To sustain the envisaged annual GDP growth rate of around 8-9% over the next 20 years, it has been estimated that India will be required to increase its electricity generation capacity from around 180 GW presently to over 800 GW by 2032. This would require a matching upgradation and enhancement of the electricity transmission & distribution (T&D) segment. The electricity sector requires a projected investment of about US$ 300 billion over the next five years.

Issues of Concern in the Power Generation Sector

Inability to meet targets for capacity addition are due to problem areas like:
• Unavailability of fuel / lack of coal linkages for new projects,
• Land acquisition issues,
• Delays in environmental and other clearances, etc.,
• Inadequate domestic manufacturing capacity for balance of plant (BOP),
• Shortage of erection / commissioning agencies / skills,
• Poor availability of construction equipment / machinery,
• Non-standardisation of layouts and design parameters for power plants,
• Shortage of domestic supply of skilled manpower,
• Poor logistics infrastructure.

For improvement, we need to:
• Improve fund availability to power sector,
• Provide fuel linkages and faster regulatory clearance for timely completion of power projects,
• Accelerate renovation & modernization activities,
• Accelerate deployment of rural electrification schemes.

As of now, sufficient capacity has now been built up by domestic manufacturers of main plant equipment (Boilers, Turbines, Generators) to meet the projected domestic requirements (15-16 GW per annum). We need to provide a level playing field in the country for domestic manufacturers to compete with foreign, especially Chinese manufacturers. The recent move by the government to consider imposition of import duty on Chinese power equipment is a step in the right direction.

Issues of Concern in the Power Transmission & Distribution (T&D) Sector

The entire power sector value chain crucially hinges on the financial viability of the power distribution sector and we need to focus on improving its performance, especially of the government-owned power distribution utilities, and reducing the aggregate technical & commercial (AT&C) losses.

Some specific concerns:
• Fiscal performance of State Transcos and Discoms continues to be poor with little or no funds for planned investment.
• Poor credit worthiness of State utilities is leading to lack of payment security for private investors.
• Procedural delays for both public and private project developers. Long time taken for the entire bidding process.
• Lack of coordination in transmission planning and implementation between various Ministries and government agencies.
• Commercial conditions such as unrealistic terms of payment, non-availability of price variation clauses often leads to imbalance in price levels.
• Long outstanding contractual issues and delays in closure of contracts putting a strain on available resources.
• State networks continue to suffer from poor investments and slow progress in separating SLDCs from Transcos.

Issues of Concern in the T&D Equipment Industry

The domestic electrical equipment industry manufactures a varied range of products and is very heterogeneous, with a good mix of large public sector enterprises, multinational companies and small and medium companies, including major foreign players either directly or through technical collaborations with domestic manufacturers. About 90% of the manufacturers are MSMEs in most sub-sectors of the domestic electrical equipment industry. It is estimated that currently the total domestic electrical equipment industry size exceeds Rs. 1,10,000 crores (approximately US$ 25 billion) and exports of electrical equipment are around Rs. 18,000 crores (approximately US$ 4 billion). The industry provides direct employment to around 5 lakh persons and indirectly to over 10 lakh persons (50 lakhs across the value chain).

The T&D sector today faces several major challenges, some of them are as under:

Lack of Domestic Availability of Critical Inputs / Raw Material:

There are several critical inputs used in the manufacture of electrical equipment are not readily available domestically and CRGO is a prime example, which is a critical raw material for large generators / transformers, manufactured by 12 companies (no Indian manufacturer) in the world, and totally imported. The ambitious power development projects of the government necessitate setting up of a domestic CRGO manufacturing facility.

Looming Skill Gap and Manpower Issues:

The electrical equipment industry is facing a major problem in getting skilled and employable manpower which is technically competent, equipped with skills and ready to be deployed. The problem requires concerted and collaborative action by the three critical agencies – technical institutes, industry and government.

Technical institutes should make it mandatory for teaching staff to spend 3-6 months once every 3 years in the industry to continuously upgrade knowledge, make one semester of internship in industry mandatory for students – from class-room to hands-on training, upgrade their laboratories to reflect current technologies and products, encourage teachers and students to attend technical seminars on latest technologies to stay in touch with recent developments, create exchange programmes for teachers across the different technical institutes in the country and with technical institutes in other countries, ensure industry representation in the board of studies for developing curriculum to reflect current technology trends and industry requirements, and develop modules based on neighbouring industrial clusters in addition to curriculum. The government needs to provide additional funds and facilities to modernise technical institutes, provide interest-free loans to technical institutes to upgrade their laboratories, involve industry in board of studies and incentivise industry to provide internship to students and teachers.

Lack of Standardization of Product Specifications & Design Parameters:

There are no appropriate standards specified by the Central and the State utilities and in some cases tenders are floated with out-dated specifications and design parameters which causes a lot of trouble to manufacturers. Standardisation of specifications for various equipments used in the power sector across utilities, at least under the centrally sponsored schemes, will not only lead to cost competitiveness of the industry being enhanced but also minimize the lead-time in manufacturing and procurement.

Inadequate Domestic Testing & Calibrating Infrastructure:

The domestic testing and calibrating facilities for electrical equipment, especially high voltage equipment, is inadequate and costly. Manufacturers have to send their products abroad for testing for want of domestic testing facilities or long waiting period at CPRI, which results in high logistics cost and long time. The government needs to take urgent steps for upgradation of testing and calibrating infrastructure in the country, especially for high voltage equipment.

Frame Model Procurement Guidelines / Practices for Utilities:

The prime customers / buyers of the electrical equipment industry are the utilities in generation, transmission and distribution of power. Presently, most of these utilities are either owned by the Central Government or different State Governments.

Most of these utilities:
• have non-uniform procurement policies and qualifying criteria for vendors for similar products,
• have outdated tendering procedures and contract awarding based on L1 bidder and negotiations,
• lack of standardisation of product specifications, design parameters and ratings for T&D equipment across the country,
• are driven by prices rather than quality (low qualifying criteria), and
• provide no encouragement for field trials of innovative products / technologies.

The following is required:
• Limit participation in tenders for bidding for domestically funded projects to domestic manufacturers only.
• Where foreign bidding takes place, put in place a local manufacturing clause to provide for level playing field.
• Stipulate a minimum percentage of the total procurement by any utility to be of ‘Made in India’ products.
• Stipulate some amount of price preference for Indian products in procurement by utilities.
• Modify the prevailing extended and one sided warranty / payment terms.
• Avoid bunching of orders which results in resource crunch and hampers the production cycle of manufacturers leading to suboptimal utilisation of manufacturing capacities.

Promote a Culture of Innovation and R&D in the Industry:

There is slow pace of absorption of new technology by domestic manufacturers of electrical equipment, and also user industries, and low investment in research & development (R&D). According to estimates, less than 1% of the annual turnover of the industry is invested in R&D. Buying practices of utilities do not encourage innovations and R&D. As a result, main focus of the manufacturers of electrical equipment is on cutting costs and not on innovative technologies, on piecemeal short-term tactical measures rather than evolving any strategic action plan for their growth and development.

Fast Implementation of GST:

There is urgent need to usher in the GST regime. It will resolve most of the complicated tax issues and industry can focus its energy on productivity, R&D, business development, etc.

Lack of a Domestic Level Playing Field:

Based on the projections of the government for capacity enhancement in power generation, transmission and distribution in the 10th, 11th and 12th Plans, the domestic electrical equipment manufacturing industry has made huge investments in doubling and, in some cases, even tripling its production capacity.

However, this built-up capacity currently stands under-utilised across several products due to lack of demand and a surge in imports of electrical equipment in recent years, especially from China, with uncertain lifecycle and quality. Absence of a level playing field for the domestic industry to compete with imported electrical equipment, especially from China, is a clear and present threat. This is significantly impacting the commercial viability of the industry and can have severe long term consequences.

Therefore, there should be:

• No further reduction in the present level of import duty on electrical products. On the contrary, there is a strong case for increasing the duty in most cases.
• Domestic electrical equipment industry’s interests should be protected under different FTAs being signed.

Promote Exports

India’s share in global exports of electrical equipment is less than 1%. Therefore, we need to incentivise exports of electrical equipment as electricity sector is a sunrise sector across the entire developing world.

Right of Way (RoW) and Forest Clearances Issues, Land Acquisition Issues:

Getting forest clearances is a time consuming process as approvals are to be obtained from various levels before the final approval is granted. Delay on account of this disrupts the entire targeted completion time of the projects and creates a lot of uncertainties as far as timelines are concerned. Land acquisition is another problem being faced as it is becoming increasingly difficult to acquire land required for transmission network setup.

Price Variation (PV) Issues:

Price variation clause is a tool to arrive at a reasonable price variation on account of volatility in raw material prices. In the absence of price variation clauses in certain transmission contracts / projects, there is an imbalance in pricing that affects the margins of the company in case of any increase in price of raw materials and may lead to delay in supply. Also, alternatively, when there is a decline in the prices of raw materials, the appropriate benefit is not passed on to the ultimate consumer. Thus PVC is an effective mechanism as a fair risk balancing tool. In some transmission contracts ceiling is imposed on PV of certain products which needs to be relooked at.