Reliance orders $10bn of Chinese generators

Reliance Power has ordered $10bn worth of power generation equipment from Shanghai Electric Group in a deal financed by Chinese banks.

One of the biggest contracts ever between India and China, the deal highlights the growing trade relationship between Asia’s largest emerging economies.

Anil Ambani, the Indian billionaire and chairman of Reliance ADA, said at the signing ceremony on Thursday in Shanghai that the deal was “the largest order in the history of the power sector . . . and the largest single business relationship between India and China”.

Shanghai Electric, the largest power producer in Shanghai, will provide 30,000MW of coal-based power capacity valued at about $10bn over the next three years, Reliance said.

Shanghai Electric had previously valued the deal at $8.3bn, but Reliance said that figure did not include some orders already delivered. Financing was provided by the Export-Import Bank of China and other Chinese commercial banks.

The deal includes 42 power generation units of 660MW each, six of which have already been delivered, Reliance said.

“This is not just about selling equipment,” said Mr Ambani, who described the deal as a strategic partnership. Shanghai Electric will also provide spare parts, service and training, and may manufacture in India.

Zheng Jianhua, Shanghai Electric president, said his company was in the final stages of determining “where, how and when” it will enter the Indian market for manufacturing purposes.

The deal could exacerbate trade tensions between China and India, where domestic producers of power equipment have called for trade barriers to Chinese equipment, which they complain is artificially cheap. New Delhi has also been clamping down on visas for engineers and other staff needed to install Chinese equipment.

Mr Ambani dismissed the idea that his company should have bought its equipment from Indian companies. “Indian manufacturers of power equipment are fully sold out until 2015. The scale and complexity of what we wanted to achieve was only possible through global sourcing.”

Trade between India and China has grown rapidly in the past decade. “India-China bilateral trade in 2010 is expected to pass $60bn, making China India’s largest trading partner,” said Kamal Rungta, managing director of E.J. McKay, an India-China focused corporate adviser.

The Indian government has decided against imposing duties on equipment for large power projects.

India urgently needs to upgrade its infrastructure to boost its hopes of double-digit growth, and plans to spend $1,000bn by 2017 to build new roads, ports and railways. By that date, India, the world’s sixth-largest energy consumer, also plans to boost its power generation capacity to 100,000 megawatts. However, it is currently behind on its targets, according to sector analysts

The deal is the first big investment made by Reliance Power following the end of a bitter succession battle between the two Ambani brothers. Mukesh Ambani, who is ranked fourth in the Forbes global rich list with $29bn, and Anil Ambani, ranked 36th with $14bn, were involved in a public row that prevented Reliance Power from making any serious investment.