Additionally, in the hurry to clear proposals and attract FDI into India, due care has not been taken to give some sort of a price preference to the Indian steel manufacturers. What with domestic capital goods companies getting 15 per cent price preference, the same is not extended to raw material manufactures such as steel.

A case in point is the supply of approximately 2 million tonnes of steel worth Rs 3,000 crore per year for the next five to seven years for the building of power plants in the country. The mega power projects including Kahalgaon Stage-2, North Karanpura Super Thermal Power Plant, Barch STTP, BARCH STTP, Cheypur, Hirma, Krishnapattam and Pipavav allow duty free imports of raw materials. Lowering the minimum size of mega-power projects from 1,500 MW to 1,000 MW steel producers have brought additional power projects into the list of projects that allows duty free imports.

The total requirement of steel in the construction of these projects is more than 10.5 million tonnes. If we consider the development of surrounding areas we are seeing an incremental demand of more than 2 million tonnes each for the next seven years.

In addition, the MOU signed by foreign auto manufacturers with the department of economic affairs, gives automobile manufacturers lee-way for importing goods subject to meeting export requirements. On the pretext that steel produced is of inferior quality, auto-manufactures, including Maruti, Hyundai have consistently imported steel for their requirements. Today the demand for auto-products is on the rise.

Hence we are caught in a situation, when perhaps for the first time demand for steel in the country might rise by 8-10 per cent, but sales of domestic producers in the country may drop or remain stagnant. For example, sales in the country has been hovering around 23-24 million tonnes for the last four years. According to industry observers, this would rise to 24 - 25 million tonnes in the current year. Howvever the share of domestic sales is expected to come down from 90 per cent to around 80 per cent.

DGFT officials say that the local producers should not be at a disadvanatge as they would get deemed export status for supply of material to mega power projects such as power. The basic flaw in the argument is that the domestic producers would not be able to match the prices of global players. Simply because, the international steel trade is only 15 per cent of the total steel production and any manufacturer can easily sell this amount at variable costs. Recognising this even the IMF and the World Bank assisted projects give local manufacturers a 15 per cent price preference over that of international players. But the DGFT and the department of economic affairs have not decided to incorporate these changes.

The other problem is that the project cost per unit for green field projects, would work out to be lower than a brownfield expansion. This does not make good economic sense, as money should flow into projects which give highest return on investment. Putting up such hurdles only distorts the IRR resulting in erroneous calculations about returns on investments. Obviously some rethinking must take place, else even steel players in India may miss the bus.

General Motors

News articles regarding a resurgent automobile demand resulting in improved offtakes and technical tie-ups with Korean companies have been dominating newsprint in Indian media. However, two apparently unrelated developments in the global market, could well have a strong bearing on the Indian passenger car market in the long run.

We all know about the financial travails of the Korean conglomerate Daewoo. Interestingly, it is General Motors (GM) that has stepped in to bail out the cash-strapped Daewoo Motor Corporation. This bail out, state most analysts could well be akin to a strategic takeover for GM, with the company wrestling management control from the Daewoo group. The other development also involving GM, pertains to the tie-up with Suzuki Motor Corporation (SMC) to develop and produce a new "Asian car" targetted mainly at the Indian market, largely to counter Ford's entry into the small car mass market segment.

Although both these developments appear completely unrelated, they will have some far reaching consequences in the Indian context. Based on the supposition that GM were to take management control in the Daewoo Motor Corporation. Would not GM then look at leveraging Daewoo's presence in the Indian market? And why not, considering that Daewoo already has an integrated, semi-automatic plant in Surajpur - Uttar Pradesh, with a capacity touching a lakh units.

Secondly, the development of the "Asian car" together with Suzuki, is almost definitely going to be a hi-tech variant of the small car. Thus in essence, what GM would now be in a position to do, is this - ideally it can leverage Daewoo's presence in the Indian market, to the extent of its existent production facility and distribution set up. Optimum capacity utilisation will also help in minimising overall production costs. On the flip side, the introduction of the "Asian car" together with Suzuki, will help GM gain an all important toe-hold into the mass market small car segment.

Additionally, the small car variant will also help Suzuki regain some lost ground in the Indian small car market, what with the recent host of launches eating into the marketshare. Laslty, GM would now be in a position to offer Indians a full complement of passenger cars ranging from the premium priced luxury segment offering of the Opels, to the mid-segment cars from the Daewoo stable the likes of the Nexia and the Cielo and the mass market small car segment with the help of the "Asian car". Thus making GM only the second player in the Indian car market besides MUL, to have a full complement of passenger cars competing in all the three price bands.

BHEL

Despite having the highest bid of Rs 1,381 crore for the steam generator package (Rs 1,303 crore by ABB-ABL), Bhel has been awarded the equipment supply contract for NTPC's Talcher project. This has come as a major relief to the stock market and the stock hit the upper circuit on Tuesday. The order was crucial for Bhel as its order book at the begining of the year was just over Rs 10,000 crore. The orders booked during last two years did not include this order and hence, it is logical to believe that though it was awarded to Bhel prior to the re-bidding, Talcher was not included in the order book.

Let us consider the other four projects for which NTPC has invited bids. For the Anta (Rajasthan) and Auraiya (UP) projects worth Rs 4,000 crore, the Bhel-Siemens consortium is the only bidder and for the two gas-based projects -- Kawas and Ghandar, ABB and Bhel-Siemens consortium are the only bidders. The NTPC board has reportedly deferred the decision for re-bidding of these projects. Though for Phase I of Gandhar, ABB was the equipment supplier, Mitsubishi, the equipment supplier for Auraiya has not bid and hence Bhel stands a very fair chance to get at least one of the two orders.

As regards the R&M contract for Kothagundem TPS in AP, the benefit, if any to Bhel will be indirect as the project will be executed by Power Plant Performance Improvement Ltd - a JV with Siemens. No specific amount has been earmarked for spares and will be sourced only if the need arises during the overhaul. The market has reacted to the award of Talcher project. The uptrend in the stock will continue as there is no reason for a decline.

With contributions from Manish Saxena, Percy Dubash & Urmik Chhaya

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.