Delays in the commissioning of power projects have compounded the problems for the country’s largest power equipment and engineering firm, BHEL, which is already facing stiff import competition.
The company is not only seeing a steep increase in outstanding receivables but has also started facing the burden of additional costs needed to maintain the equipment it supplies to power projects in prime-running condition.
?We have the responsibility of giving free-of-cost repairs and maintenance for all the equipment supplied to power plants prior to their commissioning. This is now becoming a big problem for us as more and more projects are getting complete but are not getting commissioned on one pretext or the other. Our after-sales servicing and repair liability has almost doubled due to this trend,? said a BHEL official. Commissioning delays also means that BHEL does not get full payment for its equipment as the last 10% of the amount is paid by customers after the date of commissioning.
Already, BHEL’s outstanding receivables from its customers are to the tune of R39,000 crore. BHEL is liable to maintain its equipment in running condition all the time. There is an element of warranty on the equipment it supplies to power project developers, but this becomes operational only after a projects is declared commissioned and commercial operation date is recorded.
BHEL has unlimited liability to carry out repairs and service fee of cost.
Normally, a project is commissioned in two phases. Once construction is over, the power plant starts using fuel (mainly liquid) to test its functional parameters. This process is called synchronisation where electricity generated is also test supplied to the grid. This testing normally goes up for about a month before the plant reaches full load capacity and is then declared commissioned.
But with problems being faced by projects in getting coal and gas linkages, the process of a project getting ready and being declared commissioned is getting delayed between six months to a year.
?We were facing this problem for hydro-power projects earlier where delays beyond reasonable time meant that we sought compensation or revision of prices from developers. We have not invoked this for thermal power plants so far but it is a fact that several of these projects are also getting delayed beyond a reasonable time,? BHEL director-finance, P K Bajpai, told FE.
It is noteworthy that gas-based capacity of close to 8,000 MW being developed by companies such as Reliance Power, GMR, Pragati Power, Torrent are ready for commissioning but are delayed due to unavailability of gas.
Similarly, more than 8,000 MW of coal-based power projects are also delaying commissioning as they do not have any fuel linkage. ?Not only private power projects, commissioning schedule of state-owned NTPC has also been delayed beyond reasonable levels pushing up our costs,? said the BHEL official. The bad run of the power sector has already resulted in a sharp 64.22% drop in BHEL’s net profit during the second quarter period of current fiscal.
This is the fifth successive profit fall for the company as the slowdown in the power sector and consequent paucity of new orders along with fuel and clearance-related delays impacted its sales. As per an internal government report, BHEL booked orders for a mere R4,470 crore or 22.44% of the H1 target in the six-month period of the current fiscal ending September 30.