The government’s proposed divestment in Bharat Heavy Electricals Ltd (Bhel), considered by a group of ministers along with that of ONGC, hinges on the outcome of the effort to address the power sector’s problems.
A senior official from the department of disinvestment said the reason for not pushing disinvestment in the company at this juncture was due to the argument by the ministry of heavy industries that the fair value of each Bhel share was around Rs 500, as against the current Rs 300. The lower value, said the official, had been attributed to power sector woes.
“They are expecting the sector’s problems will be sorted out soon with the recent initiatives of the government and they will get a positive value,” said the official.
The group of ministers (GoM) had cleared the stake sale proposal for ONGC but postponed a decision on the power major. Minister for Heavy Industries Praful Patel did say the Bhel stake sale was not happening this financial year after one of the GoM meetings last month, but didn’t say why. The Cabinet has cleared a five per cent stake sale in BHEL by way of a follow-on public offer.
Bhel Chairman and Managing Director B Prasada Rao had outlined the challenges before the company in a post-results conference call with investors on January 27. Saying the declining GDP growth in the economy was a cause of worry for the company, he stressed, “Issues like coal linkages, losses of state utilities, land allocation and financing still remain bottlenecks for healthy investments in the sector.”
He, however, added there was hope due to the Prime Minister’s Office reviewing issues plaguing the sector.
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“RBI has started addressing the issue of high interest rates by reducing the CRR (cash reserve ratio) specified for banks by 50 basis points. I am hopeful that all these initiatives will revive the investment climate in the power sector. All capital goods manufacturers, particularly those from the heavy electrical equipment sector, are badly affected by the current business environment. Nevertheless, we have a strong order book as of now, but we can’t be left untouched by negative sentiments of our customers and investors,” said Rao.
After a meeting of the Prime Minister with the heads of the top power sector companies in January, the government announced several steps, including allowing Coal India to import, to ensure timely supply of coal to power producers. A proposal to enhance import duty on power equipment is also under consideration.
Under the scheme, power generation equipment for projects above 1,000 Mw may attract 19 per cent import duty. The finance ministry has favoured imposition of a five per cent basic Customs duty, four per cent additional import duty and 10 per cent countervailing duty in lieu of excise duty for domestic producers, a total of 19 per cent. If approved, the proposal will give domestic equipment manufacturers such as BHEL, L&T and Bharat Forge a major boost.
At present, power generation equipment for projects below 1,000 Mw bears a duty of five per cent, while there is almost nil duty on equipment for projects above 1,000 Mw.