New Delhi: A ministerial group discussing large power plants with a capacity to generate 4,000MW of power has approved, in principle, a proviso requiring such plants that will be awarded in the future to use local power generation equipment.
The move, which is expected to provide a fillip to domestic manufacturing, comes after some serious lobbying by local power equipment makers.
The decision on so-called ultra mega power plants, or UMPPs, will also benefit domestic power generation equipment manufacturers such as state-owned Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T), which has a joint venture with Mitsubishi Heavy Industries Ltd (MHI) of Japan.
Indian firms complained to the ministry against imports of power equipment from China, where manufacturers benefit from low interest rates and an undervalued currency which makes exports competitive.
Power minister Sushil Kumar Shinde confirmed the eGoM’s decision. “We will have to give priority to domestic power generation equipment manufacturers. Making domestic sourcing mandatory for future UMPPs will develop domestic manufacturing and encourage competition. New players will only set up domestic manufacturing if they have a comfort of getting orders here,” he said.
At least three joint ventures, between Toshiba Corp. of Japan and JSW Group; Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises Pvt. Ltd; and Alstom SA of France and Bharat Forge Ltd are looking to start manufacturing power equipment in India.
“This (the eGoM’s decision) will push overseas players to set up domestic manufacturing joint venture facilities and will benefit the ones who have such plans. If there is enough capacity that is being created for equipment then it should be domestic than depending on imports,” said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors.
The eGoM also decided to cap the number of UMPPs that can be developed by a single developer at three, affecting the ability of Reliance-Anil Dhirubhai Ambani Group’s (R-Adag) Reliance Power Ltd (RPL) to win future projects. Mint had reported about the government’s plan on 4 January.
Of the nine UMPPs planned, the government has so far awarded four projects. Tata Power Co. Ltd has won the Mundra project in Gujarat and RPL the projects at Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand.
Interestingly, RPL has placed orders for equipment for the Sasan and Krishnapatnam projects with China’s Shanghai Electric. RPL also plans to set up four joint venture companies with Shanghai Electric to manufacture and maintain equipment and construct plants.
The eGoM’s decision comes at a time when India lacks the manufacturing capacity to meet demand for power equipment.
India has a power generation capacity of 153,000MW and expects to add an additional 62,000MW by 2012. Of these, orders for a capacity of 42,431.58MW have been placed with Bhel, the country’s largest power equipment maker, which has a current annual capacity of 10,000 MW.
“If we restrict the overseas equipment, then we will have to risk the tariff that is so competitive and low in the short term. This is a clasic chicken and egg situation,” said a senior government official who did not want to be identified.
UMPPs follow a competitive tariff-based bidding and are critical to the Congress-led United Progressive Alliance government’s efforts to enhance the country’s power generation capacity to fuel the needs of an expanding economy.
Indian power generating firms have placed orders for equipment to generate 26,000MW with Chinese firms such as Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. and Harbin Power Equipment Co. Ltd, largely because of the inability of local manufacturers to meet growing demand. Chinese equipment is also relatively inexpensive and readily available.
Questions emailed to the Indian representatives and the China offices of Shanghai Electric and Dongfang and an R-Adag spokesperson remained unanswered till late Tuesday evening.