India-China standoff casts shadow over power projects
New Delhi: With around 60% of India’s stressed power projects working with Chinese equipment, concerns have emerged over the quality and supply of spares amid the country’s military standoff with China in the Doklam region of Bhutan.
This comes at a time when India is trying to tackle the vexed issue of stressed assets. The status of 34 stressed coal- fuelled power projects, with an estimated debt of Rs1.77 trillion, have been reviewed by the government after being identified by the department of financial services.
“Given that 60% plus of stressed assets are of Chinese equipment, risk review and due diligence, especially technical, will get influenced by the geopolitical situation with China, performance of machines, warranty, supply of spares, O&M (operations and maintenance) support, etc.,” said Sambitosh Mohapatra, partner, power and utilities at PwC India.
Tension between the neighbours has been high since 16 June, with Bhutan objecting to an attempt by Chinese troops to build a road on the Doklam plateau. Indian troops stationed in Bhutan under a special security arrangement then intervened to keep Chinese troops at bay, triggering the face-off.
“Both on quality of equipment and certainty of spares supply there are perceived risks with power projects on Chinese BTG (boiler and turbine generator). If buyer has a choice, which they have in plenty right now, would much rather avoid,” said Debasish Mishra, partner, Deloitte Touche Tohmatsu India Llp.
While several Indian power project developers have placed orders with Chinese firms, some power plants that have used Chinese equipment have earlier run into trouble.
“With Chinese plants, there are apprehensions as they are dependent on spares from China. Their performance levels are also not as good as a Bhel (Bharat Heavy Electricals Ltd) machine from a quality perspective,” said a senior executive at a state-owned firm which has been conducting technical due diligence for power projects. The executive did not wish to be named.
Interestingly, state-owned NTPC Ltd had sent a team to China to evaluate the power-generation equipment supplied by the manufacturers there to Indian developers as part of its due diligence exercise to assuage concerns over Chinese equipment, given the strategic importance of such power projects, Mint reported on 19 May.
“But it’s not that the plant will not run. It depends upon what reliability level you want. Are you looking for 90% reliability or 80% or 70% or 60%?” the person cited above added.
Also, the Central Electricity Authority, India’s apex power sector planning body, in an earlier audit found several problems with the performance of Chinese power-generation equipment in the country but stopped short of preventing power plants from using them. The report raised questions about the operation and maintenance of equipment, the lack of a comprehensive quality plan and the insufficient number of Chinese engineers at site locations.
Queries emailed to spokespersons of India’s power ministry and the Chinese embassy in New Delhi on Sunday remained unanswered.
Some Indian companies have raised concerns about Chinese firms’ participation in India’s infrastructure projects given their strategic importance. There have been instances in the past when India stopped giving clearances to telecom equipment imported from China over security concerns.
The National Democratic Alliance (NDA) government is working on a strategy for the resolution of stressed power projects. According to the government, the major reasons for these stressed assets are; non-availability of regular fuel supply arrangements, lack of power purchase agreements, promoter’s inability to infuse equity and service debt along with regulatory and contractual issues.
The government is trying to resolve the issue of stressed assets in the power sector with the hope that if all goes as per plan, these stressed assets will start generating power to feed a rise in demand from the rural electrification drive, Ujwal Discom Assurance Yojana (UDAY) and the nation’s economic growth.
According to Niti Aayog, India’s electricity demand is expected to grow four-fold from about 1.1 trillion units to 4 trillion units by 2030 with per-capita annual electricity consumption expected to increase from 1,075 kilowatt-hour (kWh) now to 2911-2924 kWh in 2040.
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