Public sector power equipment manufacturer, BHEL, has agreed to pay liquidated damages to NLC India Ltd, another government-owned company for the loss sustained by the latter because of not-up-to-the-mark boilers supplied by it. NLC India (formerly, Neyveli Lignite Corporation Ltd), is a lignite miner and electricity generator, based in Tamil Nadu’s Neyveli.

Confirming the payment of damages to BusinessLine, NLC Chairman and Managing Director, Rakesh Kumar, said BHEL would pay the damages in kind, mostly in terms of equipment and spare parts.

The backstory

The story goes back over 15 years when BHEL supplied two boilers, of 250 MW each, that were based on ‘circulating fluidised bed combustion’ (CFBC) technology. CFBC boilers are designed to burn low quality fuels and hence were thought to be more appropriate for NLC’s lignite. Lignite is an inferior type of coal, with much less calorific value (energy content) than coal.

In a way, this was an experiment as much for BHEL as for NLC, because CFBC technology for 250 MW capacity boilers was far from perfect. CFBC boilers were known to work well for smaller capacities; very few companies in the world had this technology for 250 MW. Regardless, BHEL supplied this technology, with help from the German company, Lurgi Lentjes. The order was placed in 2005-06, but the first of the two units were commissioned only in 2011.

If BHEL’s 250-MW CFBC boilers installed at NLC had worked well, it would have been a major technological arrow in BHEL’s quiver. However, the boilers never worked properly, leading to frequent shutdowns and loss of electricity generation. This caused a lot of heartburn between the two government companies. A few years back, the then CMD of NLC, SK Acharya, said, “We were made guinea pigs.”

And now, BHEL has agreed to compensate NLC for its loss. It is learnt that the agreement provides for liquidated damages of 10 per cent of the value of the order. The order value is not clear – neither company wants to mention it. However, in the same year as BHEL secured the order, it also won another order for two units of 125 MW each for CFBC boilers; it had mentioned the order value as ₹1,200 crore.

NLC calls up Lentjes

Meanwhile, it is learnt that because the technical issues with the two CFBC plants continue, NLC has asked Lentjes to come over to Neyveli and study the two boilers and perhaps come up with suggestions for fixing the issues.