With the government admitting the Eleventh Plan power generation target won’t be met, the country’s biggest manufacturer of power equipment Bharat Heavy Electricals Ltd (BHEL) has invited criticism. In an interview with Sudheer Pal Singh & Jyoti Mukul, outgoing Chairman and Managing Director K RAVI KUMAR defends the company and lambasts Chinese suppliers for poor quality. Excerpts:
What has been your experience as chairman, especially since BHEL has faced criticism for the shortfall in power generation targets?
Today, three out of four companies are lifting equipment from BHEL. Seventy five per cent of the power generated in the country comes from sets manufactured by BHEL. We have made a great contribution to the country not only in power generation and transmission but also in areas like transportation. Besides subcritical, we are also doing supercritical and advanced class gas turbines. Any set is judged by its efficiency and the auxiliary power consumption. In terms of technical parameters, our bids are the best in the world.
Of course, there are problems in managing growth. We are growing at 30 per cent per annum. Second, people must realise this sector has not been very good in the Eighth and the Ninth Plan. Growth has been very good for all power sector companies for the last seven to eight years, but you cannot ramp up capacity in a day. Even brownfield expansion takes a minimum of three years.
We wanted to double the capacity from 10,000 Mw to 15,000 Mw and further to 20,000 Mw. We are already reaching 15,000 Mw and we have placed orders for reaching 20,000 Mw. These machines are imported from Italy, Germany and Japan. Manufacturing of equipment does not cost much, compared to the turnover that you get. Today, for us to increase capacity from 10,000 Mw to 20,000 Mw, it costs around Rs 4,200 crore, whereas we are expecting a turnover of close to Rs 30,000 crore this year.
A lot of time was wasted initially in thinking whether this capacity will be actually used or there will be a dip in demand. But I was clear that this (new planned capacity) could be written off in five years. We have tied up all the technologies, including with Siemens and Alstom for supercritical technology. So, one is organic expansion, second is technology tie-ups and the third important thing is supply chain management. We had difficulties in procuring castings and forgings, but now we are thinking of an agreement with Sheffield in UK for this.
Are joint ventures and tie-ups the way forward for BHEL?
Technology transfers are the first choice for us. If not, then joint ventures and tie-ups.
You have a current order book of Rs 1,30,000 crore, a huge number. Does it act as a dampener for new orders, as new clients will worry that the delays, which you’re known for, will get worse?
The first 10 months of any order is only engineering. Our deliveries are 40-42 months, typically. So, the execution capability is also there. But you have to manage growth, which is not easy with the talent crunch. This quarter, we have grown at 25 per cent. Managing growth is a big issue and is a great challenge for the company.
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You have always complained about lack of standardisation of equipment size and have taken up the issue at different levels of the government. How do you look at it now? Has anything moved?
There is a necessity for standardisation. Otherwise, what happens is that the lay-out itself takes five-six months. Then, we have to do geo-technical surveys. And you lose something like eight months of the project time if you do not have standardised lay-outs. Standardisation has not been happening but I do not know why. They are giving 250 Mw, plus or minus 20 per cent. Similarly, 500 Mw, plus or minus 20 per cent. And that is where the Chinese take an advantage. What I mean by standardisation is specifications, lay-out and rating but there are some things which have to be customised.
Why do you think it is not happening?
In the power sector, there are PSUs and private companies; besides, it is a concurrent subject. So, only guidelines can be issued. The government thinks it is anybody’s prerogative to buy whatever they want. But if they want a compressed cycle, some guidelines should be issued on specifications and lay-outs. I have nothing against the Chinese, but today, there must be some consideration for the climate. When you go for supercritical, you must get the benefit of supercritical — less coal for the same power. When you buy a Chinese machine, you do not get that. So, you are buying supercritical at subcritical parameters. There may be a regulation coming after five-10 years that there must be minimum carbon emission. At that time you will suddenly have a lot of equipment which are performing poorly. Chinese equipment will always have problems with Indian coal and the grid condition.
Is Chinese equipment preferred because there is tariff-based bidding and companies want to keep the fixed cost low?
There must be norms. You cannot spoil the environment just because it is cheaper power. Chinese collaboration prohibits them from selling latest technology to India.
And to what extent have you been able to take this forward?
Of our Rs 18,000 crore orders this year, 80-85 per cent are from private sector companies like Monnet Ispat, Jaiprakash and Sterlite. I have been able to convince the Central Electricity Authority. The guidelines are still to be issued. There must be a minimum Indian standard. Also, there is energy security concern. Some day, there may be a concern from China and you cannot get the equipment. Then the whole thing will come to a standstill.
What is the status of bulk tendering of equipment?
Bulk tendering for 11 units of 660 Mw is expected in October. We are assured of some orders. It is expected to be finalised by the first quarter of the next financial year.
Where do you see the growth for BHEL coming in the next two-three years, especially since there will be competition from other players?
We are aiming at a 70:30 ratio, with 70 per cent business from the power sector and 30 per cent from the industry by 2012, from the present 80:20. We are recording good growth in transportation. We have got orders for 200 locomotives. We have tied up with GE for diesel locomotives. Similarly, we are expecting growth in defence. As far as competition is concerned, nobody can manufacture more cost-effectively than us. We have our plants established and our equipment is fully depreciated. I welcome competition from domestic players and even overseas players but not Chinese, because I do not want low-grade equipment in India.