New power plant equipment makers fear losing out to Chinese suppliers

Sunday, 20 Feb 2011

ET reported that Larsen & Toubro, Gammon-Ansaldo and other equipment makers, who hope to rival BHEL in India's power equipment market, fear they would lose out heavily to Chinese rivals as private power firms are willing to place orders only with tough conditions that add costs to their supplies.

Industry officials said that private power firms such as TATA Power, Reliance Power, Patel Engineering, Visa Power and Moser Baer Projects are asking equipment suppliers to give an undertaking that their foreign technology suppliers will ensure proper functioning of the equipment after delivery.

Technology providers, mostly in Europe, US and Japan, are not reluctant to provide such assurances, certification particularly to developing countries like India, and they would give such an assurance, called joint deed of undertaking, only if they also get royalty payment, equipment makers say. This would make it uncompetitive against Chinese equipment.

Industry experts said private power firms are demanding such undertakings, following the trend set by state-run companies like NTPC, Damodar Valley Corporation and state generation companies.

Mr Ravi Uppal MD and CEO of L&T Power told the ET that "Deed of joint undertaking is a double-edged sword. On one side it protects interest of the customer. The flip side is that outside partner also has a major say in which jobs and which terms to participate.”

He said that "When local players have established their credentials this kind of thing should not be insisted upon. The undertaking is being asked from local Indian companies for a joint venture, which they form with technology suppliers. In case of Chinese companies this doesn't apply. Suppliers charge a cost for making domestic suppliers uncompetitive.”

The problem is typical to private equipment companies' dealing in supercritical technology while state-run monopoly Bharat Heavy Electricals Ltd said it was in a position to ask for an exemption from the liability clause.

The energy efficient, supercritical technology is a forte of players in China, Korea and Russia but a relatively new area for Indian manufacturers. Cost of initial supercritical units in the country as it is more due to higher import content and low volumes.

Private power producers feel that fixing responsibility of foreign collaborators is a logical move as power equipment market in India is at a nascent stage. They said most lending institutions also compel generating companies to ask for equipment guarantees.

An Ansaldo Caldaie India spokesperson said that "As a matter of fact no foreign technology leader is prepared to sign a deed of undertaking covering total equipment. Technology providers are willing to sign back-to-back liability clauses. But besides loading to cost for the risk coverage, it is one of the serious bottleneck in up bringing power sector with world class technology at the speed it is required to meet national expectations.”

M S Unnikrishnan MD of Thermax India said that NTPC historically had the principle of taking joint deed of undertaking from technology suppliers. "But it is unfair on private companies' part to ask for it. We have been trying to negotiate with the private companies and inform them about our abilities."

(Sourced from ET)