Puts in rider in contract for boilers and turbine generators.

For BHEL, buying components from China is a part of its vendor development exercise and it does not always source the material for every project.

M. Ramesh

Chennai, April 7 Hindalco Industries Ltd, which has placed a Rs 2,010-crore order on BHEL for the supply of boilers and turbine-generators for its 900 MW Mahan project, has put it as a condition in the letter of intent that BHEL should not source components from China.

Asked if such a condition in the letter of intent was unusual, Mr B.P. Rao, Director, BHEL, said it was indeed unusual, because customers sometimes express their reservations orally, but never in writing.

Other sources in BHEL said that usually, after giving his specifications, the customer would let the equipment manufacturer to worry about where to source components from.

For BHEL, buying components — mainly pipes and tubes — from China is a part of its vendor development exercise and it does not always source the material for every project. One official said that not buying from China for the Hindalco order would not have any material impact on costs.

For or against

This LoI condition acquires significance against the backdrop of the controversy in the power sector about the suitability of Chinese equipment for Indian power plants. Many believe Chinese equipment is not of appropriate quality, but there are also companies that hold the opposite view. For example, Chennai-based Coastal Energen recently announced a 1,200-MW project with equipment from Harbin of China.

Sources in the power industry say that Chinese equipment are cheaper because of standard designs, which enables them to stock up inventory of raw materials (components). This helps the Chinese execute an order in quick time.

In contrast, BHEL has always been called upon to design equipment specific to site and fuels, with negative implications on cost and time but positive implication on life cycle cost of the project.

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(This article was published in the Business Line print edition dated April 8, 2009)
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