Lens on power equipment imports

Written by Noor Mohammad | Noor Mohammad | Sanjay Jog | New Delhi/Mumbai | Updated: Nov 26 2009, 06:02am hrs
The government has begun the legwork for restricting the surging Chinese power equipment imports and strengthening the market position of state-run equipment supplier Bhel.

The Planning Commission has set up a high-level committee headed by its member Arun Maira to assess the impact of power equipment imports from China and suggest action. The committee will include officials of the ministry of heavy industry.

The Centres move comes close on the heels of Union minister of heavy industries Vilasrao Deshmukhs statement on Monday that his ministry does not want India to become a dumping ground for Chinese companies, though Indias power generation companies have reservation on the issue.

Theoretically, the government can invoke anti-dumping provisions or take safeguard action to check imports. While the anti-dumping authority would need to establish injury to the domestic industry before imposing duties, the Safeguards Directorate has more discretionary powers, as it merely needs a sudden surge in imports as grounds to take action.

We are in the process of collecting the data to ascertain the impact of importing equipment from China and other countries. The committee under the Planning Commission is spearheading the exercise, a top official in the ministry of heavy industry told FE.

Bhel has been representing with the heavy industry ministry that it has a 10-15% price disadvantage against Chinese power equipment suppliers. The main contention is that duties on imported power equipment have been made zero in the mega power policy whereas domestic companies have to pay different taxes and duties. Bhel has demanded a level-playing field, the official added. The PSU has demanded re-imposition of import duty on power equipment.

But this is not a prudent solution and could lead to higher tariff for electricity consumers, warns power sector analysts.

It could also derail the power ministrys capacity addition targets.

The ministry has envisaged a capacity addition of 78,700 mw in the Eleventh Plan, a quarter of which is being implemented by Chinese contractors. The ministry has argued that curbs will work only when the domestic capacity for power equipment is adequate.

But power generators are up against any move to restrict imports from China. If import of Chinese power equipment is banned by the government, developers will have to buy expensive equipment from other overseas suppliers or if they want to source from Bhel, they will have to wait for another 4-5 years. This is because Bhel is fully booked for the next five years or so, Harry Dhaul, director general, Independent Power Producers Association of India (IPPAI), told FE. This is not a smart solution and could result in expensive electricity tariff for consumers, Dhaul added.

If the government wants to use safeguard law, which is much easier to invoke, it will have to put a blanket ban on overseas power equipment imports. If the government wants to target Chinese equipment alone, it has to take recourse to anti-dumping provisions, which require detailed investigations. But given the non-market economy status of China under the WTO regime, it is not easy to establish dumping charges.

However, if the matter is challenged in the high court and the court passes any stricture, it would be a big diplomatic embarrassment for the government.

The low cost of the Chinese machineson an average 10% cheaperis bringing down the cost to Indias major power companies, as the Chinese presence has triggered greater competition among equipment makers. In the last one year, the power sector has procured Chinese equipment worth Rs 2.5 lakh crore.

It would cost about Rs 5 crore to create a generation capacity of 1 mw. This means India will need an investment of Rs 4 lakh crore in the current Plan. Here, Chinese equipment supplies can lead to substantial savings to power generation companies. A part of this benefit could be passed on to the consumers. Chinese suppliers have contracts in hands to implement projects worth 18,500 mw, accounting for 23% of the total capacity addition planned by the power ministry under the Plan. The Chinese suppliers entered the market in 2004.

Before the entry of Chinese suppliers, the average per mw cost for coal-based power projects in India was about Rs 4.5 crore. It came down to Rs 3.5 crore after Chinese started bidding for power projects. Similarly, Chinese competition also led to a reduction in the implementation time quoted by bidders of power projects. It is not that Chinese contractors are competitive on cost only. Developers running power plants on Chinese equipment testify that Chinese boilers and turbines are as good as Bhel equipment.

(With inputs from Praveen Kumar Singh)