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Vol.
XXIX No. 30
July 24,
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BHEL
Disinvestments And New Capitalism
Prabir
Purkayastha
WE
have earlier focussed on how we need to make BHEL a global player in power
equipment manufacturing. This is doubly important, as the major power market in
the world today is China and India, followed by the rest of Asia. The developed
countries do not have any major programme of investing in additional power
generation capacity, their focus being restricted to renovating of ageing units.
Given that the markets are in Asia, it is not surprising that the new emerging
global players are in countries that have a large domestic market for power
equipment. Interestingly enough, while the emerging players such as Doosan,
Dongfang Electric Corporation, Harbin Power are all supported by their
governments, not only through protection in the home market but also through
support of technical and research institutions and various subsidies, the
government of India seems to believe that BHEL can fend for itself in becoming a
global player.
GLOBAL
PLAYERS
Before
we go into the details of the BHELs position in the domestic market, it is
worthwhile looking at the larger global picture. For much of the last century,
the power equipment suppliers were a small club and exerting monopoly power.
They operated as a cartel and saw a steady drop in their numbers through
consolidation, acquisitions and mergers. The big 6 — ABB, GE, Alstom, Siemens,
Hitachi and Mitsubishi — had a stranglehold on the global power market. The
last twenty years have produced a sea change in this scenario. Today, ABB and
Alstom are sick, Alstom requiring a huge bail-out recently, Siemens survives
because of its electronics division and its tie-up with BHEL, and the Japanese
are not doing too well either. Instead, the new kids on the block are the
Chinese, Indian, and Korean companies. This also ties up neatly with where the
power markets are: they are in China, India and Korea. The question is can they
become global players on their own or do they require government support?
If
the media is to be believed, companies become global players once they are cut
free from government: the government support is not only not required it is
positively harmful for such efforts. Subir Roy, in his Op-ed piece in Business
Standard of July 13, castigates the Left for not understanding this
obvious truth. Of course he is careful not to address who BHELs
international competitors are. Or how the earlier players became global in the
first place. Let us start with some simple facts. The French governments role
in Alstom is well known. It is still largely government owned and has received a
huge bailout worth billions of Euros only recently from the French government.
Only the naïve believe that large MNCs in the power sector became such without
support from their government. As is well known, Korean and Japanese companies
work very closely with their governments. In all these cases, the role of the
government is not only in protecting the home market, but also in providing
export credits as well as political muscle when called for. Even this is not the
full story. When new technologies are developed, it is the government who takes
the basic technology risk and not the power equipment manufacturers. Those who
are familiar with technology development, would know that most major advances
have come from the home governments being willing to under-write projects using
such new technologies. They are set up as technology models for the future and
are expected to be the place where the new technologies are deployed and made
ready for the domestic and international market.
Let
us look at how China has used its domestic market power to establish its power
equipment manufacturing companies. The two major equipment manufacturing
companies are Dongfang Electric Corporation and Harbin Power. One has to only to
read their website to see the kind of support that they receive from the
government, apart from market protection. Dongfang Electric Corporation states
Dongfang Electric
Corporation
.has cultivated and forged a superior engineering technical team
of more than 5000 members, which consists of the
academicians of China Engineering Institute, the experts
of national and provincial levels, the
science & technology personnel enjoying the
special subsidies from government, as well
as the high and middle professional technical personnel
and senior technicians. In the Three Mile Gorges project, both
Dongfang and Harbin Power were associated by the Chinese government with the two
international consortia supplying the equipment. As a result Harbin Power
Equipment and Dongfang Electrical Machinery are benefiting from extensive
technology transfers. The last two units of the first phase were almost entirely
constructed in China and these domestic groups can be expected to take the major
share of work of the second phase of 8,400MW.
VISION
OF NEO-LIBERALISERS
Subir
Roy has argued that the Left lacks a vision of technology. His vision is the
familiar one of all neo-liberalisers: let the market take care of BHEL. In what
senses this provides a vision of technology is difficult to fathom. Not content,
he rushes in with the argument that BHEL should pick up small niche players like
Max Controls (as BHEL did for its control system) for its portfolio of
technology. Well, that is exactly what BHEL had done in acquiring
supercritical boiler technology from Babcock Borsig, which was rejected by NTPC.
If this were his vision, it seems a fairly innocuous even if a trivial one. His
real problem lies in believing that this is enough. What we had argued earlier
is that it required a governmental intervention to either force NTPC in
accepting Babcocks technology or asking BHEL to get another partner before
the Rs 8,000 crore Sipat bid was opened. The problem comes in believing that
this was not a critical decision for the future power market in India. Roys
other argument that BHEL must develop technology on its own is an anachronism in
todays world. Nobody develops all the technology it needs. The larger the
corporation, the bigger its appetite for technology developed by others. BHEL
needs support to build this portfolio starting with supercritical boiler
technology. That Doosan, TPE and Dongfang can provide this technology at
competitive prices in India and BHEL in partnership with Alstom cannot, is the
crux of the problem. An ostrich act of not noticing this that the government
(and Roy) performs will not help.
Roys
(and much of medias) other argument is that the Left is undercutting
governments efforts to raise revenue. Presumably, he would be equally unhappy
if tariffs, which amount to about 18.5 per cent of our revenue is slashed in the
on-going WTO negotiations and has also been equally unhappy with the continuous
tax cuts offered to the rich in the country. Or does his heart only bleed for
the revenues of the government when public assets are not allowed to be
privatised?
VIOLATION
OF CMP
We
have no quarrel with Roy maintaining his view that all public sector enterprises
need to be privatised. But what he forgets is this it is not his views that
informs the Common Minimum Programme (CMP). The CMP is unambiguous in that
profit making public sector enterprises will not be disinvested. This is the
basis of Lefts support to the UPA government. The Left is objecting a
violation of the CMP, to a subject, which carefully Roy avoids in his rather
long and vituperative piece.
Let
us however take the argument that BHELs sale of 10 per cent shares makes good
commercial sense. The order books of BHEL are completely full for the next three
years. BHEL has received orders totaling Rs 32,000 crore. It has generated a
pre-tax profit worth more than 1000 crore last year. It has a very low debt:
equity ratio: only 0.1. BHEL needs to expand and expand rapidly if it has to
meet the demands that it is going to be put on it for the domestic market alone.
It needs to secure advanced technology, leveraging its position in the domestic
market. That the only vision that the government and the media experts
have is of selling stock (not even raising capital for BHEL) speaks for itself.
It is this impoverished view of manufacturing that has seen a negative
protection in the Indian market for heavy engineering and capital goods.
THE
NEW CAPITALISM
There
is another reason that the media experts are happy with disinvestments. This
comes from the way they look at the economy. For them, as well as the inmates of
the finance ministry, the stock market is the economy. If it booms, the economy
is booming, never mind employment, production of goods, agriculture, etc. The
stock market is the only market in their books. The new capitalism is driven,
not by what companies produce, but how they are viewed in the stock exchange.
The stock market therefore needs periodic doses of steroids FDI in telecom
to allow trading of telecom stocks, sale of BHEL shares, as it is a hot
stock. The need to shore up continuously the stock market is what is
driving the neo-liberal agenda. One can quarrel with the capitalist ideology of
an Adam Smith or a John Maynard Keynes. But their brand of capitalism did deal
with the wealth of nations. The new capitalism consists of the virtual economy
of the stock market and not the one where people work and produce goods. It has
little to do with the reality on the ground and everything with the sterile
worlds of speculative capital
