Chinese power firms in India under pressure due to rupee…

 

Chinese power generations companies which rapidly expanded operations in India in recent years are complaining of pressure due to depreciation of rupee and appreciation of China's currency RMB, saying it has eroded their profits.

Indian rupee devalued about 20 percent at one stage in 2013, while the RMB appreciated five percent, eroding 25 per cent of the gross profit margin, Xu Huadong, Chairman of Chinese machine and generator manufacturer Power HF said.

"We are forced to improve management efficiency and lower operation costs. But there is a limit. Our price advantage is diminishing, and we are considering opening production plants globally," he told state run Xinhua news agency.

Power HF, based at Weifang City in east China's Shandong Province, has exported 38,500 engines to India for use in telecom base stations across the country.

If those base stations break down, more than 100 million Indian mobile users will be affected.

The firm has also set up a network of 174 service stations employing more than 1,500 local people across India to provide 24-hour maintenance services.

Its business in India started in 2007, when the Reliance Group, one of the top three telecom companies in India, ordered the engines.

The Indian market now comprises more than 30 per cent of the total revenue of Power HF, which now has bigger plans.

"Currently we mainly provide maintenance services for the engines of the telecom base stations. In future, we hope to offer maintenance of air-conditioners, antennas and other equipment at the stations, based on our established network," Xu said.

The firm is eying other countries and regions, with Africa as the next key market.

"We want to copy the successful model in India, but adjustments must be made according to the situation in different countries," Xu says.

When Power HF entered India, the enterprise redesigned its products according to the hot and humid environment.

Since India has stricter noise restrictions, it also adjusted their engines to reduce noise.

"Now we are entering Egypt and we must take the heat, wind, sand and dust into consideration," says Xu, adding skilled workers were harder to find in Egypt than in India. So training maintenance workers will be given priority.

"The quality of Chinese machinery is already world level. But Chinese machinery manufacturers must focus on service if they want to go abroad," Xu said.

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Chinese firm Dongfang in talks to buy Trichy-based power firm...

 

Chinese firm Dongfang is in talks to take over Trichy-based power equipment manufacturer Cethar. The acquisition will help the Chinese company have presence in India. It will also help Dongfang control its costs as well as comply with the localisation norms in India.

Cethar, formerly known as Cethar Vessels, manufactures both sub-critical and super-critical boilers, used in power plants. It also designs and constructs thermal power plants up to a capacity of 800 megawatts. In 2010-11, it clocked sales worth Rs 2,430 crore. "The valuation of this company comes to around Rs 500-600 crore. They are currently in talks and the acquisition would help Dongfang have an entry into Indian manufacturing," said a person directly involved with the deal. Neither Cethar nor Dongfang responded to an email questionnaire.

Cethar was founded by K Subburaj, who started it in Trichy as a sub-contractor to Bharat Heavy Electicals (BHEL). Subburaj had worked for the Indian Space Research Organisation (ISRO) prior to starting the venture. The company expanded into power manufacturing and then into a construction company for power plants.

Analysts say Indian facilities can help foreign companies as they have been asked to set up service centres in India to help power plants under construction using the equipment. "This move will help because power companies will definitely prefer firms that have domestic presence," said Piyush Nimgaonkar, manager at CARE Research.

Dongfang, along with Shanghai Electric and Harbin, has already garnered a major market share amongst private power generators. About 24,437 megawatts power capacity is installed in India; plus, 40,000 megawatts of power capacity, based on Chinese equipment, is under construction. This has created a huge furore amongst Indian manufactures such as state-owned Bharat Heavy Electricals (BHEL) and private engineering company Larsen & Toubro.

After multiple representation by industry bodies as well companies, the government has made it mandatory for Chinese companies to have service centres in India. In transmission and distribution sector, state-owned companies are preferring companies having domestic manufacturing facilities. A bulk tender for the country's largest power generator, NTPC, had barred foreign companies which did not have an Indian joint venture partner.

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Factor in lifetime costs of power plants while importing from China: CEA

 

Reports say that Indian imports of power equipment from China have hugely shot up and risen to 45% of the market in 2012-13, up from just about 15% in 2005-06.

Now, there are gains from trade, and the power producers can be seen as duly taking advantage of attractive prices and prompt delivery schedules of Chinese power gear.

However, a recent study by the Central Electricity Authority (CEA) has reportedly reiterated, again, that Chinese equipment already installed routinely underperforms on all key parameters, compared to those designed and built domestically. The need is to design incentives to factor in lifetime rather than initial costs.

When it comes to operating ratios, heat rate, auxiliary consumption, forced outages, etc, the imported power systems have been deficient. We need to address the real risks of malfunction and compromised safety at the Chinese-equipment plants.

It is possible that the imported power systems have not been designed to accommodate the various peculiarities of Indian coal and operating conditions. It surely makes a cast-iron case for Chinese equipment makers to mandatorily set up facilities here in India to design, build and maintain power systems.

In any case, about 25,000 MW of installed generation capacity, which is a considerable chunk of the total nationally, is already based on imported Chinese equipment like boilers and turbines, and to service and maintain the systems, local presence ought to be imperative.

Domestic power producers can be encouraged to import equipment provided, of course, that the capital goods meet domestic operational standards in actual working conditions. In tandem, domestic power equipment makers need market access and a level playing field in China.

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Industry unhappy with govt plans for Chinese power equipment firms...

 

The government’s latest plan to have Chinese companies set up power equipment service centers in India does not seem to have gone down well with the domestic industry.

Indian manufacturers are concerned over losing market share in the absence of what they call “level playing field” to compete with Chinese manufacturers.

“A level playing field would have been created if we had made it mandatory for Chinese companies to set up manufacturing facilities too here. Also, there is a huge trade imba;ance that must be addressed before promoting Chinese competition,” Raj H Eswaran, President, Indian Electrical Equipment Manufacturers Association (IEEMA) said.

During Prime Minister Manmohan Singh's recent official to China, the two neighboring nations signed a Memorandum of Understanding (MoU) in Beijing Wednesday to set up Power Equipment Service Centers (PESCs). China's National Energy Administration inked the initial agreement with India's power ministry.

The service centers will give Indian companies access to spares and after-sales services for equipment imported from China.

“We welcome healthy competition but there should be level playing field to compete with Chinese companies which outbid Indian firms owing to the soft loans provided by that nations government apart from various subsidies that drive down their cost,” a senior executive from Indian Electrical Equipment Manufacturers Association (IEEMA) said.

Chinese firms have supplied equipment with a total capacity of 60,000 Megawatt (Mw) in India so far. Of this, 20,000 Mw has already been set up. The government’s latest initiative comes at the backdrop of a recent study by the Central Electricity Authority (CEA) that raised questions over quality of Chinese equipment.

Also, the Indian government had last year raised Basic Customs Duty (BCD) on import of equipment for mega and ultra mega power projects to 5% leading to an overall duty of 21% including Countervailing Duty (CVD) of 12% and a 4% Special Additions Duty (SAD). Power gear imports attracted nil duty earlier.

“However, this 5% additional duty has not addressed the problem fully. Indian firms are suffering a cost disadvantage of 24% according to the industry’s calculation,” the IEEMA executive said.

He also said the domestic industry has enough capacity to provide after-sales services adding that the Chinese firms have already captured as much as 40% of the domestic market where an opportunity of annual sales of 17,000 Mw capacity exists at present.

India has a current domestic equipment manufacturing capacity of 27,000 Mw. Power equipment worth Rs 130,000 crore was sold in India last financial year. Around 28% of this comprised generation equipment while the rest 72% of the sales occurred in the transmission and distribution sector.

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Indian government to disallow the ecb from china for power projects to protect the domestic market...

 

Indian Government has decided to disallow the cheaper External Commercial Borrowings  from China in terms of Yuan credit for power plants to protect the domestic power equipment manufacturers market.

External Commercial Borrowings (ECB) refers to commercial loans from overseas lenders. It can be in the form of bank loans, buyers’ credit, suppliers’ credit or securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares). The minimum average maturity of such loans is three years. ECB is usually considered cheaper compared with domestic loans.

Currently, Indian companies are allowed to raise such loans up to a limit of $1 billion.

Earlier, to mitigate the high power shortage in the country, the decision was taken to allow ECB in Chinese Currency to facilitate imports of power equipment's such as Boiler, Turbine, Generated and related accessories.

However, post that the share of Chinese Equipment's in the domestic market has been raised to as high as 50% and according to the Reserve Bank of India availability of long-term, low interest export credit from China will further distort the status in favor of Chinese manufacturers adversely affecting the domestic manufacturers.

Meanwhile, domestic companies got some relief last year, when import duty was raised on imported equipment for power projects.

 

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Additional Reading...

• http://www.thehindubusinessline.com/industry-and-economy/to-halt-chinese-imports-govt-to-bar-yuan-borrowings-for-power-sector/article4949460.ece
• http://www.metisbs.com/details/new/38911/to-halt-chinese-imports-govt-to-bar-yuan-borrowings-for-power-sector.html

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China to fast track India’s Hydel Projects development ! ! !

While the title of this post seems illogical and surprising at times; the same is becoming a reality now-a-days. With the China factor looming large, the Centre is desperately pushing the Arunachal Pradesh Government to expedite the development of storage hydroelectric projects on the Brahmaputra.

According to reports, China is planning to construct world’s largest hydro-electric project on river Brahmaputra after its own another largest hydro-electric project; Three Gorges Dam.   The proposed project is being constructed on the upper reaches of the river involving the setting up of a massive dam on the bend of the Yarlung Tsangpo — the Tibetan name for the Brahmaputra.

This will force India to speed up its own hydro projects on Brahmaputra to create a strong bargaining position to detract China from building mega hydel projects on the upper reaches of the river.

So far, India's success rate on this front has been dismal. Projects such as the 3,000-MW Dibang have been stuck for over three years now. Just two projects — NEEPCO's 600 MW Kameng and NHPC's 2,000 MW Lower Subhansiri — have a realistic change of coming up on the Brahmaputra over the next six years.

Even as NTPC Ltd has been roped in to prepare a feasibility study for a proposed 9,750-MW Siang Upper hydroelectric project, analysts are sceptical of how fast things can move.

Road and rail links, a prerequisite for transporting equipment to project sites, are lacking desperately. A key transmission link that was to come up for strengthening linkages with the North-Easter during the current Plan period is still held up for funds.

Additionally, the stated position of the Arunachal Government to avoid storage projects involving big dams is a hurdle.

The Ministry of Power has recently stated before the Parliamentary Standing Committee on Energy that it is trying hard to convince the Arunachal Government on the need for storage projects, officials said.

According to Dr. Brahma Chellaney, Professor of Strategic Studies, Centre for Policy Research

“If India harnesses the Brahmaputra in Arunachal through the proposed projects, it will strengthen its case against China's building of a mega-dam at Metog. But, it will have to do it before China does its project. Under the doctrine of prior appropriation, a priority right falls on the first user of river waters,”

The Tsangpo river flows through 1,625 km in Tibet, and then enters Arunachal Pradesh, where it is known as the Siang. Further down, the Siang — after its confluence with the Dibang and Lohit — is known as the Brahmaputra.

India is thus, on the downstream side of all the developments being planned in China on the river.

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