The comeback of thermal power capacity in India is translating into a sudden flood of business opportunity for the Tiruchi-based MSMEs — who do job works for the power equipment major, BHEL.

BHEL’s Tiruchi plant makes boilers for large power projects. 

After nearly a decade of very little business – because of the downturn in the thermal power sector – order loading by BHEL is set to increase about ten times in 3-4 years, from about 30,000 tonnes a year now, to about 300,000 tonnes.  

However, there is an absence of a mood of cheer among the MSMEs there due to a variety of reasons, such as expectation of low rates forced upon them by BHEL’s method of tendering, shortage of skilled manpower, difficulties in accessing bank finance as many of them had become NPAs. 

At BHEL’s zenith period spanning from 2000-2010, a thousand ancillaries hummed with activity. With the drying up of business from BHEL in the last decade, about a hundred of them have survived the downturn, only half of whom are active. Now things are looking up.

D Mohan, President, BHEL Small and Medium Industries Association, says that BHEL would need at least 350 vendors to make various boiler parts for it.  

Return of coal 

This rather sudden spurt in activity has come about because of the Union government making it clear that it would go ahead building coal-fired power capacity, to meet the rising demand for electricity.  

Despite the need for getting out of coal-fired power plants to avoid further global warming, the Centre has planned to build 80 GW of fresh thermal power capacity between now and 2032. Between 2018-19 and 2021-22, industrial power consumption grew 7.18 per cent. The Central Electricity Authority calculates that the required coal-based installed capacity will be at 283 GW by FY32 against 214 GW now. 

All this demand cannot be met only by renewable energy and India has nothing else, other than coal. “Dependence on coal-based generation is likely to continue till cost-effective energy storage solutions are available,” the Ministry of Power told Parliament on December 14.  Today, 27 GW of capacity is under construction, another 31 GW under advanced stages of planning and yet another 30 GW identified for development. 

Fear about rates 

All this has translated into a deluge of business for the Tiruchi MSMEs. One would imagine that there would, therefore, be a festive mood among the MSMEs, but what one sees is cautious, even apprehensive, optimism. 

These MSMEs are fabricators, who are typically paid per-tonne of steel. Every company that businessline spoke to only expressed apprehension that they would be asked to do jobs at unviable rates. When asked about this, an official of BHEL observed that the rates are, after all, only quoted by the MSMEs themselves, against BHEL’s tenders, but the vendors say it is not so simple.

Mohan says that BHEL changed the method of tendering from annual to project-wise and brought in a system by which the highest bidder would not get any order. “Somebody has to be H-1, right?” asks Mohan, noting that the fear of becoming H-1 forces bidders to quote low. Further, the ‘reverse bidding’ method, wherein participants try to out-bid each other after the initial bids are opened, hammers prices down.

Syed Arif, Managing Partner, Five Star Industries, a long-time vendor of BHEL, wants a floor price, so that nobody does business for a loss. Mohan said that when the MSMEs mentioned their apprehensions to BHEL at a recent vendor meet, BHEL’s officials expressed their inability to change the method of tendering, as it was decided by their head office in Delhi — to avoid nepotistic placement of orders. The MSMEs’ counter to this is that any frauds could be easily avoided by robust software-based automation. 

Skilled workforce—a huge challenge 

Metal fabrication is skilled and manpower-intensive. As a thumb rule, you need one skilled person for every 3 tonnes of work — so, there is a requirement of about 100,000 skilled labourers, including about 25,000 welders. The options are to attract back the labourers who have migrated out or get fresh talent from the North — neither appears easy. “It is a very big challenge,” says Arif. 

Access to finance is yet another challenge. While some, such as Arif, say that getting working capital finance from banks is not too difficult with firm orders from BHEL, others like Mohan and T Thirumurugan, Managing Partner, AST Industries, want banks to ease both lending norms and interest rates. 

TREATing the supply chain 

One body that is trying to set right the supply chain is the Tamil Nadu government-owned, Section 8 (not-for-profit) company called Tiruchirappalli Engineering and Technology Cluster Ltd (TREAT). 

TREAT was set up in 2011 under the Union government’s Industrial Infrastructure Upgradation Scheme. Under the scheme, the government sanctioned ₹60 crore as a grant, of which ₹52 crore was disbursed. (₹2 crore was deducted towards various charges and fees and another ₹6 crore is yet to be received.) With another ₹12 crore from MSMEs and some debt, TREAT built common facilities for MSMEs for works like surface preparation and machining. Just as the facilities were maturing for use, around 2014, thermal power sector’s downturn began. TREAT turned NPA in the books of banks.  

In 2021, Tamil Nadu government’s industrial promotion arm, TIDCO, stepped in with ₹10 crore for 48 per cent equity, turning TREAT into a Tamil Nadu PSU. TREAT is now taking the lead in building facilities for training manpower, says KG Muralidharan, Chairman and Managing Director, TREAT, who is also a BHEL supplier. 

Beyond BHEL 

Even as orders from BHEL are all set to pour — the first tender is expected in January 2024 — TREAT is making all out efforts to hone the MSMEs for business from other companies. These efforts began during the downturn — in fact, those companies that have survived the downturn could do so by picking up other customers, like HAL, BEML and ISRO.

‘Defence’ is one area that B Krishnamoorthy, Special Secretary and Project Director, TIDCO, who is also on the board of TREAT, is keen on. Krishnamoorthy is also the Managing Director of the twin R&D companies promoted by the Tamil Nadu government – Tamil Nadu Smart and Advanced Manufacturing Centre (TANSAM) and Tamil Nadu Centre of Excellence for Advanced Manufacturing (TANCAM) — which have access to the high-end software of Siemens and Dassault Systems. His idea is to get Tiruchi MSMEs access to the software, so that they acquire the ability for supplying high-end products. 

Krishnamoorthy’s efforts have borne fruit. A ₹50-crore ‘material testing facility’ is coming up within TREAT, with 75 per cent of the funds coming from the Centre and the rest from a bunch of companies including TIDCO, HAL, BEML and Microlabs. 

Tiruchi MSMEs have learnt their lesson — complete dependence on one customer is not good.  

Related Topics
comment COMMENT NOW