ON 30 June last year, a new giant was born in the global power generation business. Bringing together two of the most famous names in the European turbine industry, ABB Alstom Power started operations following the formal signing of final agreements by Zurich-based ABB Asea Brown Boveri and France's Alstom. At a stroke, the 50:50 joint venture became the largest power generation group in the world, with estimated annual revenues of more than $11,000 million, some 58,000 employees and operations in more than 100 countries.

The merger of the ABB and Alstom divisions represents the latest wave of consolidation to hit the global turbine market in the drive by manufacturers to cut costs, raise productivity and increase investment in research and development (R&D). In the joint statement issued last March outlining the proposed venture, ABB and Alstom estimated that annual savings of about $450 million would be achieved within three-four years. Alstom chairman and chief executive Pierre Bilger forecast that the company, to be headquartered in Brussels, would become an 'R&D powerhouse'. His counterpart at ABB, Goeran Lindahl, predicted that economies of scale and the capability mix of the two partners would ensure that ABB Alstom Power became 'the most complete power generation company in the world'.

Heavy duty

Included in the new company is all of Alstom's former energy sector activities, with the exception of its heavy duty gas turbine business, which has been sold to the US' General Electric Company (GE). For its part, ABB put into the venture its power generation division, excluding its nuclear operations, which have now been sold by the parent company to the UK's BNFL, and the development arm, ABB Energy Ventures.

The new company is very focussed on turbines, offering steam, gas and hydroelectric units. Turbine sizes range from 1 MW right up to 260 MW. The venture excludes the shareholders' transmission and distribution (T&D) activities, which remain with the mother companies. Consequently, in contrast to their combined turbine operations, both ABB's and Alstom's T&D divisions are still competing head-to-head.

The merger has inevitably required a major reorganisation, especially as the two parent companies have insisted that ABB Alstom Power be established as an entity independent of their other operations. Consequently, right across the Middle East and North Africa, the venture is taking out the power generation activities from the existing ABB and Alstom set-ups and placing them into separate organisations. ABB Alstom Power now has offices up and running in Iran, Saudi Arabia, Egypt and Dubai, which looks after the Gulf sub-region.

With only six months having elapsed since the formal merger, ABB Alstom Power still relies on the regional resources of its two shareholders. For instance, in the Near East sub-region, which covers Lebanon, Jordan, Syria and Iraq, ABB is acting as its agent. Conversely, in Algeria and Tunisia, where Alstom has traditionally been very active, the French shareholder is the agent.

In view of both ABB's and Alstom's extensive regional reach, the reorganisation will take some time to complete. Nevertheless, once the dust has settled, Peter Felix, ABB Alstom Power's regional sales director for the Middle East, Africa and West Asia, expects significant benefits. 'If you look at the Middle East and North Africa, the ABB side has traditionally been much stronger than Alstom in the Gulf, with the exception of one or two places such as Sharjah,' he says. 'In French-speaking North Africa, Alstom was stronger than ABB. Assuming that we establish the same good networks, ABB Alstom Power should be more powerful than both companies were before.'

The independent status granted to the venture by its shareholders is expected to increase substantially opportunities for the turbine manufacturer. Under ABB's old set-up, the power generation segment was more or less tied in with ABB's own power developer on independent power projects (IPPs). 'Now that we are not obliged to go with ABB Energy Ventures, we have reverted back to being a supplier, which gives us far more flexibility, especially on the large gas turbine side. We can align ourselves with the developer we feel has the better leverage,' Felix says.

Coincidentally, the merger has come at a time when large gas turbine availability has seldom been tighter. Booming sales in the US and Europe are beginning to affecregional projects, at least in terms of turbine choice. On the Taweelah A-1 project in Abu Dhabi, three out of the four developers quoted the same supplier. Two other prequalifiers declined to bid, reportedly because the preferred turbine would not be available when required. 'There is definitely a shortage worldwide in large gas turbines - you now have to wait at least two years for some models. But there really isn't much anyone can do about it. Even if manufacturers were to build new facilities, the results would not be seen for two-three years,' Felix says.

The name ABB Alstom Power has already begun to appear on power project bid lists throughout the Middle East and North Africa. Felix describes the market potential as being 'tremendous', and has every hope of increasing the business. 'Obviously, the big question is how quickly some of these projects, currently in the pipeline will materialise. If you take private power, everyone says they are going to do it, but how fast it will happen we don't know,' Felix says. 'In Pakistan, it took more than 10 years to get off the ground. In Abu Dhabi, it took a little more than a year. But for us, whether it is an IPP or a utility type contract, it is really not so important any more.'