BHEL: a drag on India’s power sector
Facing competition from private players, BHEL is now feeling the heat
Noor Mohammad Delhi
BHEL was supposed to be the mainstay of the country's power sector development. With this objective, the Indian government promoted BHEL as a public sector monopoly in power equipment manufacturing. Biased policy making did not leave any scope for private competition. Over a period of time, excessive government protection has made BHEL lethargic and uncompetitive. And, now that the Indian economy has switched over to a high growth trajectory and the country needs to expedite power generation capacity, BHEL turns out to be a serious drag. That has led to hard realisation among Indian policy makers that BHEL is not the answer to the country's power problems.
BHEL has failed to keep pace with technological advances in the power sector and remains a high-cost supplier of power equipment contrary. Its inefficiency translates into high cost of electricity for the Indian industry and dents its competitiveness.
Just how uncompetitive is BHEL can be gauged from the price quoted by the public sector power equipment manufacturer in the bidding held for the supply of supercritical turbine generator set to the Andhra Pradesh Power Generation Company's (Apgenco) 1,600 MW Krishnapatnam power project in 2008.
BHEL's quoted price for the contract was as much as Rs 500 crore higher compared to the offer submitted by the combine of domestic engineering major Larsen and Toubro (L&T) and Japan's Mitsubishi Heavy Industries (MHI). BHEL's quoted price for the contract was about Rs 2,000 crore while the L&T-led consortium's was just over Rs 1,500 crore. Significantly, this was the first supercritical power project bid by L&T which had just forayed into this business venture.
Hardnews learnt that L&T's stunning success has forced the government to review its plan to place orders on BHEL on a nomination basis for the supply of initial 11 sets of 800MW and 660MW supercritical equipment to power projects of central utilities like NTPC and Damodar Valley Corp (DVC) during the 12th Plan period. This reflects the government's rethinking on its traditional policy to promote BHEL as a power equipment monopoly.
BHEL has also been outbid by another new player BGR Energy for equipment supply to the Rajasthan government's 1,200 MW Kalisindh thermal power project at Jhalawar near Kota. BGR bid for the project in consortium with China's Dongfang.
Equipment like boiler, turbine and generator together account for a fairly big chunk of power generation cost. Electricity tariffs for power plant built by BHEL are always on the higher side. Since BHEL still holds a lion's share in domestic power equipment supply market, average per unit electricity cost in India is almost double compared to China. No wonder, China has become the world's manufacturing powerhouse and India continues to lag behind.
With BHEL continuing to enjoy government's patronage, overseas power equipment suppliers avoid participating in bidding held for the supply of equipment to power projects of central and state public sector utilities. As a result, there is not much room for these utilities to bargain price with BHEL. These utilities often end up sourcing equipment at a monopoly price quoted by the public sector equipment manufacturer.
Thanks to BHEL's continued monopoly on domestic power equipment manufacturing supply, India has miserably failed in meeting its envisaged power generation capacity addition targets under successive Five Year Plans. For example, the country could add only half the capacity envisaged by the power ministry in the 10th Plan period.
Comments
The author had deliberately
The author had deliberately omitted mentioning that BHEL had won an order for 2 x 800 MW supercritical boilers under international competitive bidding for 1,600 MW Krishnapatnam Power Project outbidding the L&T-Mitsubishi Heavy Industries (MHI) combine. As such, when there is open tendering, where is the justification that BHEL is enjoying “government’s patronage”.
BHEL: Not so bad
The author might like to take a look at the performance (Gaps) by our defence PSUs and the profits they make, thanks to the policy of protectionism by MoD. That will make BHEL's performance look absolutely stellar.
BHEL: Some facts
Don't blame BHEL for every problem that this country currently faces and is likely to in future. Even BHEL's competitors and all aggrieved parties, as listed by you, will not agree with the views and opinions expressed in your article.
Some facts:
1. Delay in capacity addition is not because of BHEL. It is because of delayed orders by utilities and other power generation mechanisms due
to their own reasons. This is what happens when orders of an entire 10-year plan are bunched and placed in one quarter.
2. Companies heavily under-quote for the first order to get a foothold, even if the prices are unviable for running a business. The Krishnapattnam example is one such case and the winning bidder is still
reeling under the pressure of the low prices quoted.
3. The Chinese example is out of place. Industry in India and, to an extent the world, is under pressure from Chinese competition and BHEL is not an isolated case.
4. What BHEL delivers at a reasonable price is most important. The durability and reliability of sets supplied by BHEL is a well-known fact. All the top PLF plants in India are fitted with BHEL machines. What BHEL delivers is not just supply, erection and commissioning of equipment. It also guarantees a lifelong service to customers. No other vendor has been able to assure Indian customers the after-sales services of the level we provide.
5. All serious private power generation set ups, who were at one time allured by Chinese low cost or German finesse are coming back to us
without any coercion or government incentives.
The post was unduly harsh on BHEL, which has been toiling for powering this country selflessly over decades.
The Author is not blaming
The author is not blaming BHEL. Rather, he is blaming the government policies which led to the monopolistic development of BHEL thus keeping the private players away from the power sector. Like telecommunication and aviation, had the power sector been opened up to the private sector, we would have had some hopes to meet the Eleventh plan target. You will agree that BHEL alone cannot meet the target. It simply does not have that capacity and private players are just entering the sector. They will take time to establish, which will lead to a delay in the implementation of the Eleventh plan. This is definitely a lapse on the part of the government.