Govt considering sops for equipment manufacturers.

New Delhi: To discourage cheaper imports from China, the power ministry on Wednesday proposed a 19% import duty on power generation equipment.

In addition, the power ministry is offering another sop to domestic power generation equipment manufacturers, wherein a clause will be incorporated in the standard bid documents for future ultra mega power projects (UMPPs) requiring domestic sourcing of equipment. This proposal is to be moved to the empowered group of ministers, or eGoM.

“The note for the cabinet committee on economic affairs (CCEA) has been floated. We have asked for a 5% customs duty, 10% countervailing duty and special additional duty of 4% on the imported equipment. This will do away with the tariff or customs duty exemptions for mega power projects. If this distinction is done away with, there is no difference between mega and non-mega (projects),” said a senior power ministry official requesting anonymity.

Another power ministry official confirmed the development. CCEA is likely to take up the matter next week.

These recommendations are consistent with what a committee of secretaries (CoS) had earlier recommended. The Planning Commission member Arun Maira had recommended a 10% customs duty and a 4% special additional duty on power generation equipment imported from China to strike a balance between protecting local manufacturers and the need to import equipment to boost power production.

In the process, CCEA will do away with the government’s mega power policy that allows fiscal benefits to those building thermal power plants of at least 1,000 megawatts (MW) capacity—a tax holiday for 10 years and a customs duty waiver on equipment imports. At present, a 5% duty is levied on equipment imported for power projects with capacities less than 1,000MW.

Mint had reported the initial proposal in February 2010.

“Another note for the eGoM’s consideration will be floated shortly... making (sure) all such projects that will be awarded in the future... use local power generation equipment,” said the second power ministry official quoted above.

The eGoM is headed by finance minister Pranab Mukherjee and has law minister Salman Khurshid, coal minister Sriprakash Jaiswal, power minister Sushilkumar Shinde and Planning Commission deputy chairman Montek Singh Ahluwalia as members.

Such a move will also increase costs for power utilities as Chinese imports of boilers and turbines will become expensive. Chinese imports are relatively cheaper because equipment makers from that country benefit from low interest rates and an undervalued currency. Undervaluing the currency makes exports cheaper and increases the demand of products.

“The best way to do this is through the duty structure rather than the localisation of the equipment, which is very difficult to monitor, and maybe, even impractical,” said Anish De, chief executive at Mercados EMI Asia, an energy consulting firm.

India’s move to curb Chinese power equipment imports comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and how to plug a yawning trade gap in China’s favour. Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T) have been lobbying with the government to limit Chinese competition.

Power generation equipment manufacturers having a manufacturing base in India—Bhel, Doosan Heavy Industries and Construction Co. Ltd, and the joint ventures between L&T and Mitsubishi Heavy Industries Ltd; Toshiba Corp. of Japan and the JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH; and Thermax Ltd and Babcock and Wilcox Co.—will benefit from such a move.

Source : livemint.com