Indian Infrastructure Committee Proposes Land Policy for Foreign Supercritical Power Equipment Manufacturers

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Indian Prime Minister's Committee on Infrastructure has recommended that foreign companies proposing to set up manufacturing facilities in India for supercritical power equipment be mandated to hold at least 75% of the land required before bidding for the project. The move is aimed at preventing encroachment on the country's power sector by foreign companies that do not have a domestic presence.

Quoting an official in India's Ministry of Power, the Economic Times reported that the proposal requires a foreign company to hold the land through either an Indian subsidiary or a joint-venture entity with an Indian firm. The panel, which consists of representatives from the Planning Commission and the ministries of power and finance, will seek approval from the cabinet to implement the proposal.

India currently does not have the manufacturing capability for supercritical power equipment. State-owned Bharat Heavy Electricals Limited (BSE:500103) (BHEL) (Mumbai) is the only power equipment manufacturer in the country with large-scale manufacturing capacity. The firm currently manufactures power equipment to generate 10,000 megawatts (MW). The Indian government plans to invite bulk tenders from foreign firms with a domestic footprint to manufacture large and efficient supercritical power equipment in the country.

Open to 100% foreign direct investment under the automatic route, the country's power sector is vulnerable to opportunistic forays by fleeting business enterprises. The committee's proposal assumes greater significance at this time, as NTPC Limited (BSE:532555) (New Delhi) and Damodar Valley Corporation (Kolkata, West Bengal) plan to issue tenders for power equipment soon after the newly elected government comes to power. Two companies and three consortia have expressed interest in the bulk contract. In the fray are Ansaldo Caldaie SpA (Milan, Italy), BHEL, a joint venture between Larsen & Toubro Limited (BSE:500510) (Mumbai) and Mitsubishi Heavy Industries Limited (TYO:7011) (Tokyo, Japan), a joint venture between Alstom SA (EPA:ALO) (Levallois-Perret, France) and Bharat Forge Limited (BSE:500493) (Pune, Maharashtra), and another joint venture between Toshiba Corporation (TYO:6502) (Tokyo, Japan) and the Jindal South West Group (Mumbai).

As part of its monitoring process, the Indian government has also mandated additional qualifications for foreign firms interested in the bulk tender. Before a bid submission, the proposed manufacturing company must be registered in India and should have procured a certificate for commencement of business. The firm or consortium winning the bid will be required to execute the contract according to the milestones and indigenization plans outlined in a phased manufacturing program. In the event of any deviation from the plan, the firm would have to shell out a penalty of up to 5% of the value of the contract.

As India aims to increase its power generation capacity by more than 78,500 MW by the end of the ongoing Eleventh Five-Year Plan period, 2007-12, with a large portion of the new generation capacity being supercritical, there are concerns that the preventive checks and measures being enforced by the government could pose a hindrance. India would not be able to invite several Russian and Chinese power majors to participate in the bulk contract, as they do not have a domestic presence.

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