India’s largest manufacturer of power generation equipment Bharat Heavy Electricals Ltd (Bhel) has begun negotiations to set up joint ventures with state government institutions in Maharashtra, Orissa and Uttar Pradesh, which will not only generate steady orders for the firm but potentially block out emerging rivals.
The so-called ‘supercritical’ thermal power projects, with a capacity of 4,800MW, are expected to need Rs20,000 crore in investments.
“We are in talks with the SEBs (state electricity boards) and are exploring opportunities on the lines of our joint venture with Tamil Nadu Electricity Board in a 50:50 ratio. We are looking at setting up 1,600MW projects with each SEB,” said a senior Bhel executive who did not want to be named.
Competitive tack: An NTPC Ltd plant at Ratnagiri. Power generation equipment maker Bhel is looking for orders from state electricity boards.
Each venture will require two units with a capacity of 800MW. Bhel is the only company in India that has the capability of manufacturing boilers and turbines of 800MW size and above. But, several companies, including Mitsubishi Heavy Industries Ltd, Toshiba Corp., Hitachi Ltd, Dosan, Dongfang Electric Corp., Siemens AG, Alstom SA, Russia’s LMZ and Technoprom have said they would be interested in setting up manufacturing facilities in India.
Government officials of Maharashtra, Orissa and Uttar Pradesh confirmed the conversations with Bhel.
One state government official, who did not wish to be identified, noted that “supercritical power projects burn less coal and their large economies of scale help in delivering cheaper power.”
Each of the 1,600MW will require an investment of Rs6,400 crore, with a maximum debt to equity ratio of 70:30. This would entail an equity of Rs1,920 crore with Bhel and the state board chipping in Rs960 crore each.
Bhel’s joint venture “arrangement with the SEBs will result in not following the international competitive bidding route, which could be matter of concern for the consumers,” says Shubhranshu Patnaik, an executive director at audit firm PricewaterhouseCoopers. “It is not fair. This would in turn also discourage overseas foreign power generation equipment manufacturers to set up shop in India. Such a move will have large ramifications for the power sector.”
Meanwhile, on the equipment supply front, Bhel has increasingly come under criticism from the power ministry and other quarters for the delays in supplying power generation equipment to projects. This, in turn, led to delays in commissioning such projects.
A government working group report, submitted as an input into the preparation of the 11th Plan for the power sector, noted that about 3,960MW could not be commissioned in the current plan period due to delays by Bhel. India currently has a power generation capacity of 135,000MW and aims to add 78,577MW of capacity by 2012.
The Bhel executive said that with capacity being raised by 10,000MW per year, the company will be able to manufacture equipment totalling 56,000MW by 2012. It has an order book position of 31,923MW and 9,775MW of extra equipment from unused stock.
“This leaves us with a lot of capacity to manufacture,” the executive added.
Bhel has technical collaboration with Alstom and Siemens, who are both pioneers in the field of supercritical technology for manufacturing boilers and turbines, respectively. The company posted a net profit of Rs2,385 crore on revenue of Rs18,702 crore in 2006-07 and ended the year with an order book position of Rs35,633 crore.
Bhel aims to become a $10 billion-plus (Rs39,500 crore) company by 2011-12 with a 15,000MW power equipment manufacturing capacity by the end of next year. The company has a current manufacturing capacity of 10,000MW.