Mining and power generating company Neyveli Lignite Corporation (NLC) recently declared it had been unable to add around 1,500 mega watt (Mw) of power to the grid in Tamil Nadu which would have been crucial to easing the crisis in the electricity-starved state. The culprit? NLC points its finger at Bharat Heavy Electricals Ltd (BHEL), which is both a boiler supplier and an engineering, procurement and construction contractor.
NLC Chairman and Managing Director A R Ansari says BHEL’s delay in delivering equipment for a power plant is as much as 45 to 50 months. Tamil Nadu Electricity Board (TNEB) Chairman Rajeev Ranjan cites this as one of the reasons why his firm has bled at least Rs 5,000 crore in power revenues. NLC is one of the major suppliers of electricity to Tamil Nadu, which procures 1,170 Mw of the company’s total output of 2,490 Mw, generated from three of its thermal power stations in the state.
NLC is not alone. National Thermal Power Corporation (NTPC) and many state governments, such as Rajasthan, have also come down heavily on BHEL over project delays. A recent report quoted the Central Electricity Authority as saying: “BHEL has failed to meet the deadline in nine of the 17 thermal projects that were to be commissioned last financial year”. The tragic irony for NLC is that it has to support its PSU cousin BHEL, and is forced to adhere to the lowest-bidder rule for equipment contracts instead of being allowed to factor in delivery schedules and other parameters in its selection process.(Click here for charts)
The sheer number of projects experiencing delays because of BHEL is breathtaking. The 2x800-Mw super critical project at Udangudi as well as the 1,000-Mw thermal power project at Tuticorin, Tamil Nadu, have also been delayed for about three years now, costing the latter Rs 2 crore per day, according to NLC General Manager Ganesan. The various phases at the Rs 5,423.55-crore project at Vallur have also been delayed by 18-20 months. According to the 11th Plan (F2008-12) working group report, 14 per cent (5.7 Gw) of the planned capacity was missed because of BHEL’s failure to provide equipment on time.
What could be the reason for such consistent failure in meeting deadlines? BHEL says that matters are simply out of its hands. These hiccups, its officials say, are directly linked to factors such as lack of human resource needed for construction, land-acquisition issues, regulatory clearances and the country's poor infrastructure.
A K Ghosh, CEO, BHEL Power Sector, Southern Region (PSSR), illustrates this by pointing out that when BHEL was trying to move a 380-metric-tonne stator motor to the North Chennai Unit-II project from its Haridwar plant in Uttarakhand, it fell in a river due to a bridge collapse at Binapure, 40 km from Gairatganj near Bhopal in Madhya Pradesh. A sea route had to be used instead, and the shipment experienced further delays at the port. NLC’s Tuticorin project is dogged by land acquistion problems, says BHEL. And, in Rajasthan, the quality of lignite mined is vastly different from the sample given to BHEL for the purpose of designing boilers.
"People are giving you a wrong impression. BHEL’s scope in any of these power projects is only 45-50 per cent. We cannot be blamed . We are responsible for boiler turbines while the balance of plant (BoP) is handled by others. Wherever they (NLC) are working, they face problems related to BoP," says a senior official from BHEL’s head office.
Analysts say BHEL has a reputation for being a very efficient company, but it has been drowning in a sea of orders—something that inevitably causes delays. But, that’s changing, as demand, after rising initially in the last few years, has begun to slow due to a dearth of both coal and financing options. Consequently, India is seeing a transition from being a significantly undersupplied market to a massively oversupplied one.
Either way, this has been disastrous for BHEL. The Tamil Nadu government has scrapped the Rs 8,000-crore Udangudi project. TNEB will assume the reins of the project along with a private player. BHEL officials express surprise over this development, saying no such decision was mentioned at the last board meeting. Similarly, the Rajasthan government scrapped tenders worth Rs 12,000 crore for the two separate thermal power projects bagged by BHEL a year ago. The company has even lost NTPC’s Rs 16,000-crore project to a joint venture between BGR Energy and Hitachi power.
This could hit BHEL hard. According to Morgan Stanley Research, 61 per cent of the country's power capacity has been installed by BHEL via orders placed by central and state utilities. But, recently, with the advent of more Indian and foreign firms competing for projects, there has been a noticeable change in the power equipment landscape. BHEL had a market share of 65 per cent in the boiler turbine generator space. This reduced to 40 per cent last financial year. Then, according to BHEL's recent announcement, order inflows plunged by 63 per cent in 2011-12 to Rs 22,096 crore, from Rs 60,507 crore just a year ago. Its order book in 2011-12 was at Rs 1,35,000 crore, as compared to Rs 1,64,145 crore the previous year, down by 18 per cent.
So, who gains from BHEL’s pain? Chinese firms such as Harbin, SEC and Dongfeng Electric are making hay. Also doing well are domestic players who have joined hands with multinationals. L&T, for instance, has linked up with Mitsubishi and BGR-Hitachi, Bharat Forge with Alstom. and JSW with Toshiba. Doosan, an entrant, hasn’t tied up with any domestic player. Shubhranshu Patnaik, senior director, Deloitte India, says Chinese products are 20-25 per cent cheaper than the international ones, and pose a clear threat to domestic players. However, relying on Chinese companies for spare parts and servicing could become problematic. Also, the life cycle of Chinese products is yet to be proven in India. “Today, we know and we have seen BHEL products working for so many years: This is not the case with the Chinese ones. Long-term dependence on Chinese products will raise alarm bells,” cautions Patnaik.
But, this is cold comfort for a company that has much bigger problems on its hands.