Power sector hopes for reforms at state level as Centre curbs imports

The Centre may be moving at a fast pace to curb import of equipment, but the power industry is hoping that reforms will trickle down to the states as well. As growth of electricity infrastructure is expected to come from states, the industry wants them to follow a single bidding guideline and give preference to domestic manufacturers.

Given the federal structure in the power sector, most states float tenders different from the Centre and adopt separate selection criteria, mostly tilting towards low cost. 

The ministry of power on Tuesday announced several barriers for import of equipment for power generation, transmission and distribution gear, solar cells and modules. It also said there will be standard bidding guidelines for procuring solar gear. The electricity industry wants this to be for every equipment in the supply chain.

In 2016, the Centre had planned to standardise price and specifications for last-mile equipment in the power distribution sector and design a model tender process for all to follow. This was done to reduce final power tariff and weed out arbitrary procurement of equipment by states. The move was later rolled back after several states opposed it.

“Most states prefer a supplier offering a low price with no consideration for quality. A standard process would ensure quality and level-playing field for all,” said an industry executive. The electric equipment and solar manufacturing segments have been complaining against the low market price of imports, especially from China.

In the electrical equipment segment, imports from China constitute close to 30 per cent of the total imports worth Rs 71,570 crore. This includes power and distribution transformers, conductors, cables, meters, motors and switchgears. These equipment are mostly used in the power transmission and distribution sectors. Size of the Indian electrical equipment market is Rs 2.08 trillion. Domestic production accounts for Rs 1.9 trillion.

The power ministry said that for any equipment for which there is sufficient domestic capacity, its import should be avoided. The ministry also said, “In respect of equipment/items required to be imported, the import of such equipment/items from prior reference countries shall be done only after obtaining prior approval of ministry of power/ministry of new and renewable energy.”

Adversary countries are classified as ‘prior reference countries’ and China is yet to be classified as one. The ministry of commerce, however, has fast-tracked efforts to curb imports coming from China.

After a series of discussions with power sector industries, the ministry has offered dole of low-cost financing for projects which use domestically manufactured goods.

The industry, however, has asked the government for policy lock-in period and relief measures for the domestic industry. “The government should ensure that the current policy regime continues for at least five years so that our investment doesn’t stand at risk. Also, domestic financing should be boosted for the renewable energy sector,” said an industry participant from the solar power sector.

In the renewable space, while wind power has a strong domestic supply chain, solar power projects are majorly dependent on imported solar panels. Close to 75 per cent of India’s solar power capacity is built on Chinese solar cells and modules. India’s solar cell (component of a solar panel) manufacturing capacity stands at 3 Gw and for module (finished product) it is 5 Gw. The country’s solar power generation capacity stands at 32 Gw.

India awarded its first solar manufacturing tender recently. Under this, Adani Green and Azure Power will undertake solar cell and module manufacturing of 2 Gw and 1 Gw, respectively.

To support indigenous solar manufacturing, the power ministry also proposed a basic customs duty on imported solar cells and modules. However, with 63 per cent cell manufacturing and 43 per cent of module manufacturing facilities located at the SEZs, some players feel basic customs duty (BCD) will be counter-productive. SEZs come under the ambit of customs duty. 

“If the government plans to levy BCD, it must take necessary steps to protect investments made by manufacturing companies in SEZs. This can be done by providing exemption,” said Saibaba Vutukuri, chief executive officer (CEO), Vikram Solar.