Four Bhel-planned ventures may be hit

Four Bhel-planned ventures may be hit

New Delhi: State-owned power generation equipment maker Bharat Heavy Electricals Ltd, or Bhel, fears that raising funds to buy equity in projects, which would generate 6,400MW of electricity, in partnership with state governments will be difficult due to the current liquidity crunch.

“We have plans to develop eight units of 800MW each. Though our (other) expansion will go ahead as planned as these are primarily brownfield expansions, we are concerned about raising money for these new projects. They may get affected," said a Bhel executive, who did not wish to be named.

Bhel has said it plans to set up these projects using the so-called supercritical technology in partnership with Gujarat, Tamil Nadu, Andhra Pradesh and Karnataka governments, as reported by Mint on 16 January. Supercritical projects produce at least 660MW of energy and help in higher plant efficiencies and economies of scale. They are also considered to be more eco-friendly.

Bhel intends to pick up 26% equity stake in each of these projects—except in the venture with Tamil Nadu in which it has a 50% stake—that would require an investment of some Rs38,400 crore.

The company had embarked on this approach—to set up ventures with state government agencies—as it would generate steady orders for the firm as well as keep emerging rivals at bay.

While the rest of the joint ventures were yet to be formed, Bhel has formed a 50:50 venture with Tamil Nadu Electricity Board to build a power plant with installed capacity of 1,600MW. Regarding Bhel’s concerns about raising money, Smita Nagaraj, energy secretary of the Tamil Nadu government, said: “They (Bhel) have not communicated anything to us in this regard."

The tremors of the global financial meltdown are already being felt in India’s infrastructure sector. Several companies shortlisted for bidding for the 4,000MW Tilaiya power project in Jharkhand have asked the Power Finance Corp. Ltd, overseeing the award of such projects, to defer the next round of bidding as they fear they can’t raise funds in a tightening credit market, as reported in Mint on 16 October.

Bhel is the only company in India that can manufacture boilers and turbines of 800MW and more. However, several companies, including France’s Alstom SA and Bharat Forge Ltd, Japan’s Toshiba Corp. and JSW Group, Italy’s Ansaldo Caldaie Spa and GB Engineering Enterprises Pvt. Ltd, and Larsen and Toubro Ltd and Japan’s Mitsubishi Heavy Industries Ltd (MHI) plan to establish joint ventures to set up manufacturing facilities in India.

“Bhel intends to have a significant presence in the power project value chain. The current financial crisis is going to impact the growth plans of power utilities," said Amol Kotwal, deputy director, energy and power systems practice at consultant Frost and Sullivan. “It is going to be a wait-and-watch policy for firms such as Bhel." The public sector unit has an approved capital expenditure of Rs4,200 crore of which it has spent Rs800 crore. It is planning an additional investment of Rs5,000 crore to reach production capacity of 20,000MW by 2011. The company currently has a manufacturing capacity of 10,000MW.

Bhel has cash reserves of Rs8,000 crore. It posted a net profit of Rs2,859 crore on revenues of Rs21,401 crore in financial year 2007-08, and has a present order book position of Rs1,10,000 crore. It generated orders worth Rs24,000 crore in the current financial year to March 2009 and aims to become a $10 billion (Rs48,700 crore)-plus company by 2011-12.

The Indian power sector is already facing a Rs4.51 trillion funding shortfall for its target of adding 78,577MW of capacity by 2012, requiring at current estimates some Rs10.31 trillion in investments. The country presently has a power generation capacity of 145,000MW.