State Grid Corp of China focused too much on price in deciding the winner of its December tender for electricity meters, which could affect the quality and after-sales service, according to the chief of Wasion Group Holdings, the mainland's largest electricity meter maker.
The state power distribution monopoly, which is expected to announce the tender results early this month, might be changing its criteria for selecting suppliers, Wasion chairman Ji Wei said.
'In the last round of bidding, price competitiveness was the single most important factor for contract awarding,' he said.
'We think this is temporary, as prices will return to normal levels sooner or later, since meters are core equipment, whose accuracy and reliability are more vital than cost.'
Ji said quality and after-sales service would be better ensured if State Grid applied a discount to the average of the bid prices in the tender and came up with a winning price, instead of adopting a 'lowest price wins' formula.
Electricity meters are part of the country's four trillion yuan (HK$4.55 trillion) investment plan to build 'smart grids' to enhance the efficiency of power distribution and provide the capability to absorb more clean energy. About half the nation's 400 million households have installed power meters.
State Grid suspended procurement of meters by its regional subsidiaries last year. The operation was centralised at headquarters, which launched the first round of bulk sourcing in December, in which 23 producers out of more than 100 were awarded orders.
Wasion won about 13 per cent of the orders by value for single-phase meters, which are installed in homes, Ji said. The company got none of the orders for three-phase meters used by power generators, as it did not price aggressively enough, although overall it won the third-most contracts by value.
About 2.68 million single-phase meters and 260,000 three-phase meters were tendered. The second round of bidding involves six million meters, and the third round - whose results are due out late this month - comprises seven million units.
Ji believes Wasion ranks No1 in terms of technical competence, with several hundred research and development staff, and it is one of a few manufacturers helping State Grid to compile its product standards specification.
A State Grid official familiar with the bidding process conceded the firm had adopted a meter sourcing policy based on a 'lowest price wins' principle to cut procurement costs and 'maintain fairness'. Quality was ensured as bidders had to pass quality tests.
'Most manufacturers have agreed that this is a good way to conduct the procurement,' he said.
'It is true that this system will be less advantageous to some of the most technically competent companies ... We are not ruling out the possibility of moving to a composite competition system that includes price, reliability and quality as criteria, but the bottom line is the system must be accepted by the majority of manufacturers.'
Ji said only 10 of the 23 winning bidders had had all their submitted meters pass the quality tests.
'The danger is if prices are too low, some suppliers may sacrifice quality and service, but this will also help consolidate the industry, as those that fail to meet delivery schedule and have quality problems will be kicked out,' he said.
Wasion last week posted a 0.2 per cent gain in net profit to 262.04 million yuan for last year. Ji attributed the flat profit to a delay in tendering by State Grid owing to the move to centralised sourcing, while exports were hit by the financial crisis.
State Grid accounted for 52 per cent of sales, compared with 19 per cent for China Southern Power Grid, 26 per cent non-power customers and 3 per cent exports.