Bhel fails to secure Reliance Power contract

Efforts of state-run Bharat Heavy Electricals Ltd, or Bhel, to secure an estimated Rs9,000 crore equipment order from Anil Ambani’s Reliance Power Ltd, or RPL, for the latter’s 4,000MW Krishnapatnam power project in Andhra Pradesh have failed over pricing issues.

“We have tried for three months to get this. This (not awarding the order to Bhel) will destroy domestic manufacturing," said Jairam Ramesh, minister of state for power and commerce.

“I am very disappointed."

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Bhel’s chairman and managing director Ravi Kumar said that the company “quoted a price which was not acceptable to Reliance." While Bhel was not willing to quote less than Rs2.6 crore per MW, RPL stuck to a price of Rs1.9 crore per MW.

China’s Shanghai Electric Group Co. Ltd is likely to get the order, said a government official familiar with the matter who did not wish to be named.

The power ministry has been trying to restrict overseas equipment makers from bidding for domestic projects unless they have a manufacturing base in India, and are also denying coal supply to electricity plants with foreign equipment, as reported by Mint earlier.

Such curbs on foreign equipment manufacturers will be applicable to all new power projects in the country effective from 30 April this year.

The three 4,000MW power plants the government has already awarded, including RPL’s Krishnapatnam, are exempt from such curbs.

RPL has already placed an order with Shanghai Electric for equipment for its 4,000MW Sasan plant in Madhya Pradesh. The company has also acquired a stake in an Indonesian coal mine which has an estimated reserve of 2 billion tonnes of coal, and intends to use this fuel for its Krishnapatnam plant. RPL is also scouting for coal mines in Mozambique, South Africa and Australia.

A spokesperson for the Reliance Anil Dhirubhai Ambani Group of whcih RPL is part didn’t respond to questions emailed to him by Mint. Questions emailed to Shanghai Electric were not immediately answered.

RPL has firmed up plans to set up four joint venture companies with Shanghai Electric in areas of power generation equipment manufacturing, equipment erection, spares and operation and maintenance. While the manufacturing venture will involve an investment of $3 billion (Rs13,080 crore) the remaining tie-ups will involve an investment of $100 million to $200 million each.

“Chinese equipment are cheaper than Indian ones by at least 15% to 20%. However, experts believe that such equipment are not very competitive in terms of technology due to issues with their design, leading to higher operating and maintenance costs," said a Mumbai-based equity analyst who did not wish to be named.

RPL has projects in hand with a total generating capacity of 28,941MW. Of these, projects totalling 941MW have been commissioned. The rest are in various stages of planning and execution.