As private power manufacturers opt for Chinese equipment, BHEL gears up to take on the competition on the opponent's rules
The senior managers of a three-year-old thermal power plant in North India say that the Chinese equipment they installed has been giving them trouble due to low quality. They are not alone. Around the country, power plants have claimed that they bought cheaper Chinese boilers, turbines and generators in preference to Indian equipment only to see them malfunction too quickly.
On the surface, it looks like a demand for better quality. But look closer and it is clear that a quite different battle is brewing. It is one way the local industry is reacting to the Chinese invasion into the country’s power equipment sector.
But not everyone is unhappy. Take Lanco Infratech, in the power business for more than two decades. It has enough confidence in its Chinese suppliers to have them equip half its requirements for the next four years. Lanco is clearly not the only one vouching for the viability of Chinese equipment. Between 2004 and 2007, firms in China accounted for equipment in 18 power plants in India.
The debate over the quality of Chinese equipment is a side show to the main drama — the rapid entry of Chinese firms that has seen the state-owned market leader Bharat Heavy Electricals Ltd. (BHEL) losing ground.
India’s power sector was dominated by state firms for long. BHEL was the equipment supplier and the National Thermal Power Corporation (NTPC) was a dominant force in power production. But today a host of new entrants, such as Reliance Power, Adani Power and Lanco, are serious players.
Over the past five years, private players have been increasingly moving away from the state behemoth because of its low production capacity, delayed delivery performance and cost factors.
The reasons for importing equipment from China are simple: They are cheap and are delivered on time. But there is one factor that clinches the deal for the Chinese. They bundle their equipment with easy financing from large Chinese lenders. The cocktail is simply irresistible for the Indians.
An executive with a well-known power utility said there is a big difference in the rate of interest charged by Indian and Chinese banks. While Indian banks charge around 10 to 13 percent interest on loans, Chinese banks charge only 4 to 6 percent.
What Ails BHEL?
(This story appears in the 06 May, 2011 issue of Forbes India. To visit our Archives, click here.)