L&T and BHEL biggest Gainers as India to Levy 10% Import Duty to Stop the Flood of Cheap Chinese Power Equipment

Indian Government is set to implement a 10% Import Duty on Foreign made Power Equipment in a few weeks.India has a huge Energy Deficit as Supply is always one step behind India’s Fast Growing Economy.With peak power shortages ranging from 15-20%,Power has become a bottleneck in Development.To solve the problem,the government had allowed Private Investment in the Power Sector and Liberalization of Electricity Generation,Transmission and Distribution.The duty on import of power equipment had also been made Zero to support the rapid growth of the Electricity Industry in India.

China captures almost Half of the Power Equipment Market in India raising Concerns

India’s private players like Tata Power,Reliance Power and others are in the process  of setting up massive mega coal plants using supercritical boiler technology.While L&T and BHEL,the two Largest Capital Equipment Companies have won a lot of orders,the sheer scale of Demand requires Huge Imports as well.Low cost Chinese equipment providers like Shanghai Electric and Dongfang Electric have won almost half of the power equipment orders raising concerns amongst the Indian administrators.The relations between the 2 countries has always been testy with a major war being fought in 1962.Recently India banned Chinese telecom equipment providers Huawei and ZTE over Security Concerns.

India Decides to Levy 10% Import Duty to Level Field for Domestic Companies in the Largest Market in the World

India’s massive capital investment in infrastructure will easily make it the biggest global spender on Power Equipment.This makes the country hugely attractive for Power Players who are willing to discount their products for Marketshare.India’s Domestic Companies have been caught on the wrong foot by the Cheap Chinese Equipment.This Duty is aimed at levelling the field for the Domestic Companies.L&T and BHEL are the only significant players and would benefit quite handsomely from this measure.Note both companies have been growing at a frentic pace over the last 4-5 years and command a huge premium of around 25-30 P/E which is quite high for this sector.

INTERVIEW – India to levy 10 pct import tax on power gear – Reuters

India will impose a 10 percent import tax on power equipment for big projects within weeks to help level the playing field between domestic and foreign firms jostling in what may soon be the world’s biggest market.The tax would reverse a policy of zero import duty on equipment for mega projects introduced to meet India’s urgent capacity shortages, said Arun Maira, a member of the government’s Planning Commission who led a committee on equipment imports.

Without enough local suppliers, India turned to China to help bridge a peak power shortage of 12 percent seen as an obstacle to matching its Asian neighbour’s double digit economic growth.The zero duty on imports for equipment to build so-called Ultra Mega Power Projects (UMPPs), which are larger and use more fuel efficient technologies, created a “perverse situation” that helped foreign firms at the expense of Indian ones, Maira told Reuters in an interview late on Wednesday.

“It will happen very shortly, in the next few weeks,” he said, when asked when the duty would be imposed, adding he had received confirmation of the decision on Wednesday.”It should be normalised as quickly as possible because we want a level playing field. The playing field got distorted … We had done a disfavour to our domestic producers.”