POWER October 2013 - 8

New Measures Pit Indian Generators
Against Equipment Makers
Energy-hungry India's power sector is financially hemorrhaging
due to a number of critical issues relating to the availability of
coal and gas, its loss-making state power distribution companies,
and costly delays stemming from land acquisition and permit approvals.
Recent measures by the government aimed at bolstering
the country's $25 billion domestic electrical equipment sector
could make matters worse, a number of generators have said.
The Indian government in early September " extended " a policy
that mandates domestic sourcing of supercritical equipment by
central and state-owned generating companies like NTPC. The
Ministry of Heavy Industries has, meanwhile, been contemplating
intervention to make it mandatory to force developers of
major projects (like ultra-mega power plants) to buy domestic
equipment.
Local equipment makers like Bharat Heavy Electricals Ltd.
(BHEL), Larsen & Toubro, Thermax, and BGR Energy have applauded
the moves, which they say comes at a time when fresh
orders from private power generators have dried up. But power
generators are decrying the move as " anti-competitive, " saying
foreign competitors enjoy more flexibility in pricing-an important
consideration because it limits project costs and, as a
result, electricity tariffs. In a letter to the minister of finance,
the Association of Power Producers calls instead for " an enabling
environment " that removes investment impediments to increase
investor confidence.
1. Estimated segment size of India's electrical equipment
sector (2011-12). India's $25 billion electrical equipment
industry made up of 500,000 employees is classified into two sectors:
generation equipment (consisting of boilers, turbines, and generators),
which contributed $6.5 billion over 2011-2012, and transmission and
distribution equipment, which provided the larger share of $13.4 billion.
Other electrical equipment, including instrument transformers, surge arrestors,
stamping and lamination, insulators, insulating material, industrial
electronics, indicating instruments, and winding contributed $5.2 billion.
Source: Indian Electrical and Electronics Manufacturers Association
The measures' possible impacts are underscored by the volume
of work to be done. Along with expanding transmission and
distribution (T&D), the government has plans to increase power
generation in the country from 200 GW in 2012 to about 400
GW by 2022. Additionally, in late August, India approved infrastructure
projects worth $27.8 billion to revive economic growth,
which has faltered as the rupee quickly crashed to record lows in
recent months. In late August as this article was being written,
financial analysts were struggling to make sense of the rupee's
value plunge into what they described as " uncharted territory "
while others cautioned the situation was vastly compounded by
investors who were fleeing domestic markets, which are facing
stiff economic challenges and volatile global markets. The government's
solution entails reviving 36 stalled projects in sectors
from oil, gas, and power to roads and railways. These include
18 power projects with an investment of $12.6 billion and nine
infrastructure projects worth $2.1 billion.
According to the Ministry of Heavy Industries, generation
equipment (boilers, turbines, and generators) makes up about
a fourth of India's domestic electrical equipment sector, the remainder
of which is dedicated to T&D (Figure 1). With about
500,000 employees, the sector contributed 1.4% to the nation's
gross domestic product (GDP) over 2011 and 2012 and 10% to the
manufacturing GDP. Over that period, electrical equipment made
up just 1.5% of total exports but about 3.2% of total imports,
and that trade deficit continues to widen every year, " which is a
matter of serious concern, " says the ministry.
This is because projections indicate that despite importing
Capacitors
0%
Other electrical
equipment
21%
Boilers
15%
43% of needed electrical equipment, the domestic generation
equipment sector's total manufacturing capacity of 25 GW per
year will double to 40 GW by 2015, when more joint ventures
begin production-meaning it will be sitting on massive surplus
capacity. A " Mission Plan for 2012-2022 " released by the Heavy
Industries Ministry in July seeks to provide a " level playing field "
to the domestic sector vis-à-vis foreign manufacturers, " who are
enjoying support from their respective governments with respect
to subsidies on raw material, incentives for export, low cost of
funds, better infrastructure. " Besides increasing import duties on
electrical equipment, the ministry suggests allowing imports of
cold-rolled grain-oriented electrical steel at a zero customs duty,
mandating type testing of some equipment domestically, and establishing
product ratings and specifications. But it also calls for
forcing foreign suppliers of heavy equipment to set up phased
manufacturing facilities in India.
India's own shortfalls include a lack of important research and
Rotating
Machines
5%
Energy meters
2%
Switchgear &
controlgear
8%
Transformers
10%
Turbines
7%
Generators
3%
Cables
15%
Transmission lines
and conductors
13%
8
development, the ministry acknowledges. It urges government
backing of efforts by Indian companies-like BHEL, which has
developed a demonstration model based on integrated gasification
combined cycle and advanced ultrasupercritical technology.
Then, it cautions, the country must tackle skill shortages that
are compounded by inadequate curriculums in technical training
institutes. In due time, India should also boost exports of power
equipment with help from the Export-Import Bank of India and
the Central Power Research Institute-which should work to see
that all certification is accepted in foreign countries. Ultimately,
the power sector's bigger problems stemming from land acquisition
and permit delays must be tackled to help the domestic
generation equipment sector flourish.
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POWER October 2013

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