The government has envisaged the ultra mega power project (UMPP) scheme to add capacity at an accelerated pace while bringing down tariffs for electricity consumers. It received aggressive tariff bids for UMPPs allocated till now for implementation. But now the government seems to be losing focus because of rising calls to protect local manufacturers against Chinese power equipment imports. It is seriously considering changing policy to restrict import of equipment for UMPPs. If that happens, the primary objectives of the scheme would be jeopardised.
The government received aggressive price offers for all the four UMPPs allocated by it so far. The electricity tariff for the Sasan is Rs 1.32 per unit. Perhaps this is the lowest tariff for any power project in India. If there were any restrictions on sourcing power equipment, the project would not have seen such an aggressive bidding. If the government goes ahead with its plan to restrict import of equipment, the potential bidders will have limited choice of sourcing equipment from domestic players. That means higher price for equipment. That will, in turn, force bidders to quote higher tariffs.
There are serious bottlenecks in sourcing equipment from the domestic companies given that the lone supplier, Bhel, is struggling to meet equipment requirement for the ambitious capacity addition programme. It is fully booked for the next five years. So, the restriction also entails uncertainty and delays in project commissioning. Any delay would increase project cost and raise interest cost burden for developers. That would in turn limit the scope for bidders to lower their tariff offers.
In a recent study, the Central Electricity Authority (CEA) has found that Chinese power equipment suppliers do much better compared to Indian suppliers when it comes to project execution. For implementing sub-critical power projects, Chinese vendors normally take 30 months as against 40 months required by Indian suppliers. For executing supercritical power projects, Chinese take 36 months while Indian suppliers need 48 months.
The CEA survey also did not find any truth in the claims that Chinese equipment are of inferior quality. Most of the power plants based on Chinese equipment were found to be running well without any technical problems. Moreover, Chinese equipment are cheaper compared to those supplied by Indian manufacturers. Perhaps that is why private developers are increasingly sourcing equipment from Chinese suppliers.
Further, the power sector requires long-term investor commitments. And for their part, investors want certainty in the policy and regulatory regime. Drastic changes on these fronts do not go down well with long-term investors. The proposed change also does not fit with the government?s plan to quicken the pace of power generation capacity addition in coming years by attracting private investment. For example, the government expects the private sector to contribute 50% of the 100 gigawatt capacity addition envisaged under the
12th Five-Year Plan. However, the proposed policy change might prove a major turn-off to private players. It would not only hurt the prospects of UMPPs but also vitiate the overall investment climate in the Indian power sector.