It might not have made its presence felt so far on the Indian soil but the dragon is slowly but surely expanding its footprints in the power sector of the Indian market. From having zero market presence in India till a couple of years ago with regard to the power equipment, the Chinese are to contribute a significant share of the same required to cater for the eleventh plan capacity addition target of 78,000 MW. When the statistics claim a whooping 30% contribution, one can be sure of a big makeover heading its way.
Price competitiveness and limited manufacturing capacity of BHEL (Bharat Heavy Electronics Limited), India’s primary power equipment supplier, are two major reasons which have led to a lookout for alternatives. The rising demand and economic growth of the country cannot be met with our own BHEL’s capacity of production. So, anyhow these equipments have to be imported to cover up the shortfall. While Japanese and Korean equipment are already operational in a handful of power plants in the country, it is China that will steal the show, the reason being that the Chinese equipment are more than10-12% cheaper than its Indian counterparts. China is able to offer such low prices because it leverages vast economies of scale.
While one might argue that such a marginal difference in the equipment might be covered up in the long run, the fact remains that equipment costs make up for almost 80 per cent of the cost of setting up a power plant. They in turn enable power companies to increase their chances of winning a project by putting forth a lower bid.
In the entire ultra mega power project bidding, NTPCs bid price was significantly high and so far combination of two giant Indian public sectors viz NTPC and BHEL has proved to be significantly higher than other private players who quoted their equipment mainly considering Chinese equipment. This has not only exposed the inefficiencies of both the major players but has also highlighted the impact of monopoly and secured market made available to these companies. Moreover, when it comes to quick delivery, it is a known fact that mostly all the BHEL projects are delayed because of its failure to meet the commitment of equipment supplies as opposed to their Chinese counterparts.
KPMG Associate Director Santosh Kamath says that the Chinese companies are attractive because they have the capacities and are cost competitive. “The capacity of Chinese companies ensures quicker delivery. They also have experience in supplying to power plants in China, which are performing well,” said a private power company official in India.
However, the whole idea of entry of Chinese firms in this sector of the Indian market is being frowned upon owing to reasons of its credibility. Critics claim that these Chinese equipments still have to prove their worth and their investment in a sector as crucial as the power sector is analogous to taking a huge risk. Another major apprehension of using Chinese equipment is assured supply of spares and services for the life of the plant. For this reason, government is pressing Chinese to open manufacturing facilities in India. The important fact that is often sidelined in this matter is that like BHEL, Chinese companies also have tie up with their renowned OEMs (Original Equipment Manufacturers) like Siemens, ABB, Combustion Engineering, Alstom, etc.
The Dongfang Electric Corporation alone has 20,000MW manufacturing capacity, nearly double as compared to BHEL. Currently supplying its equipment to West Bengal Power Development Corporation’s 600-Mw plant in Sagardighi and 300-Mw plant in Durgapur, Lanco Infratech’s 1,200-Mw Amarkantak thermal project in Madhya Pradesh and to two other projects at Mangalore in Karnataka and Anpara in Uttar Pradesh, The Chinese company Shanghai Electric Company (SEC) is the equipment supplier in the 600-Mw Yamunanagar power plant near Delhi. “The plant is functioning without hitches,” said an official.
Reliance Energy Ltd. is the biggest importer of Chinese power equipment for their own and EPC (Engineering Procurement and Construction) projects. Its ultra mega project of Sasan and Krishnapatanam has already tied up with SEC for its main power equipment. Its other projects of Rosa and Butibori are also sourcing from the same.
Another argument being laid down in this regard is over the successful operation of the Chinese equipment in the Indian climatic conditions. However the Chinese have cleared all clouds by declaring that there is no doubt over the quality of equipment supplied as it has been operating successfully all over the world. “It has been proven that our equipment is inferior to none,” said a top official with a Chinese company based in India.