New Delhi: India’s biggest maker of power equipment, Bharat Heavy Electricals Ltd (Bhel), is in talks with Egypt’s Orascom Construction Industries (OCI) for setting up a joint venture to manufacture machinery and gain an advantage in winning overseas contracts.
Egypt’s electricity demand is set to grow as part of plans to set up an additional capacity of 10,000MW. Bhel is seeking a joint venture as Egyptian tenders require a domestic manufacturing base and an equipment manufacturing tie-up will also help it control costs while bidding for such projects. A manufacturing location in the country will help it service markets in Africa, West Asia and even Europe.
“We are looking at setting up a manufacturing facility for transformers and power plant parts with Orascom Construction Industries,” said a senior Bhel executive, who did not want to be identified. “We are doing our homework and have already submitted a preliminary joint venture paper with the Egyptian Electricity Authority. We are trying to ascertain the demand potential there.”
OCI, an engineering procurement and construction company, is a London Stock Exchange-registered firm that is part of the Orascom group that also owns Orascom Telecom Holding SAE. OCI, which has 70,000 employees, has engaged in projects across Europe, West Asia and North Africa, and has interests in fertilizers as well.
The joint venture may manufacture transformers and some boiler parts, said another Bhel executive, who also declined to be identified since talks are still being held. Egypt is also looking at the modernization of some of its power projects, he said.
Of Bhel’s current orders worth Rs1.30 trillion, Rs7,000 crore are from overseas, with around Rs1,600 crore of orders from Africa, where it is present in 17 countries. Primary international markets for the company, which plans to raise export orders to Rs10,300 crore by 2012, are West Asia, Africa and Central Asia.
Bhel’s focus on exports stems from a concern that its market share in India may come down to 50%, from the current 60%, in the next five years because of increasing competition from local and overseas companies.
“Such a move will help Bhel in mitigating the slow growth expected in order inflows from the domestic market,” said Hitul Gutka, an analyst at Mumbai-based financial services firm India Infoline Ltd.
Questions emailed to OCI remained unanswered at press time.
The second Bhel executive cited above said the two sides are discussing the “type of business and volume that can be generated from there”.
Mint had reported on 8 November 2008 about Bhel’s plans to start joint ventures to access new markets and to set up manufacturing or servicing facilities in Egypt among other countries such as Oman, Saudi Arabia and Indonesia, besides European nations.
The firm has been planning a joint venture in West Asia with a local partner to make valves and other equipment to cater to the growing oil and gas exploration and production market in the region. Bhel may also start a joint venture in Saudi Arabia to service and repair transformers.
The Egyptian government has invited India’s NTPC Ltd to set up power projects in the African nation in an attempt to meet the expected surge in electricity demand, as reported by Mint on 28 December 2009.
In 2008-09, India’s exports to Egypt were Rs6,571.45 crore and comprised 0.94% of the country’s total. In comparison, Egypt’s exports to India were Rs8,047.49 crore, and comprised 0.67% of that country’s total overseas sales.
Bhel posted a net profit of Rs3,039 crore on revenue of Rs27,505 crore in the fiscal year ended 31 March. It aims to become a $10 billion-plus (Rs46,200 crore) firm by 2012.