Power firms avoid Chinese equipment

Power firms avoid Chinese equipment

New Delhi: Power firms have started cancelling deals with Chinese equipment manufacturers and placing the same orders with state-owned Bharat Heavy Electricals Ltd (Bhel) due to concerns about the quality and rising cost of Chinese products.

“After paying advance to the Chinese firms, a lot of Indian private developers have cancelled the orders and are coming to us," said B.P. Rao, chairman and managing director of Bhel. “They are worried about the performance of the (Chinese) equipment."

Rao declined to name the Indian companies, claiming they did not want their identities disclosed, but one Hyderabad-based private power developer, who didn’t want to be named, said there was indeed such a shift in trend.

Indian power firms such as Reliance-Anil Dhirubhai Ambani Group’s Reliance Power Ltd, Lanco Infratech Ltd and Adani Power Ltd had placed orders for equipment to generate 26,000MW with Chinese firms, largely because of the inability of local manufacturers to meet growing demand. Chinese equipment is also relatively inexpensive and readily available.

Their preferred overseas suppliers included Shanghai Electric Group Co. Ltd, DongFang Electric Corp. and Harbin Power Equipment Co. Ltd.

But a sizeable portion of their orders has now come to Bhel. Of the 11,750MW power generation equipment order secured by the firm in the current fiscal, such orders account for 11,200MW, or 95%— with a total value of around Rs27,000 crore.

The Central Electricity Authority, or CEA, India’s apex power sector planning body, had earlier raised questions about the quality of the Chinese equipment.

“Indian coal is very different. Even the Indian ash is abrasive," Bhel’s Rao explained. “Given the higher sulphur and moisture in the coal, there have been technology concerns regarding the Chinese equipment."

He added that Bhel was in talks with more Indian firms, and was expecting an additional order of 5,000MW of power generation equipment.

Questions emailed to the China offices of all three Chinese companies named above, the Indian representatives of Shanghai Electric and DongFang Electric Corp., and the Chinese embassy in New Delhi were not answered at the time of filing this story. Spokespersons of Reliance and Lanco also did not respond to emails from Mint.

An Adani Power spokesperson said the company had placed orders for power projects aggregating to about 8,000MW to Chinese suppliers.

“Orders worth $5 billion have been placed on Chinese suppliers such as SEPCO-III, Shangdong Tiejun, Sichuan Machinery and Sichuan Fortune. We have neither terminated nor renegotiated any orders," the spokesperson said.

But the Hyderabad-based private power developer, who did not want to be identified due to commercial concerns, said that Indian companies were re-evaluating the Chinese option and many had already cancelled orders placed with Chinese firms.

“We ourselves cancelled orders placed with the Chinese supplier as we were not confident about the technology," he said.

“Even their prices have increased, with the yuan becoming stronger. All Chinese suppliers have increased costs because some (new) labour laws have been introduced. There is also an escalation in steel prices."

Union power secretary H.S. Brahma had earlier told Mint that Indian firms had urged his ministry to limit the presence of Chinese companies in the sector.

India has a power generation capacity of 147,000MW and plans to add 78,577MW by 2012. Of these, orders for a capacity of 42,431.58 MW have been placed with Bhel, the country’s largest power equipment maker.

Bhel posted a net profit of Rs3,039 crore on a revenue of Rs27,505 crore in the fiscal ended 31 March. It aims to be a $10 billion-plus company by revenue by 2012.