Indigenised equipment companies mandatory: Govt to power promoters

The directive, based on the feedback from the group of ministers (GoM) headed by finance minister P Chidambaram, has come from Prime Minister Manmohan Singh and is part of an overall drive of the government to give a fillip to domestic manufacturing capabilities of power equipment — especially those based on super critical technology.

The directive also adds that “when such procurement of power is done through tariff based competitive bidding, the benefits of customs duty, excise duty and deemed export under mega power policy should be available to such players.”

Till now, UMPPs were offered to promoters who quoted the lowest tariff and were thereafter free to choose to their equipment suppliers. As cost of power equipment forms a major chunk of the total project cost, these promoters can choose their equipment suppliers keeping in mind the tariff they had quoted for the power plant.

It needs to be mentioned that the choice of selecting a vendor for the supply of equipment has a bearing on the avenues of funds available to the promoter of a project. Typically, promoters have access to vendor credit from the export import bank of that particular country where the equipment supplier (or vendor) is located. Recently, Tata Power, as part of their financial closure for their Mundra power project, sourced vendor credit from the Korean EXIM bank because they sourced equipment from a Korean manufacturer.

The government’s thinking on UMPPs is part of the overall package on “induction of super critical technology” after the heavy industry ministry proposed that central power utilities should place bulk orders for supercritical power equipment on BHEL.

While the PM has cleared the concept of bulk orders, these would given on the basis of international competitive bidding. Starting with seven such plants, the lowest bidder would get four orders and BHEL — which also can participate in the bidding process — would get the balance three but at the price quoted by the lowest bidder. However, all these projects would have a phased manufacturing programme rider attached with the tender.