The Hindu Business Line : Growing divide between BHEL, fabrication units

Charter of demands
BHEL has been asked to let ancillary units "specialise" in some products.
The association wants the company to exit the manufacture of boiler spares and let the ancillaries produce and sell them under BHEL's brand, for a fee.
It also wants BHEL to pay the units on man-hour basis rather than on tonnage.

Recently in Tiruchi

, There is a pervading sense of peeve among the Tiruchi-based small-scale metal fabricators about doing business with their biggest partner, Bharat Heavy Electricals Ltd, although they say that things are slowly changing for the better.

While for a growing number of the 300-odd fabricators, BHEL is no longer the meal ticket, the rest depend upon the public sector engineering giant for sustenance.

Mr B. Pattabhiraman, ex-BHEL employee and Managing Director of G.B. Engineering Enterprises Pvt Ltd, will give BHEL "not more than 20 marks" as a mother company. He sees BHEL as a red-tape-bound company that is unable to keep up with times.

BHEL today offloads work worth Rs 140 crore to the ancillaries. According to Mr Pattabhiraman, if it would spend only Rs 10 crore more by way of soft loans or grants, the ancillaries would be able to pull themselves up.

Mr Pattabhiraman, whose company is no longer BHEL-dependent, can afford to be blunt.

Mr Rajappa Rajkumar, President of BHEL Small-Scale Industries Association, cannot. "With a little more support from BHEL, ancillaries can prosper well," he says.

More support sought

The quest for more support has manifested itself in the form of a `charter of demands' placed by the association before BHEL last week.

It has asked BHEL to let ancillary units "specialise" in some products — rather than ask them to produce one product today and another tomorrow — and give them long-term business assurance with built-in formulae for price hikes. This will enable the units to go in for economies of scale and special purpose machines.

Not a new demand, though. BHEL's response to this has been that some units may be left out of the order rationing, which will politicise the matter. But this time around, the association has promised to take care of the problem. BHEL is happy because it would get the benefits of scale while having to deal with fewer ancillaries.

However, BHEL is not inclined to agree to the association's other demands. The association wants the company to exit the manufacture of boiler spares and let the ancillaries produce and sell them under BHEL's brand, for a fee.

Mr Rajkumar says boiler spares are a Rs 1,000-crore business, of which BHEL has only a 25 per cent share. The ancillaries could seize the entire market if only they were allowed to produce them under BHEL brand.

But Dr V. Gopalakrishnan, Executive Director, BHEL, Tiruchi Complex, has no intention of vacating the "high margin" business. The association also wants BHEL to pay the units on man-hour basis rather than on tonnage. The tonnage system is anomalous because units that do difficult fabrication jobs involving small quantities of material get paid lower.

Dr Gopalakrishnan agrees that man-hour-based rates is a good system but says an in-depth study would need to be done first.

Booming business

Despite all the mumble and moan, fabrication units in Tiruchi are a happy lot today, with business booming.

Last year, the units processed 1.5 lakh tonnes of steel and are expecting to do 2.25 lakh tonnes this year. They invested Rs 100 crore in capacity creation last year and Mr Rajkumar expects that a further Rs 200 crore of capex will happen this year.

More Stories on : Outsourcing | SSI | Bharat Heavy Electricals Ltd | Engineering

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page