RusHydro will build on the Indian rivers
JV with SUN selects sites for hydro power plants
18 February 2008
Kommersant, Russia

RusHydro and SUN Group plan to build several hydroelectric power plants in India. In the second quarter, RusHydro plans to adopt a strategy for development of its joint venture with SUN. The companies believe construction of hydroelectric power plants in India is promising, but experts warn that power plants may take up to 20 years to recoup investments.

According to the interview with Mr. Vasily Zubakin, Member of the Management Board of JSC RusHydro, this year the joint venture with SUN intends to take part in the bidding for the purchase of sites on Indian rivers. Under the governmental program for the construction of 50 GW of power capacity by 2017, the government will put 164 sites for hydro power plant construction up for bidding. "In the second quarter the JV development strategy will be submitted for approval by the Board of Directors of RusHydro," Vasily Zubakin said, "and afterwards we will begin to select sites and participate in the tenders."

Agreement on the establishment of the Joint Venture between the Russian company and SUN was signed last summer, but the final form of cooperation between the companies had not yet been defined. Mr. Vyacheslav Barabash, a manager at SUN for investment projects, confirmed to Kommersant the plans to build hydroelectric power plants on the Indian rivers. Mr. Zubakin said that a design company will be set up for each hydro power plant and construction will be carried out by project financing. Up to 50% of the new capacity of hydroelectric power plant will be sold in the open market. According to the top manager, the cost of production of 1 kWh at the Indian hydro power plant is approximately 1.5 rupees, while the average sales price for power through a long term PPA is approximately 2.5 rupees/kWh. The retail consumer price is approximately 5-6 rupees/kWh.

Mr. Zubakin estimates the cost of construction of 1 kW of installed capacity of hydroelectric power plants in India as $1,000-1,500. However, Catherine Tripoten, an analyst at IC Sovlink notes that, much more money will need to be spent, approximately $2,000 per 1 kW, based on the value of the construction contract for the Tapovan hydro power plant in India (in 2007 the Russian state company Zarubezhstroi won the bid for this project). Mr. Vasily Sapozhnikov, an analyst at IFC Otkrytie believes that the cost may reach $2,500.

A member of a major Russian energy company pointed out that RusHydro may save on cheap labour costs, as well as equipment made in India. "The use of foreign equipment will significantly increase costs because inward duty for such equipment in India could reach 200%," he said. "In doing so, Indian authorities also support domestic manufacturers." In addition, the source notes that hydroelectric power plants in India will be peak loaded mainly in the rainy season, which usually lasts no more than four months, and "due to this, the payback period of new power plants could increase to 20 years." RusHydro believes that this will occur much faster, since annual growth of electricity consumption in the country is close to 10%, which is twice as high as in Russia.

ENDS