In a major boost to domestic power equipment manufacturers such as Bhel and L&T, developers of all future ultra mega power projects will have to source their equipment from indigenous sources. The power ministry has inserted a mandatory local sourcing clause in the standard bidding documents (SBDs) for the Bedabhal and Cheyyur UMPPs, where tender is likely to be issued this week.
Earlier, bidders for UMPPs were allowed to source equipment from wherever they wanted. For example, Tata Power has sourced equipment for the Mundra UMPP from Korea’s Doosan. Similarly, Reliance Power has purchased equipment from a Chinese vendor, Shanghai Electric, for its Sasan UMPP.
Power ministry sources said successful bidders for the upcoming Bedabahal and Cheyyur UMPPs will have to source their equipment locally.
?Bidders for Bedabahal, Cheyyur UMPPs can buy equipment from only those Indian or foreign companies or joint ventures who have manufacturing facility in India,? a senior power ministry official said. The ministry’s assessment is that the decision would not have any significant impact on electricity generation costs. The Request for Qualifications (RFQs) for Bedabahal and Cheyyur UMPPs are being finalised and will be issued on September 25 and 26, respectively, Power Finance Corporation said on Monday. Discoms nominated to buy electricity from these projects are already on board.
Encouraged by the ministry’s ambitious capacity addition programme for coming years, domestic power equipment suppliers have significantly ramped up their manufacturing capacities in recent years. But now fresh orders for equipment supply are drying up as issues like fuel constraints and environmental hurdles have forced developers to go slow on their capacity addition plans.
Praful Patel, minister for heavy industries, has been lobbying with the power ministry to curb imports of power equipment especially from Chinese vendors who have wrested one-third share of Indian power equipment market from Bhel by offering 15-20% lower price.
?Large-scale orders, including those from UMPPs, have been placed with Chinese and Korean suppliers. As a result, power plant manufacturing capacity in India remains substantially underutilised. The condition of domestic manufacturers will worsen further if the status quo continues,? Patel said in a letter sent to the power minister Jyotiraditya Scindia recently.
In recent years, private players such as L&T, Bharat Forge and JSW Energy have set up manufacturing facilities to benefit from the ambitious capacity addition planned in the power sector, while state-owned BHEL has substantially ramped up its manufacturing capacity.
However, the drying up of fresh equipment supply orders has now started hurting their bottomlines.
For example, Bhel’s net profit halved during the period while net sales dropped by 23%.
Its order book shrunk by 6% in the quarter.
The power ministry envisaged a total of 16 UMPPs for implementation through bidding route. Of these, four ? Krishnaptnam, Tilaiya, Sasan and Mundra ? have already been auctioned.
Meanwhile, the ministry has planned to start bidding for Bedabahal and Cheyyur UMPPs, which are located in Orissa and Tamil Nadu.
Power companies have strongly opposed the proposal to put curbs on imports of equipment by UMPPs, saying domestic suppliers already gained cost benefits of over 30% due to levy of duty and depreciation of rupee. They have also expressed apprehension that arranging funds for these projects could become difficult if developers are required to source equipment locally.
Significantly, lenders from Korea and China have provided funding for Sasan and Mundra UMPPs where vendors from their respective countries are equipment suppliers.
