Home >Home-page >Bhel orders dry up due to policy paralysis

New Delhi: The uncertainty over land acquisition and policies, and the poor health of state-owned electricity distribution utilities has resulted in orders drying up for India’s largest power equipment maker— Bharat Heavy Electricals Ltd (Bhel).

The state-owned firm, which has been planning a follow-on public offer (FPO) of shares, didn’t receive any orders from power firms in the first quarter against orders worth 9,226 crore in the year earlier. It’s expecting to end the second quarter with only two orders valued at around 6,400 crore compared with 11,024 crore.

Bhel received orders worth around 46,393 crore from power companies in the last fiscal.

“We didn’t get any orders for power plant or engineering, procurement and construction in the first quarter. For the second quarter, which is yet to end, we received an order for two units of 660 megawatts (MW) each for Singareni Collieries Co. Ltd, valued at around 3,200 crore. We are also expecting another order for two units of 660MW each," said a top Bhel executive who didn’t want to be identified.

He added that the slowdown in the economy had nothing to do with the company’s showing.

“It is because our policy framework is not in place. The orders have not come as in the present environment, developers have been deferring buying decisions," the executive said.

India has an installed power generation capacity of 181,000MW, but still faces a shortage of 9.8% during the peak hours between 5pm and 11pm.

While the country plans to add 100,000MW during the 12th Plan (2012-17), much of it coal based, it is facing an increasing shortage of the fuel.

Power companies also have to deal with land acquisition problems, fuel supply constraints, increasing environmental activism and the worsening health of state electricity boards.

A second Bhel executive, who also spoke on condition of anonymity, confirmed the order position of the company.

Power sector experts agree that the policy regime for power companies could be better.

“Why should there be a slowdown in the power sector since there is a deficit? In the last two-three quarters, issues such as fuel scarcity, rising interest rates and the health of distribution utilities have added to the uncertainty (in the business)," said Shubhranshu Patnaik, senior director (energy and resources) at Deloitte India. He added that companies would prefer to wait for things to improve before placing orders.

Meanwhile, the shortage of coal has widened to 40 million tonnes (mt) in 2010-11 from 4 mt in 2004-05. The power sector is the country’s biggest consumer of coal, absorbing 78% of local production.

The sector, which is struggling with funding shortfalls, will also need an additional $400 billion (Rs 19.6 trillion today) investment in the 12th Plan starting April 2012.

The scarcity of orders will not affect Bhel’s financial performance in the medium term. The company has an order book of at least 1.64 trillion, which it expects to take care of output over the next three years.

And overseas power companies have it worse, said the first Bhel executive.

“There is no cause for worry for us, we have a huge order book position," he said.

Foreign equipment makers have set up base in India attracted by the potential for orders. They are Doosan Heavy Industries and Construction Co. Ltd and the joint ventures between Larsen and Toubro Ltd and Mitsubishi Heavy Industries Ltd; Toshiba Corp. of Japan and the JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH; and Thermax Ltd and Babcock and Wilcox Co.

Bhel posted a net profit of 6,011 crore on revenue of 43,337 crore in the fiscal ended 31 March.

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