Bloomberg News

International Power May Expand in India, Africa to Find Growth

October 14, 2011

Oct. 14 (Bloomberg) -- International Power Plc, the U.K.- based operator of power plants on five continents, may expand into India, South Africa and Morocco, betting electricity demand in emerging markets will outstrip the U.S. and Europe.

“We think that India has got the scale, it’s got the need for inward investment and the appetite,” Chief Executive Officer Phil Cox said in an interview in London this week. “We’re in the early stages of a strategic review of the Indian market, but there are clearly a lot of big issues to consider.”

Sluggish growth in Europe and the U.S. is unlikely to dent demand in countries like South Africa or India, where populations are growing and consumption rising, Cox said. About 404 million Indians, or 45 percent of households, do not have access to power, according to the International Energy Agency.

The majority of London-based International Power’s first- half operating income came from emerging markets. International Power is in the process of building 6,600 megawatts of new power plants, mostly in developing countries. Sixty-seven percent of the utility’s 1.47 billion euro ($2 billion) current operating income in the first-half of the year came from nations like Brazil, Indonesia and Saudi Arabia.

Cox said International Power may also acquire assets through acquisitions.

“If there are power generation assets becoming available in any of our core markets, you should expect International Power to be alive to that opportunity and taking a look,” the executive said. “We do feel we have a competitive advantage with our balance sheet and our liquidity but projects have to meet our strict financial criteria.”

Merge Assets

International Power agreed to merge assets with Paris-based GDF Suez SA last year, boosting its gross generation capacity above 70,000 megawatts in 30 countries. The deal broadened the company’s financing capabilities, Cox added. As of June, International Power had 1.2 billion euros in cash, as well as a 3.1 billion pound credit line with GDF Suez.

“We do look and challenge ourselves on the markets we’re not in,” Cox said. “India I would pull out as being the really big scale that it is on the list.”

Given projected economic and population growth, Indian generation capacity will have to increase more than fourfold from 2008 levels to 748,000 megawatts by 2050, the IEA said in a February report. Faster growth could mean the country will need more than 1.2 million megawatts of wind farms, gas and coal- fired power plants and nuclear reactors, the agency said.

Proven Difficult

India has proven a difficult market for other international energy companies. Enron Corp., the energy trader that filed for bankruptcy in 2001, invested in a $3 billion 740-megawatt power plant in India in the mid-1990s. The plant stopped operating seven months before Enron went bankrupt because its sole customer, a state-run electricity board, stopped paying bills, saying the tariff was too expensive.

“India has huge power demand, but you need the right market characteristics for a third party to operate there,” Investec Ltd. analyst Angelos Anastasiou said in a telephone interview. Fuel supplies must be secure, the country stable and the government has to be committed to energy prices, he said.

International Power is further along and actively reviewing specific assets in Vietnam and Morocco, as well as South Africa where it’s considering peaking plant and wind projects, Cox said. The three countries “make sense,” because power demand is growing, their governments are supportive and long-term off- take contracts are available, he said.

Seeking to avoid a repeat of 2008 power outages, which temporarily shut down of mines and smelters, South Africa is targeting capacity additions exceeding 40,000 megawatts by 2030, according to the IEA. State-owned Eskom Holdings Ltd., which supplies 95 percent of the nation’s power, is looking to double its 41,194 megawatt capacity.

European Demand

Other European utilities have struggled to offset weak power demand and regulatory shifts like windfall taxes and nuclear plant closures. Government intervention has cut 200 billion euros from the region’s utility shares since January 2009, according to Citigroup Inc. Bloomberg’s European Utility Index has retreated 13 percent this year.

RWE AG slashed full-year earnings targets when it announced first half results in August. The next day, EON AG, Germany’s largest utility, announced plans to eliminate 10 percent of its workforce. EON was already considering international expansion as one way to offset declining domestic earnings.

“We are in an arena where one would expect to see more opportunities with more distressed players,” Cox said.

--Editors: Will Kennedy, Alex Devine

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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