BHEL Disinvestments And New Capitalism24/07/2005
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.
Before we go into the details of the BHEL’s 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 BHEL’s international competitors are. Or how the earlier players became global in the first place. Let us start with some simple facts. The French government’s 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 Babcock’s 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. Roy’s other argument that BHEL must develop technology on its own is an anachronism in today’s 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.
Roy’s (and much of media’s) other argument is that the Left is undercutting government’s 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 Left’s 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 BHEL’s 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