Power Grid norms to hit Chinese suppliers

State-run power transmission firm Power Grid Corp. of India Ltd (PGCIL) has made it mandatory for overseas equipment suppliers to have factories in India to participate in its tenders.The move, which rules out imports from China, may heighten Sino-Indian tensions over equipment supply.“Earlier, Chinese companies were dumping their equipment, be it transformers or reactors, here. In the absence of an after-sales service infrastructure, it is very risky. Our requirement is so huge. While their rates are very cheap, there is a quality concern,” chairman and managing director S.K. Chaturvedi said.“To overcome the concerns, we are insisting that they either form a joint venture or give an undertaking that within three years, the vendor will start manufacturing equipment in India,” he added.

The move will hurt China’s largest manufacturer of high-voltage transformers, Tebian Electric Apparatus Stock Co. Ltd (TBEA), which has been a major supplier of transformers and reactors to the Indian transmission sector.High-voltage transformers are used to pump up voltage or to bring it down for electricity transfer across long distances.“This (PGCIL’s move) will severely limit the (ability of) Chinese firms such as TBEA to bid for tenders in India unless they have a domestic manufacturing,” said Rupesh Sankhe, an equity research analyst at Angel Broking Ltd.Anticipating this problem, the Chinese firm was considering a partnership with India’s state-owned equipment manufacturer Bharat Heavy Electricals Ltd (Bhel), 

Around 60% of the investment for setting up transmission infrastructure goes towards equipment. PGCIL plans to float tenders valued at around Rs64,000 crore in 2010-11 for nine high-capacity corridors that will transmit power from new projects in Orissa, Sikkim, Jharkhand, Chhattisgarh, Madhya Pradesh, Andhra Pradesh and Tamil Nadu. It has a demand of around 350 transformers of 400kV and 765kV.Some other firms that supply equipment in the high-voltage segment are Siemens AG, ABB Ltd, Areva SA and Bhel.

India and China have been at odds over the supply of cheap Chinese equipment to Indian firms. In April, India stopped giving clearances to telecom equipment from China over security concerns.State-run NTPC Ltd, India’s largest power supplier, has already made domestic manufacturing a pre-qualification criteria for companies to bid for its equipment tenders.Chaturvedi said PGCIL took the decision on its own.

The move will ensure long-term supply of spares and cut down repair time, JM Financial Institutional Securities Pvt. Ltd said.But it will also lead to “higher competition in export markets and consolidation in India, especially by foreign companies like Hyundai, Korea and TBEA, China”.