HomeWorld RegionsAsiaBechtel, PG&E share experience in tackling IPP market in Asia

Bechtel, PG&E share experience in tackling IPP market in Asia

Bechtel, PG&E share experience in tackling IPP market in Asia

By Janice M. Stewart

Pacific Gas & Electric Co.

The People`s Republic of China (PRC) plans to boost electrical capacity to 300 GW by the year 2000–a 50 percent increase in only a very few years. Yet that ambitious goal is only a stop-gap measure. Shortages will dog the nation for decades to come as its economy rises to the level of other developed countries. No wonder China seeks more direct foreign investment for its power sector. To roughly similar degrees, this privatization scenario is being played out across Asia to sustain many of the world`s hottest economies and afford those countries continued quality-of-life improvements.

Though it`s only a few years old, most experts believe the worldwide market for independent power indeed holds tremendous promise. “It`s an enormous market, fueled by the privatization movement happening around the world,” said Merribel Ayres, National Independent Energy Producers, a trade association in Washington, D.C., USA, executive director. “Developing countries are really looking to build their infrastructure and eager to find players who know how to do that. So it`s a real match with our industry, which has honed its skills in a competitive environment.” Major players in the global power market include such unregulated utility subsidiaries as Southern California Edison`s Mission Energy, major independent power producer (IPP) such as AES Corp., and huge energy conglomerates like Asea Brown Boveri.

Already experienced in developing and building independent power projects, Bechtel joined forces with Pacific Gas & Electric (PG&E) to bring electricity economically and efficiently to the global energy marketplace on a privatized basis. Their respective subsidiaries of Bechtel Enterprises and PG&E Enterprises announced earlier this year the formation of an electric energy company to develop, own and operate independent power projects outside the US. The new venture, International Generating Co. (InterGen), combines the international power activities of Bechtel Enterprises and J. Makowski Co., a Boston, Mass., USA-based independent power company acquired last year by Bechtel and PG&E interests. InterGen`s focus is producing independent power opportunities in the Asia-Pacific region, Europe, Southwest Asia and Latin America.

Through InterGen, Bechtel and PG&E hope to duplicate in other regions of the world what they have been able to accomplish stateside with the U.S. Generating Co. Formed in 1989, the Bethesda, Md., USA-based firm has become the second-largest IPP in the US, with 12 plants in operation and five more under construction by Bechtel Power Corp. “This is the first time we`ve actually seen implementing law that allows IPP development in many parts of Asia,” said Jude Laspa, Bechtel Asia Pacific president. “Today the emerging countries of Asia are showing a sustained high level of economic growth and are changing their laws, which means these projects can be developed and built on a privatized basis.”

Fred March, Bechtel Power vice president and manager of business development for fossil-fueled power projects in the Asia-Pacific region, said, “It`s a large-scale, fundamental shift in the way business is conducted in Asia. We used to help governments build a project. But governments are getting out of the electricity business and are moving to privatize the electric utility industry. And they`re encouraging foreign investment. They need access to foreign capital with which to fund these projects.” The infrastructure in most Asian countries is underdeveloped. Laspa foresees the electricity produced by InterGen and its partners playing a crucial role, along with the development of highways, ports and water systems necessary for the expansion of national, regional and local economies and quality-of-life improvements. At the same time, the products of these developments must be affordable to the users, whether they`re bridge tolls or electricity tariffs.

The challenges of operating over such a broad landscape are extraordinary. Legal rules and institutions are in flux. Local business practices and ethics are frequently questionable. Power grids are often creaky. And, given the political and other risks, capital is hard to raise. For all these reasons, few independent power plants have been built to date, and only a handful are expected to be under construction this year. Nevertheless, more than 100 IPPs are in various stages of development throughout Asia. With a legal system under development, rules that vary from province to province, and a central government that does not permit the convertibility of its currency for export, China presents many challenges that must be overcome before projects can be built. With an economy growing at a rate of 10 to 12 percent annually, the country desperately needs more energy and has only recently opened its doors to private power companies to meet its escalating demand for electricity.

One independent power effort moving forward in China`s Fujian Province is the Meizhou Wan project. The plant`s two 350 MW coal-fired units will be some of the first constructed in China on a privatized basis. The lead developer, Lippo Group, holds a 55 percent stake in the project. The other partners–Mission Energy, Bechtel Enterprises and Sembawang of Singapore–hold 20 percent, 15 percent and 10 percent respectively. Thanks in part to its long history of doing business there, 75 projects in the last 15 years, Bechtel this year became the first foreign firm to receive a private construction license from the PRC government. Companies in Asia commonly play different roles on each new project. A competitor on one project may, in turn, become an important partner on another. At Meizhou Wan, south of Fuzhou on the Taiwan Strait coast, the engineering and construction contractor is a venture of Bechtel and Sembawang, and Mission will manage the operation of the plant by the Fujian Electric Power Bureau when it comes on line in 1999. Indeed the transfer of both skills and technology continues to be a highly valued practice.

“The climate for IPP developers in China is positive in the sense that there are no restrictions prohibiting the involvement of foreign developers in independent power projects,” said Sheldon Trainer of Morgan Stanley`s Global Infrastructure Group. “But there are concerns about the permitted return on equity for such projects and the level of regulatory risks.” Although China has the largest projected growth in demand for electricity in all of Asia, Indonesia and the Philippines are leading the way in allowing foreign investment in power generating facilities. “They have no restrictions on foreign investment,” March said. “But China, Korea and Taiwan have generally restricted foreign ownership to between 30 and 49 percent of any single power project, although even this is starting to change.”

There is also growing interest in the independent power market in Thailand, where EGAT is evaluating more than 30 bids for 3,800 MW of new generating capacity for delivery by the year 2003. In the Philippines, where NAPACOR is in the process of privatizing its generating assets, the government is expecting capacity additions of more than 14,000 MW from 1995 to 2005. To that end, InterGen, US-based Ogden, and the Filipino firm PMR are working to build an advanced coal-fired power station in Mauban, a small town in Quezon Province on the island of Luzon. “Having local partners is very important, but it`s not enough,” Laspa said. “You listen and participate as a full partner by becoming a local. You must understand what is important to the local community and become a good citizen to deliver those products–whether it is an environmentally benign plant, a project with high local employment or a development that helps the community grow in other ways. No matter the locale, these attributes have become as essential as mastering the right technologies, raising the financing and delivering your product on time for the right price.”

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