IPPs oppose import duty on power equipment
Independent power producers (IPPs) have strongly opposed the government’s proposal to levy of a 14 per cent import duty on power generating eq
uipment, particularly from China.
The cabinet note to this effect has been circulated by the ministry of heavy industries. The new levy will translate to a five per cent basic duty on the total value of the equipment, plus 10 per cent of this basic duty as countervailing duty (CVD) and four per cent of the CVD amount as a special additional duty.
The IPPs which include Reliance Power, Tata Power, Mumbai, Essar Power and Adani Power have written to the government against the duty, arguing that it will increase project costs for power generation companies that are working on financial closure based on less expensive Chinese equipment. The private producers have warned the government that the higher import duty will increase project costs, consequently increasing power tariffs for consumers and derailing the government’s plans to increase India’s power generating capacity.
The move to impose a 14 per cent import duty has been prompted by the government’s intention to offer price competitiveness to Indian equipment manufacturers such as BHEL, Larsen & Toubro Limited and various new JVs formed by Indian companies with foregin equipment suppliers.
According to planning commission, Chinese power equipment suppliers have won orders for 36,800 Mw worth of power equipment over the past two years. This is equivalent to more than half the capacity that India is expected to install by 2012. Reliance Power has placed two orders with a combined generating capacity of 9,260 MW with Chinese suppliers. Major Chinese suppliers to the Indian power sector include Dongfang Electric Corporation Limited and Shanghai Electric Group Company Limited.
From 2007 through 2012, India’s total investment in creating new generating capacity will be US $140 billion, according to planning commission estimates. In the following five years (2012-17), India’s domestic capability to manufacture power generating equipment will reach 43,000 Mw, rising from 10,000 Mw at present, but far short of the targeted 100,000 Mw by 2017.
Indian power equipment manufacturers have formed several joint ventures to augment capacity. Reliance Infrastructure is the only company to join forces with the Shanghai Electric Corporation. Industry analysts said that the Indian government’s restrictions on the import of telecom equipment from China because of security concerns discouraged Chinese companies from collaboratingr with Indian partners in the power sector. Visa restrictions on Chinese workers and technocrats in India was also a hindrance.
Commenting on equipment supplies from China, R.S. Sharma, the chairman and managing director of NTPC Limited said: “As far as NTPC is concerned, we have our own technical specifications that are very high. We have got guarantee parameters. So if any bidder meets our requirements, and they fulfill those guarantees and can supply at quite low prices, then why should NTPC have a concern? We always welcome competition, and we are quite okay with that.”
According to a member of the planning commission, equipment imports from China helped bridge the gap in demand and supply from domestic manufacturers, but created a situation in which foreign manufacturers gained an advantage over Indian companies. The import duty aims to create a level playing field. Also, continued dependence on imported equipment will prevent development of local component and spare-parts vendors, which will be detrimental to national interest.
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