Power Generation Sector Unhappy as Indian Government Imposes 21% Duty on Imported Equipment

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The Indian government has confirmed that a 21% import duty will be imposed on imports of power equipment, with the aim of protecting domestic suppliers form the cheaper Chinese products.

The cabinet approved a basic customs duty of 5%, a countervailing duty of 12%, and a 4% additional duty on power equipment. Earlier, the Power Ministry had proposed a set of duties that could have amounted to more than 21%. To date, imports for equipment of less than 1,000-megawatt (MW) capacity attract 5% customs duty, and those rated above 1,000 MW have been exempt.

The duty is intended to protect domestic equipment producers against cheaper imports, but the Association of Power Producers (APP) maintains that the move will only increase the cost of power generation. There has been contention between the Power, Commerce and Industry ministries and the Heavy Industry Ministry with the industry-related ministries looking for higher duties.

These moves are occurring as power generators are seeking the most cost-effective deal and delivery guarantees; in the national power sector, the supply chain of equipment, Chinese and local, is by no means seamless. At the same time, the power generators are trying to cope with fuel feed breakdowns and project permitting delays at a time when challenging major national power addition targets have been set.

In the drive to create more capacity in domestic equipment manufacturing, the state-controlled Power Grid Corporation is in discussions with local companies to set up a 50:50 joint venture to manufacture power transmission equipment. The state-controlled companies involved are Steel Authority of India Limited (BSE:500113) (Kolkata), National Aluminum Company (BSE:532234) (Bhubaneswar) and Rashtriya Ispat Nigam Limited (Visakhapatnam).

Investment in the joint venture would total about $55 million, with the joint venture partner contributing to the supply of raw materials for manufacture. The plant would cater primarily to the power grid's needs as the national transmission network company, with some opportunities for exports. Currently, the power grid sources equipment from a range of independent companies.

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