New Delhi: The Prime Minister’s Office (PMO) has called a meeting on Wednesday to revive the contentious issue of imposing duty on foreign power equipment in the country, according to three people familiar with the development.
The meeting is to be chaired by Pulok Chatterjee, principal secretary in the PMO, and will be attended by representatives of the ministries of finance, power and heavy industries. The move, primarily aimed at discouraging the purchase of cheap power equipment from China and to provide a level playing field to domestic manufacturers, has been in the works since 2010.
While such an action will benefit domestic firms including Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T) that have been lobbying with the government to limit imports, it will affect Chinese power generation equipment firms such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd, and their Indian customers—power companies such as Reliance Power Ltd, Lanco Infratech Ltd and Adani Power Ltd.
A top official in the department of heavy industries, requesting anonymity, confirmed the scheduled meeting and said, “There is a need to protect domestic companies. To discuss this issue, the PMO has called all the stakeholders. We want a customs duty of 10% and a special additional duty (SAD) of 4%.”
Bhel has been facing competition from Chinese power generation equipment manufacturers both in the domestic and overseas markets. Equipment makers, much like other exporters from China, benefit from low interest rates and an undervalued currency. Power utilities have placed orders for overseas equipment largely because of the inability of local manufacturers to meet growing demand. Chinese equipment is also relatively cheaper.
While the power ministry had earlier floated a cabinet note ahead of the budget recommending a 5% import duty on power equipment imports apart from a 10% countervailing duty and a 4% SAD, it was not considered in the budget. A panel of secretaries had earlier decided to impose the same duties. After the meeting, a fresh cabinet note will be floated. “We had earlier moved a note for the cabinet’s consideration which couldn’t be taken up. Arun Maira (Planning Commission member and former chairman, Boston Consultancy Group) had recommended 10% customs duty and 4% SAD. The only problem in imposing this structure is that it will create two duty structures as in the case of mega and non-mega projects,” said a top power ministry official requesting anonymity.
The mega power project status allows fiscal benefits to developers of thermal power plants of at least 1,000 megawatts (MW) capacity, including a tax holiday for 10 years and a waiver from customs duty on equipment imports. Developers of smaller projects pay a 5% import duty on power equipment. The “mega” status is also available to hydropower projects having a threshold capacity of 500MW. In Jammu and Kashmir and the North-East, the threshold capacities are 700MW for thermal projects and 350MW for hydropower.
The ministry of heavy industries’ stand may lead to imposition of a 5% import duty on power equipment imports apart from a 10% countervailing duty and 4% SAD on non-mega projects, and 10% customs duty and 4% SAD on mega projects.
“If one wants to reduce the disadvantage, the duty structure should be the same for everybody. We will move a note after the decision taken at the meeting,” added the power ministry official quoted above.
India’s move to curb Chinese power equipment imports comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and how to plug a yawning trade gap in China’s favour.
A top Bhel executive, who did not want to identified, said, “The government has started moving on the proposal after the fiasco last time.” He was referring to the earlier proposal fizzling out.
Power generation equipment manufacturers having a manufacturing base in India—Bhel; Doosan Heavy Industries and Construction Co. Ltd; and the joint ventures between L&T and Mitsubishi Heavy Industries Ltd; Toshiba Corp. of Japan and the JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH, and Thermax Ltd and Babcock and Wilcox Co.—will benefit from such a move.
Ravi Uppal, chief executive and managing director of L&T Power Ltd, said, “If the proposal goes through, it will be a big help. We were very hopeful last time.”
While a Reliance Power spokesperson declined to comment, an Adani spokesperson in an email response said, “The generating companies are of the view that if duty is imposed on imported equipment, it will be detrimental to the economy in general and power sector in particular.”
The spokesperson said this would be the case on account of three reasons. One, India needs massive capacity addition in 12th and 13th Five-Year Plans. “This cannot be achieved through domestic equipment supplies, as suppliers are overbooked and lack adequate production capacity to meet huge demand, which will in turn result in a shortfall in targeted capacity addition.”
Secondly, it will worsen the financial condition of the distribution companies (discoms) as the cost of power will go up. “Discoms are not able to pass through cost increases for various reasons and recover the full cost.” The Adani spokeperson added as the third point that the argument that domestic manufacturers needed protection was misplaced as the “cost of foreign equipment in rupee terms has increased by more than 20% in the last six months due to the devaluation of the rupee”.
A Lanco spokesperson said the company wasn’t aware of any such meeting. Of its total power portfolio— under operation, development and construction—of 9,300MW, Chinese equipment orders account for close to 4,000MW, Lanco said.