Power Demand: A Big Concern

B P Rao
CMD
BHEL

Demand situation in the power sector is really bad, which impacted the performance of capital goods companies. Was the situation unforeseen?

It is right that power demand situation in the country is a big concern for us but it was certainly unforeseen by the sector as a whole. The issue of the distribution companies was always lingering but this type of demand scenario nobody had imagined. In fact people started doubting the health of distribution companies since 2003-04, as to how power sector will survive if these distribution companies are not healthy but current power demand situation is much worse. 

So what went wrong as far as power sector planning is concerned? 

If you see initially whole planning was based on capacity additions, which means increased equipment manufacturing and more projects being commissioned. During that time new manufacturers were encouraged to establish capacities. In fact capacity addition in 11th plan went up to 50,000MW from the level of 20,000 MW in 10th plan, but then other weak links started appearing. Fuel linkage was the first one to hit the deck followed by environmental clearances, stalled projects, land acquisition etc. 

I can say, probably, instead of parallel planning we went on a serial planning mode, from which we learnt a lesson. So if we have to improve the situation then we have to move parallel both on GDP growth side as well as supply side issues. 

You are coming up with two new  (UMPPs). Are you bullish on them? 

UMPP is just another power plant barring its big size of 4000MW. The 2 new UMPPs that are now  coming up is definitely on the radar of the company and in these UMPPs condition of only indigenous equipment is also there so it is a positive thing for domestic manufacturers like BHEL. In fact BHEL can provide end to end solution for UMPP as we have product depth much more than anybody else. We manufacture all equipments right from main plant to the auxiliary equipments like electrostatic precipitator, fan, controller instrumentation, EPC group who undertake the work of EPC, coal and ash handling engineering group etc. so BHEL is all geared up for the entire value chain of the power plant.

BHEL had big plans for nuclear energy but it hasn’t taken off well. What went wrong on that front?

Indigenous technology in Nuclear power is limited to 700MW. We already executing 4 projects of NPCIL awarded to us. On the other hand imported technology has its own limitations because of nuclear liability clause, which is yet to take final shape. It is certainly a hindrance for the companies to come into nuclear power sector but we have to understand that globally it is becoming tighter and tighter and everybody is cautious. 

At present nuclear liability clause give a limitless liability to the vendor of the plant spanning 80-90 years, which is difficult for a company to accept. The liability gets passed on to the supplier also. Public opposition, land acquisition issues are adding to that. As and when there are clear signals from the government on the policy, we will move ahead. We already have tied-up with companies like GE, Hitachi, Canadian and French vendors. 

What is the liquidity position of the company, as you were struggling to recover money from the customers owing to stalled projects and awaiting clearances?

On the liquidity front I can say that we are tight but we are managing our liquidity well, honouring all our capital requirements. In fact at the cost of my topline I am putting pressure on the customers to do payments and made it clear to them that if payment are not coming I am not able to service the customer. Out of the total debts of around Rs 39000 crore, we have managed to reduce collectable debts to Rs 18000 crore from earlier levels of more than Rs 20000 crore.

As you have got an extension of 2 years; what will be your focus on during this period? 

These 2 years would be focused on preparing the company for taking some of these new areas planned, while managing the slow growth in power sector. Slowdown is an opportunity to improve efficiencies and operational parameters. Thereby we are preparing the organisation to take on new challenges once economy starts growing again, so that we shouldn’t caught unaware.  So my biggest challenge is to keep the organisation ready for future opportunities. 

We are also investing on new technologies for developing advance ultrasonic technology that will increase the efficiency of thermal cycle from 39 per cent to 46 per cent. Our philosophy is to a give a tailor made product for the market. Just to give you an example we are now designing boilers that are capable of handling both domestic as well as imported coal.