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Breaking the Chinese spell

EM NEWS BUREAU ,  Friday, October 14, 2011, 16:42 Hrs  [IST]

The role of Chinese power equipment in Indian power plants has been a long-standing subject of both controversy and academic interest. Chinese boilers and turbines have perhaps generated more debate than electricity! Whatever be the countervailing force that India is trying to create either by preemptive policies or domestic equipment manufacturing capacity, China's role in the Indian power sector is only intensifying. It is expected that during the XII Plan period, nearly a third of new thermal power capacity will be based on Chinese equipment.

India has been trying hard to find solutions to placate the Chinese juggernaut but without much success. It is reported that the ministry of heavy industries is planning to withdraw the import duty concessions granted for mega power projects. This means that no matter what the capacity of the power plant for which equipment is being proposed, there will be no import duty concessions. This could bring some respite to Indian equipment suppliers that have been crying hoarse over Chinese equipment impinging on their business.

The stage for power equipment is very interesting. Traditional supplier Bharat Heavy Electricals Ltd (BHEL) is on the verge of a major expansion, while a plethora of Indian companies (in joint venture with multinationals, but not Chinese players) are putting up manufacturing capacity to serve the growing market. India is expected to add around 15,000 mw of new power capacity— mostly thermal—in the coming years. This presents a great opportunity for equipment suppliers—domestic or otherwise.

Even though the withdrawal of import duty concessions might bring in some parity between Chinese and domestic equipment, one cannot disregard certain innate qualities of Chinese equipment. Apart from price—Chinese gear is around 20 per cent cheaper—China has been able to provide equipment with minimum lead time. It would be incorrect to say that private power producers are going in for Chinese equipment by choice; it is rather because of limited attendant alternatives. Government agencies would stay away from Chinese equipment in keeping with their national interest ideologies. Both forms of ownership are without much choice regarding their attitude towards Chinese suppliers.

Unmindful of the Chinese debate, there is a disconcerting possibility on the horizon. In the next 3-4 years, India's power plant equipment capacity is likely to be at least 35,000 mw per year going by the plans underway by existing and new players. Besides, China will continue to be present—a possible fall in market share notwithstanding. Thus, the power equipment shortage that India is now facing will fast transmute into excess capacity. China might very well end up making most of the current peak demand, leaving a shrinking market for the new entrants. Even if import restrictions are put now, China will have already made most out of it. China's biggest advantage has been in being at the right time at the right place. After all, the Chinese spell does appear unbreakable!
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