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Budget 2012: Should FM go with power equipment makers or developers?

K.R. Balasubramanyam     March 12, 2012
K.R. Balasubramanyam
K.R. Balasubramanyam
Ahead of the Budget, Finance Minister Pranab Mukherjee is caught between two opposing yet powerful arguments from the power sector. On the one side, equipment makers have called for increase in import duties to discourage cheap imports from overseas (read China, South Korea). On the other, project developers have warned that such levies will only delay projects and increase power tariffs at the consumer end by 50 paise per unit (kWh).

Industries such as BHEL, Toshiba-JSW, L&T- Mitsubishi Heavy Industries, Alstom-Bharat Forge, and Hitachi-BGR Energy are into the manufacturing of equipment such as boilers, turbines and generators; others such as ABB, Schneider and Siemens make electrical balance of plants like switches, transformers, and drives.

At a recent conference call with media-persons, ABB India Managing Director Basmi Husain insisted that the government put in place such measures that will level the playing field for Indian manufacturers against the competition from foreign players. In calendar 2011, ABB India, Siemens and Schneider had miserably lost to Korean and Chinese firms which walked away with bulk of Power Grid's orders for 765 kV transformers with aggressive bids. Allowing a free run of imported equipment would eventually mean fewer job creation in India.
The Association of Power Producers (APP), however, is fighting on behalf of developers such as Reliance Power, Tata Power, GMR, and GVK; Reliance Power, for one, is buying boiler, turbine and generator or BTGs from Shanghai Electric.

In separate memoranda to the Prime Minister and the Finance Minister, the Association Director General, Ashok Khurana, said that many project developers went in for imports in view of domestic manufacturers being burdened with fat order books and imports ensure faster delivery schedules. "BHEL's order book is 3.7 times its turnover while it is 7.1 times for L&T."

He further adds that imports are supported by export credit agencies, because of which cost of financing is competitive. In the current Five year plan (2007-2012), more than half of the coal-based capacities are based on imported equipment.

"Given the high import duty of over 20 per cent along with recent depreciation against all major currencies, the power tariffs from all generation project will go up by 30-35 paise per unit. At the consumer level, this will translate to an increase in power prices of over 50 paise per unit," Khurana's representation says.

It will be interesting to see in whose favour the finance minister will swing; or, whether he would mollify both sides by conceding to some demands of both sides.

Company Power Segment Turnover (Rs crore) Power Segment Order Book Size (Rs crore) Order Book / Sales
BHEL 35,053 131,316 3.7
Thermax 4,333 5,605 1.3
L&T Mitsubishi 2,137 15,205 7.1
Total 41,523 152,216 3.7

(Source: Association of Power Producers/Company Annual reports FY 2010-11)


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