WHERE IS THE LEVEL PLAYING FIELD?

By Ruma Dubey

BHEL is a shocker. Not just because it has turned out a very poor set of numbers for Q1FY16 but also because despite its inability to execute orders on time, the Govt continues to disregard all level playing field by giving orders to BHEL, putting to naught the entire process of order by tenders. Naturally, the private sector is miffed and giving voice to their anger are Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI).

First things first; the pathetic Q1 performance. BHEL today reported a 82% (YoY) drop in its net profit at Rs.34 crore and revenue dropped 15% at Rs.4281 crore. But for the other income of Rs.492 crore, the company would have ended the quarter with a net loss.  This poor show can be blamed directly on the power sector, which showed a degrowth of 19% in terms of revenue while its EBIT fell 59%. 

And now in this background, when we hear that BHEL is being given a preference only because it is a PSU, one cannot help but wonder whether we India Inc works in a professional environment?

FICCI and CII have written to the power ministry at the behest of Alstom, Bharat Forge, L&T and Toshiba that state utilities are going for BHEL when it comes to giving orders. The letter goes on to say that these state utilities have been bypassing the tendering process and have been giving power plant EPC orders to PSUs only. The order book of the Indian power EPC industry currently stands at 20,000 Mw, which in valuation terms is around Rs 90,000 crore; of this, BHEL has cornered 40% orders. Little wonder then that at end of current Q1, BHEL says that its outstanding order book is around Rs.1.16 lakh crore, up 19% (YoY).

The power equipment makers too have a similar complaint; they have been complaining that PSU Power Grid Corporation has been getting all the major power project orders. Not a single order from the power sector was placed entire of FY15; very few tenders were floated by NTPC. The single largest project of the sector was from Telangana for three power plants with a cumulative capacity of 5,880 Mw. This order was valued at Rs.26,460 order. There was no tendering process here; the order was negotiated and given to BHEL.

This process of “negotiating” orders was done away with in 2008; later all major projects were via tendering only. CII and FCCI say that this turning back to negotiation goes against Electricity Act and the Central Electricity Authority.  

BHEL, on the other hand is nonchalant and feels that it has done nothing wrong as negotiating for orders has not been debarred. It questions this complaint of CII and FICCI, asking why it did not complain when private sector companies placed some 50,000 mw worth of orders on Chinese companies? All those orders were on negotiated basis. Thus BHEL feels that there is really no case here at all.

But the question we ask is why this defying of level playing field? Why not give order to the best price and one who is able to deliver? Why this favoritism to PSUs? The PSUs are a listed entity today and that means they are competing head-on with the private sector on all aspects. So even for orders, they should compete. This way, we are going back to the corrupt ways of the past.  

The CAG presented a performance audit report on BHEL and it said that due to delay in deliveries of orders, customers had deducted liquidated damages (LD). BHEL had to bear LD of Rs.1280 crore during 2007-13. The report also points out how delay in placing purchase orders had contributed to delivery dates getting delayed in 23 out of 174 purchase orders much beyond the scheduled date of completion of respective manufacturing capacity augmentation schemes.

The question thus is – for all the orders being placed on BHEL, is the PSU prepared to handle such large projects?  By putting all eggs in one basket, isn’t the Govt putting the entire power sector to risk?  For all the globe-trotting and FDI’s being booked by our PM, if manufacturers are not given a level playing field, what is the message that we are sending across?