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Vol. XXIXNo. 27
July 03,
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BHEL
Disinvestments – An Attack On The Power Sector
Prabir
Purkayastha
THE
media has cast the Lefts opposition to the proposed disinvestments of 10 per
cent of BHEL as one more instance of its inability to change its ideology with
modern times. Efforts also are made to compare the BHEL disinvestments with that
of the loss making undertakings in West Bengal, where only after years losses
and after being convinced that these cannot be turned around that the Left Front
government is now thinking of shutting them down. Even to an ideologically
blinkered media, simple commercial common sense would show the difference
between shutting down loss making PSUs from that of selling shares in one of the
leading and most profitable companies. But then, common sense is quite uncommon,
at least amongst our media experts.
IMPRESSIVE
RECORD OF
BHEL
BHEL
is one of the most successful Public Sector Undertakings in the country. With
a government investment of only Rs 165 crore, it has a total asset base of about
Rs 12,000 crore today. Only in 2003-4, it has paid a dividend of 60 per cent; if
we take this dividend and the governments share in BHELs retained
earnings, it totals to about Rs 500 crore — or more than three times in one
year than what we put in it decades back. BHEL has kept the major power
equipment MNCs at bay in the Indian market. The initial technologies
received for boilers with Czech, Russian and Combustion Engineering (US) were
inappropriate for Indian high ash coals. It is only with BHELs experience and
change of these designs that we could achieve the remarkable improvement of the
Plant Load Factor in our power plants.
Instead
of highlighting the failure of the government to build BHEL as a global player,
the media experts want to applaud the attempt of the government to seat its
competitors on the BHEL board. On this count, the UPA is no different from
NDA: both have hamstrung the Indian PSUs even in the domestic market, let alone
encourage them to become global players. This despite the assurance in the CMP
that the profit making PSUs will be encouraged to become globally competitive.
The Left had agreed that in order to become globally competitive, the PSUs could
access the capital market to finance their expansion. To argue that government
selling BHEL shares is same as raising capital from the market is to forget that
by disinvesting shares by the government means the proceeds enter the annual
budget (irrespective the name the UPA may give to this corpus), while in the
other case raising money from the markets, the proceeds of this dilution of
equity enters the Companys corpus helping it to expand.
NOT
PROTECTING – NURTURING
BHEL
Even
worse, BHEL is not only not being protected in the Indian market but is being
frozen out in various ways. Recently, BHELs bids for the supercritical
boilers in Sipat and Barh were rejected by NTPC. The recent qualifying
requirement floated by Nyevelli Lignite Corporation for a 250 MW fluidised bed
boiler also requires BHEL to get an MNC partner. This is apart from the inverted
duty structure in which the raw materials and intermediate goods that BHEL
imports has higher duty than the finished product; in duty terms it means it is
cheaper to import power plant equipment than manufacture it here. It is these
series of steps protecting the MNCs in the Indian market that is now being
capped by the UPA governments decision to sell 10 per cent of BHEL shares. Foreign
investors already have 22.7 per cent of its shares through the FII route. With
more than 26 per cent shares, the FIIs are entitled to seat on BHELs board
and privy to all its strategic and commercial plans. No sensible corporation
would ever allow this to take place. Unfortunately, it
is the neo-liberal ideology that is guiding the governments policy and not
any commercial sense.
Let
us look at the recent cases where BHEL is being squeezed out of certain emerging
sectors of the power market. After years of sticking to sub-critical boiler
technology and unit sizes of 210 and 500 MW, there has been an interest of
taking the next step and going to super-critical technology and unit sizes of
660 MW and beyond. The super-critical boilers operate at higher pressure and
temperatures and offer higher efficiencies, even though the capital costs are
also generally higher. NTPC and AP Genco have both been actively exploring the
super critical boiler route, with other state electricity Boards also actively
watching. NTPC floated the first tender for Sipat (in Chhattisgarh) asking for a
combined boiler-turbine plant bid.
BHEL,
in its preparation for this new technology, had reached a collaboration
agreement with Deutche Babcock (later re-named as Babcock Borsig). Deutche
Babcock had a long history of designing and supplying super-critical boilers in
Germany and in other countries. It was in financial difficulties as the power
equipment market in Europe has shrunk with no new plants in the offing and
competition from late entrants in the world market such as Doosan (Korea),
TechnoPromExporte (Russia) and BHEL. Babcock went financially bankrupt and the
only surviving part of this combination was the design wing. For BHEL to have
gone into a collaboration with this entity made eminent sense: they were able to
get hold of all the designs and design experience without being burdened by a
collaborator who would try and maximise its high cost manufactured content.
Unfortunately, NTPC decided that this was not good enough and rejected the
BHELs bid. Subsequently, BHEL teamed up with Alstom, France and predictably
its bids in Sipat and Barh have foundered on the high cost content of Alstom.
The Sipat plant was split in to two parts with the boiler order going to Doosan
and the turbine one going to TechnoPromExporte (TPE). Another Barh order has
gone to TPE. The two project costs total up to more than Rs 16,000 crore of
which the lions share is for the main plant equipment boilers and
turbines.
CAVALIER
TREATMENT OF
PSUs IN INDIA
Interestingly
enough, NTPC, which had made all this noise about super-critical technology and
BHELs lack of experience on this, had no similar objections against
Doosans lack of experience in high-ash coals. This, despite our past
experience in boiler technologies that showed that without design experience of
high-ash coals, boilers tend to have very high rate of failures.
The
Sipat case brings out how Russia and Korea nurture their power equipment
companies while India does not. Sipat was meant to be test case for
super-critical boiler technology and whoever got this order would get the inside
track for all future orders.
It would also set the basic standards for all such plants. With BHEL, one of the
leading equipment manufacturers in the country, it was essential that its
credentials should have been examined and straightened out before any tendering
process. That NTPC and BHEL were at cross-purposes here only shows the cavalier
manner with which we treat our PSUs and the use of our local market for
developing indigenous capabilities. The issue here was not preferential
treatment but only a level playing field in which BHEL would be allowed to bid
with a technology that was certainly more than adequate for the purpose. That we
should not only give up the future power plant market to foreign companies but
also actively freeze our local manufacturer out, only shows the nature of our
commitment to turn our PSUs to become global players.
Let
us look at Korea and Russia and how they treat their local companies. Doosan has
secured all such order in its home market and thus become qualified to enter the
global market. TPE had the support of Putin, the Russian prime minister when
NTPC thought of rejecting its bid. This is not unusual. All countries
commercially support their companies, as the recent Boing and Air Bus public
fracas indicates. It is only here that we decide not only to allow others to
enter our markets, but to help such entry by keeping out our PSUs. All this
in the name of so-called market liberalisation which none of the biggies in the
international markets seem to follow. And let us also ask a simple question: if
instead of BHEL, if it was Reliance as the bidder, would NTPC and the government
of India been so cavalier of its needs?
Sipat
is not the sole instance. Barh has followed Sipat. The recent 250 MW project of
NLC follows the same pattern. It does not recognise 125 MW fluidised bed boiler
that BHEL has installed. However, BHEL is accused of lacking experience and it
is insisted that BHEL gets a foreign partner. Net result is that BHEL is now
forced into a partnership with Lurgi and the chances of a much higher bid price
and consequently BHEL losing out here too looms large. These are not minor
matters. Both super-critical and fluidised bed technologies are crucial to
India future. That these vital areas are being marked out of bounds for BHEL
speaks for itself about our commitment to turn India into an industrial giant.
No giant can compete with one hand (if not both) tied behind its back.
We
have discriminated for years against BHEL by an inverted duty structure that
helps its competitors to import equipment at lower prices, we have denied it
ability to give suppliers credit and now have frozen it out of vital emerging
areas of technology. If this were not enough, we want to seat their competitors
on the cockpit of the company the Boardroom.
It is time that the Indian people call a halt to this profligate squandering of
its hard-earned assets financial, technical and human. BHEL
disinvestments are not just one more issue of privatisation. It involves the
future of the power sector in India. That is why we must stop this disastrous
step.
