Promit Mukherjee/Shaleen Agrawal 

Mumbai / New Delhi: Minister of state for power Jairam Ramesh’s proposal to make domestic manufacturing compulsory for supplying equipment to upcoming power plants in the country has not gone down well with the industry and analysts.

Experts feel such a move, though has some benefits, will not be in the best interest of the power sector, at least for some years.

“At the moment there is not enough capacity. Even the international capacity is not enough. Power producers are finding it tough to place orders with reliable suppliers globally as their order books are full,” said Kuljit Singh, partner, infrastructure practice, Ernst & Young.

On April 7, 2008, Jairam Ramesh said the government wanted to encourage large scale domestic manufacturing of power equipment and the power ministry was contemplating a proposal to make domestic manufacturing mandatory for all foreign suppliers of power plant equipment.

He also said the move was aimed at checking large scale Chinese import of power equipment.

The ministry of power has said that Chinese companies have bagged equipment orders for 20% of 78,577 mw of planned capacity addition during 11th Five Year Plan.

Though the proposal is yet to be implemented, it is expected that once in place, companies will follow the international competitive bidding (ICB) for sourcing equipment.

But ICB’s main criteria would be that equipment suppliers should have a manufacturing base in the country before they are ready to supply.

However, companies feel such a move would make it difficult for them to complete the projects on time as for any company to set up a manufacturing base, it will at least take them three years.

“BHEL is the only domestic supplier of considerable size and it has a capacity to supply power equipment for just 10,000 mw per year. Given the lack of local manufacturers, putting pre-conditions for exports to India would be impractical,” said Lanco chairman L Madhusudhan Rao.

“On the one hand the government wants companies to set up power plants in four years time and on the other, wants them to source the equipments from local manufacturers,” said K G Naidu, director-finance, Gayatri Projects Ltd.

Naidu said at a time when the government wants to add 78,577 mw of generation capacity by the end of March 2012, it is not feasible to put a cap on imports before substantial equipment manufacturing capacity is added in the country.

“The government will have to provide a timeline to equipment manufacturers to set up their base in India. There should be conditions on not completing the projects within the stipulated timeline,” said E&Y’s Singh.

The situation becomes more glaring as more and more plants are coming up on super critical technology for which equipment manufacturing companies in the country are still not equipped.

Supercritical technology are preferred over conventional sets as they are able to handle greater pressure, greater heat and burns the coal 4% more efficiently.

“BHEL and L&T has forayed into supercritical technology but the amount of orders that are expected to come under 11th and 12th Plan, will be far higher than they can together address,” said the chief financial officer (CFO) of a leading power generation company.

He said by limiting imports, the government has taken a biased approach towards domestic companies which are still not capable of meeting the tremendous demand.

Analysts Satyam Agarwal and Nalin Bhatt from brokerage Motilal Oswal, in report supercritical projects said in the 12th Plan (2013-17), Working Group Report on Power Sector has identified project pipeline of 114,018 mw, of which 54,080 mw (47% of total) is envisaged on supercritical technology (660 mw-800 mw).

This compares with targeted capacity addition of 8,060 mw (14% of total) in 11th Plan on super critical technology.

Also, all the nine ultra mega power projects are to be based on super critical technology. This means that a requirement of 62,140 mw in the next 9-10 years, Agarwal and Bhatt wrote. “BHEL and L&T together could not be the answer and new manufacturing facilities should have to come on stream. But, if the government also wants to achieve its 11th and 12th Plan targets, then imports should also be given an option,” the CFO said.

Analysts feel restrictions can be placed in phases so as not to disrupt growth.

“The power producers should be allowed to import equipment in the interim till the foreign equipment makers establish their bases in India. The policy is good in the long-term but it will have to be transitioned in. The principle of giving exemption to the equipment already ordered will have to be extended further,” said Singh.

The decision will impact all firms alike as only little of what is needed has been tied up so far. “Private players have proposed to put up capacity to generate about 120,000 mw of electricity in the next 5-10 years. The total equipment that has been ordered out of that so far is not more than 10%,” said Singh.

However, Rajesh Jain, chairman of Emco Ltd, which is currently implementing a 270 mw coal-based power plant at Warora, Maharashtra, said, “Though there is no final decision on the proposal yet, but I think it is a good move as more and more companies should be encouraged to set up manufacturing shops in India.”

This will help the sourcing companies to tide over the quality issues from Chinese companies. He said since BHEL is already booked for 30 months in advance,  more manufacturing bases will lead to faster adoption of technology and reduction in delivery time.

Source : DNAIndia