The country’s largest power equipment firm BHEL, which has a order book of a stunning Rs 100,000 crore, is routinely accused of delaying supplies and now, the government is even stepping in to defend it against imports, from China especially. BHEL’s almost six-month-old Chairman and Managing Director K Ravi Kumar argues the debate is incorrectly framed and tries to set the agenda right. The head of the $5billion company which, interestingly, also makes guns and locomotives tells Vandana Gombar and Sudheer Pal Singh that the aim is to be among the top few power equipment manufacturers in the world with a 30,000 mw capacity, a three-fold increase over the current capacity. Excerpts:
Rs 100,000 crore is a huge number, but does it act as a dampener for new orders. New clients will worry that the delays, which you’re known for, will get worse.
Not really, you can outsource some materials to improve delivery times. The first thing I did was to order Rs 5,000 crore of critical raw materials like castings forgings, alloy steel tubes and pipes. We are also increasing our own capacity.
Is the rise in input costs affecting your margins considering some of your orders were negotiated a way back?
Surprisingly, no. We have a 50 per cent price variation built into the contract, and our inventories are quite high. Forex fluctuations don’t affect our margins which, by the way, are around 22 per cent in the power sector.
Why did it take two years to get an order for the next generation super-critical units which yield more power per unit of coal?
Some people who could not deliver got it actually (laughs). In ultra mega plants, we had a problem. The private sector is going for the old 660 mw which is not really super-critical. Our heat rates are the best in the world … We are getting some orders in Tamil Nadu where we are putting in our own equity in power plants. Then we are putting in equity in Gujarat, in Karnataka, so these orders will come, no?
So, BHEL is getting into generation...
Yes, we will have a 26 per cent stake in these ventures. We may sell them off after the project takes off, but that decision will be taken later.
Are the margins on super-critical plants lower?
They’re not as high as those on sub-critical (15 per cent versus 22 per cent). The import content, mainly from Europe, is high and so, until we indigenise it, we will have to make a sacrifice. But indigenisation is not a challenge as only the material used in super-critical is different.
Can you execute super-critical today?
If you can’t do sub-critical, you can’t do super-critical! The real problem is the lack of skilled manpower, especially to go to remote sites.
Is labour the problem? The power ministry keeps pointing fingers at BHEL for delays.
I have to accept what they say since there is no solution. But do they have a solution? We want to start some technical institutes but these things will bear fruit only after five to six years.
The Chinese claim they offer a wider range of unit sizes on super-critical.
Each of our projects is custom built. That is also our weakness. Even if it is a standard design, our engineers will look at it from scratch, see the wind load, the seismic factor, etc. This is one reason why our costs are higher than the Chinese.
L&T recently beat you in an order. Competition is hotting up.
I don’t think so. They got one — if you want just one project, you can quote anything, no? Our only competition is from the Chinese — my salary is 1/20th of what it is in Europe, how can Europeans compete? As for the Chinese, it’ll take them 3-4 years to understand Indian conditions.
We should not allow it to happen. We are standardised on 250 and 500 mw. What is the reason for going for 300 and 600 mw unit sizes which the Chinese offer? No other countries specify sizes to suit other country vendors. Is it possible for Indian government or anybody to allow us to bid in the Chinese market? Have you ever seen an International Competitive Bidding tender from China?
The government’s behaviour is contradictory. On the one hand, you’re blamed for delays; on the other, the government gives you assured orders for super-critical units. There’s even talk of denying Power Finance Corporation loans or coal linkages to power plants using imported equipment.
It’s only unfair competition we’re worried about, we don’t want to be protected from fair competition. Why should government tenders specify sizes that only the Chinese make and then ask us to quote?
You can’t offer super-critical equipment in China unless you have a local joint venture, so what’s wrong in India saying indigenous capacity should be encouraged? In any case, we have won orders in bids. We’ve got orders for four sets already and are putting in equity in six other projects. The negotiated orders, if and when they happen, will only be to ensure faster absorption of technology. Today, I have to cut margins to get orders for supercritical because the import content is larger. We have to indigenise and we wanted some production …
What are the new areas you are diversifying into?
One is raw materials for our power sector. The other is nuclear where we have finalised a joint venture and we are looking for technology for larger 700 mw, 1,000 mw and1,600 mw units. In transportation, we are talking to GE, Alsthom and Siemens for the higher powered locomotives. We want to manufacture coaches; we’re bidding for building onshore rigs and I have written to players like Reliance and ONGC asking whether we can scout for offshore rig technology together.
So what happens to your Rs 45,000 crore company target by 2011-12?
It could go up substantially. Our organic growth will take us to more than the target. We want to do higher capacity guns in defence — we’re already doing naval guns. We’ll re-work the target in our October strategy meet.
And you prefer the joint venture route to diversify and grow?
This is my thinking. It’s better than going it alone especially if you want to acquire technology. And if you take the JV route with customers, it also assures the order book is filled. This is something I learnt after the supercritical experience. We also want to look at some inorganic growth.
