In Bhel?s interests?

The government?s policy to curb imports of power equipment is unlikely to serve the broader goal of accelerating the pace of power generation capacity addition in the country. Rather, it could end up as a protectionist measure in the hands of domestic equipment suppliers looking for an opportunity to inflate their bottomlines at the cost of electricity consumers.

The timing of the policy formulation also raises suspicion that the government is taking these measures under pressure from domestic equipment manufacturers. Significantly, the government has drawn up a phased programme for switching over to supercritical power generation technology in the coming years. So, there is going to be a lot of business for supercritical power equipment suppliers.

The government is planning to curb import of equipment for ultra mega power projects, which are required to use supercritical units. It has already put in a similar condition for participation in bidding for the bulk supply of supercritical units for projects envisaged by central utilities NTPC and Damodar Valley Corporation.

Protecting a company that is running short of orders may, at a stretch, make some sense. However, there is no logic in protecting a company like Bhel whose order books are overflowing and that is unable to implement contracted orders as per schedule.

Bhel has the best infrastructure in place. It also has access to the best technology. The company has been in business for the last 50 years or so. But it still could not prepare itself for competition. Who is to be blamed for this?

It is interesting to note that the initial campaign against Chinese power equipment was that they were of inferior quality compared to those manufactured by domestic manufacturers. But now that some power plants based on Chinese power equipment have been commissioned and they are operating without any technical problem, the new argument is that Chinese suppliers are not authorised by their Western technology licensors to sell in India. This is apparently a rumour, given that Chinese manufacturers supplying equipment to India have not been sued by their licensors.

It is true that there is restriction on Chinese companies exporting advanced class gas turbines. That is why the Chinese have not bid for equipment supply to any gas-based power project in India.

If the government bans Chinese power equipment, it may offer some respite to Bhel in the medium term. However, in the long term, the real threat to the company is not from Chinese suppliers but from domestic private manufacturers like Larsen & Toubro, JSW, Bharat Forge and BG Engg, which are all setting up manufacturing facilities for supercritical units in the country.

The government?s moves to open key sectors like telecom, civil aviation and automobile have paid rich dividends. In telecom, the consumer base has also widened. This has helped telecom companies to slash tariffs. So, there is no drop in their revenues, despite a sharp reduction in tariffs. Rather, many telecom companies have seen exponential growth in their revenues after the opening up of the sector. We have similar success stories in automobile and aviation sectors, too.

That aside, the government has not put any restriction on import of equipment in other sectors like petroleum exploration and production and refining.

Also, the government did not bar Delhi Metro Rail Corporation from importing coaches from countries like Japan and Korea, even though Indian Railways also manufactures coaches.

The government has argued that the conditionality will help domestic manufacturers to absorb supercritical technology and undertake manufacturing on a large scale. That would, in turn, help in bringing down the price of supercritical units.

Significantly, the government has used the same logic to promote Bhel as a monopoly power equipment supplier for the last 50 years or so. It has used instruments like price and purchase preferences to provide undue advantage to the company over overseas suppliers. The result is that India has dismally failed to meet its envisaged power generation capacity addition targets.

Globally, companies like Hitachi, Mitsubishi and Toshiba have graduated from being users of technology to becoming technology licensors. When they initially got into the business of power equipment manufacturing, they did not have their own technology. Rather, they sourced their technology from Western companies like General Electric, just as Bhel did.

However, Japanese companies not only mastered these technologies, but also learnt to innovate because of their strong R&D base. And gradually, they started developing their own technology, becoming technology licensors in their own right. But Bhel still remains just a user of technology, despite 50 years of experience in power equipment manufacturing. It has failed to innovate on sourced technology.

As for private players who are setting up manufacturing facilities and hope to benefit from the government?s policy for bulk supply of supercritical equipment, they do not have any prior experience of manufacturing boilers and turbines for power plants. They are banking on technology support from their foreign joint venture partners to deliver on contracts.

There is no doubt that Bhel and private manufacturers will be able to reduce the costs by undertaking production of supercritical power equipment on a massive scale. However, the moot question is if they will pass on the benefits of cost reduction to their customers and if they will be able to deliver timely project execution. Another relevant question is whether they will keep abreast of latest changes in supercritical technology. It looks unlikely, given the history of the Indian power equipment market.

Domestic suppliers are unlikely to adapt to technological changes. Technology licensors usually do not share manufacturing rights for latest versions with joint venture partners. Meanwhile, the government?s policy guidelines would restrict the imports of supercritical equipment. That means domestic manufacturers will not be under any pressure to keep pace with the advancement in supercritical technology worldwide.

The government does not seem to have learnt any lessons from the past failures. Instead of focusing on capacity addition programmes, it is pursuing the goal of self-sufficiency in equipment manufacturing capacity.