Power cable market poised for a big growth
Riding on T&D investments, power cable market in India is poised for a big growth in the next 5 years, anticipates Shardul Kulkarni, Principal-Energy, Tata Strategic Management Group
Please discuss the status of power cable market in India. How is the status of domestic players?One of the major challenges for the Indian power sector is the financial health of the distribution utilities. The main driver is investment in transmission and distribution (T&D) infrastructure for the power cable sector. The same is lagging significantly as compared to global standards. Globally, the ratio between generation investment and T&D investment is 1:1. In India, it is 1:0.5. A lot of T&D investments are required to bridge this gap.
This backlog investment will be supplemented with new T&D infrastructure, which will be created to cater to fresh demand, and push for rural electrification.
Riding on these T&D investments, power cable market in India is poised for a big growth in the next 5 years.
What are the challenges for the industry?Indian power sector, apart from poor financial health of discoms, faces various challenges, including feedstock shortage (coal/gas), bottlenecks in the T&D infrastructure, land acquisition/obtaining right of way to lay transmission lines.
Cash infusion – as proposed under financial restructuring plan of state discoms – can bring the favourable scenario and improve their financial health. Under this scenario, growth rate of 13-15 per cent would be possible.
If the liquidity crunch continues, the power cable industry growth will be moderate to 7-8 per cent a year.The ongoing slowdown causes the players in power cable industry to witness deferred orders. The inventory is increasing, but it is impacting margins.
In 2nd quarter, power cable business in India has witnessed a negative growth of 16.05 per cent compared to the corresponding period of last year. According to you, what are the main reasons behind this negative growth?Thanks to fuel (coal/gas) issues and poor financial of utilities, many power projects are stuck. EPC contractors are not getting payments, so they are forced to defer T&D equipment orders, including power cables. As a result of these, industry has witnessed a negative growth.
The performance of power cable sector has largely been hit by credit crunch across state utilities. Recently, the centre has approved restructuring of Rs. 1.9-lakh-crore debt of state electricity boards. How do you perceive this initiative?It’s a welcome bailout package for bleeding state discoms. This package offers an additional incentive of Rs. 1,500 crore for every percentage reduction in aggregate technical and commercial losses by discoms.
In the short run, it would help discoms borrow and ease the liquidity situation. In the long run, it will be a win-win feature, if the discipline of tariff revisions is maintained.
This package comes with responsibility. States, seeking bailout package, need to enact “State Electricity Distribution Responsibility Bill” binding upon the state regulator, state government and discoms. It is at draft stage and expected to be finalised before the end of the current financial year.
Lack of ‘level-playing field’ is also affecting the growth of domestic electrical equipment business. What are your comments in this regard?Despite having a strong demand for electrical equipment in India, absence of a level-playing field for domestically manufactured equipment vis-a-vis imported products has made it difficult for domestic players to compete with overseas manufacturers, especially from China, which has emerged as a threat over the years.
The imports of electrical equipment have now captured 43 per cent of the market in FY 12 for electrical equipment in the country from 33 per cent in FY 11.
To provide level-playing field, Government of India has proposed 5 per cent import duty on electrical equipment. In addition, the government will impose a 10 per cent countervailing duty (CVD), a sort of equalisation levy to make up for the excise on local products, and 4 per cent special additional duty (SAD), taking the total to 19 per cent. For power cables, such combined duty is even steep at 26 per cent.
The government could encourage to indigenous manufacturing in strategic sectors like electrical equipment, as done by several countries, including China. The government also could enhance export competitiveness of domestic electrical equipment industry.
Are we capable enough to compete with ‘illegal’ import?Illegitimate imports are affecting all copper users and manufacturers of electrical products. Imported copper scrap, druid, residues and dross get converted to a low-purity wire bar and thereafter into low-purity copper wires and cables. These cables pose a safety threat. Recovery of metal from druid, residue, and other similar waste materials is a major hazard.
The government could implement fixation of a floor price or tariff value based on international prices. This should be changed every month based on the average London Metal Exchange (LME) price. Imports “invoiced” below the floor price should be charged customs and excise duty as per the floor price. Also, there should be more stringent checks by customs on imports of all kinds of scrap, druid and residues. Entry of scrap should be restricted to a few earmarked ports having necessary analytical facilities. In this way, we could better equip ourselves against illegal imports.
Would you like to share some suggestions or recommendations that can boost the power cable sector?All utilities have a plan in place for transmission of bulk power over high voltages to reduce losses. Requisite finances for executing these plans would add to power cable industry’s prospects in future.
Crux of the power sector challenge lies in poor management by many state discoms. Under the bailout package, central government could emphasis more on bringing better distribution management through private sector participation. In the past, various models (franchisee or privatisation) have been successfully tested to reduce aggregate technical and commercial losses. This bailout package could be subjective to state bringing changes and delivering results rather than just agreeing to enforce “State Electricity Distribution Responsibility Bill.”
In a positive spin off, this initiative could be viable and financially healthy distribution operations, which would improve spend on T&D equipment including power cables in the mid- to long-term horizon.In India, how long can we afford to go with overhead cables?For several years, the use of overhead cabling has been traditionally the most economical and reliable means of power supply to urban as well as rural areas. This has been backbone of rural and semi-urban transmission and distribution network.
The ever-increasing demand of energy for industrial and domestic applications raises transmission voltages over the years, e.g. 6.6/11 KV to 33 KV to 400 KV and even 800 KV today. The transfer of power at such high-voltage levels needs installation of high-rise bulky towers and also generate powerful magnetic field, which is hazardous for densely populated areas. The use of overhead lines – for public safety as well as aesthetic and environmental concerns – is now limited to transmission of bulk power over the long distances to outskirts of a city.
However, the catch still remains in its economics. As compared to overhead cabling, underground cabling is 40-60 per cent more expensive. Given current status of financial health of utilities, underground cabling scores low on the priorities of utilities. This scenario is likely to continue till the health of the utilities improves.
How do you find the future of underground high-voltage cables in Indian market?As mentioned earlier, with rising transmission voltages, underground high-voltage cables are desirable and improve HT/LT ratio of utilities. Commercial losses because of theft, apart from transmission loss reduction, also go down with adoption of underground cables.
On a whole, the future of HV underground cable looks promising as the country is moving toward high-voltage T&D and urban power distribution infrastructure.
Power cable market poised for a big growth