on the job

The BOP

Opportunity

The cost advantage favours keeping BTG and BOP project tenders
separate, say Ashish Lakhotia and RK Mishra

n 2009, the Central Electricity

Authority (CEA) suggested farreaching changes in the pre-qualification requirement for Balance
of Plant (BOP) manufacturers. In
power projects there are two types of
equipment manufacturers - those who
manufacture heavy equipment such
as, boilers, turbines, and generators
(called BTG manufacturers), and those
who manufacture other equipment
like coal and ash handling plants, water systems, and cooling towers (called
the BOP equipment manufacturers).
The CEAs pre-qualification requirement specified that BOP equipment
manufacturers who had the experience of executing work for similar
capacity power plants, could form a
consortium, appoint a leader from
among themselves who will act as
the contractor, and bid for the tender
for the BOP project. This was a landmark decision as it separated, for the
first time, a BOP project from a BTG
project, whereas earlier, both were
clubbed together in a single engineering, procurement, and construction
(EPC) tender.
This resulted in many BOP equipment manufacturers forming consortia

North Chennai Thermal Power Station,

Tamil Nadu

he CEAs
decision in 2009,
for the first time
separated a BOP
project from a BTG
project whereas
earlier, both were
clubbed together in
a single engineering,
procurement, and
construction tender

to bid for tenders. Tecpro also formed

a consortium with Gammon (for cooling towers) and VA Tech (for water
systems) and has won many BOP contracts (see Chart 1). This arrangement
also worked well for customers who
could now choose from as many as
15-20 consortia of BOP manufacturers.
As competition increased, the prices of
BOP contracts also dropped.
However, over the past year some
state electricity boards (SEBs) and
PSUs have again started clubbing BTG
and BOP jobs into a single EPC project.
My contention in this article is to argue
the merits of keeping the tenders for
the two types of projects separate.

The BOP industry

The BOP industry began to take

Chart 1: Projects where BTG and BOP were tendered separately

Sr No Utility

Project Name

Capacity

1
Mahagenco
Chandrapur
Bhusawal Expn Expn
Parli

Koradi

2 x 500 MW
2 x 500 MW
1x250 MW
3x660 MW`

2
APGenco
Vijaywada


Kakatiya (won by Tecpro)

Kothagudem

Krishnapatnam
Rayalaseema

(won by Tecpro)

1 x 500 MW Unit-7,
1 x 500 MW Unit 1
1 x 600 MW Unit 2
1 x 500 MW Unit-11
2 x 800 MW
1 x 600 MW Unit-6.

3
RRVUNL
Suratgarh

Chhabra

1 x 250 MW stage-IV
2 x 250 MW phase I
2x250 MW phase II

4
CSPGCL

Korba (won by Tecpro)

Marwa.

1 x 500 MW Stage-3 Expn.

2 x 500 MW

5
MPGenco

Satpura
Malwa

2 x 250 MW
2x600 MW

Singareni Collieries

Singareni Collieries

2 x 600 MW ( under tender)

NLC
(Neyveli Lignite Corporation Ltd)

NLC

2 x 500 MW (under tender)

April 2013 CFOCONNECT 13

on the job

ver the past year

some SEBs and PSUs
have again started
clubbing BTG and
BOP jobs into a single
EPC project. My
contention is to argue
the merits of keeping
the tenders for the
two types of projects
separate

NTECC Vallur TPP, Tamil Nadu

shape in 2000, and has since gathered

pace with an increase in the number
of new power projects. A number of
new companies were attracted to this
space as the share of BOP has gone up
to 50 per cent of the cost of a power
project. However, as already noted,
today customers are going directly to
BTG manufacturers as they wish BTG
project contractors to implement even
the BOP projects. BOP contractors are
not even qualified to be contractors of
such EPC projects, more importantly,
they have shown that the customer
benefits directly if the power projects
(BTG and BOP) are bid for separately.

Why BOP projects must be

separate from BTG projects

There are a handful of BTG suppliers like L&T, BHEL, and BGR Energy
Systems. In the past, BTG orders have

been awarded to PSUs like Bharat

Heavy Electricals Ltd (BHEL) or the
joint ventures between Larsen &
Toubro (L&T) and Mitsubishi Heavy
Industries (MHI); BGR Energy Systems and Hitachi; JSW and Toshiba;
and Alstom and Bharat Forge. These
JV companies have recently ventured
into manufacturing super critical
units.
On the other hand, there are more
than 20 BOP suppliers including the
established ones like Lanco Infratech,
Sunil Hitech, Tecpro Systems, Tata
Projects, Punj Lloyd, McNally Bharat
Engineering,, and Indure among
others. Additionally, there are several smaller players who have lower
overheads and are able to offer very
competitive prices. This makes BOP a
very competitive field. BOP contractors point out that customers save

10-15 per cent of the power project

cost if BTG and BOP projects are kept
separate.
Post the CEA guidelines, most
power projects were bid on a split
basis (See Chart 2). MahaGenco,
CSPGCL, APGenco and MPGenco
received very competitive prices from
BOP bidders, which resulted in the
total cost of the project being less than
what it would have been otherwise.

Negative impact of clubbing

BTG and BOP projects

The following are tenders floated

over the past one year that combined
BTG and BOP into a single EPC project: 1x660 MW project for Mahagenco
(Bhusawal) thermal power project

Chart 2: A comparative statement of EPC vs BTG plus BOP price of tendered projects

EPC

Project

Total Cost Rs. Cost per Megawatt

Split BTG + BOP

Project

Total Cost Rs.

Cost per Megawatt

Bellary 1 X 700 MW 3700 Crores Rs. 5.25 Crs

APGenco Kakatiya Stage-1 1x500 MW

1065 + 695 Rs. 3.52 Crore

= 1760 Crore

Chhabra : 2x660 MW 6074 Crores Rs. 4.60 Crs

APGenco Kakatiya Stage-2 1x600 MW
(now retendered)

1325 + 723 Rs. 3.413 Crore

= 2048 Crore

Suratgarh 2x660 MW 6175 Crores Rs. 4.67 Crs

APGenco Vijaywada U#7 1x500mw
(now retendered)

1054 + 579 Rs. 3.26 Crore

= 1633 Crore

TNEB Mettur
3100 Crores Rs. 5.16 Crs
APGenco Kothagudem U#11, 1x500mw
1x600MW

1058 + 793 Rs. 3.7 Crore

= 1851 Crore

RRVUNL
4800 Crores Rs. 4.08 Crs
Kalisindh 2x600MW

6897 + 1189 Rs. 4.08 Crore

= 8086 Crore

MahaGenco
Koradi 3x660 MW

APPDCL Krishnapatnam 2x800MW

14 CFOCONNECT April 2013

4054 + 2776 Rs. 4.268 crore

= 6830 Crore

on the job

LHP, RWPL Barmer, Rajasthan

(TPP); 2x660 MW IFFCO (Chhattisgarh) TPP; 2x660 MW Chhabra TPP;

2x660 MW Suratgarh TPP; 2x660 MW
MPGENCO (Shree Singhaji) TPP; and
a 1x800 MW Wankabori (GSECL) project. This approach has the following
negative implications:
Due to a single EPC tender only
three to four bidders qualify to
bid. This is resulting in limited
competition that will eventually
lead to high cost of the project, and
therefore, high cost of power to the
detriment of the country.
It will exclude BOP contractors who
would have bid for the BOP portion
of the project if it were tendered
separately.
The concentration of large orders

he CEA should
influence SEBs or
the power ministry
to split the power
project tenders
into BTG and BOP
work. It is hoped
that governments
and PSUs will see
the advantages of
doing this

Meenakshi Energy Power Project, Andhra Pradesh

among a handful of companies

may delay project execution (since
the existing companies do not yet
have the experience of handling
so many projects concurrently),
cost overruns, compromise in
quality, generation losses, in addition to straining their working
capital, resulting in project delays.
It will lead to a monopolistic
trend as certain clients such as,
Rajasthan Rajya Vidyut Utpadan
Nigam (RRVUNL) have a condition of awarding a project each to
two bidders in the event that there
are two projects for which tenders
have been floated. Cartelisation
may happen as there are only four
qualified bidders for EPC packages
and the projects will therefore, be
awarded to them.
Most companies do not manufacture and execute projects for ash
handling, water systems, coal handling, chimney, and cooling towers among other BOP equipment,
but depend on separate vendors
for these items. This leads to cost
increases and delays in project execution. On the other hand, using
the consortium route, such items
are manufactured by bidders and
the parties in the consortium are
jointly and severally liable. Thus
the project cost is low and execution
is timely.

Conclusion

Since power is a controlled commodity, a high project cost results in

high electricity rates. Therefore, the
CEA should influence SEBs or the
power ministry to split the power project tenders into BTG and BOP work. It
is hoped that governments and PSUs
will see the advantages of doing this.
Now, when the global economy is
passing through a difficult time and
growth prospects for India do not appear bright, a reduced power taiff will
bring relief to the common man, who
is the end user of power. n
The authors are Ashish Lakhotia,
Executive Director - Finance &
Accounts, Tecpro Systems, and R
K Mishra, CEO & Executive Director,
Tecpro Systems

April 2013 CFOCONNECT 15