The global electrical equipment industry is estimated to be about $260 billion. According to IEEMA ´ India is ranked 28th on the list. Being one of the lowest cost countries in terms of manufacturing India is extremely well placed to be one of the top 5 manufacturing locations.
There seems to be some traction in the wake, especially in the electrical and power equipment sector in India. When posed with some tricky questions, a surprising wave of positivity appeared among private industry leaders over the government´s tall claims of having a level playing field in this sector. Our interaction with Power Grid and various other companies suggests a possibility of Rs 80,000 crore worth deals between PGCIL and State Electricity Boards (SEBs) over the next 18-24 months. On a thumb rule basis, 55-60 per cent of orders are likely for transmission lines, while 40-45 per cent orders will be for sub-stations and equipments like transformers, reactors, insulators, conductors, HVDC and new technology products like SVC and STATCOM. It is expected that the key beneficiaries of all these orders will be ABB, SIEMENS, Alstom etc. Importantly, ordering is also being increasingly dominated by high technology products (765 kv/HVDC/GIS, SVCs etc.).
To this Sameer Gupta, Chairman & MD, Jakson Group, says, ´It is wrong to say that investment is not picking up.´ He added, ´Over the next five years, we are forecasting orders for all kinds of power equipment including solar power equipment, control panels and black start generating sets.´
Going forward, Yoshiaki Inayama, MD, Toshiba JSW Power Systems Pvt Ltd suggested that most of the orders will be from public sector units. ´At present, PSUs are tendering the packages that essentially apply the intent of EPC contracts such as BTG, including civil works or boiler island with civil works or STG island with civil works. SEBs prefer power projects on turnkey EPC basis.´
Meanwhile, with the intent of the Indian government to reduce carbon footprints under the National Action Plan for Climate Change (NAPCC), the application of new and efficient technologies is mandated. So, in the near future, says Inayama, ´we expect more and more environmentally friendly and highly efficient projects to be added.´
Make in India
In line with government´s ´Make in India´ programme, state-owned players have focused on improving domestic manufacturing in various products (765 kV transformers and reactors, 765 kV GIS equipment, 800 kV HVDC equipment, SVC or STATCOM, conductor, insulator, EHV cable) by making domestic manufacturing facility necessary for most products. This will create a level playing field for private companies who already have manufacturing facilities in India.
It is very well known that international players and companies from outside India will invest here very soon. The 13th Five Year Plan envisages 93 GW addition to the power generation capacity and all other infrastructure to evacuate and distribute the power. To this, Rajesh Kumar, Joint MD and CFO, Salzer Electronics, adds, ´All this new investment in the sector will improve the business climate in the country for electrical equipment manufacturers. We are very well placed to capture this next growth phase with sufficient infrastructure and capacity.´
Top players to dominate
The transmission orders continue to command high share in the overall ordering. Large players like KEC, KPTL, Jyoti, L&T and Tata Projects, which had 60 per cent market share over the last three years, continue to have similar market share in FY15. Eventually, smaller players like Fedder Llyod Corp and few local JVs, along with players like Simplex Infra and Sterlite Tech, have also started getting a share of the orders in FY15. Expert analysts suggested that the number of players who bid for tenders are 4-5 per tender, which, in their view, is not very high. Most large players opine that margins have stabilised, which are visible from fewer bidders per tender.
But, according to a source in PGCIL, the company has become more stringent with EPC contractors and hence the working capital cycle of those EPC contractors who delay projects continue to increase.
Fading Chinese dominance
According to analysts, market share for Chinese players is on the decline. While Chinese players dominated the equipment market with a market share of 45 per cent in FY13, their market share in FY14 came down to 9 per cent. Adverse currency movement and domestic manufacturing clause might have led to lower participation and wins for Chinese players. While equipment awarding has been weak in the last nine months, private players are expecting it to pick up given that 104 nos of 765 kV (500 MVA) transformer orders are still pending.
Substations and HVDC rising
Substation orders contributed 23 per cent to PGCIL´s FY15 overall orders. And, it is largely dominated by GIS substation (62 per cent of FY15 of substation orders v/s 54 per cent in FY14).
Foreign players continue to dominate the GIS substation market with Hyosung and New Northeast Electric Group High Voltage Switchgear Co., having 40 per cent shares each in FY15. However, with ease in PQ norms and focus on domestic manufacturing (765 kV bidder to set up manufacturing in India), analysts expect local players like ABB, SIEMENS, Alstom T&D will benefit.
HVDC orders worth Rs 3,300 crore (Line 2 Champa-Kurukshetra) was awarded in FY15. One more HVDC line Raigad-Puglu, is expected to be tendered out in FY16. PGCIL has planned to buy 14 SVC/SATACOM for normal capex and three for Green corridor; out of the same, 4-5 have already been awarded. Pricing for each SVC/STATCOM is Rs 600 crore. Total SVC capex is likely to be Rs 4,000 crore over the next two years.
The industry should be looked into as a high potential industry for employment and exports.
The capital goods sector is the only engineering sector where basic customs duty is nil in case of specified mega power projects, ultra-mega power projects, nuclear power projects and specified goods for coal-bed methane (CBM) operations.
Players have demanded that the provision of zero customs duty on import of capital goods for projects should be removed, there should be rationalisation of taxes and correction of anomalies, including inverted duty structure on specific products such as electrical insulators, insulated cables and machine tools. In addition, the government should prepare a study on the basis of Chinese policies towards the electrical equipment industry and create a level playing field for the Indian industry. The sector has the potential to grow at a CAGR of 25 per cent over the next 5 years.
To sum it up, we can´t say there is a level playing field vis-a-vis competition from foreign countries, wherein the companies have various incentives or subsidies in terms of raw materials, lower cost of capital, incentives for exports, better infrastructure and overall highly efficient systems that facilitate faster exports and imports. These are some of the things that the government has to look into. Even today, import and export is a complicated and time consuming procedure in India.
- Rs.80,000 crore worth orders over the next 18-24 months.
- Around 55-60 per cent of orders are likely for transmission lines.
- Around 40-45 per cent orders will be for sub-stations and equipments like transformers, reactors, insulators, conductors, HVDC and new technology products like SVC and STATCOM.
- Ordering trends are increasingly being dominated by high technology products.
POWER TODAY suggestions
- Provision of zero customs duty on import of capital goods for projects should be removed.
- The government should prepare a study on the basis of Chinese policies towards the electrical equipment industry.
- New and efficient technologies should be mandated.
- There should be rationalisation of taxes and correction of anomalies, including inverted duty structure on specific products.
One of the fundamental elements that aides the economic growth of a nation is the availability of uninterrupted electricity supply. As of now, India´s per capita consumption of electricity is around 957 kWh. This is 7-10 times lower than the developed countries, and 3 times lower than China.
In India, the per capita power consumption is lower because India´s energy needs are different across its geography, besides which poor infrastructure in transmission and distribution (T&D) is also forcing lower demand and poor financial status of the SEBs are forcing them to shed demand and thus reduce PLF.
India is the second largest populated nation in the world and already has a good legal and financial system in place. Now, for a nation like India to have inclusive and sustained growth, investment in infrastructure by government and private companies is essential. We believe that the government has to formulate policies that encourage more investments from IPPs in the power sector.
On new orders
In the last 10 years, the capacity addition was 9.5 GW annually; however, in the period from 2012 to March 2015, the capacity addition has exceeded 20 GW annually. We however, feel that prevailing uncertainty in the availability of coal, congestion in transmission and slow upgrading of distribution technologies may impact plan of adding 12 GW annually in the coming years.
If some of the basic infrastructure issues in T&D continue to exist, it will not only restrict demand, but shall also suppress the PLF and generation performance, thus ultimately affecting economic growth.
At present, PSUs are tendering packages that essentially apply the intent of EPC contracts such as BTG, including civil works or boiler island with civil works or STG island with civil works. SEBs prefer power projects on turnkey EPC basis.
With the intent of government to reduce carbon footprints under NAPCC, the application of new and efficient technologies is mandated. So, in the near future, we expect more environmentally friendly and highly efficient projects to be added.
Level playing field
Indian government, while formulating plans for rapid growth of power generation and related equipment manufacturing, explored by experienced manufacturing companies for application of the large size of the units and technologies that enhance efficiency, invited global players to invest and introduce technologies. This was possible with the phased manufacturing program formulated by CEA.
As per the CEA guidelines, to supply power generating equipment for supercritical power projects, the tender conditions encourage and mandate investment and building of a power equipment manufacturing facility in India.
However, the advisory by CEA was not followed in letter by IPPs and some state utilities, which impacted the capacity utilisation of manufacturers who invested and developed resources in India.
The purpose of the phased manufacturing program and indigenisation desired uninterrupted supply of spares and timely availability of services, which are critical for the successful operation of technology driven power plants. This can happen only when the equipment is sourced from the Original Equipment Manufacturer (OEM), who owns the technology as well as have their manufacturing facility located in India. It is desired to continue the intent of sourcing the power equipment from manufacturers having facilities developed in India under phased manufacturing program, and further it should be mandated that power equipment for super critical projects and ultra mega power projects (UMPP) be sourced from OEM´s having facilities as detailed under PMP.
It was encouraging to see the swift action of the government in auctioning the coal blocks. The government´s commitment to ´Make in India´ is a big boost for power equipment manufacturers like Toshiba JSW Power Systems Pvt Ltd.
Now, for the sustained GDP growth to happen, the government and policymakers are expected to bring in reforms and policies that ensure availability of trained and employable manpower, especially in the manufacturing sector. The government should quickly get into action to strengthen the infrastructure ´ roads, rail links and power evacuation systems, for effective growth of the sector.
By Yoshiaki Inayama, MD, Toshiba JSW Power Systems Pvt Ltd