Ban on foreign suppliers set to hike UMPP tariffs

The Empowered Group of Ministers’ (EGoM) decision to bar foreign equipment makers who don’t have manufacturing bases in India from supplying equipment to ultra mega power projects (UMPPs) has not gone down well with some top officials of the power ministry.

“The decision to ban import of equipment seems ad-hoc. It undermines the ethos of the Electricity Act, which was introduced to promote competition in the Indian power sector to bring down the cost of power. The government’s decision to kill competition from Chinese players will result in higher power production costs of future UMPPs. We have interacted with some private players after the decision and all have expressed their concerns. At our level, we have raised the issue, but we are not the ultimate authority,” said an official.

The government has so far awarded four UMPPs —- Mundra in Gujarat, Sasan in Madhya Pradesh, Krishnapatnam in Andhdra Pradesh and Tilaiya in Jharkhand —- based on the lowest tariff quoted by the bid winners. Tata Power has bagged the Mundra UMPP, while the rest have gone to Reliance Power.

Interestingly, while Tata Power has placed its equipment order with Japan’s Toshiba and Korea’s Doosan, Reliance Power has placed orders with China’s Shanghai Electric.

All the UMPPs received aggressive tariff biddings, with Krishnapatnam being awarded at Rs 2.33 per kilowatt hour (kWh), Mundra at Rs 2.26/kWh, Tilaiya at Rs 1.77/kWh and Sasan at Rs 1.19/kWh.

Analysts say such aggressive bidding was possible due to the assurance of cheaper foreign equipment.  “With the Chinese equipment makers out of future UMPPs, it would be difficult for power players to quote power tariffs in the same range as we saw in UMPPs awarded so far,” said Rupesh Sankhe, analyst, Angel Broking.

According to estimates by auditing and consulting firms, Chinese supercritical equipments are 10-15% cheaper than those made in India and are delivered at least 10 months before state-run Bharat Heavy Electricals.

In fact, just a few days ago, the Central Electricity Authority too had praised Chinese power companies for their relatively lower cost and delivery periods.

Chinese companies have huge manufacturing capacity and their delivery of boiler turbine generator equipment is much quicker and at lower cost, it said in a report.

India has a power generation capacity of 153,000 mw at present and expects to add 62,000 mw by 2012. The ban on foreign equipment could make it difficult to achieve that target, the power ministry officials said.