UMPPs using local coal may have to buy domestic equipment

In a policy shift, the government proposes to make domestic procurement of power generation equipment mandatory for all bidders of ultra mega power projects (UMPPs) that enjoy the benefit of domestic coal linkage. The move is aimed at helping domestic equipment manufacturers such as Bhel, L&T, BGR Energy, JSW and Bharat Forge. It is also expected to encourage setting up of new manufacturing facilities for electrical equipment in India to cater to the growing demand from the power sector.

The Prime Ministers Office has given its nod for the proposal and the power ministry would now move a note for approval of the Cabinet committee on Economic Affairs (CCEA), a top source in power ministry said.

PMO principal secretary Pulok Chaterjee, who took a meeting on the issue in the first week of February, has set March 31 as the deadline for the power ministry to place its note with comments of all other ministries before the CCEA.

The proposal would be implemented for all the new UMPPs. Power ministry will recommend changes in the tender document for inclusion of mandatory domestic sourcing of equipment for all upcoming UMPP projects. It would immediately impact bidding process Bedabahal UMPP in Orissa and another project in Chhattisgarh. Both the projects are expected top come up for bidding soon and are based on domestic coal. Another project - Sakhigopal in Orissa — could be impacted when its terms are finalised later by PFC.

Reliance Power's two UMPP projects at Sasan and Tilaiya would not be impacted by the decision even though they are based on domestic coal. The project has already been awarded and the company has finalised vendors for the projects.

“The ministry of power will propose the extent and nature of domestic procurement. This could mean that entire procurement may not be mandated from domestic market as everything is not available in the country. We will also see that the condition does not results in escalation of the project cost that could be detrimental to the interest of electricity consumers,” said another government official privy to the development.

The country right now has domestic equipment manufacturing capacity of mere 18,000 MW largely supported by two major players Bhel and L&T. It is expected that capacity would go up to 35,000 Mw over next few years with new manufactures such as BGR Energy, JSW, Alstom-Bharat Forge starting their facilities. Bhel is also expected to ramp up its capacity to 20,000 MW by the end of year.

“Many of the domestic equipment manufacturing projects may not come up with full capacity, if domestic manufacturing is not encouraged by the government,” said an executive of private sector power equipment maker who did not want to be identified.

Another executive, however, said that mandatory domestic procurement of equipment would jack up cost and could delay projects as imported equipment not only come cheap but are also delivered fast.

The meeting taken by PMO also took note of this and asked power ministry to take necessary precaution in its proposal so that project cost did not escalate.