India’s Power Ministry Endorses Tripling Duty on China Equipment

India’s power ministry endorsed a plan to almost triple import duty on generation equipment to help local manufacturers Bharat Heavy Electricals Ltd. (BHEL) and Larsen & Toubro Ltd. (LT) compete for orders with Chinese rivals.

A proposal for increasing import duties to 14 percent for all electricity generation equipment will likely be submitted to India’s cabinet in January, Power Secretary P. Uma Shankar said today by telephone from New Delhi. The power ministry opposed a similar recommendation last year to avoid levying the duty on near-term orders, Shankar said.

Chinese suppliers won 34 percent of new equipment orders for additional capacity that’s planned in Asia’s second-fastest growing major economy in the five years ending March 31, according to the Ministry of Power. The additional duty may help ease India’s budget deficit, which reached $59 billion in the seven months to October, or 74.4 percent of the current financial year target.

“This could be a money-maker for the government, that’s one reason why it may change its mind this time around,” Bhargav Buddhadev, vice president at Ambit Capital Pvt., said by telephone. “For Bharat Heavy, this is nothing but a sentimental positive. This doesn’t change our outlook for the company as it won’t deter Chinese companies from competing.”

Orders were placed with Chinese companies for equipment for 21,100 megawatts of the 61,237 megawatts of capacity expected to be added in the five years ending March, junior power minister K.C. Venugopal told parliament in New Delhi on Dec. 9.

No Special Protection

A panel headed by Planning Commission member Arun Maira recommended in 2010 the levy of 14 percent in import duties to “bridge the disadvantage” faced by local manufacturers against overseas rivals, especially from China.

Bharat Heavy is asking for a level playing field and is not seeking any special protection, Chairman B. Prasad Rao said on Nov. 3 after India’s power equipment makers met Heavy Industries Minister Praful Patel seeking the 14 percent import duty.

India currently imposes 5 percent customs duty on the import of equipment orders for projects generating less than 1,000 megawatts.

Bharat Heavy faces competition from Chinese equipment makers such as Shanghai Electric Group Co. (601727) and Dongfang Electric Corp Ltd. (600875), which want to tap into Prime Minister Manmohan Singh’s $1 trillion infrastructure investment plan, including $400 billion for power.

“Even though India has the right to impose a duty, we think power companies will continue to cooperate,” Wang Xufeng, minister at the Embassy of China in India, said in an interview on Dec. 9. “Of course, this will become a business decision for them.”

-- Editors: John Chacko, Rebecca Keenan

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net.

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net.

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