For BHEL, power marriages arent made in heaven

Written by Subhash Narayan | New Delhi | Updated: May 21 2013, 06:47am hrs
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Faced with a decline in its cash balance and convinced that picking up stakes in power plants by way of investment and/or in exchange for equipment supplied would hardly help in the current situation, public sector Bharat Heavy Electricals (BHEL) has taken a strategic decision to exit its joint venture power projects and not enter into any such alliance in the immediate future.

A source privy to the discussions at the PSUs board confirmed this to FE, even as the company maintained that the lack of progress on these JVs were because of reasons beyond its control.

BHEL has already exited the 1,600 MW Udangudi power plant, where it had formed a JV with the Tamil Nadu Electricity Board by picking up 26% equity. It has three other JVs with state utilities in Maharashtra, Madhya Pradesh and Karnataka for putting up an additional capacity of 5,500 MW. Apart from the Karnataka project, other two projects have no clarity on fuel linkage and have not got various

statutory clearances for the past couple of years. BHELs total commitment of in these four projects ranged between R5,000 crore and R6,000 crore. Sources said BHEL might seek to exit the 1,500 MW gas-based power plant in Maharashtra and the 1,600 MW coal-fired plant in Madhya Pradesh.

BHEL currently has a cash balance of just around Rs 6,000 crore, a decline from the levels of Rs 9,500-10,000 crore when most of these joint ventures were conceived. More than ever before, the company now needs extra cash for productive investments in other areas like solar and nuclear power, besides meeting operational needs. The order book position has been weak for the last two years and even now, there is a paucity of new orders.

The move comes at a time when the domestic power sector, BHELs mainstay, is seeing a slowdown primarily due to acute fuel shortages and financial woes.

The go-slow policy on joint venture power plants, it is felt, would release company funds stuck in these ventures so that investment is routed to the growing solar and atomic energy sectors.

The projects were conceived when BHELs cash position was good. But the slowdown has also impacted the companys cash flows and it is better now to have a more focused investment, said a government official privy to the development.

BHEL has already decided to limit its recruitment and fill only vacancies when they open up even though it has scaled up its production capacity to 20,000 MW of equipment per annum.

A slew of power sector issues including lack of finances, land acquisition issues and fuel shortages is affecting the companys overall business performance. BHEL witnessed an 8% fall in net profit to Rs 6,845 crore in fiscal 2012-13 against a PAT of Rs 7,040 crore in the previous fiscal. Though the company received orders worth 9,627 MW in the last fiscal, an improvement over previous fiscal when orders slipped to just 3,934 MW, it is still witnessing slow growth in new orders. The BHEL share rose 0.27% to close at Rs 201.90 on the BSE on Monday.

* BHEL has four JVs with state utilities entailing investment of about R35,000 crore for putting up over 7,000 MW

* It has already exited a JV with TN Electricity Board

for setting up a 1,600 MW power plant

* Exit option being explored in case of JVs with

Maharashtra & Madhya Pradesh

* Efforts on to salvage a JV with Karnataka where

some late progress has been reported

* Funds unlocked from these JVs to be used for expansion

of solar and nuclear facilities