IEEMA as a voice of Indian electrical industry plays a crucial policy advocacy role with central and state government and its agencies. IEEMA is invited by various central and state ministries, central PSU’s, State Utilities to provide its inputs and to play an increasing role as a “Partner of Choice” in policy formulation.
Some recent representations made by IEEMA are as follows:
On 11th September 2018, IEEMA submitted a representation to the Ministry of Power, Department of Industrial Policy and Promotion, Department of Heavy Industry and Central Electricity Authority, on circumvention of various Government Policies promoting Make in India Initiative, such as, Public Procurement (Preference to Make in India) Order, 2017; Central Electricity Authority Advisory on Procurement and National Capital Goods Policy.
IEEMA stated that despite all the above polices encouraging domestic suppliers, the truth remains that drafting of procurement tenders in power sector has been only true in ‘Letter’ and not in ‘Spirit’. This is in the context of an increasing gap between articulated intent of the policies and its actual implementation. The state transmission utilities as well as CPSUs have been inviting Global Competitive Bids for domestically funded projects, despite more than adequate capacities existing in the country today. IEEMA requested the following:
Consider to recall all domestically funded but non-compliant PGCIL tenders under evaluation or various stages of bidding.
Consider revision of PGCIL tender clauses / conditions to check circumvention of policy intent.
Introduction of mandatory clause, in line with Public Procurement Order, CEA Advisory and National Capital Goods Policy to invite local competitive bidding for PSDF funded projects, in the sanction letter of PSDF to state utilities.
Public Procurement Order, CEA Advisory and National Capital Goods Policy to be implemented in Letter and in Spirit.
Government Announcements – Rural Electrification Corporation
IEEMA had brought to the notice of Rural Electrification Authority (REC), about the adverse impact of GST on in-transition rural electrification projects under DDUGJY-RE. On IEEMA request, REC has issued a communication to all State Power Utilities / Power Departments that “as a general principle, any change – both increase and decrease – in the cost of works or services that can be directly attributable to the introduction of new tax regime due to change of law – GST is a new legislative framework – has to be apportioned to the contractor. The state government and the concerned power utility may take action as deem appropriate.” (Reference REC letter no. IPMD-II/DDUGJY/QAJ18-191 S-/C, dated 18-09-2018).
Non-compliance of CEA advisory on domestic bidding for domestically funded projects (PSDF funded schemes on reliable communication using Optical Ground Wire, OPGW)
On 29th August 2018, IEEMA submitted a representation to Member (Power Systems), Central Electricity Authority regarding non-compliance of said advisory by state utilities that have or are expected to invite tenders through global competitive bidding for PSDF funded schemes.
IEEMA recommended that CEA should ensure that all PSDF funded projects invite tenders through local competitive bidding only, mandating compliance of CEA advisory, both in letter and in spirit, during the sanction of PSDF grant.
Inverted Duty Structure in Manufacturing of Electrical Contacts – HS Codes 85381010, 85381090 and 85389000
On 30th August 2018, IEEMA submitted a representation to the Department of Industrial Policy and Promotion and the Tariff Commission, Government of India, regarding Inverted Duty Structure in manufacturing of Electrical Contacts, under HS Codes 85381010, 85381090 and 85389000, leading to cost dis-advantage for domestic manufacturers’ vis-à-vis imports of the same.
The manufacturers of Electrical Contacts procure their main raw material, i.e. Silver, from the domestic market. The dealers fix the price of Silver by adding Basic Customs Duty of 10% (under Chapter Heading 71 – Silver, in any form, other than medallions and silver coins having silver contents not below 99.9% or semi-manufactured forms of silver falling under chapter sub-heading 7106) on LME rates, plus premium, plus freight insurance and dealer margin. This makes the cost of input raw material high for the manufacturers of Electrical Contacts, mainly on account of expensive Silver (at 10% BCD) which form major portion of raw material, approx. 90%. Therefore, the Electrical Contacts sold by domestic manufacturers have high cost of production. Whereas, the finished Electrical Contacts, under ITC HS Codes 85381010, 85381090 and 8538 9000 attract a Basic Customs Duty of 7.5%.
IEEMA requested the Government of India to correct this inverted duty by increasing the Basic Customs Duty of Electrical Contacts from 7.5% to 10% (HS Codes 85381010, 85381090 and 85389000).
Representation to Powergrid Corporation of India Ltd. on 9th January 2018, giving its recommendations on Reverse Auction procedures to be followed
In its representation IEEMA mentioned that while reverse auction are called-in to eliminate market inefficiencies, following only price based bidding undermines the interest of sector and also erode the supplier base. With such a low margin, there is no room for any adjusting and adapting to unforeseen situations which leaves no scope for industry to invest in R&D and innovation for the long term benefit of the T&D sector.
Cases are reported in which negotiations were done even after achieving lowest price point through an e- reverse auction. In recent tenders it is being noticed that the suppliers are dropping prices in some cases to the extent of 28% for market entry, which needs to be discouraged.
IEEMA recommended to Powergrid the following:
- Projects which include multiple variables, risks and qualitative factors should not be subject to e-reverse auctions. (ADB Approach)
- Reverse auction should only be carried out for commodities
- Not core strategic to the business
- Have many suppliers thereby producing a competitive market, and
- For which the key awarding decision is price
- Conducting reverse auction process on client budget variation (PGCIL before Apr ’15 Approach)
- For package values > 200 Crore if variation from estimate is > 5%,
- For package values < 200 Crore if variation from estimate is > 7.5%.
- Reverse Auction not recommended wherever product is high tech or customized, and the buyer has multiple disciplines involved in decision making.
- Reverse Auction should also be not carried out for Projects to be executed in difficult terrain and disturbed states (like J&K, NER states) where uncertainties are too high.
- Reverse Auction window not to be opened unless technical comparison is done amongst are shortlisted vendors
- Many products are not standardized therefore bidders follow their own practices of design, manufacturing, material procurement and so on. Hence, price to be opened only after technical bid comparison is done
- No technical evaluation done after LoI is placed
- LoI to be issued within 24 hours of window closure
Representation to DIPP
IEEMA submitted a representation to the Department of Industrial Policy and Promotion, on 18th December 2017, regarding threat of imports from China and interventions required from the Government
IEEMA submitted that based on the earlier projections given by the government for capacity enhancement in power generation, transmission and distribution, the domestic electrical equipment manufacturing industry had made huge investments in doubling and, in some cases, even tripling its production capacity. However, this built-up capacity stands under-utilised across several products due to sluggish domestic demand on account of the slowdown in the power sector and a surge in imports of electrical equipment in recent years. This is significantly impacting the commercial viability of the domestic electrical equipment industry and impacting both the top-line and bottom-lines of the manufacturers.
Imports of electrical equipment in the country have assumed very threatening proportions and have now captured 31.55% of the market for electrical equipment in India. During the last eleven years, 2005-06 to 2016-17, India’s imports of electrical equipment have increased at a compound annual growth rate (CAGR) of 13.44% in rupee terms and were at INR 55,291 crore (USD 8.25 billion) in 2016-17. China’s share in Indian imports of electrical equipment dramatically increased and now it stands at 33.63% (2016-17) of the total imports from 15.26% in 2005-06. Imports from China have grown at a CAGR of 21.88% in the last eleven years and were INR 18,592 crore (USD 2.77 billion) in 2016-17.
Domestic electrical equipment manufacturing industry suffers a significant disadvantage vis-à-vis imports due to higher taxation; higher financing cost; lack of quality infrastructure; dependence on foreign sources for critical raw material and components, etc.
Disproportionate reliance on imported power equipment, with uncertain quality and lifecycle, and with no domestic manufacturing facility to provide emergency repairs, spares, replacements, etc. especially for heavy equipment, is fraught with long term risks. With integration of automation and communication technology into the T&D network, there is also a possibility of a major security concern.
In addition, Chinese manufacturers of electrical equipment are given by their Government export subsidies as high as 17% of the export value, social security subsidies, lower income tax rate (15%) and access to financing at low rates of interest, which gives Chinese companies over 24% unfair pricing advantage and allows them to price their products very competitively. Further, China is also offering credit to foreign buyers on very soft terms to finance their imports. As a result, imports from China are escalating every year. All this makes Indian industry non-competitive in its own country.
IEEMA recommended some policy interventions by the Government, in terms of, removal of Basic Customs Duty Concessions under Chapter 98, safeguarding the interest of the domestic industry under Free Trade Agreements, encouragement to indigenous manufacturing and mandating the guidelines of Central Electricity Authority and recommendation of National Capital Goods Policy for creating a level playing field for the domestic industry etc.
Representation on High GST Rate of 28% on Electrical Wires and Cables
IEEMA made a representation to the Government of India and the GST Council regarding high GST rates on Electrical Wires and Cables (HSN 8544). Presently, Electrical Wires and Cables are attracting a GST rate of 28%, and IEEMA has requested the government to get these items reclassified under 18% GST. GST rate of 28% are very high as compared to previous tax incidence of about 14%. This impact of high GST rate will lead to-
- Fuel Inflation: By keeping the GST rate of 28% on Electrical Wires and Cables (HSN 8544), the product has become costlier, fueling inflation, leading to high tax incidents and adversely impacting the domestic industry. This goes against the government’s commitment that GST would not be inflationary and lead to reduction in tax incidence, at the same time, promoting the domestic industry.Since both public and private power utilities and the end users, constituting approximately 70% of the usage of Electrical Wire and Cables, manufactured in a year, do not get any Input Tax Credit; therefore, the cost of transmission and distribution of power increases and sets an inflationary trend in the economy.
- Increase in Working Capital Requirement: Almost all the raw materials used for manufacturing of Electrical Wires and Cables, are taxed at 18% under GST Regime. Hence, this huge gap between the rate of tax applicable on inputs and outputs is resulting in an effective increase of 14% in working capital requirement by the manufacturers of Electrical Wire and Cables, leading to an increase in cost of manufacturing. This will further have an adverse impact on the industry, which is already in a bad shape due to low domestic demand and surge in imports and also increase the Project Cost for the utilities.
Regarding Dual Certification of Distribution Transformers by BIS and BEE
IEEMA made a representation to MoP, DIPP, DHI & CEA regarding Dual Certification of Distribution Transformers by BIS and BEE, which is contrary to Ease of Doing Business, one of key initiative of Govt. of India.
This is in reference to the Gazette Notifications issued by Ministry of Power dt.16th December 2016 with amendment on the gazette dt. 17th February 2017 and Quality Control Order of Distribution Transformers dt. 07th May 2015 issued by department of Heavy Industries (DHI) with amendments in IS 1180(Part-1):2014.
While IEEMA appreciates the good intention of the Government of India is to save energy losses, dual regulations on the same product “Distribution Transformers” has created a lot of confusion for the manufacturers, users and related stakeholders.
IEEMA requested DIPP to look into the matter and consider the applicability of only one of the regulations for mandatory certification of DTs for manufacture and supply of quality energy efficient DTs as per IS:1180 Part 1/2014 which will require the manufacturers to deal with only one agency for doing the business with ease. The other regulation may be made voluntary/optional.
The matter is under consideration.
Regarding use of prime quality CRGO only from PGCIL approved vendors
IEEMA sought a clarification on the advisory issued by REC Ltd. (REC/DDUGJY/QA/2017-18/D.No. 2087 dtd. 11.07.2017 & REC/DDUGJY/QA/2017-18/2065 dt. 29.06.2017) to all Discoms/Project Implementing Agencies on use of prime quality CRGO only from PGCIL approved vendors.
IEEMA requested REC to advice all Project Implementing Agencies/CMDs/MDs of Discoms to accept the processors/Core cutters/laminations manufacturers for supplying prime quality CRGO for manufacturing of Transformers, only in such cases where complete traceability reports are provided from the mill manufacturers which is also quoted in the clause no. 3 under Inspection of Prime CRGO laminations.
In addition to the above issue, IEEMA also brought to the notice of REC, that some State Utilities/Discoms are referring the said letter as an advisory to procure transformers with CRGO only, and not with Amorphous Core. Therefore necessary clarification may kindly be issued.
REC has accepted our request and has issued necessary directives to all Discoms/PIAs/SEBs.
Restructuring of pre GST contracts / bidding documents by Powergrid: Big relief to the industry
A series of meetings were held with Powergrid and IEEMA members, led by Mr. Adarsh Jain, Chairman, Economic and taxation committee, IEEMA, during June / July 2017 regarding restructuring of contracts / bidding documents due to implementation of GST.
A recent meeting held on 20th September 2017 with Mr. D C Joshi, Executive Director (Contracts), Powergrid Ltd., during which, the issues related to formats for price re-calculation for GST variation, prescribed HSN codes with various items in the tenders, percentages for reduction in prices in the old formats, acceptance of CA certificate for price reduction due to GST, GST on Freight and Insurance, status of excise exempted projects, states utilities that are not yet registered with GST and benefit on the amount of closing stock held on 30th June 2017 were discussed.