Bharat Heavy Electricals Ltd (BHEL), India’s largest power equipment manufacturer, is considering floating a separate subsidiary company for power generation projects. The move, part of its diversification plan, is aimed at consolidating the equity investment it had taken earlier in various generation projects of around 8,800 Mw capacity in different states.
The company had committed 26 per cent equity participation in multiple supercritical thermal power projects in Tamil Nadu, Karnataka and Maharashtra. And is planning similar stakes for projects in Gujarat and MP.
“We are doing 11 units of 660-800 Mw, which will give us 8,800 Mw. So, if you get a close to 10,000 Mw power company, it is good. If the projects go well and if the same trend continues, we can hive off a BHEL power subsidiary,” K Ravi Kumar, former chairman and managing director, told Business Standard a few days before retiring. “There has been serious discussion on this matter. These days, small companies are putting up plants. So, why cannot BHEL run it efficiently? This is diversification,” he added.
BHEL has signed two separate Joint Ventures (JVs) with the Karnataka Power Corporation Ltd (KPCL) and Tamil Nadu Electricity Board (TNEB) and a memorandum of Understanding (MoU) with the Maharashtra State Power Generation Company Ltd (Mahagenco) for setting up seven units of 660-800 Mw for supercritical thermal power plants on a Build, Own and Operate basis. Another four units of similar sizes are being planned in Gujarat and MP. The projects require an investment of over 52,000 crore and are being financed on a 80 per cent debt and 20 per cent equity ratio. While 26 per cent of the equity portion -- Rs 2,745 crore — is being financed by BHEL, another 26 per cent will come from the state entities. The remaining 48 per cent is being sourced from financial institutions.
“Five units in Tamil Nadu and Karnataka are already in advanced stages. We have already obtained land. We have applied for coal blocks. The projects will take approximately four-five years to be completed,” said Kumar.
He also said floating the subsidiary company would require changes to be made in the company’s Articles of Association (AoA). BHEL had formed a joint venture company in April last year with power generator NTPC Ltd -- NTPC BHEL Power Projects Private Ltd (NBPPPL) -- to take up engineering, procurement and construction contracts for power equipment.
Industry experts have, however, raised concern over the idea, saying a power equipment supplier getting into generation would impact competition in procuring the equipment for the projects.
“Changes in the AoA are hardly an issue for a government-owned company like BHEL. But the important aspect which needs to be questioned is, given that they are going through this joint venture route, it prima facie means that the equipment orders will go to BHEL and there will be no International Competitive Bidding (ICB) followed. And that is not a healthy sign,” said a senior analyst from an accounting and consultancy firm.
The order for supplying equipment for the power plant in Maharashtra would be given to BHEL on a “nominated basis”, according to a statement released by the company in August. An official from the company also asserted that all orders would be given to BHEL for supplying equipment for these power plants, “as per the understanding of the JV.” Another senior official, however, differed; he said at least some orders will be given out through ICB.
The analyst said procuring equipment from a company which has an equity stake in the project would not be in the interest of the states, too. “From states’ perspective, what they should be questioning is whether they are getting a best deal if they are getting in a JV route with BHEL, where BHEL is also the supplier. If they go through a competitive bidding process, would they get a better deal? This conflict of interest is a matter of concern for policy makers,” he said.
