Equipment makers' dream run starts to stall

Chinese power equipment manufacturers may be running out of steam in India after a dream run as they come to terms with a punishing import duty, currency depreciation and murmurs of complaints over quality.

Power equipment from Dongfang Electric, Shanghai Electric, Babcock Wilcox, Beijing Beizhong and Harbin Electric began to flood the Indian market from 2006 as local private power producers such as Adani, Lanco, Reliance, Vedanta and JSW switched to Chinese vendors.

The Chinese companies offered lower rates, easy finance and rapid implementation, making local market leader Bharat Heavy Electricals Ltd (Bhel) look like a dull old dawdler. While Bhel could supply 5,000 to 6,000 megawatts (MW) of equipment annually, the average Chinese company had spare capacity of up to 30,000MW.

According to the Indian Electrical & Electronics Manufacturers' Association, a representative body of the country's US$25 billion electrical equipment industry, China's share in Indian imports of electrical equipment, including power generation gear, has dramatically increased in the past few years and stands at 45 per cent of the total from 15 per cent in 2005-06.

Of the new projects earmarked for India's 11th Five-Year Plan to 2012, 49 per cent of power generation equipment orders went to Bhel and 30 per cent to Chinese manufacturers. For the 12th and 13th plans (2012-17 and 2017-22), Chinese companies have bagged 34 per cent of the orders placed so far and Bhel, 41 per cent, with the rest going to joint ventures between Indian and foreign generators.

As Bhel's order book began to shrink and the public-sector unit posted a loss for the first time in more than a decade, New Delhi decided to step in by increasing the import duty on power generation equipment from 5 per cent to 21 per cent this year.

"India is the major export market for Chinese power generation equipment manufacturers and grew rapidly prior to 2011," says Vik Chopra, a vice-president at Sun Hung Kai Financial.