Politics/Energy

coming to power in 2004. The most high profile of these resulted in the resignation in 2005 of the then foreign minister, Natwar Singh, after evidence emerged of his involvement in an oil scandal in Iraq. Congress has also faced a string of electoral defeats in recent state elections in Bihar, Haryana and Jharkhand. By contrast, the BJP has enjoyed some recent successes. In mid-February it took control in the southern state of Karnataka after the collapse at the end of January of the Congress-led government there. This development is highly significant: it is the first time that the BJP, whose support base is mainly in Indias Hindi-speaking northern states, has formed a state government in the countrys south. A presence in the south has been a long-standing BJP aspiration. Moreover, Karnataka is a state of great economic significance. Its capital, Bangalore, accounts for about two-thirds of the US$17bn in annual revenue generated by Indias information technology and outsourcing industries. Mrs Gandhis resignation has underlined the UPAs fragility. Mrs Gandhi, who was credited with reversing Congresss fortunes and was instrumental in cobbling together the UPA, seems to be losing her grip on the unruly coalition. The Left Front, a group of mainly communist parties which nominally supports the UPA in parliament, has consistently undermined efforts by the prime minister and the cabinet to introduce economic reforms. (Unsurprisingly, it said it would not support the governments ordinance on offices of profit.) Mrs Gandhi has often intervened to defuse uncomfortable stand-offs. Yet she has been unable to convince the Left Front to accept the UPAs position on foreign or economic policy matters in the past year. As a consequence, the UPAs progress on economic reforms has been less satisfactory than either Mr Singh or his finance minister, Palaniappan Chidambaram, would have hoped when they took office in 2004. The timing of the latest crisis is particularly inopportune, with more crucial elections in Left Frontdominated states such as Kerala and West Bengal due in April-June this year. The coalitions continued political troubles are likely to result in the government putting controversial, but necessary, reforms such as the privatisation of public-sector companies and the liberalisation of the retail, banking and social-security sectors on the back burner, and instead turning to populist tactics. These will become more apparent in the run-up to the elections, especially if Mrs Gandhis resignations do not enable the government to shrug off further opposition attacks on its probity.
This article first appeared in the Economist Intelligence Units ViewsWire

With state elections around the corner, the timing of the latest political crisis is inopportune

Wind turbines

Suzlon goes global

Little known Suzlon Energy has become the sixth-largest wind-turbine maker in the world, but needs to grow faster in order to move into the big league Suzlon Energy seems to have arrived. In March the little known Indian company bought Hansen Transmissions, a Belgian wind-turbine gearbox maker, for US$565m. With this acquisition, Suzlon has truly emerged as a global player with a significant market presence, manufacturing bases and R&D centres across North America, Europe, India China, South Korea and Australia, says Aditya Sanghi, country head of investment banking at YES Bank, a private Indian bank. With a presence across the entire turbine technology chain, we see Suzlon becoming further cost competitive and providing an efficient and robust wind energy solution to its customers. Indeed, in the ten years since it was founded, Suzlon Energy has become the sixth-largest windturbine manufacturer in the world in terms of annual installed capacity. It sold an accumulated 1,126.6 MW of wind energy as of March 31st, 2005, according to BTM Consult, a research and consulting company. Suzlon is by far the largest wind-energy provider in India, contributing almost 43% of the total capacity installed in the country in 2004. The companys total income soared from Rs2.69bn (US$60.5m) in 2002/03 (April to March) to Rs19.65bn in 2004/05 and to Rs22.72bn for the nine months ended December 31st 2005. Net profit has shot up from Rs269m in 2002/03 to Rs3.86bn in 2004/05. The company had a healthy order book of Rs42.32bn as of December 2005. Suzlons current market capitalisation is over US$8.4bn. Of that, the share of Tulsi Tanti, the founder, has climbed to US$5.6bn, ensuring that he is included on the list of Indias richest men by Forbes magazine. The companys investors, too, have been rewarded. Citicorp International Finance and ChrysCapital bought stakes of 9.6% and 7.1%, respectively, in the company in August 2004, at about Rs26 per share. Suzlon completed a successful public offering in October 2005, raising Rs13.64bn by offering 2.67m shares of Rs10 each at a price of Rs510 per share, while Citicorp sold 2.577m shares for Rs1.3bn.
The Economist Intelligence Unit Limited 2006

Suzlon Energy has grown rapidly in just a decade

4 Business India Intelligence April 5th 2006

Energy
It all started with Tulsi Tanti commissioning a wind power project for his familys nondescript textile business. Suzlon was incorporated in 1995, and quickly entered into a technical collaboration agreement with Sudwind Windkrafttanlagen of Germany in order to source the latest technology. Sudwind would share its technical know-how relating to 0.27 MW, 0.30 MW, 0.35 MW, 0.60 MW and 0.75 MW wind-turbine generators (WTGs). Suzlon was granted the right to manufacture and sell the 0.35 MW models in Asia, and in return was paid a royalty on each WTG sold by Suzlon over the five years from the date of the agreement. The business took off. The key elements of Suzlons strategy are: Integrated and cost-efficient manufacture of wind generators. Suzlon aims to manufacture all major components itself in order to lower manufacturing costs and gain greater control over the supply chain for key WTG components. It has achieved integrated manufacturing partly through acquisition. For example, in June 2001 it obtained for 200,000 (US$ 241,000) the non-exclusive, non-transferable licence for the manufacture of APX-60 type blades from the trustee of Aerpac upon its liquidation. The takeover of Hansen Transmissions means Suzlon will be able to integrate the production of gearboxes. Emphasis on research and development. In order to blend Indias strengths in manufacturing and engineering with global expertise, Suzlon has set up technological development centres in Germany and the Netherlands through two wholly owned subsidiaries. One subsidiary, SEG, was incorporated in 2001. It designs and develops new WTG models. It also focuses on upgrading and increasing the costefficiency of existing WTG models. Wide range of products and complete range of services. The companys current products cover a wide range of models. It intends to leverage the WTG design and development capabilities through its overseas R&D subsidiaries and focus on the construction of a gearless 1.25 MW WTG, and 1.50-MW and 2.10-MW capacity WTGs, as well as improved control systems for its current WTG models. Also, while the European companies that dominated the wind-energy market have concentrated on selling imported equipment, Suzlon decided to offer integrated solutions packages. Maintaining a strategic focus on India. India is, and will continue to be, an important growth market for wind power for Suzlon. The company has established a market presence in seven Indian states, including those that have the highest installed capacity of wind energy. Of its total income, 99.7% was from customers in India for the year ended March 31st 2005. Suzlon believes that it can continue to focus on growing its India business by developing large wind farm projects as more and more industrial groupsGodrej, Bajaj Auto, RPG Enterprises and Tataturn towards wind generation.
The Economist Intelligence Unit Limited 2006

Increased international presence. Although its

primary focus is on its domestic market, Suzlon also plans to use the experience and expertise gained from its Indian operations to win and execute orders from international customers. This is proving to be a successful strategy. Exports are growing: in the third quarter of 2005, export revenue was Rs590m, around 7% of total sales for the quarter. Suzlon has set up its international marketing headquarters in Denmark, an international wind energy centre, and is concentrating on exporting its products to key markets in North America, China, Australia and Europe.

Outlook

India is a lucrative and under-served market for renewable energy. The Ministry of Non Conventional Energy Sources estimates Indias gross wind-power capacity at 45,000 MW (assuming that 1% of land available for wind-power generation in potential areas is utilised). The ministry has estimated the technical potential at about 13,000 MW. The key drivers in this sector include: the exponential increase in the demand for electricity as India grows at over 8% per annum, the falling costs of WTGs compared with traditional sources of energy, and a greater awareness of environment issues, and the need to reduce greenhouse gases from fossil energy sources. The government has also been supporting this sector through fiscal concessions and preferential tariffs. It offers 100% accelerated depreciation in the first year of installation, low import tariffs and a five-year tax holiday for renewable energy projects. Suzlon will have to work Suzlon is positioned to take advantage of future hard at its strategy in growth in domestic demand for wind energy. Tulsi order to grow faster than Tanti contends that, we have a cost advantage and the market and move into as long as we hold on to it we should see growth. the big league However, Amit Ray, an independent analyst points out that being sixth (with a tiny market share of about 1.6%) in a relatively small global market means Suzlon will have to really work at its strategy in order to grow faster than the market and move into the big league. The top player in this market has 22 times it market share and even the fifth largest has five times the market share of Suzlon. Moreover, the wind energy sector is relatively risky. Policy uncertainties, a low plant load factor, foreign-exchange fluctuations and the need for Suzlon is well positioned to harness future large tracts of land might growth of domestic demand increase the price of Year Revenue Net profit imported components. (April to March) (Rs bn) (Rs bn) Another concern is the 2001/02 5.33 1.21 2002/03 2.69 0.27 uncertainty over deprecia2003/04 8.74 1.25 tion rates, which made 2004/05 19.65 3.85 Suzlons revenue plunge 2005/06 22.72 Not available from Rs5.33bn in 2001/02 (nine months to Dec 1st 2005) to Rs2.69bn in 2002/03. Source: Company reports
Business India Intelligence April 5th 2006 5

Suzlon will maintain a strategic focus on India, but at the same time increase its international presence