The Hindu Business Line : Order wins may help BGR Energy in EPC

BGR Energy Systems’ qualification in the Balance of Plant (BOP) works for power projects in recent times is likely to aid its objective of moving to Engineering Procure Construct (EPC) contracts, a segment that would provide superior returns.

BGR Energy Systems has won a BOP contract worth Rs 793 crore from the Andhra Pradesh Power Generation Corporation for a 500-MW coal-based project in Kothagudam.

This order was at a bidding stage when the company came out with its initial public offering.

Two unique strategies of BGR Energy in its BOP contracts — backward integration and direct bids to generation companies — provide it an edge over others in the business.

Strategy in BOP

BOP contracts not only involve providing services but also supplying materials. Of the products required to execute a BOP contract, BGR can manufacture up to 40-50 per cent in-house, given its backward integration.

Such in-house production facilitates cost reduction. BOP contracts are either secured through direct bids (to power companies) or through tie ups with EPC players.

As the former usually generate superior returns, BGR Energy tends to prefer projects where it can bid directly. The current order is also one secured through a direct bid.

With this, BGR Energy has four BOP projects in its portfolio taking the total order book to Rs 3,715 crore.

These BOP projects may aid the company to qualify to bid for EPC projects, which not only involve building the power plants but also supplying key power equipment.

While the company does not at present have expertise in equipment such as boiler, turbine and generator, it is said to be in discussions with international players for the same.

Given that BGR is otherwise well integrated, a tie-up with an established international player (who are considered to be competitive in terms of pricing) may well equip the company to bid for EPC contracts.

Meanwhile, pre-qualification in BOP plants would also provide as a good reference point for its move towards EPC.

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