Efforts by Chinese companies to gain a slice of India’s lucrative market for small-scale power generation equipment have suffered another setback after the Union power ministry ruled that no electricity plant with foreign equipment would be supplied coal by state-owned mines.
The ruling may jeopardize the eight power projects in the country that have contracted with Chinese equipment manufacturers and now risk being denied coal supplies to fuel their plants. The Chinese companies are the only foreign ones with a significant presence in the Indian market for supplying equipment to power projects with a unit size of less than 200MW.
The power ministry’s ruling may be the result of some spirited lobbying by state-owned Bharat Heavy Electricals Ltd, or Bhel, which accounts for 60% of the power equipment market, with the tacit support of some Western manufacturers that have been facing intense Chinese competition for orders from bigger projects.
Power-short India plans to add 78,577MW of electricity generating capacity in five years as the economy expands. Firms in the country have placed orders for Rs60,000 crore of equipment from Chinese firms that can produce 20,000MW of power.
The power ministry, in a 24 July letter to the coal ministry, seen by Mint, said, “...Ministry of Power recommends coal linkage for such projects (less than 200MW) subject to the condition that the main plant equipment for such projects will be ordered from reputed domestic manufacturers.”
The so-called coal linkage means a coal-fired power plant is assured of fuel supply by getting letters of assurance, or LoAs, which require approval by a panel headed by the coal ministry. These letters are converted to linkages after a project completes financial closure, which occurs when a firm makes legally binding commitments to raise funds.
The power ministry’s letter was written ahead of the long-term coal linkages meeting for power projects to be built in the 11th Plan (2007-12) and 12th Plan (2012-17). The meeting is expected to be held on Monday.
“We do not want Chinese equipment to dominate our power sector. However, around eight orders for unit size less than 200MW have already been placed with Chinese manufacturers. This has already been flagged and will be taken up in the coal linkage meeting,” said a senior government official who didn’t want to be named.
The official declined to name the companies, and Mint could not independently ascertain them.
“We want to provide indigenous manufacturing to the country. We do not want the independent power producers to serve as a window for imports,” Jairam Ramesh, minister of state for power and commerce, had told Mint on 5 August. The government had announced in April that it plans to restrict overseas equipment manufacturers from bidding for orders unless they set up a factory in the country.
Bhel, India’s largest maker of power generation equipment, has raised concerns about the alleged poor quality of equipment supplied by the Chinese, following which the Central Electricity Authority, the top power sector planning body, formed an internal group to conduct a technical audit of such equipment in May.
“We are fighting for the entire indigenous manufacturing industry, and not for our sake alone,” said a senior Bhel executive who did not wish to be named because of the sensitive nature of the issue. “Will China allow us to enter its market with the specifications we have mastered?.”
The power ministry has justified its decision on the grounds that it was seeking to prevent “dismantled or phased-out inefficient power plants from foreign countries finding their way into the country”.
“The performance of sub-200MW Chinese units such as 135MW is not up to the mark. The heat rate of such equipment even in China has been poor. However, this should not be a precursor of banning Chinese equipment of higher capacities,” said Anish De, chief executive officer at Mercados Asia, an energy consulting firm.
The sub-200MW unit size equipment is primarily supplied by China National Machinery and Equipment Import and Export Corp., or CMEC, and Shandong Electric Power Construction Corp., or SEPCO, to India for captive power generation. India has a present captive power generation capacity of around 45,000MW. CMEC and SEPCO did not respond to questions emailed by Mint.
Wen Ya, chief representative of Dongfang Electric Corp. Ltd in India, said the company did not supply equipment with unit size less than 200MW directly to the country, though other Chinese firms had sourced 135MW units from it to sell to Indian customers. State-owned Dongfang Electric’s main supplies are in the 300MW, 660MW and 660MW “super critical range”, he said.
“We believe there is an attempt to stop Chinese power generation equipment manufacturers such as us to supply to the Indian market and, going forward, we may even be stopped from supplying these sizes,” Wen added.
Also read: Govt to audit quality of Chinese equipment