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The lull in the power sector is now affecting the whole supply chain, with engineering, procurement and construction (EPC) players also feeling the pinch of reduced orders. The EPC companies - state-owned BHEL and private companies like Alstom India, Larsen & Tourbo, Lanco Infratech and Bharat Forge - are witnessing subdued demand from the power sector, and their order pipeline is running dry.
During the April-June quarter of this year, BHEL's profits plunged 82 per cent over a year ago, mainly because of a decrease in sales to the power sector. "Due to various factors like fuel availability, delay in environment clearances and land acquisition and fund constraints, order finalisation during the past three years has been very low. In three financial years - from 2012 to 2015 - only 26,000 Mw of orders (an average of 8,500 Mw a year) were finalised in India," said the company's spokesperson in an emailed response to queries sent by Business Standard.
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Last financial year, apart from commissioning of the planned 20,830.3-Mw capacity, no major power project was announced - neither by government companies nor private majors. During 2014-15, only six big-ticket EPC orders came; and half of those went to BHEL, said a senior executive of a leading private company.
While the annual results of major EPC companies for 2014-15 reflected a decrease in demand, their annual reports made due mention of the depressed state of affairs in the power sector and an urgent need for revival.
"The market for power generation equipment in 2014-15 was quite subdued. With delays in commissioning of ongoing projects, orders for new projects are getting delayed, too. Power generation equipment market is witnessing an overcapacity situation, with fierce price competition leading to pressure on margins," said the annual report of Alstom India, one of the world's leading EPC players in the power sector. The company's net profit in 2014-15 declined 23 per cent from a year ago to Rs 177.07 crore.
The annual report added, as the industry was grappling with an excess-capacity scenario, equipment manufacturers were forced to look at neighbouring markets like Nepal and Bhutan, besides other export markets.
Larsen & Tourbo, one of India's largest players in the power equipment market, saw its 2014-15 profits declining marginally to Rs 5,056.18 crore. Its quarterly results for April-June, also reflected a grim situation. The company's net profit in the June quarter plunged 65 per cent when compared with the January-March quarter of 2014-15.
The central government has maintained that issues with the availability of coal and gas have been resolved. However, the financially ailing power distribution companies are not buying surplus power which is causing a demand-supply imbalance in the sector.
The combined debt of all distribution companies currently stands at around Rs 2 lakh crore. In June 2015, the Reserve Bank of India's financial stability report warned that the Rs 53,000 crore of discom loans that public-sector banks had recast carried a high risk of becoming non-performing assets.
"No one is controlling the input cost of generation which is going up. On the other hand, subsidised consumers are draining more power. This irony will grapple the whole sector," said A K Khurana, director-general, Association of Power Producers.
Increasingly, private power-generating companies are awarding EPC contracts to Chinese companies because that is cheaper. "Most domestic private manufacturers have been booking large orders on a negotiated basis. It might also be mentioned that a number of private customers had placed orders of more than 50,000 Mw on Chinese manufacturers, on a negotiated basis," said BHEL in the emailed response.
