The Central Electricity Authority (CEA) has requested utilities to ensure that they follow the advisory mandating the use of domestic materials and equipment in government projects. Utilities in various states were found flouting the advisory guidelines issued by the CEA for domestic competitive bidding.

In May this year, the CEA issued an advisory pertaining to the procurement of equipment and material for domestically funded projects through the Ministry of Power (MoP), Central Public Sector Undertakings (CPSUs), and projects funded by Power Finance Corporation (PFC), Rural Electrification Corporation (REC) and state power utilities.

In the advisory, the CEA had mandated:

  • In domestically funded projects of the MoP, CPSUs, PFC, REC and state power utilities, the procurement of equipment and material should be done locally through local competitive bidding. If in some cases, an international competitive bidding process is to be used, the prices quoted should be in Indian Rupees to create a level playing field.
  • If domestic manufacturers are not present, then foreign manufacturers and suppliers can participate in the tenders, as long as they form a joint venture (JV) or consortium with an Indian bidder. In these cases, the foreign manufacturers are required to set up a manufacturing facility in India.
  • If foreign manufacturers are allowed to participate in the tenders, they must produce a performance certificate from an end user in a country different from where the product was manufactured, in support of the satisfactory operation of the product offered, for more than two years.
  • The PFC and REC should ensure that a transparent bidding process is followed for all central government funded programs as well as programs funded by PFC and REC.

“India’s domestic manufacturing sector is in the nascent stage, and the current World Trade Organization (WTO) ruling stating that India’s localization rules discriminate against U.S. manufacturers has led to removal of the domestic content requirement (DCR) category. In light of these developments the CEA has to enforce its guidelines or the manufacturing sector will not be able to compete in the industry in the coming years,” commented an official at the CEA. These guidelines also allow for foreign investment in the Indian manufacturing sector.

The government can still mandate use of domestic materials and equipment if used on government properties and projects completely funded by the government or its dependent agencies. This is one of the ways to help domestic manufacturers. In most auctions, developers seldom use indigenous equipment and materials due to higher costs. The CEA has not released the names of the utilities that are not following the advice and “this is a first warning” to serve as a reminder, stated the official.

“This is an example of what happens when there is interference with the free markets. Making utilities pay more to subsidize local manufacturers (when more economical options are available) might benefit local manufacturers but not utilities who are already debt ridden. This is also the reason why interest in DCR solar project tenders was muted,” said Raj Prabhu, CEO of Mercom Capital Group.