BHEL Disinvestments-An Attack On The Power Sector

THE media has cast the Left’s 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.


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 government’s share in BHEL’s 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 BHEL’s 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 Company’s corpus helping it to expand.


Even worse, BHEL is not only not being protected in the Indian market but is being frozen out in various ways. Recently, BHEL’s 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 government’s 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 FII’s are entitled to seat on BHEL’s 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 government’s 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 BHEL’s 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 lion’s share is for the main plant equipment – boilers and turbines.


Interestingly enough, NTPC, which had made all this noise about super-critical technology and BHEL’s lack of experience on this, had no similar objections against Doosan’s 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 PSU’s. 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 supplier’s 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.