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India to buy $7B of power plant equipment from China
According to Lloyds Register Quality Assurance (Surrey, United Kingdom), a leading provider of business assurance and compliance certification, Chinese companies are manufacturing power equipment such as turbines, boilers and generators that will be used to produce nearly 22,000 megawatts (MW) of electricity in plants across India.
Major Chinese suppliers include Dongfang Electric Corporation Limited (Chengdu, Sichuan province), Shanghai Electric Group Company Limited (Shanghai), and Harbin Power Equipment Company Limited (Harbin, Heilongjiang province). Indian buyers mainly include key firms in the power sector, such as Jindal Steel and Power Limited (Hisar, Haryana), the Adani Group (Ahmedabad, Gujarat), Essar Group (Mumbai), KSK Energy Ventures Limited (Hyderabad, Andhra Pradesh), JSW Energy Limited (Bellary, Karnataka), and Reliance Industries Limited (Mumbai).
India is currently experiencing a power deficit of about 9 percent to 13 percent. In order to meet the country's soaring demand for electricity, India's government plans to build power plants capable of generating 92,000 MW as part of the ongoing Eleventh Five-Year Plan period, 2007-2012. This ambitious target is set to increase the country's total power generation capacity to about 237,554.97 MW by 2012. Key domestic companies, such as Bharat Heavy Electricals Limited (BSE:500103) (New Delhi), India's largest equipment manufacturer and engineering company in the power sector, lack the infrastructure required to supply plant equipment for India to attain its proposed target. BHEL currently has a capacity to produce only 10,000 MW per year of power equipment, forcing Indian companies to turn to China to fulfilling demands.
The Chinese companies will bridge the gap by supplying nearly 23 percent of the required equipment. A comparatively faster turnaround time for delivering equipment at significantly lower prices is an important factor that works in favor of the Chinese firms. They are capable of supplying equipment for a 4,000 MW plant in 18 months, which is 30 percent faster compared to domestic companies. The manufacturing capacity of Dongfang Electric, for instance, is 20,000 MW, which is twice that of BHEL. Chinese suppliers have also consistently been cost effective, quoting prices that are 10 percent to 12 percent lower than the best offer from BHEL.
Chinese companies have been steadily securing orders from Indian power companies despite problems being reported over installations in some power plants. The firms had come under the scrutiny of the Central Electricity Authority (New Delhi), the Indian government's statutory organization for regulating the power sector, which performed a complete audit of the equipment supplied and released a set of recommendations for future supplies. However, the Chinese firms have rebutted claims of inferior quality of their equipment, as no major failure has been reported since the incident of faulty turbines at West Bengal Power Development Corporation Limited's 300 MW Sagardighi project last year.
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