Chinese banks may be asked to guarantee power equipment

The government is considering placing curbs on power companies seeking finance from Chinese banks to fund the import of Chinese power equipment.

Written by: ENS Economic Bureau

2 min readNew DelhiMay 11, 2011 12:44 AM IST First published on: May 11, 2011 at 12:44 AM IST

The government is considering placing curbs on power companies seeking finance from Chinese banks to fund the import of Chinese power equipment. The move is being contemplated to prevent Indias energy sources from being controlled by Chinese hands,the head of a leading domestic institutional lender said.

This is intended to limit the access of Chinese funds for Indian power producers, S K Goel,chairman,India Infrastructure Finance Company Limited,a government-owned institution set up in April 2006,said. Power players sought out Chinese lenders after Indian banks were averse to fund projects based on cheap Chinese equipment. The concern stems from the possibility of an Indian power plant getting mortgaged to Chinese banks,he added.

In fact,to make the process more strict,one of the suggestions that has come up is to ask the company get a life time performance guarantee for the equipment from the prime bank the Chinese bank,which can be invoked if the equipment fails or shows serious malfunction. It will then be in the interest of the Chinese to ensure the quality of the equipment, Goel said.

In the recent past,Anil Dhirubhai Ambani Groups Reliance Power has received loans from Bank of China,China Development Bank,the Export-Import Bank of China and Industrial and Commercial Bank of China for funding equipment purchase for its power plants. It has received Chinese funding for equipment worth 8.3 billion being supplied by China based Shanghai Electric Corporation.

Some other companies including Moser Baer,Adani Power,Lanco Infratech and SRM Energy are in various stages of negotiations with Chinese power equipment manufacturers. Lanco Infratech,which placed an order with Dongfang Electric Corporation has also been considering accessing finance from Chinese banks for importing equipment.

The issue has already been flagged by the National Security Council and is now being considered at the top levels of the government.