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Foreign power equipment suppliers told to
manufacture in India
China walled
Affected companies: Dongfang, SCMEC, SEPCO: Advantage: BHEL,
L&T
SHRIKANT RAO Mumbai
Chinese equipment manufacturers will now have to climb a
veritable wall of riders imposed by the minders in New Delhi
to restrict their entry into India's burgeoning power sector.
The Centre is planning to make it mandatory for suppliers
from China to develop production facilities in the country
if they are seeking to bag contracts in future power projects.
The upside however is that orders that have already been placed
with Chinese manufacturers will not be affected. The Prime
Minister is likely to give his signature to the proposal soon.
While the government at the Centre claims that the impending
directive is aimed at promoting domestic plant equipment suppliers
like BHEL, L&T and others, it obviously is intended to
curb the Chinese dragon. What has alarmed local manufacturers
is the Centre's most recent assessment of generation capacity
using Chinese equipment: up to 20,000 MW of new generation
capacity in the country is likely to be set up in the country
using Chinese equipment between now and 2020. Orders have
also been placed with other companies from Korea and Japan.
Korean company Doosan has bagged the order to supply super-critical
equipment, which is more efficient in burning of coal, to
power utility NTPC's 2,000-MW power plant at Sipat in Chhattisgarh.
But it is the Chinese equipment juggernaut, which poses the
real threat for India's equipment players.
Such is the aggressiveness displayed by the Chinese industry,
not to mention the low cost offered, that there has been a
sudden rush of orders from various parts of India to cater
to various power projects over the next decade. India's Power
Ministry is looking to increase capacity to around 78,000
MW in five years.
With the target for 2008-09 being 11,061 MW there is already
a huge demand for supply of power plant equipment. Indian
manufacturers are however unable to meet the requirements.
For example, Dongfang Electric Corporation alone has a manufacturing
capacity of 20,000 MW, which is double that of BHEL's capacity.
At present the major Chinese suppliers doing business in India
are Dongfang Electric Corporation, which is currently parleying
with the West Bengal Government, for setting up a manufacturing
facility in the State, Sichuan Machinery and Equipment Corporation
(SCMEC) and Shandong Electric Power Construction Corporation
(SEPCO). For 2008-09 itself Chinese companies are looking
to offer 2,300-mw worth of equipment supplies— 600 mw
each by Dongfang Electric and Shanghai Electric, and 1,097
mw by CMEC, all of China—for thermal power projects.
Now with the Centre looking to restrict import of equipment
by getting overseas manufacturers to set up production facilities
in India, the Chinese are likely to be hard hit. Chinese companies
have a decided cost advantage over domestic firms as they
operate on a larger scale. This is critical because low equipment
costs allow Chinese companies to put in lower bids for projects
and raise their chances of winning them. The axe on Beijing's
strides in India follows complaints to the Prime Minister's
Office from leading PSUs like Bharat Heavy Electricals (BHEL).
The state owned equipment major, and other leading vendors
like L&T, facing a colossal subtraction of income due
to Chinese companies – who in the last few years have
taken the lead in grabbing equipment supply contracts for
mega power projects – have leveled charges of dumping
cheap goods against the latter. Officials maintain that equipment
offered by Indian firms was much better than its Chinese competitors
– an independent study has established that the plant
load factor of projects using domestically manufactured equipment
was 90 per cent, while it was 60 per cent in the case of those
employing the Chinese version. It is pointed that the government's
latest move is intended to arrest, even reverse the recent
slowdown in the growth of the capital goods sector.
W(r)ong connections?
With Chinese manufacturers making a beeline for India in the
wake of the UMPP projects concerns have been raised in several
quarters about the quality of their products. According to
feedback received by the Central Electricity Authority (CEA),
the Power Ministry's technical wing a few power plants which
have sourced equipment like steam generators, turbines and
auxiliaries from Chinese manufacturers have begun to experience
problems. The government is now looking to initiate an investigation
into complaints on critical failures in the quality of plant
and machinery supplied during the last two years. One such
evaluation was carried out at Balco's Korba Plant where four
units of 135 mw each, commissioned from China, are in operation
since 2005-06. The scrutiny has been necessitated by the increasing
use of Chinese equipment at Indian power facilities. Sepco
of China is the engineering, procurement and commissioning
contractor, and vendors for steam generators, steam turbines
and the generator are Harbin Boiler Works, Dongfang and Zinan
Power Equipment, respectively. Though the CEA has given a
"generally satisfactory" feedback about the Balco
thermal plants, it has voiced concerns over the quality of
some parts and machinery including turbines that were crucial
to their functioning. Questions are also being raised by the
NSG about the ownership of companies to which the Chinese
have supplied critical equipment. Indian companies fear that
they are losing out to the dragon's emissaries considering
the fact that some of them are being patronized by a few states.
Reliance for 3 coal blocks
Reliance Industries is likely to get three coal blocks in
Talcher coal fields for its ambitious multi-billion dollar
coal to liquid project. Reliance wants to set up a 80,000
barrels per day (4 million tonnes a year) coal-to-liquid plant
that would need 30 million tons of coal annually. Sources
said the company had sought allocation of three coal blocks
- Bankhui, Sakhigopal B and Alaknanda with coal reserves of
500, 600 and 500 million tonnes respectively in the Talcher
coal field under the Mahanadi Coal Fields Ltd for the project.
But the coal ministry has earmarked the 300 million tonnes
Srirampur, 400 million tonnes West of Radhikapur and under
exploration Ramchandi blocks for the Reliance project. These
blocks are also located in the Talcher coal field area under
Mahanadi Coal Fields Ltd.
GMDC keen on Naini
The state-owned mining and mineral company, Gujarat Mineral
Development Corporation (GMDC), has initiated talks with the
Pondicherry Industrial Promotion and Development Corporation
(PIPDC) to mine the entire Naini coal block in Orissa. GMDC
and PIPDC had jointly bagged the Naini block, which has 500
million tonnes of coal deposits, for mining from the central
coal ministry in 2007. In order to achieve better synergies
with PIPDC, GMDC is keen to mine the entire block. The ministry
of coal had allocated half the block, with coal reserves of
250 million tonnes to GMDC and the remaining to PIPDC.
Tatas, MMTC plans SPV
India's largest private sector steel maker Tata Steel is forming
a special purpose vehicle (SPV) with state-owned MMTC for
acquiring gold and diamond mining businesses abroad. MMTC
would hold 26 per cent stake in the proposed venture, leaving
76 per cent to the Tatas. The venture is likely to start operations
by acquiring mining rights for diamond in Angola and Namibia
before venturing in other African markets. The SPV would also
explore business opportunities in iron ore and coal mining
abroad through acquisitions or fresh mining rights.
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