CEA questions quality of Chinese equipment

CEA questions quality of Chinese equipment

New Delhi: An important government audit on Chinese power equipment was completed without the participation of any of the companies involved, and while it finds several problems with such machinery, it stops short of preventing power plants here from using them.

Several Indian power project developers have placed orders with Chinese firms, largely on account of the inability of local manufacturers to meet growing demand for equipment in Asia’s second fastest growing major economy. The Central Electricity Authority, or CEA, India’s apex power sector planning body, conducted the survey at the behest of state-owned Bharat Heavy Electricals Ltd (Bhel), which competes with the Chinese firms for power projects, and alleged, as reported by Mint on 5 August, that the equipment provided by these companies were of poor quality.

The report says Chinese firms such as Dongfang Electric Corp., Shanghai Electric Power Co. Ltd and Harbin Power Equipment Co. Ltd did not provide technical information that was asked for. It also raises questions about the operation and maintenance of such equipment, the lack of a comprehensive quality plan and the insufficient number of Chinese engineers at site locations.

“There are issues with the lay-out which may affect maintenance of equipment, after-sales service, long-term availability of spares and Chinese experts in the country. None of the Chinese firms responded to our queries. In such a situation, it is very difficult to conduct a study," said Rakesh Nath, chairman, CEA.

Also See The Order Book (Graphic)

Dongfang’s chief representative in India, Wen Ya, had earlier told Mint that the company would be participating in the CEA audit. Dongfang, Shanghai Electric and Harbin Power did not respond to queries on the CEA report.

Some power plants that have used Chinese equipment have run into trouble. For instance, one of the turbines supplied by Dongfang Electric Corp. for the West Bengal Power Development Corp. Ltd’s 300MW Sagardighi project failed. Mint couldn’t independently ascertain whether this failure had to do with a manufacturing defect or some other reason.

Concerns over the quality of Chinese power equipment have caused Power Finance Corp. Ltd and Rural Electrification Corp. Ltd from deciding against funding any projects using these, Mint reported on 6 August.

Indian power project developers have placed orders with Chinese firms for equipment to generate around 22,000MW of power. Almost 40% of these orders have been placed with Dongfang Electric. Chinese equipment are cheap and immediately available.

Bhel was among the companies worst hit by Chinese inputs. The company’s chairman and managing director had earlier told Mint that Bhel’s market share could decline to 50% from the current 60% over five years because of competition from domestic and foreign firms. Bhel has the capacity to manufacture equipment that can generate 10,000MW of power and wants to increase this to 56,000MW by 2012.

The CEA audit came in the wake of an announcement by the government that it would allow foreign equipment makers to bid to supply to power projects here only if they had a manufacturing facility in the country.

“Today all the projects using Chinese equipment are facing problems. It will be only after one or two years, when time will tell whether these issues have been taken care of," CEA’s Nath added. “The report states all problems but gives no solutions. Now all private sector developers are coming to us but they want Chinese prices. We can get these contracts if we can squeeze some of our margins," said Bhel’s Kumar.

“We know that there are issues borne out by what is demonstrated by (the) limited (number of) Chinese units deployed in the country. A large part of it also has to do with the way one (a power project developer) manages its engineering, procurement and construction contracts," said Shubhranshu Patnaik, an executive director at audit and consulting firm PricewaterhouseCoopers.

Graphics by Ahmed Raza Khan / Mint