It`s a bit of a Catch-22 situation - the issue of allowing Chinese equipment in the country`s power sector. Notwithstanding concerns about quality and allegations of dumping, the Chinese have made considerable inroads into the Indian power equipment market over the last five years, especially in theemerging market for high-end super-critical sets.
With equipment contracts for well over 33,000 MW ofupcoming power capacity, the Chinese have emerged the hot favourites among private sector developers, with a lower price tag and the promise of faster delivery schedules.
The domestic equipment makers, led by BHEL (Q,N,C,F)* and L&T, have consistently raised concerns about under-priced machinery coming in, while the Power Ministry`s Central Electricity Authority came up with a report on the quality concerns raised against Chinese equipment.
The private sector players too have detailed some of the glitches they have encountered when using Chinese equipment, but continue its patronage citing faster delivery and lower upfront costs. The Power Ministry too, fearing further slippages in an already whittled-down target, has backed Chinese equipment imports.
At the height of the for-versus-against debate, the CabinetSecretariat, in early September 2009, asked the Planning Commission to set up a committee to consider `options and modalities` to take care of the disadvantages suffered by the domestic industry vis-à-vis imports, especially from China.
Level field
In addition, the Planning Commission also received a reference from the Prime Minister`s Office to examine concerns on the supply of power equipment from China that may be ``causing injury to the domestic manufacturers, especially those who have undertaken expansion of capacity for super-critical power equipment.``
The report of the Committee set up under Planning Commission Member, Arun Maira, which had representations from the Power Ministry, Department of Heavy Industries andDepartment of Revenue, was submitted earlier this year and is slated to be taken up by the Cabinet Secretary on May 25.
The sum of the recommendations boils down to a need to change the rules of the game to offer a level playing field to domestic manufacturers. Orders should be awarded after factoring in life-cycle costs of Chinese equipment and not just upfront costs, is the key prescription of the panel for future award of equipment contracts, especially to private players.
The report has also flagged an even more important issue - that the over-reliance on Chinese equipment, without access to adequate and rightly-priced spares, could create a serious crisis for the power sector as a whole.
Key measures suggested are the immediate adoption of strict performance standards, initiation of safeguard or anti-dumping actions against Chinese suppliers and levying a Customs duty of 10 per cent and SAD of 4 per cent for both mega power projects and upcoming UMPPs (Ultra Mega Power Projects). The panel has concluded that the duty disadvantage faced by the domestic equipment players is about 14 per cent in the mega power projects and the UMPPs, as against tax-free Chinese imports coming in under the Centre`s Mega Power Policy.
Energy crisis
Apart from the issue of parity on the duty front, the panel has gone further and warned of a possible `energy security crisis` in the event of diplomatic differences with China arising in the future. With massive power capacity hinging on Chinese equipment, and vendor support for spares and service almost non-existent, the panel has concluded that a `Pokhran-like situation` could arise if bilateral relations were to sour in the coming years. The failure to develop a local vendor base could lead to continued dependence on the Chinese for the entire life of the power station. Besides, costing of spares and service support for Chinese gear is also a grey area, the panel concluded.
Besides, due to the `intellectual property rights violations` by Chinese suppliers, support from technological leaders in Europe and the US for upcoming supercritical sets will not be available in case of any technical problem, the report has said. A case in point, duly attested by a written testimony of Alstom Power Inc`s Director, Licensing, Thomas Regan, is the violation of its licence agreement by Shanghai Boiler Works(SBWL), a subsidiary of Shanghai Electric Corporation.
Alstom has categorically stated that SBWL, an Alstom licencee with rights to sell supercritical boilers only in China, is in contravention of its intellectual property rights and that claims made by SBWL of having developed an ?independent? boiler design to qualify for a project in India would be `invalid`.
The report also takes note of specific instances of underperformance of Chinese equipment deployed at various plants. These include Vedanta Group-led Balco requesting renovation and modernisation for improving boiler availability for their 540 MW plant within two years of commissioning, underperforming electrostatic precipitators at the 600 MW Yamunanagar thermal station and the turbines supplied for the 600 MW Pathadi thermal station needing to be sent back to China for rework immediately after commissioning.
Long-term view
The Maira Committee has noted that the extant Mega Power Policy, under which imports come in duty-free, was notified when sufficient domestic equipment manufacturing capacities had not been created.
The report notes that: ``The context has undergone a change as substantial domestic manufacturing is now coming on stream and domestic manufactures are at a disadvantage compared to imports``.
The hold that Chinese players have over the domestic market is visible in the numbers. So far, of the 49 orders for supercritical sets awarded in the country, over half (26 sets) have been secured by the Chinese. Only 12 have been bagged by domestic manufacturers, with the remaining 11 going to other international manufacturers from Russia, Korea and Japan. It may be a bit too late for introspection, but as the adage goes, it`s better late than never.
In that context, the issues flagged by the Arun MairaCommittee may be a good starting point. The need of the hour is a clear, and long-term, policy decision on the deployment of imported gear in the power sector, as in other keyinfrastructure areas.
Incentivising domestic manufacturing and capacity creation needs to be among the main objectives. A short-term view on the issue could prove detrimental going forward, especially for a sector that is arguably the biggest impediment to India`s GDP growth rate hitting a higher growth trajectory.
The need of the hour is a clear and long-term policy decision on the deployment of imported equipment in the power sector, as in other key infrastructure areas.
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