off almost $2 billion of dues that India owes to Russia. So far, Russian companies have used this route for making investments into India. Now reverse investment under the route is considered as part of the exercise to strengthen engagement of companies in both countries.

    Diplomatic sources said the Russian side is actively considering BHEL’s proposal, as the company has said it would raise finances for the projects using mechanisms under the trade and economic cooperation agreement between the two governments.

    The project is being billed as win-win for India and Russia. While the project will help BHEL to tide over crisis like situation in the domestic market where its order book has shrunk and profits fallen consistently month after month due to general slowdown in the economy, for Russia it would be progress in liquidating debt that India owes to it.

    Besides, Indian investment is also being seen as a strategic move as it would help the country to further strengthen its defence ties with Russia. India is already partnering with Russia over the development and production of multi-role transport aircraft (MTA). The new generation MTAs centred on the IL-214 design will eventually replace the aging Russian designed medium-range AN-32 fleet of the Indian Air Force.

    For Buryatia, the power project is of strategic importance to meet the republic’s energy needs. The republic needs large expansion of its power portfolio to meet the growing demand from large projects in the field of extraction and processing of natural resources. It currently faces a power deficit situation in the capital city.

    BHEL has been facing major problems in the domestic market as sluggish economic environment and problems being faced by infrastructure projects have shrunk its order book position affecting both its bottomline and topline. For the July-September quarter of financial year 2014-15, the company reported a net profit of Rs 125 crore, down 72 per cent, from Rs 456 crore in the corresponding quarter last financial year.

    BHEL plans to set up two power plants of Rs 3000 crore in Russia | mydigitalfc.com
     
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