In contravention of Prime Minister Narendra Modi’s pet ‘Make in India’ initiative, a conglomeration of public sector undertakings (PSUs) under the power ministry recently issued a letter of award to Philips to import light emitting diode (LED) bulbs from China.
The purchase order was issued even as several Indian companies and multinationals operating in India, including Philips, manufacture LED light bulbs. The thrust of ‘Make in India’ is to encourage domestic-funded tenders for indigenous companies.
Bajaj, Havells, Syska, Wipro, Eveready, Ajanta and Moser Baer are among about 25 LED bulb makers in India. Modi’s ‘Make in India’ campaign, which seeks to make India a manufacturing hub, is focused on 25 sectors, including power.
Philips Fails to Meet Delivery Schedule
What is worse, Philips has supplied only 11 percent of the original order quantity of 2 crore LED bulbs, to be imaginatively named Ujala even as the stipulated time by when it was to make part of the delivery has passed. As the lead supplier that clinched the deal, Philips was contract-bound to deliver the first tranche of the supply of 40 percent of the order within 60 days that ended on 7 November.
The complete supply is to be delivered within 150 days from the date (8 September 2016) of the Letter of Award (LoA) (for “design, manufacture and supply of self-ballasted 9 Watt LED bulbs) granted to Philips by the Energy Efficiency Services Ltd (EESL).
According to the terms of the contract, the total order is worth about Rs 200 crore, including sales tax, VAT, octroi and entry tax. The LoA states that “100 percent payment shall be made within 30 days of receipt of the supplier’s invoice at EESL office with receipt acknowledgement.”
It is learnt that though Philips has failed to meet the delivery schedule, the deficit quantity of LED bulbs has not been “transferred” to other successful bidders and no additional charges have been realised from the multinational company.
Reliance on Chinese LED Bulbs
Documents, including the LoA to Philips, accessed by The Quint, show that EESL, the joint venture of PSUs under the power ministry, instructed the supplying company (Philips India Ltd) that “you shall only use ‘Guangzhou Hongli Opto Electronic Co Ltd-make LED Chip or Everlite-make (Taiwanese) LED Chip’ for the supplies of 9 Watt LED bulbs”.
The reliance on Chinese LED bulbs comes at a time when the need of the hour, according to the government and industry, is to safeguard indigenous business and the economy from China where pricing “is not rational”. China’s share in Indian imports of electrical equipment has increased dramatically in the last few years and in 2013-14 stood at 38.87 percent, up from 15.26 percent in 2005-06.
Power Sector Concerned
Besides security concerns, which have been flagged by none other than National Security Adviser Ajit Doval, disproportionate reliance on Chinese power equipment of uncertain quality and life cycle – and with no domestic manufacturing facilities that could provide emergency repairs, spares and replacements – is fraught with long-term risks, according to government and industry sources.
The import of Chinese electrical equipment, which have captured 35 percent of the Indian market, has assumed “threatening proportions”. At the same time, there is significant under-utilisation of domestic products.
The power sector’s heightened concern for the influx of Chinese-made electrical goods, including LED bulbs, is reflected in a March 2015 note by Indian Electrical and Electronics Manufacturers’ Association (IEEMA) Director General Sunil Misra to Doval and Power Secretary PK Sinha. The note cautions that “foreign parties” should be “insisted upon setting up manufacturing bases in India” to plug the technological gaps.
Loopholes in Deal
Despite there being a significant delay in ensuring timely delivery of the LED bulbs, EESL has not taken any action for Philips’ failure to “comply with requirements of the tender and LoA” whose violation “constitute sufficient ground for annulment of the award and forfeiture of the contract performance guarantee”.
More importantly, since the LED bulbs are Chinese made, the LoA condition that the “supplier shall ensure interchangeability or product supplied for replacement during warranty (3 years) and maintenance period and even when it is purchased from open market”, cannot be fulfilled.
Justifying the Import of Bulbs
When contacted over the phone, EESL Manager (T & C) Saurabh Kumar said:
Our tender didn’t prohibit from importing. The LED chip that comes with the bulb is not manufactured in India and I have no knowledge of how Philips could come up with a costing of Rs 38 per bulb. The Chinese and Taiwanese companies may be Philips’ partners. Syska, which also manufactures LED bulbs but never participated in a single bid, claimed that it won’t be able to match Philips’ price. So, we were left with no option but to select Philips, which wanted to ramp up its own plans.
An emailed questionnaire to Philips India Ltd, besides multiple attempts to contact them over the phone, did not elicit any response from the company. The power ministry public information officer Sanjay Kumar refused to cooperate with responses, saying he “did not know”.