PFC, REC may restrict funding to power projects based on Chinese equipment

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SME Times News Bureau | 29 Jun, 2020
The government's economic response against China may see public sector financiers restricting funding of projects that ise equipment from the neighbouring country, sources said on Monday.

The practice would first be adopted in the power sector, where state-owned Power Finance Corporation (PFC), Rural Electrification Corporation (REC) and Indian Renewable Energy Development Agency (IREDA) propose to restrict financing to states that are developing projects in power generation, transmission and distribution that use Chinese equipment.

As bulk of the funds to the power sector is provided by these three institutions, the restriction is expected to be effective in checking large-scale import of Chinese gear. The move is likely to affect solar sector projects the most where Chinese import is to the extent of 80 per cent.

Sources in the Power Ministry said that public sector financiers have been told to devise funding schemes that discourage imports, especially in case of equipment that is being manufactured in the communist country. This could be done by either completely restricting funding to projects based on imports or such projects could command a premium interest rate.

"We are looking at how this can be achieved. Various things are being worked out that would be conveyed to agencies looking for funds," said an official source from one of three public sector power financiers.

Last week, power and Renewable Energy Minister R K Singh had said that state-owned power sector is looking to structure financing in such a manner that lower rates of interest will be charged on developers who use India-manufactured equipment. This would promote the idea of Atmanirbhar Bharat and also give further boost to domestic manufacturing.

Financing restrictions even to states developing projects through Chinese equipment is expected to give a big boost to domestic manufacturing that has failed to take off in the absence of a large dedicated captive market. Some of the struggling manufacturing would also get a fresh leave of life.

Apart from the solar sector where China plays big, almost 50,000 ME of thermal capacity is being development using Chinese equipment. Moreover, firms use supervisory control and data acquisition (Scada) systems from China in electricity distribution and transmission space.

Restriction on funding of projects being constructed on the basis of imports is one of the several measures that power ministry is looking forward to to check the practise. It is also looking at restricting imports by financial and approved vendors for all overseas supplies while putting another layer of check at the Power Ministry level for any decision on imports. This would mean decision to import would be first vetted by the ministry before the process moves further.

Moreover, the practice of issuing concessional custom certificates for certain import items in the renewable sector will be discontinued from a date to be specified separately. This is likely to dissuade importers and force them to look within the country for equipment, a move that will help promote the governments objective of Atmanirbhar Bharat.

The minister has already indicated that the basic customs duty of 15-20 per cent on solar modules, including solar cells, will be introduced from August which may rise to 35-40 per cent in the second year of operation.