The Hindu Business Line : Power plant manufacturers: Ill-equipped to meet targets?

Power plant equipment manufacturers need to anticipate demand and be prepared for the surge in orders, rather than wait for the orders to be placed, says N. RAMAKRISHNAN.

Power equipment manufacturers must be prepared to handle bunching of orders.

Does a restaurateur open his restaurant for lunch without any dish being ready? If so, how is he going to serve his customers? After all, it is a question of anticipating the crowd and customers’ preferences and having something ready. In short, market intelligence.

A senior Power Ministry official recently used this analogy to drive home the point that power plant equipment manufacturers, especially the country’s leading supplier — Bharat Heavy Electricals Ltd — need to anticipate demand and be prepared for the surge in orders, rather than wait for the orders to be placed and then start working on them. After all, is it not an issue of market intelligence, was his poser. Apart from the domestic market, there is also the export market to cater to.

The public sector BHEL finds itself facing criticism from many quarters for the slippage in power generation capacity addition targets. Its critics say that BHEL should have expanded its capacity to make the equipment needed as also develop a strong vendor base that will help it meet its targets. For its part, BHEL says that there is a bunching up of orders towards the end of the target period that makes it difficult for it to supply equipment.

CII paper

A recent White Paper on ‘Strategy for 11th Plan and beyond’ prepared by the Confederation of Indian Industry and the Central Electricity Authority notes: “There is a need to substantially augment existing indigenous manufacturing facilities as well as to create additional capacity by new players in the thermal and hydro main plant equipment.” It goes on to say that BHEL’s existing capacity of 6,000 MW a year is likely to be increased to 10,000 MW by December 2007, to 15,000 MW a year in December 2009 and further to 20,000 MW by December 2012 in case of demand.

From the capacity addition proposed — 78,577 MW during the 11th Plan period and 82,200 MW during the 12th Plan — clearly there is going to be enormous demand for power plant equipment and, BHEL or, for that matter, any other equipment manufacturer, can safely go ahead and make the necessary investments in creating manufacturing capacity. Is it all that simple? Is it just a matter of having the capacity and waiting for the orders to flow in?

Not quite, it appears if one goes by what the equipment manufacturers have to say. Getting orders depends not just on your capacity but also on your previous experience in executing projects of a certain size in the country. If you do not meet this and other tender conditions, you will need to furnish a guarantee — if you are the Indian subsidiary of a global equipment manufacturer — from your parent.

Qualification norms

A re-look of the pre-qualification criteria, be they for equipment manufacturers or for their vendors, is required. “Stringent qualifying requirements for the vendors specified by utilities need to be reviewed so that it should not act as deterrent for participation by new players,” is one of the recommendations of a recent international conclave, the recommendations of which have gone into the white paper.

Going by the points made by the White Paper as well as from discussions with players in the power industry, it is indeed a tall order to achieve a generation capacity of 78,577 MW during the Plan period.

Especially when the capacity added during the 10th Plan — 21,110 MW — was just 51.7 per cent of the target of 41,110 MW. How then can this be scaled up, that too in such a short time?

Industry representatives take pains to highlight that China added 78,000 MW of generating capacity in just nine months — the same capacity that India hopes to add over five years and a target that it is most likely to fall short of yet again.

Coal-based projects

With such a large capacity addition planned, a bulk of it will come from coal-based projects. This throws up issues related to carbon emission and the need to go in for super-critical technology, not just to reduce carbon emissions but also to ensure more efficient burning of coal in the plants. It is producing this super-critical boilers and turbines that will be a problem for the country.

BHEL, the country’s largest manufacturer of power plant equipment, has tied up with foreign companies for making super-critical boilers and turbines. However, it does not have any plants operating on this technology, which prevents it from participating in a number of tenders. Recently BHEL tied up with the Tamil Nadu Electricity Board to set up a super-critical power plant, a tie-up it hopes to have with a handful of other State power utilities.

A report by a Parliamentary Standing Committee on Energy makes a mention on the lack of indigenous super-critical equipment manufacturing capability. It notes the fact that BHEL could not participate in a tender for a 660-MW plant.

“That is one of our concerns that while the power development capacity should take place in the country our engineering industry should hand-in-hand go on upgrading their design and manufacturing capability. But progress cannot stop for that reason. We are facilitating that in a different way,” the report quotes the Union Power Secretary.

In the light of this manufacturing shortage, the committee wants the Government to encourage other indigenous manufacturers since BHEL has its hands full. It has recommended that new companies should come up or existing companies be encouraged to enter into joint ventures with foreign manufacturers of super-critical technology.

This was a major point of debate some time back, with the Power Ministry expressing itself in favour of a new company — possibly even the NTPC — the largest generator in the country – entering the power equipment business.

Bunching of orders

BHEL, for its part, argues that the problem arises because of bunching up of orders towards the end of a Plan period. It is not as if the designs and plant sizes are standard for an equipment manufacturer to produce them before hand and stock them up for delivery off the shelf.

The equipment for each plant varies in size, basically depending on the location of the plant and how best it can be configured.

BHEL says that it is better placed than other equipment manufacturers as it takes up the whole infrastructure issue and will not confine itself to delivering a particular component.

In a number of projects, it has had to lay roads in the area so that the equipment can be moved. Not many other equipment manufacturers take this kind of effort, is BHEL’s smug response.

Taking the analogy of the restaurateur further, even when he has got more than one dish ready, he finds that the crowd starts trickling in only an hour or so after he opens for lunch — assuming that he does so at noon sharp — and in no time at all, the restaurant — even assuming it serves reasonably tasty food — is full with people waiting for a table.

Depending on the class of the restaurant, they are either ushered to their tables in proper order or they make a mad dash for a table when one becomes free.

Similar too, it appears, is the power sector. Orders are placed only towards the second half of the Five-Year Plan period with a bunching up towards the end. This leaves the equipment manufacturers complaining — there is no room at the table.

But, a restaurateur does not complain. He makes sure all his patrons are fed and there is no disgruntled customer, even though sometimes it may well be past lunch time.

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