Only suppliers with domestic manufacturing facility can bid for bulk supply orders to be placed by central utilities like NTPC and DVC

Private companies like Bharat Forge and L&T that are setting up power equipment manufacturing facilities under joint venture (JV) route run the risk of being at the mercy of their foreign technology suppliers for long, as the relevant agreements don’t provide them access to the know-why of the technologies.

Technological know-why is critical to absorbing a new technology and bringing down production cost.

The JVs are formed by these companies to benefit from the government’s policy designed to encourage domestic manufacturing capacity. Under these JVs, the Indian power equipment manufacturer will get the technological know-how from their respective foreign partners but not the know-why.

The government has stipulated the condition that only suppliers with domestic manufacturing facility can bid for bulk supply orders to be placed by central utilities like NTPC and Damodar Valley Corporation (DVC) for supercritical power equipment. The purpose is to encourage technology transfer for the indigenous power equipment manufacturing capacity.

That has forced international suppliers like Siemens, Alstom, Mitshubishi, Toshiba, Hitachi and Babcock & Wilcox to enter into technology collaboration agreements with Indian players to set up manufacturing facilities here.

However, the government’s policy does not mandate transfer of technological know-how under technology collaboration agreement. As a result, technology providers have excluded transfer of know-how from the scope of technology collaboration agreement.

Significantly, Bhel has been able to make improvement on original equipment procured from technology collaborators. This was made possible because it has access to both technological know-how and know-why.

The government has formulated the policy to expedite the pace of power generation capacity in the country. It is banking on private players to fill the gap in domestic demand and supply of power equipment. But given that private players will have to depend on their foreign partners for the supply of critical equipment, the government’s planning may go hay-wire.

Even if JV companies want to manufacture such equipment locally, it is unlikely they will succeed. It is because foreign partners who hold majority stake and management control of these JVs, may not encourage such moves.

Apart from Bharat Forge and L&T, BGR, JSW, Thermax and Cethar Vessels are also setting up manufacturing facilities for supercritical power equipment under the JV route. These companies are expected to make a combined investment of Rs 10,000 crore for setting up power equipment manufacturing facilities.

The government has envisaged introduction of supercritical power equipment on a large scale in coming years. Central utilities like NTPC and Damodar Valley Corporation (DVC) have been asked to issue tender for bulk procurement of supercritical equipment. While NTPC-DVC bulk tending for 660 mw units is underway, a similar tender for placing bulk orders for 800 mw units is likely to be issued soon.

What is more, these JV companies do not have the right to export power equipment to other countries. In case demand for power equipment sags in India, they will not be able to utilize their manufacturing capacity. That is a serious risk to their investment. Most of the Indian partners of these JVs are listed on the stock exchanges. That means investors who have bought shares of these companies are also exposed to the risks involved in investment made by them in JVs.