New Delhi: The country’s largest engineering firm, Larsen and Toubro Ltd (L&T), is trying to influence the government to incorporate a clause in India’s largest order for “super critical technology” power generation equipment that would make some rivals ineligible to bid, according to correspondence reviewed by Mint.
L&T wants the government to make it mandatory for the bidders to be incorporated in India, with at least 51% equity held by a domestic company.
If it is successful, the qualification criterion L&T is seeking would make competitors, such as the joint ventures between Alstom SA of France and Bharat Forge Ltd, Toshiba Corp. of Japan and JSW Group, and AnsaldoCaldaie of Italy and GB Engineering of India ineligible. Alstom, Toshiba and AnsaldoCaldaie hold the majority stake in their respective joint ventures.
L&T, however, holds the majority stake in its joint venture with Mitsubishi Heavy Industries Ltd (MHI) of Japan.
Super critical equipment helps in higher plant efficiencies and economies of scale and is also environment-friendly. The government wants to place orders for nine such units of 660MW each with a total value of around Rs14,850 crore for state-owned firms NTPC Ltd and Damodar Valley Corporation.
The order will be placed through international bidding, with a stipulation that the winner set up manufacturing facilities in the country. The order is expected to be placed by the end of this fiscal year.
In a letter dated 21 August to Central Electricity Authority chairman Rakesh Nath, L&T senior vice-president A.K. Chattwani wrote: “The bidder should be a company incorporated in India, where the promoter having majority shareholding (minimum 51% equity) is an Indian company.”
This letter follows a similar communication from Chattwani to Nath dated 23 July. An L&T spokesperson de clined comment. Nath said: “We have not finalized anything so far.” He declined to elaborate.
While the joint venture between L&T and Mitsubishi Heavy is for the manufacture of boilers, turbines and generators, the alliances between Toshiba and JSW Group and Alstom and Bharat Forge are for the production of turbines and generators. AnsaldoCaldaie Boilers India Pvt. Ltd, the joint venture between AnsaldoCaldaie of Italy and GB Engineering of India is for boiler manufacturing.
Bharat Heavy Electricals Ltd, or Bhel has the capacity for boiler, turbine and generator manufacturing.
To increase domestic power generation equipment manufacturing capacity, the government plans to restrict overseas equipment manufacturers from bidding for domestic projects unless they have a manufacturing base in India, as reported by Mint on 10 April.
However, the details of such an order are yet to be notified.
A senior Bhel executive, who didn’t want to be named, said: “Though such a condition will not harm us, it will certainly affect the chances of other joint ventures such as those of Alstom and Toshiba. We have only collaborations, but no joint venture arrangements.”
Under the bid guidelines that are being worked out, the lowest bidder will be given an order for five units; if Bhel is the lowest bidder, it gets the order for five units.
If Bhel is not the lowest bidder, the government will still award it the order for the remaining four units, provided it agrees to match the lowest bid. If Bhel does not match the bid, this option will be given to others in the order of their bid ranking.
JSW’s spokesperson didn’t respond to queries emailed by Mint. Toshiba, in an email response, said: “We do not think such a move would be good for India’s power generation sector, or any other economic sector, as it could discourage foreign capital from investing in India, and slow expansion of power plant equipment manufacturing capabilities and capacity.” Questions emailed to Alstom, Bharat Forge and MHI remained unanswered. AnsaldoCaldaie Boilers India Pvt. Ltd executives could not be contacted.
A New Delhi-based power sector analyst, requesting anonymity because of the sensitive nature of the issue, said: “It is all because the government has not made its guidelines clear regarding the policy on power generation equipment manufacturing, leaving room for this kind of manoeuvring.”