A television debate following the simultaneous failure of three grids on 31 July revealed India’s plans to integrate its power grid with China, and other neighbours. Not being a subject expert, one cannot opine if this conflicts with current moves by states to ensure ‘islanding’ so that sudden fluctuations in drawing power from the grid do not trigger total blackouts across states. Experts, however, point out that just as FDI dominance in the telecom sector is a permanent threat to national security and in the aviation sector in times of war; so also a critical sector like power should not be dominated by a nation with territorial claims on India.

One reason for the collapse of the northern, eastern, and north-eastern grids last month is inadequate power generation and obsolete, ill-maintained infrastructure. Now, as India gears up to meet the estimated increase in demand (an additional 315,000 MW by 2017; investment $600 billion) to support the desired 8% growth rate, doubts are surfacing over the service, operations & maintenance, and longevity of Chinese power equipment that is steadily dominating India’s power sector.

According to official figures, in the XI Plan period (2007-12), the total capacity added stood at 45,064 MW, of which Chinese equipment accounted for 17,772 MW (market share 39.4%). Of the 2012-onwards under-construction capacity of 96,650 MW of thermal power, Chinese equipment accounts for 38,900 MW (market share 40.2%), leaving the balance of 57,750 MW to BHEL and Joint Ventures which will import equipment, mainly boilers, turbines & generators, from established multinational partners and eventually reduce the market share of Chinese power firms. The government’s recent decision to impose duty at peak rates (~21%) may also affect future imports from Chinese firms. Hitherto, supplies to all domestic power projects above 1000 MW capacity invited 0% customs duty.

As of now, the high market share of Chinese power equipment is mainly because Independent Power Producers (IPPs) and other clients find them 20-25% cheaper than domestically manufactured equipment. It is also delivered on time, averting delays and cost overruns; a delay of six-12 months increases costs by roughly 10%. Above all, the deals are sweetened by easy financing.

A Forbes study noted that Indian regulations require power generation firms to have a debt equity ratio of 30:70. A company planning to expand capacity by thousands of megawatts over the next few years would have problems raising so much capital at high interest rates (Indian banks usually charge 10-13%). Chinese banks levy just 4-6%, but involve purchasing equipment from Chinese firms, a strategy that has enabled Shanghai Electric and Dongfang Electric to bag orders to the tune of 40,000 MW from private players.

China has also made rapid inroads in the local transformer market, putting established giants like Bharat Heavy Electricals Ltd and others on the defensive. Recently, the Power Grid Corporation of India gave Chinese firms 46% of its orders for high-grade 765 kV transformers needed to support 765 kV transmission lines which transport power from super critical power plants with generation capacity of 660 MW and above.

The flip side is that serious problems have cropped up with Chinese equipment at many places. The Haryana Power Generation Corporation’s Yamuna Nagar thermal power station had to shut down both 300 MW units since April 2012, as also two 600 MW units at Khedar, Hissar (one was fixed later), causing a shortage of 1000 MW at the height of the paddy season.

At Yamuna Nagar – Haryana’s first awarded to the private sector – both turbines failed within just four years of commissioning. Last year, one turbine rotor failed and was sent to Siemens’ Baroda workshop for repair, at a cost of Rs. 5 crore. An enquiry by the Haryana Power Generation Corporation Ltd identified two major lapses in design / construction, but the firm that set up the plant is unwilling to accept or admit the lapses and has refrained from rectification work.

At Khedar, the turbine blades were damaged as a “sealing strip” inside the turbine came loose and dented the blades. In the absence of a service facility in India, the turbine had to be shipped to Shanghai Electric Co’s facility in China for repairs. Official sources say Haryana purchased the Chinese equipment at Rs 3.49 crore per MW at Yamuna Nagar, and Rs 3.19 crore per MW at Khedar; similar BHEL units would have cost Rs 4 to 4.5 crore per MW. But now, the apparent gains have been wiped out by poor performance and generation loss.

Other plants with problems include West Bengal Power Development Corp. Ltd’s Sagardighi Thermal Power Plant, where the turbine blades collapsed and the piping systems in the boiler had snags; and the Durgapur Thermal Power Project.

Obviously, the O&M costs of Chinese equipment vis-à-vis domestic companies with manufacturing and in-situ service facilities are higher. Hence, given their massive footprint in the Indian power sector, Chinese firms are moving to set up manufacturing facilities in India to service clients, supply spare parts and overhaul power plants.

Meanwhile, the public sector BHEL which has been on the back foot since the Chinese inroads, claims that its power equipment is more efficient, reliable, and suited for the mixed coal used in India; also, its plants consume less fuel than those of the competition. This is supported by a Bank of America-Merrill Lynch report which says that BHEL equipment is superior to Chinese products after accounting for parameters such as auxiliary consumption, heat rate, plant load factor and metallurgy. Auxiliary consumption is the energy used by auxiliaries like cooling towers, while heat rate measures the ability of a machine to convert heat into power. Plant load factor is the ability of a plant to perform to its rated capacity. These overcome the lower costs of Chinese plants in the long run.

BHEL’s core problem is low capacity which causes huge delivery delays and commensurate cost escalation for clients. But now, pushed into a corner by Chinese commercial aggression, it is planning a subsidiary to finance power projects from its Rs. 10,000 crore cash surplus. Supplemented by tax-free bonds up to Rs. two lakh per citizen, and interest-free bonds for money returned from foreign havens, we could finance all our infrastructure needs domestically. India does not lack resources, but needs the will power and wisdom to marshal them effectively.

The author is Editor, www.vijayvaani.com