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IEEMA calls for incorporating price variation clauses in contracts due to surge in raw material prices

Commodities such as copper, aluminium, among others, have seen a surge in prices globally in recent months. (File Photo: AFP) Premium
Commodities such as copper, aluminium, among others, have seen a surge in prices globally in recent months. (File Photo: AFP) 

  • The unprecedented rise in prices of major raw materials which are critical inputs in manufacturing of electrical equipment has made it almost impossible to execute contracts which come with fixed price stipulation or have restrictions in price variation

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NEW DELHI: Indian Electrical and Electronics Manufacturers' Association (IEEMA), a lobby group, has called for incorporating “price variation clauses" in contracts to help deal with surging prices of raw materials following an uptick in commodity prices.

Prices of key commodities such as aluminium, copper, cold rolled grain oriented steel used in the manufacture of transformers, polymers and transformer oil have been on an upswing.

“IEEMA requests all purchasing organisations to incorporate Price Variation Clauses in all future as well as existing ontracts; at least for unfinished supplies and remove the ceiling on the positive side to keep the same open as in the case of negative price variation. This will help in mitigating the price surge of raw materials and protect the financial health of suppliers, contractors and vendors in the long term," Vipul Ray, president, IEEMA, said in a statement.

This comes at a time when the government is working on the marquee 3.03 trillion power distribution company (discom) reform scheme that will require massive amount of electrical equipment including cables and transformers.

“However, the abnormal and unprecedented price rise of all major raw materials which are critical inputs in the manufacturing of electrical equipment has made the situation very challenging and it has become almost impossible to execute those contracts which are with fixed price stipulation or have restrictions in Price Variation (PV). The prices of these raw materials have risen in the range of 25% to 90% during the last one and half years. E.g. Aluminium 85%, Copper 80%, CRGO 60%, Steel 50-80%, Polymers 50-90%, Transformer Oil 25% etc," the statement said.

India’s electricity demand is expected to grow 8-8.5% in FY22, according to ICRA. According to the Central Electricity Authority, by 2030, the country’s power requirement would be 817GW.

“The all-India electricity demand during the period from April 2021 to September 2021 has increased by 12.7% to 707 billion units (BU) on a year-on-year (Y-o-Y) basis supported by a lower base, improvement in economic activity and lower than normal monsoons leading to higher demand from the agriculture segment during July and August 2021," according to ICRA.

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