India - Over Reaction;Power Sector

The power ministry may be seen to be doing the right thing when it tries to prevent India from becoming the dumping ground for what some allege is low-quality Chinese power equipment. As the minister of state for power and commerce, Jairam Ramesh, put it after news came out that one of the turbines supplied by a Chinese manufacturer had failed, he did not want the independent power producers to serve as a window for imports. There have been reports in the past of Chinese equipment failing in other countries too, and the general impression when it comes to low-cost Chinese goods in many areas is that they are designed to reduce cost, by sacrificing their life-span of operations. The Central Electricity Authority has now been asked to form an internal group to conduct a technical audit of Chinese equipment; there is even talk of not allowing the government-owned Power Finance Corporation to finance power plants that use equipment that is not Indian; other restrictions being talked of include allowing only foreign companies with Indian manufacturing facilities to bid for power plant contracts, and even restricting coal linkages to power plants that order equipment from local manufacturers of repute. This last restriction, interestingly, is being planned only for small projects (less than 200 Mw in size), possibly because companies planning larger projects, such as the Reliance ADAG group, which is using Chinese equipment for setting up ultra-mega power projects, are too big to take such restrictions lying down.
The problem with this restrictive approach is that it sounds suspiciously like a 1970s show, where the sole attempt was to protect local equipment suppliers, irrespective of their ability to compete in bidding and to deliver the cost and timely supplies that may be required; or to achieve indigenisation of manufacture through what used to be called the phased manufacturing programme. Such an approach assumes that those setting up power plants don’t know what is in their best interest (and only the government does!). In a market which is starved of power, and where private investors are finally coming forward with serious investment decisions, the government should let well alone and allow competitive bidding to work. Chinese equipment manufacturers have been winning orders because their costs and their delivery schedules are far better than what is offered by the competition, and this is what enables the private power producers to commit themselves to power generation at much lower rates than prevail in the market today. And since leading business houses are doing the investing, there is too much reputation risk at stake for them to opt for poor quality equipment that may not deliver what is promised.
This is not to argue against technical audits, which can do no harm. ISO-type standards can’t hurt, either, if they are uniformly used for all suppliers, since these will ensure that they are benchmarked on the basis of common yardsticks. But it should be kept in mind that the Chinese firms in question have been successfully supplying equipment to meet not just the large domestic demand in their home country but also to other countries. Second, local manufacturers like BHEL are woefully short of capacity to meet the likely increase in demand for power equipment. If the problem is an isolated case of equipment failure, the government needs to be sure that it is not over-reacting to the situation.