Lenders turning wary of power projects with Chinese equipment

Lenders turning wary of power projects with Chinese equipment
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First Published: Wed, Aug 06 2008. 12 18 AM IST
Updated: Wed, Aug 06 2008. 12 18 AM IST
New Delhi: At least two lenders have said they are wary of lending to projects that use power-generation equipment bought from China after the Central Electricity Authority, or CEA, started conducting a study on the quality of such equipment.
“We have stopped disbursement of loans to all projects having such (Chinese) equipment until a final go-ahead is provided by the CEA,” said a senior executive of Rural Electrification Corp. Ltd, or REC, who spoke on condition of anonymity. “We are facing this question from foreign financial institutions when we approach them to raise funds.”
After an Indian competitor raised concerns about the alleged poor quality of equipment supplied by Chinese manufacturers such as Dongfang Electric Corp. Ltd, Shanghai Electric Group Co. Ltd and Harbin Power Equipment Co. Ltd, CEA, India’s apex power-sector planning body, formed an internal group to conduct a technical audit of such equipment.
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“We are concerned about the equipment (the Chinese ones) as around 8% of our total lending goes towards independent power producers. They are the primary procurers of Chinese equipment in the country,” said a senior executive at Power Finance Corp. Ltd, or PFC, who, too, spoke on condition of anonymity.
REC and PFC together account for 60% of the money loaned to the power sector, and have lent Rs45,000 crore and Rs16,000 crore, respectively, to the sector in the year to March.
“We have been getting a lot of queries from the financial institutions (on this issue),” said a CEA official who did not wish to be named. The official refused to name the institutions.
India plans to add 78,577MW of electricity generating capacity in five years. Firms in the country have placed orders for equipment from Chinese firms that can produce 20,000MW of power.
State-owned power equipment maker Bharat Heavy Electricals Ltd was the first to raise concerns about the quality of power generation equipment supplied to India by Chinese manufacturers, as reported by Mint on 28 May.
“It (institutions wary of lending to projects using Chinese equipment) is a good development. We want to provide indigenous manufacturing to the country. We do not want the independent power producers to serve as a window for imports. I am all for it,” said Jairam Ramesh, minister of state for power and commerce.
Wen Ya, Dongfang’s chief representative in India, said: “I am not aware whether financial institutions are wary of lending to the projects having Chinese equipment as we are not involved in such deliberations.”
He declined to comment on the CEA study.
In an earlier interview with Mint, Wen had defended the quality of the equipment. “We are not new in the business of manufacturing power generation equipment, but have been doing this for a long time. Not only do we cater to the domestic demand in China, but have also been supplying equipment to other overseas markets as well. If our equipment were of low quality, this would not have been possible.”
A businessman setting up a power plant said companies such as his sometimes had no option but to buy Chinese equipment.
“What do we do as domestic manufacturing does not have the capacity to meet our demands?” asked a Hyderabad-based owner of an independent power project who did not wish to be identified. “This is a retrograde step (on the part of financial institutions).”
The CEA review comes on the heels of the Union government initiating plans to restrict overseas equipment manufacturers from bidding for projects at home unless they have a factory in India.
A power sector expert, who did not wish to be identified, said the issue had been raised previously at the board level in PFC and REC.
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First Published: Wed, Aug 06 2008. 12 18 AM IST
More Topics: Chinese equipment | Power | REC | PFC | Corporate News |