China wins project part-funded by India

China wins project part-funded by India
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First Published: Thu, Jan 21 2010. 11 31 PM IST
Updated: Thu, Jan 21 2010. 11 31 PM IST
New Delhi: A Zambian state-owned utility has awarded the key contract for a project partly funded by India to a Chinese company, shutting out Bharat Heavy Electricals Ltd (Bhel) and Patel Engineering Ltd.
Zambia Electricity Supply Co. Ltd (Zesco), which is developing a hydropower project through an equal joint venture with Tata Africa Holdings (SA) (Pty) Ltd, has given the engineering, procurement and construction (EPC) tender for the plant to China’s Sinohydro Corp. India has provided a $50 million (Rs230 crore) line of credit for the project.
The 120MW Itezhi Tezhi hydropower project is an im por tant part of Zambia’s plan to augment its generation capacity to meet demand from copper miners and requires a total investment of around $200 million.
“There should have been separate tender packages for the $50 million that was given by India,” said a person familiar with the development, who did not want to be identified. “When the funding is provided by the government of India, international competitive bidding is not allowed. Has it ever happened that a contract has come to India when China has done the funding. The total order has gone to China even as they have not extended any line of credit for the project.”
A line of credit from India is a specified amount of money a borrower may obtain without special checks and offers concessional debt at 1.75%. However, the government has said that 85% of the equipment should be sourced from India and 15% from the domestic market.
Both India and China have extended lines of credit to build infrastructure in energy-rich African countries as they seek access to mineral resources to fuel their growing economies. At the India-Africa Forum summit held in India in 2008, the government announced credit lines of around $5.4 billion by 2012 to African countries. It has so far extended $1 billion in lines of credit and will give an additional $500 million to these nations.
The line of credit agreement for the Itezhi Tezhi project has already been signed between Zambia and the Export-Import Bank of India. In addition, India has also extended a $75 million line of credit to Zambia.
“There are issues with the way the contract has been awarded,” said another person aware of the development, on condition of anonymity.
The only Indian firms in contention for the project included Patel Engineering that bid along with state-owned Bhel. While Patel Engineering was to do the civil construction work, Bhel was to provide the electro-mechanical equipment. Civil construction usually comprises 60% of the cost of a hydroelectric power plant.
While B.P. Rao, chairman and managing director of Bhel, did not respond to repeated phone calls or to a message left on his cellphone, Ashwin Parmar, deputy director (business development) at Patel Engineering, said that with India giving a credit line for the project, there should have been “preferential bidding”.
Some part of the contract will come from India, Raman Dhawan, MD of Tata Africa Holdings, had told Mint earlier this month. “The total EPC contract is valued at $200 million. We have finalized the vendor. The contract for the Indian portion can be placed with either a public or private sector company,” he had said, declining to name the vendor.
Zambia’s power demand is around 1,700MW, which is expected to rise substantially because of demand from the copper mining sector. Zambia is a major exporter of the metal and its overseas sales are expected to expand as global demand for the metal increases.
Questions emailed to Zesco, Sinohydro and the embassy of China in New Delhi on Tuesday remained unanswered. Dhawan’s office said that he was travelling and was unavailable for comment, in response to questions.
A senior Indian official, who did not want to be identified, said Zambia will still need to get equipment from the country. “They will have to prove that 85% of the (line of credit) amount is used for sourcing equipment that is manufactured in India,” he said.
India’s trade with Africa stands at $39 billion a year against China’s $100 billion. Of the total Indian trade, $206.32 million is with Zambia.
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First Published: Thu, Jan 21 2010. 11 31 PM IST