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Financing of Power Plant Equipment Manufacturing Facilities, Shri R V Shahi, Former Secretary, Ministry of Power

In the recent couple of years the activities in the Indian power sector have been pitched up to a level that the focus of attention has shifted from non performance of developers of power projects to the lack of capacities of manufacturers to be able to fulfill their commitments in terms of scheduled deliveries of plant and machinery followed by their smooth and timely execution. The gravity of situation has emerged so strongly that pendulum seems to be swinging to the other side - from a lazy and lethargic approach to expansion of manufacturing capacities by the existing power plant manufacturers to a number of new agencies showing interest and coming forward to set up new factories to produce boilers, turbines, generators etc. There are many such agencies but atleast three to four of them are seriously pursuing their efforts. In the light of this, financing of the expansions of the manufacturing sector has emerged as an important issue.

Infraline Energy organised a one day deliberation on this issue on 24th November at Delhi. I had the opportunity to address the first Inaugural Session and share the dais with Dr. S.N. Dash, Secretary, Ministry of Heavy Industry. The Inaugural Session was followed by a few technical Sessions which covered various issues, such as opportunities in power equipment manufacturing, capacity building for expansion of manufacturing sector, emerging developments in nuclear sector and their impact on manufacturing etc. But, the first Inaugural Session itself covered, in a capsule manner, the entire gamut of the issues outlined for the Conference. I outline below the important points brought out and discussed in the first Session:

  • It is true that during the entire period of 90's and also first few years of the last decade of the last century, power project developers provided enough reasons to the equipment manufacturers to be not only frustrated but in fact to be skeptical about the promised plans and programmes of power project capacity expansion. For example, just after the announcement of Private Power Policy in 1991-92, there was a euphoria for setting up as much as over 50,000 MW of capacity by dozens of power project developers. In a large number of cases, coal linkages were provided, and equipment manufacturers entered into MOU's for equipment supply. But, finally in a period of over ten years not even 7,000 MW of capacity could materialise. This historical truth led all those concerned with power development programmes to believe that perhaps the state of affairs would remain as they were and the new claims of the power sector that the things have changed and that expansions proposals are now more concrete and real were being disbelieved.

  • Judgements of equipment manufacturing sector have proved to be not only misplaced but entirely wrong. Upto the end of Ninth Plan (2001-02) the story was different. Apprehensions of coal sector and equipment manufacturing sector were indeed fully supported by disappointing performance of the power project developers in not being able to place workable and committed Letters of Awards on equipment manufacturers. However, where the estimation of manufacturing sector went wrong is in their inability to really understand the likely impact of the transformation that was emerging in the power sector. The thrust of the Government Policy re-orienting priority on distribution sector reforms, the pressures on State utilities to perform to comply with the conditions of the Tripartite Agreement, the radical overhaul of the electricity sector through powerful provisions of Electricity Act 2003 and host of other policies were setting a momentum in the sector whose impact should have been better understood and appreciated. Their disbelief about the committed expansions of this sector, even in the wake of the transformations being caused by the reform initiatives, as mentioned above, has emerged incredulously misplaced and wrong.

  • After the passage of the Electricity Bill, when the Act became effective in June 2003, I had series of interactions, and in most cases at regular intervals, with each of the important sub-groups of electricity equipment manufacturing sector, viz. main plant, balance of plants and transmission systems including transformers etc. The objective of these interactions was to disseminate with them the unprecedented expansions that the power sector was coming to the faced with and the nature of expansions and preparations which were needed by the manufacturing sector. Though it was difficult to convince them, most of them agreed to initiate their own plans of actions to match the expansion needs of the power sector. Many of them did take initial steps. What is, however, not explicable is the inordinate delays that have happened in effecting these expansion programmes. In the last three years, when the failures of these manufacturers came up as the most important reason for delays in commissioning of about 11,000 MW capacity in the last year of the Tenth Plan in various projects, all of which slipped to the first year of the Eleventh Plan, the matter received wide spread attention and the manufacturers were confronted with severe most criticism.

  • The contention of the manufacturers that they could not consider to create additional infrastructure unless they had firm orders is difficult to appreciate, in fact, very difficult to believe that such an approach could even be thought of. It is the industry which supports an expansion. If China could create a capacity of more than 600,000 MW in a period of about 50 years, during which India could create only 125,000 MW, it is primarily because China created a manufacturing base, within the country, which could support capacity expansion of the order of 70,000 MW per year. As against this, in India, even after 50 years, we could have a manufacturing base which could support domestically not more than 5,000 MW per year. The point is whether chicken is first or the egg is first. Even though there would have been periods of fluctuating demands, sometimes even slowdown or recession, manufacturing sector cannot make a logical point that orders have to be first before capacities to manufacture are created. Expanding manufacturing capacity itself has a gestation period. For example when the power sector started placing orders during 2002 and right through upto 2006 - and the process continues - it has been proved that the fallacious and flawed approach of the manufacturing sector that the orders should have been earlier than their expansions of manufacturing base has been proved not only wrong but it has been very costly for the power sector and, in fact, for the economy as a whole.

  • The problem has not remained confined to manufacturing of main plant equipment alone - boiler, turbine and generator. But Balance-of-Plants (BOP) such as Coal Handling, Ash Handling, Cooling Water, D.M. Plant etc. have been serious causes of concern in view of inordinate delays in their supplies and commissioning. We need to ensure this. Power Generation Utilities and Main Plant Manufacturers need to encourage and facilitate expansions of BOP factories.

  • We have experienced, in last three years, that with a lot of follow ups when the equipment arrives, six to twelve months delayed, their construction, and commissioning gets further delayed in view of inadequacies of construction agencies - both in terms of number and quality. Equipment manufacturers would not be right if they took a position that there job is to manufacture and what they could do if sufficient number of construction agencies of right standards are not available. In fact, they need to develop such agencies.

  • New construction machinery and technology available anywhere in the world need to be brought into power project development. A lot of delays and failures could be attributed to the absence of latest techniques, technologies, tools and tackles in our construction activities. Our Hydro-projects particularly need substantial modern methods in construction.

  • Availability of skilled manpower in project construction has also emerged as a challenge in last two to three years when activities have expanded. Crash programmes to develop sufficient number of skilled people is essential.

  • Global warming and climate change consequences place different sets of demands on equipment manufacturers. These expectations would create further challenges on innovative technologies and designs. We have to develop our plant and equipment based on natural resources that we have. If our coal has more than 40% ash content, manufacturers need to develop technologies and designs aimed at mitigating environmental problems emanating from such qualities of coal.

  • Energy efficiency in use of fuel is another major challenge for equipment manufacturers. Availability of fuel is limited. Technologies which will minimise the consumption of fuels while producing power are badly needed in Indian context. Our habit to depend on other countries to develop technologies for us must go. Domestic manufacturers must focus on this.

  • R&D efforts by manufacturing sector leaves much to be desired. R&D budget must increase. Brilliant engineers and scientists need to be placed in R&D centres and we need to create right environment for our research personnel to be motivated and to innovate.

  • Development and deployment of Integrated Gasified Combined Cycle (IGCC) power plants suited to Indian coal has been over due. BHEL alongwith NTPC and other organisations need to have a time bound approach on this.

  • Nuclear power is going to occupy larger proportion in coming years and its share may increase from less than 3% now to more than 6 to 7% in next 25 years. We need to develop manufacturing capability. Initiative of BHEL in this direction is a positive development.

  • New and Renewable systems of power generation need further focus. While on wind turbines we have made good success, we need to do a lot on bio-mass, geo-thermal, tidal and solar energy. In these fields again, our typical approach to look west must end. Equipment manufacturer in India need to have long term R&D strategy in each of these to innovate cost effective technologies.

  • Extra High Voltage (EHV) Transmission and Ultra High Voltage (UHV) Transmission systems need to be upgraded. Indian manufacturing must bring 765 KV (and even higher rating) together with HVDC into domestic manufacturing capability. When 70,000 MW to 100,000 MW of capacity per Five Year Plan are being targeted, challenges of Transmission System will multiply calling for new technological approaches.

  • Finally, expansion of manufacturing together with R&D will need suitable financing inputs. In last five years, even with existing infrastructure, the manufacturing sector has improved its turnover and profit manifold. Financially they are strong. However, financing needs of the sector will require to be met in the same manner as the financing needs of power projects. Future of Indian power sector expansion is very much dependent upon the expansion power equipment manufacture capacity.