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Jul 24, 2012, 05.01 PM IST | Source: CNBC-TV18

China price war, high fuel prices may cut duty effect: APP

Ashok Khurana, director, Association of Power Producers (APP) explains to CNBC-TV18, that the duty on import of power equipment might be a bit late to save the power sector which is tottering under the pressure of high fuel prices and lack of investor interest.

my fear is the Chinese may start a price war by reducing prices by 15% and cover the balance by cheap financing and quick delivery

Ashok Khurana

Director

APP

Ashok Khurana, director, Association of Power Producers (APP) explains to CNBC-TV18, in his reaction to the import duty levied on power equipment at the Cabinet meet on Thursday evening, that the decision might be a bit late to save the power sector which is tottering under the pressure of high fuel prices and lack of investor interest.

Khurana points out that the relief maybe short-lived in the eventuality of a cut in prices and delivery timelines by Chinese power-equipment manufacturers.

Below is an edited transcript of the interview on CNBC-TV18.

Q: Are you going to be a happy man today?

A: It’s not my happiness on question. It’s a question of government policy and we would only oppose on grounds that would ultimately increase the cost of power. As you know, even today power companies are finding it very difficult to buy power thanks to high prices of fuel.

The demand of power equipment is receding as there is a complete lack if interest in investing in power sector today. Even plants where orders have been placed are stalled now as banks have stopped lending to the power sector.

The first thing that the government has to handle before it imposes duty starts is to resolve the fuel problem due to which power plants with capacity of 3,0000-4,0000 MW are not working today.

I fear in fact this duty imposition will not impact projects which have been accorded 'mega' status and that amounts to projects of about 7,0000 MW in the pipeline.

The actual impact of this duty on the equipment order position will flow in the third or fourth year of 12th Plan. There is project coming up in the 13th Plan and my fear is the Chinese may start a price war by reducing prices by 15% and cover the balance by cheap financing and quick delivery.

The delivery period for Indian manufactures is about 48-50 months whereas Chinese deliver in about 36-38 months.

Q: Some final words...

A: We already have 15% of implied duty protection but if you include the impact of foreign exchange rupee depreciation it’s a huge differential. If sectoral problems are resolved there will be adequate demand for equipment as our demand for power is huge.

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