Power Min to withdraw price preference

State-run power equipment manufacturer Bhel could lose the preference it enjoys in purchases by public sector companies, such as NTPC, under a host of measures being considered by the government to encourage domestic private manufacturing.Under the price preference policy, state-owned companies that float equipment purchase tenders have to place orders with public sector equipment makers if the price quoted by them is within 15% of the lowest bid. 
“We have moved a Cabinet note to withdraw the price preference available to domestic manufacturers,” a power ministry official said, adding that such a policy would discourage private players, which plan big capacities in India.
A committee of secretaries has already suggested stiff duties on imported equipment to reduce the price difference between cheap Chinese equipment and those produced locally. This proposal is facing opposition from power producers, which argue that it will delay completion of projects.
Only about half of the 62,000 MW capacity expected in the Eleventh Plan (2007-12) period will be supplied by Bhel, while the rest is being imported. The government wants to reduce reliance on imports with higher domestic manufacturing.
L&T recently operationalised its 4000 MW main power equipment (boiler, turbine and generator) manufacturing facility at Hazira in Gujarat in collaboration with Japan’s Mitsubishi Heavy Electricals.
Toshiba-JSW Group combine, Ansaldo Caldaie SpA of Italy in tie-up with GB Engineering Enterprises and Alstom-Bharat Forge combine have also proposed facilities in the country.
A Cabinet note moved by the power ministry has proposed a 5% Custom duty, 10% countervailing duty (CVD) and 4% special additional duty (SAD) on equipment imports.
This proposal has diluted the provisions of the mega power policy that allows duty free equipment imports for thermal power projects of 1000 MW and above and hydro power projects of 500 MW and above.
The steep increase in duty will increase the price of imported equipment by over 20%, forcing power projects to source locally. “The price preference policy would have worked against the development of a robust domestic equipment manufacturing industry with a large number of players,” said a Planning Commission official.
Bhel played down the proposed policy change saying it will not make much of a difference even though it will force the company to compete with entrants from private sector.
“Bhel has never got equipment orders on the basis of the preference policy but have been the lowest bidder for several projects,” said an official with the company.
Anticipation of large addition to power capacities has already galvanised investment in manufacturing capacity, but some independent analysts feel there are better ways of incentivising domestic production.
“Rather than raising import duty the government should have considering bringing down local levies to provide level playing field to domestic manufacturing industry,” said Sanjeev Aggarawal, managing director of a private sector power operator, Amplus Infrastructure Developer.
Bhel has proposed an increase its equipment manufacturing capacity from 15,000 MW to 20,000 MW in the coming years.
The purchase preference policy (PPP) was started five years ago to help state-owned companies withstand competition from global equipment suppliers, especially from Chinese companies such as Dongfang, Shanghai Electric, which have made major inroads in the Indian market by winning international competitive bids through aggressive price quotes.