The commission's proposal recommends the induction of FIs as strategic partners to improve Bhel's competitive position by ensuring enhanced funding capabilities in rupee as well as foreign currency. The proposal states: "The domestic financial institutions may be offered equity of 10 per cent and foreign private equity funds, or financial institutions, including multilateral institutions (foreign funds), may be offered a further equity stake of 10 per cent in the company with appropriate role in management to both Indian and foreign parties."

To facilitate this, the proposal recommends the government enter into separate shareholder agreements with the strategic partners, to ensure that in the event of their exit from the shareholding in Bhel, the Government's prior consent or first refusal is taken. This will ensure that the new buyers are also acceptable to the Government as a strategic partner from the point of view of its support to Bhel.

The reasons cited for ruling out any proposal for a partnership with global power-equipment manufacturers is this may lead to a possible conflict of interest with the partner's global consolidation strategy. This could undermine Bhel's market position in the products that are part of the partner's product range. A strategic partnership with a single EPC contractor would also not be a preferred alternative to the existing arrangement, by which Bhel has the freedom to form specific joint ventures with differecnt EPC contractors for different projects depending on their size and location.

According to sources, the proposed disinvestment has to be undertaken to obtain financial support for Bhel, which needs to make competitive bids in India and abroad. The Bhel management has also suggested the need for such financial support, as its global competitors offer equipment and attractive financial packages to obtain orders.

Bhel is a dominant player in the Indian power-equipment industry, with a sales turnover of Rs 6,765 crore in 1998-99. The company is a market leader, with a 65 per cent share in the country's installed power-generating capacity.

the company will benefitAfter divesting the 20 per cent stake, Bhel will no longer be a Government company. This should come as a major relief for this excellent company. The Government seems willing to offer a say in the management to agencies capable of providing foreign currency funding, but not to entities with whom Bhel has technology tie-ups.

It is well known that equipment suppliers do not necessarily provide suppliers' credit themselves but make arrangements for it. Funding is done not on the basis of equity holding but on the basis of the balance-sheet strength of a company, or, in few cases, on the basis of the projected cash flow of a project.