A notification issued by the Government on mega power projects specifies that price preference will be provided only to those equipment suppliers not using imported spares and/or components. In other words, the equipment should be domestically made and nothing in it should be imported.

The order will be accorded after increasing the bid price for imported component of the project by 15 per cent. By now, it is clear to everybody that the concerned ministries have no idea about how to tackle the power crisis. The latest notification is the icing on the cake. What and whose purpose is the Government serving? The only equipment supplier affected will be BHEL as it relies partly on imported components.

In any case, price preference is not a gift or any special favour by the Government. It is the norm of the World Bank. Why is the Government so keen on reviving an industry which is reeling under recession internationally? Power plant equipment manufacturers are more desperate fororders than India is for power during peak demand hours. Why provide them with a gift at the cost of BHELl?

However, all is not lost. A bidder will have to quote domestically manufactured goods on an ex-works basis and imported capital goods on C.I.F. basis. This will cut margins in erection jobs and lower cost for the power plant. But the domestic equipment supplier will get the benefit of deemed exports (duty-free import of raw materials which will be partly nullified, refund of terminal excise duty, which is of no benefit as funds are blocked). The other disadvantage that BHEL has is that for mega power projects, import duty will be nil. Considering the financial options available to global majors, price preference was the least of BHEL's advantage.

One fact needs to be borne in mind. Essar Power was the first IPP of any material capacity to go on stream and it did not even have the guarantee of the state government. The track record of counter-guarantee projects is too well known.

Tata-SSL

Investors have taken a lot of fancy for Tata-SSL in recent times. There were two main reasons for it. One was interest shown by Tata Sons to increase its stake in the company, and the second was expectations of higher earnings due to profit on sale of the CR division.

Although the promoters' stake has gone up, the annual results show that the company has actually made a loss of Rs 38.8 crore on sale of the CR mill to Tisco. Adding the loss of Rs 17.5 crore made from operations of the company, the net loss works out to Rs 56.3 crore in fiscal 1998-99, compared to Rs 8.54 crore in 1997-98.

In line with drop in realisations, the operating margins have fallen, but not significantly. What has helped the company is the partial closure of the RINL plant from January onwards. Due to the closure of the RINL plant, there was a drop in supply of 15,000 tonnes per month all over India (mild steel rolled coils) in a total market of 65,000-70,000 a month. Naturally, the price of these products rose andTata-SSL, being the only major competitor to RINL in this segment, gained a lot from higher sales and realisation. According to dealers, the realisation for mild steel products has been on the up by Rs 400 per tonne.

However, higher realisations from wire-rods alone may not bring it out of the red. The problems for the company are the fixed cost for the mini cement plant and imposition of anti-dumping duties for its low-relaxation PC products in south-east Asia.

Accordingly, overall realisations would remain low. The only saving grace may be higher offtake from the various ports and bridges coming in the current fiscal. Whether that would be enough to move the company back into the black is doubtful.

SMZS Chemicals

Newsreports suggest that the SM Shetty group company SMZS Chemicals has initiated negotiations with ICI India for selling the assets of its speciality chemicals plant in Pune, Maharashtra.

The reports add that the move follows the company's decision to suspend certain operations ofthe plant due to mounting losses. The company has put the value of the assets at Rs 27 crore and the proceeds from the sale will be utilised to repay outstanding liabilities with banks and financial institutions.

It makes sense for ICI to pick up the speciality chemicals division of SMZS as its talks with HLL failed. ICI has major plans to expand its speciality chemicals operations in India.

For SMZS Chemicals, the decision to sell the division has been mainly on account of its poor financial performance during last year. As against a bottomline of Rs 3.52 crore in 1996-97, the company has recorded a whopping loss of Rs 17.36 crore for the 18-month period ended September 1998. Even on operating levels, the company has made a loss. SMZS Chemicals had a negative reserve in 1997-98 and net worth stood at a paltry Rs 2.88 crore.

Against this, the company had an outstanding debt of Rs 39.40 crore. The company has already been referred to the BIFR.

Though worldwide, companies are shifting their focus fromcommodity chemicals to speciality chemicals to achieve high realisations and better profitability, SMZS, because of its poor financial state, is not in a position to capitalise on this trend. For example, in 1997-98, in spite of the fact that the leather chemical division gives higher return, the profitability of the company, due to shortage of working capital and delays in collections, has been adversely affected.

The company now intends to stick to the glycol ethers business. Though this division too provides good realisation, the track record of the company in spite of having a very strong product line leaves little hope for the shareholders.