Tulsi Tanti's Success Story The Rise of Indian Wind Power
Part 2: A Bump in the Road Ahead?
It wasn't cheap, but it was a sensation. In May 2007, Suzlon paid 450 million ($698 million) for 33.6 percent of Repower. It was the largest acquisition an Indian company had ever made in Germany.
But from the very beginning, the German turbine builders were never quite comfortable with their new bosses, fearing that their turbine blueprints would soon be copied in India. Tanti, who had assumed the chairmanship of Repower's supervisory board, insisted that he had no such intentions.
In fact, German corporation law would have made such a technology transfer impossible. Suzlon would have needed a subordination agreement to gain access to the blueprints. To that end, Tanti would have had to submit a takeover bid to Repower shareholders, but first would have had to acquire shares from the major shareholders, including Areva. The French had an option, exercisable after a year, to sell their stake in Repower.
The year had not yet expired before the first dispute erupted over whether Repower was being sucked dry by the Indians. Tanti was annoyed and publicly complained about the Hamburg-based company's lack of respect for his commitment. After all, he said, he was creating jobs. But he left no doubt that he wanted to gain a majority stake in Repower. That was exactly what the market wanted to hear. In mid-May, the company's stock price shot up to over 240 ($372), from 160 (248) at the time of the takeover.
Tanti's problem was that the Areva shares, which he planned to acquire in late May, were suddenly very expensive. What he did next, though, no one saw coming. Four days before the expiration of Areva's sales option, he suggested, during a financial press conference in Mumbai, that Suzlon might consider selling some of its Repower shares to turn a profit.
Talking Down the Shares
The news had its desired effect. Repower fell from 240 to 200 ($310) a share. Executives at Repower's Hamburg headquarters were livid. It was unprecedented, a major shareholder talking down the company's share price.
Tanti's behavior triggered "major irritations," a company spokesman says diplomatically. The Indian's effort to appease the Germans in an e-mail had little effect, as did the news, a few days later, that he intended to buy the shares owned by Areva and the Spanish energy company Martifer after all.
Whatever the purpose of Tanti's maneuver was, it attracted the attention of Germany's Federal Supervisory Authority for Financial Services (BaFin). "There is no investigation underway, but we are observing the situation," says BaFin spokeswoman Anja Engelland. Her agency's interest in the case is likely to have increased significantly last week.
On Thursday, Suzlon announced its purchase of the Areva shares. According to traders, Tanti paid less than the current share price, but Areva was apparently satisfied to walk away with a profit of 350 million ($543 million). In addition, the Indians have quietly bought Repower shares on the market in recent days, bringing their stake in the company to 66 percent of its stock. This was not welcome news to investors and, on Friday, the Repower stock price dropped by 6.5 percent. Once again, concerns over a possible know-how transfer are making the rounds. Although a Suzlon spokesman called these concerns "pure speculation," the company didn't exactly deny that they were justified.
But, more recently, Tanti faces problems that could be far more threatening than disgruntlement at Repower. In the United States, Suzlon is currently experiencing the biggest debacle in its relatively short history. The Indians were forced to recall 1,251 rotor blades from a wind farm in the Midwest when many of the blades broke after being used for only a short period of time.
A Suzlon spokesman blames the broken blades on an unpredicted, strong shift in wind direction and says that the company now plans to reinforce the giant blades -- at an estimate cost of $30 million (19 million). Industry insiders doubt that this will be enough. Repairs to a weak point in a blade are costly, they say, and usually last only a few years. Besides, Suzlon could face claims for damages from the customer.
Numbers Are Good
But Tulsi Tanti sees none of these problems as being insurmountable. He has faith in his numbers, and the numbers are good.
The company's sales grew by 71 percent, three times the industry average, in the last fiscal year. Suzlon's revenues amounted to $3.4 billion (2.2 billion), and its pre-tax gain climbed to $480 million (310 million). The company dominates the Indian market and holds a 14 percent share of the global market. Its factories are humming away in Pipestone, in the US state of Minnesota and in Tianjin, China. It has orders on the books worth $4.3 billion (2.8 billion). And it plans to double annual production by 2010.
But there could be a bump in the road ahead. What happens if the advantages he reaps from being based in India begin to fade? Suzlon owes much of its success to lower production costs. What if they go up? Even Indian farmers, the ones who toil away in the fields next to the wind turbines, have figured out that someone is making a lot of money with those turbines. "Suddenly they're asking 20 times as much for their land," officials at Suzlon complain. Others want lease payments for the turbine sites, as well as compensation for the use of their right-of-way.
If Suzlon refuses to pay, the farmers block the access routes with their buffaloes. In 2007, 44 wind turbines, or one-third of total capacity, had to be shut down temporarily in Sangli because of such campaigns. In another location, the poverty-stricken rural population made off with aluminum ladders and copper cables from 63 new turbines and sold the valuable parts to scrap metal dealers.
In the village of Chikhli in the Satara district, angry residents recently caused turbines to be shut down, because they felt that real estate brokers had cheated them when they sold their land. Although the sales took place 10 years ago, the former landowners are convinced that there is still money to be had. Whether or not Suzlon decides to play along, the company will suffer the consequences.
Translated from the German by Christopher Sultan
- Part 1: The Rise of Indian Wind Power
- Part 2: A Bump in the Road Ahead?