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Power equipment cos seek duty hike to curb Chinese imports

MUMBAI: Power equipment makers such as L&T, Bhel, Bharat Forge are lobbying for a higher import duty to thwart cheap Chinese imports that are being increasingly used in mega power projects and affecting expansion plans and the profitability of Indian firms.

While equipment makers are in the middle of large expansion programmes to meet growing demand for electricity, a government committee supported their stand by recommending imposition of 5% customs duty, special additional duty of 4% and a countervailing duty of 10% on import of power plant machinery.

The recommendation has been sent to various ministries for feedback. L&T and Bhel executives say they have lost over Rs 65,000 crore worth orders to Chinese companies as they have the advantage of a favourable administered exchange rate, low labour costs and large existing capacities to offer equipment at low rates.

"The Chinese have a favourable duty structure that protects their local industry," said Ravi Uppal, managing director of L&T Power. "There are also incentives for exports along with benefits arising from the exchange rate," he added.

L&T has the capacity to make 4,000 megawatts (mw) of power equipment annually and is planning to expand this to 6,000 mw. State-owned Bhel has a manufacturing capacity of 12,000 mw and plans to scale up to 15,000 mw by 2012. There are also joint ventures of companies such as JSW, Bharat Forge and Thermax, which are expected to start in two years.

But Indian companies are pitted weakly against their Chinese counterparts in terms of size. While the total capacity for power generation in India is 1,70,000 mw, in China it is 8,75,000 mw.

The government is in a fix as many power developers including Reliance Power, Adani Power, JSW Energy, Essar Power, Sterlite Energy and Lanco are against duty imposition on account of a rise in project cost and delay in projects. "Chinese equipment are cheaper by 15-30 % than local costs," said an official from a leading power generating company.

They also said that higher duties would have an adverse impact on investment. The government aims to add 20,000-mw generation capacity every year to its current capacity, a major chunk of which would be from the private sector.

However, there may not be any adverse impact on capacity addition programme as orders for additions in the 11th Five Year Plan have already been placed. "Major supplies for the forthcoming projects, placing orders would be due only in 2012-13. By that time domestic suppliers would have had excess capacity for producing power equipment," said Atul Saraya, director for power at Bhel.

The government has also started a process for implementing a national standard system for power equipment for long-term environmental and energy efficiency. The power ministry intends to introduce regulations from next month, providing sufficient prior notice to manufacturers and to also ensure that schedule of projects under advance negotiations does not suffer.

Source : economictimes.indiatimes.com