Public Sector Financers may restrict funds for power projects based on Chinese equipment
As an economic backlash against China, the Indian government is planning to could restrict funding of project based on the equipment supplied from neighboring countries – especially China
According to sources, as an economic backlash against China, the Indian government could ask public sector financiers to restrict funding of projects based on the equipment supplied from neighboring countries.
The practice will first be adopted in the power sector, where the state-owned Power Finance Corporation (PFC), Rural Electrification Corporation (REC) and the Renewable Energy Development Agency (IREDA) propose to restrict financing to the states that are developing projects in the power generation, transmission, and distribution using Chinese equipment.
As the bulk of the funds are provided to the power sector by these three institutions, the restriction is expected to be effective in examining the large-scale import of Chinese gear. The move is likely to affect solar sector projects where Chinese imports are up to 80 percent of the limit.
According to Power ministry sources, the public sector financiers have been asked to develop funding schemes that discourage imports, especially in the case of equipment that is being manufactured in China.
This can be done either by restricting funding for projects solely based on imports or such projects may command a premium interest rate.
Government focusing on “Atma-Nirbhar” drive
In order to promote the idea of Atma-Nirbhar and to further also give the needed boost to domestic manufacturing, Last week, the Power and Renewable Energy Minister RK Singh stated that the state-owned power sector has to structure funding in such a way that a lower rate of interest will be charged on developers using equipment manufactured in India.
On the other hand, financial sanctions for states developing projects through Chinese equipment are also expected to give domestic manufacturing a major boost that has failed to take off in the absence of a large dedicated captive market. This will also provide some struggling manufacturing units, a fresh lease of life.
Restrictions to cover entire Power Sector
Apart from the solar sector where China plays big, there is around 50,000 MW thermal capacity that is also being developed using Chinese equipment. In addition, firms use supervisory control and data acquisition (SCADA) systems from China in the electricity distribution and transmission space.
The restriction on the financing of projects being constructed on an import basis is one of several measures that the Ministry of Power looks forward to examining the practice.
Added Measures to Curb Imports
The power ministry is also considering restricting imports by financial and approved vendors for all foreign supplies, putting another layer of checks at the ministry level for any decision to import. This means that the decision to import will first be examined by the ministry before the process begins.
In addition, the practice of issuing concessional custom certificates for certain import items in the renewable sector will be discontinued from the date it is specified separately. This is likely to dissuade importers and force them to look within the country for equipment, a move that would help to promote Atmanirbhar Bharat a government’s objective.
The minister has already indicated that from August the basic customs duty of 15-20 percent on solar modules, including solar cells are going to be introduced, which can increase to 35-40 percent in the second year of operation.
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