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How Power Sector Liberalisation in 2009 led to a Chinese monopoly, Rs 3 Trillion NPAs and crippled domestic manufacturing

Clearly, liberalisation of the power sector in 2009 was supposed to unleash the animal spirit in the economy. Instead, it ended up saddling state-owned banks with INR 3 trillion rupees of non-performing assets, cheap Chinese power-equipments flooding the local market and a crippled domestic manufacturing sector.

The Union Power minister R K Singh this week said the government is planning to impose curbs on Chinese power-equipments as Indian firms can manufacture almost all critical items used for generating, transmitting and distributing electricity. A meeting between the minister and his state counterparts is taking place today.

India-China trade deficit (imports against exports) in 2014 was 33 times that of 2004.  In 2020, India has INR 65 billion imports from China and INR 25 billion exports. The current government cannot just unplug imports from China due to WTO commitments. However, the government can certainly curb imports.

Here’s a look at why import curbs are essential and how a decade of cheap Chinese imports hurt the Indian power sector.

As part of the power sector liberalisation, duties for imported power-equipments were slashed to zero in the mega power policy while domestic companies had to pay different taxes and duties. Indian industry had been demanding a level playing field since 2008 by urging the government to remove the 10-20% price disadvantage it faced against Chinese power equipment suppliers.

In the last decade, the Indian government never imposed anti-dumping duty on cheap Chinese imports despite the recommendation of a high powered government panel. The cheap imports also destroyed the local MSME manufacturers and suppliers. 

About 60,000 MW to 65,000 MW of the total 90,000 MW coal-based power capacity in the private sector was under financial stress, according to a Parliamentary Standing Committee on Energy 2018 report. Indian banks are under severe balance sheet pressure due to exposure of INR 3 Lakh Crore to such assets weighed by a slow resolution process and tepid power demand from distribution companies, the report said. 

We will look at three specific examples to understand how the power sector dream of 2009 crash-landed. First, we look at how it hurt a state-owned premier Maharatna manufacturer of capital goods equipment, then we find out how plants running on Chinese equipment have negligible resale value, and finally, we see how influential promoters got huge bank loans to set up power plants. 


The power sector liberalisation not only brought misery to banks but also led to the collapse of a 56-year old state-run Maharatna company – BHEL. Shares of BHEL used to be known as the crown jewel among India’s Navaratna companies have lost 90% since 2008. In 2009, the Indian government removed import duty on Chinese power equipment which led power plants to use cheap Chinese equipment.

Private power generation companies were given government sops and mushroomed at the cost of struggling homegrown companies. The homegrown companies, including BHEL, were not only producing high-quality components but they were exporting to the Middle East and Africa. Once allowed inroads into the power sector, the Chinese companies set up plant, machinery and labour clout in India. 

Athena Chhattisgarh Power

Vedanta Ltd. had submitted a resolution plan to the lenders for the corporate insolvency resolution process of Athena Chhattisgarh Power, which offered to pay much lower than the liquidation value for the under-construction 1,200 MW thermal power plant, according to media reports. The low bid of around INR 2.5 million per MW bid was mainly due to concerns about potential problems servicing Chinese equipment used in the construction and getting the spare parts, especially after Covid-19.

Also, investors are wary after several government agencies are cancelling contracts given to Chinese companies due to the on-going border dispute between the two countries. Athena Chhattisgarh, which has a debt of INR 5,442 crore, should have got a liquidation value of INR 10 million to INR 15 million per MW. The replacement value of a distressed thermal power plant in India is between INR 20 million to INR 30 million per MW depending on the plant’s age, condition, fuel supply and the power purchase agreements. Analysts say the huge discount for Athena is mostly due to its Chinese build.

Lanco Group

The stressed power plants promoted by the Lanco group show how private companies often in unrelated sectors aggressively commissioned a slew of power plants after the mega power policy was amended in 2009.

Lanco Amarkantak Power Limited was commissioned in 2009 and was initially planned to set up thermal power plant with an aggregate capacity of 3,240 MW, according to the company website. The power firm has defaulted on its outstanding debt of more than INR 50,000 crore and has been making consistent losses for the past five years citing high fuel costs and low capacity utilization. 

Its market cap fell from INR 18,777 crore in December 2007 to INR 138 crore now. The firm’s executive chairman L. Madhusudhan Rao is a brother of Lagadapati Rajagopal, a former Lok Sabha member of the Congress.

Clearly, liberalisation of the power sector in 2009 was supposed to unleash the animal spirit in the economy. Instead, it ended up saddling state-owned banks with INR 3 trillion rupees of non-performing assets, cheap Chinese power-equipments flooding the local market and a crippled domestic manufacturing sector.

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Santanu Chakraborty
Santanu is an award-winning equity and debt market reporter and has worked with Bloomberg News, Dow Jones Newswires and Warburg-Reorg for the past 12 years. He has been writing compelling stories about Indian markets simplifying complexities and providing clarity where there is uncertainty.

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