Ministry of power to oppose import duty on equipment

The power ministry will oppose a proposal to levy an import duty on power generation equipment on Tuesday at a meeting called by cabinet secretary K.M. Chandrashekhar. The ministry says the duty will hobble its generation targets for the ongoing Five-Year Plan period as domestic equipment manufacturers are unable to meet its demand. “Our current plan will be stuck up because of this duty,“ power minister Sushil Kumar Shinde said. “It should not be imposed on the 11th Plan (2007-12) projects. After that, let us see what happens.“ Currently, no duty is levied on the import of foreign equipment for so-called mega power projects (defined as 1,000MW and above for thermal projects), while a 5% duty is levied on equipment for smaller projects A mega project is entitled to fiscal incentives including a 10-year tax holiday. Planning Commission member Arun Maira had recommended a 14% import duty to strike a balance between protecting local manufacturers and the need to import equipment to boost power production.The heavy industries ministry sup- ported the move. But the power ministry says additional local equipment manufacturing capacity will come on stream only in the next Plan period. A power ministry official said the ministry will continue to op- pose the proposal. “The domestic manufacturing is not ready to meet the growing demand. We are fine if this is introduced for 12th plan projects.“ Both spoke on condition of anonymity. India has a power generation capacity of 159648MW and expects to add an additional 62,000MW by 2012. Of this, orders for 42,431.58MW of capacity have been placed with Bharat Heavy Electricals Ltd (Bhel), the country's largest power equipment maker, which has a current annual capacity of 10,000MW. The country plans to set up an additional power generation capacity of 100,000MW during the 12th Plan, which will run from 2012-17. Domestic power generation equipment manufacturers such as state-owned Bhel and engineering firm Larsen and Toubro Ltd (L&T) have been lobbying with the government to limit overseas competition, particularly from China. L&T's chair- man and managing director A.M. Naik has been asking for a 25% anti-dumping duty on Chinese products. Equipment makers, much like other exporters from China, benefit from low interest rates and an undervalued currency to boost exports.

If implemented, the duty could make equipment sourced from Chinese firms such as Shanghai Electric Group Co. Ltd, Dongfang Electric Corp .and Harbin Power Equipment Co. Ltd dearer. The decision will favour Bhel and joint ventures between L&T and Mitsubishi Heavy Industries Ltd, Toshiba Corp. of Japan and JSW Group, Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises Pvt. Ltd, and Alstom SA of France and Bharat Forge Ltd. These firms have either started or are looking to start making power equipment in the country. It could also increase the cost of power. “The issue is very important as it will have a direct impact on a project,“ said Hitul Gutka, an analyst at brokerage India Info line Ltd. “If implemented, the overall project cost per MW can go up by around 7%.“