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Downhill Journey Of Maharatna PSU BHEL

By G. Srinivasan

The more than five decades old Bharat Heavy Electricals Limited (BHEL), touted as the country’s largest engineering and manufacturing company in design, engineering, manufacture, construction, testing, commissioning and servicing of a wide range of products and services for the core sectors of the economy ranging from power, transmission, industry, transportation, renewable energy, oil and gas to defense, is now in a downhill growth path.

For a public sector behemoth of the socialist past, BHEL was not only a success saga but also a showpiece of the prowess of a PSU, which had enhanced its power equipment manufacturing capability more recently. Under the Strategic Plan spanning from 2007 to 2012, BHEL pumped in an outlay of Rs 6246 crore to augment its power equipment manufacturing capability from 6000 MW per annum to 20,000 MW per annum in phases.

Being conferred the “Maharatna” (major jewel) status by the Government in February 2013, the paid-up share capital of BHEL was Rs 489.52 crore as on end-March 2016; of which 63.06 per cent was held by the government of India, 13.95 per cent by foreign institutional investors (FIIs), 15.68 per cent by banks, financial institutions, insurance companies and the lingering 7.31 per cent by others including general public.

In a written query in the Rajya Sabha on the achievements of the Ministry of Heavy Industries and Public Enterprises, the Minister of State in-charge Mr. Babul Supriyo told MP C.M Ramesh on August 3, that BHEL has retained its leadership position in a dwindling and highly competitive market during the last two years with 72 per cent share in Indian power sector business for the second successive year. BHEL has also joined the elite club of select global giants having installed base of over 150 GW of power generating equipment for the third year in a row and its secured order was worth Rs 74,541 crore from power and industry segments covering both domestic and global markets in the last two years.

Against this glowing narrative of a robust PSU, a report on the competitiveness of BHEL in emerging markets by the Comptroller & Auditor General of India (CAG) in the ongoing monsoon session of Parliament has unmasked the chinks in the armory of this PSU colossus as it straddles across a variety of portfolios in its business to stay competitive. Even as power sector continued to account for the bulk of BHEL’s turnover during the period under review i.e., 2011-12 to 2015-16, the CAG indicted the company for not being able to effectively diversify into new/less operated business areas. As a result, it noted that both its turnover and profitability declined sharply with slowdown in power sector. BHEL’s turnover which was Rs 49510 crore in 2011-12 declined to Rs 26,587 crore in 2015-16, while its profit of Rs 7040 crore in 2011-12 plunged into a loss of Rs 913 crore in 2015-16.

Adverting to the BHEL’s Strategic Plan targets for the quinquennium 2012-17 with focus on diversification and innovation, the CAG report said that the company did not set year-wise milestones for implementation of the envisaged strategies. BHEL could not compass any of the strategic plan targets till 2015-16, while shortfall ranged between 23.33 and 113.91 per cent against specific goals. Stating that BHEL could not bridge the technology gap in the core power sector, it cited in particular, Circulating Fluidized Bed Combustion, Gas Turbines, Dry Type Transformers and 500 MVA Inter Connecting Transformers. It also faulted BHEL for its inability to avail of the opportunities in the 765 KV segments of Gas Insulated Substations being increasingly adopted to reduce Right of Way requirement for transmission line and overcome odds in availability of land for substations.

With BHEL’s R&D projects related to 400/420 kV (kilo volt) were getting delayed, R&D for 765 kV technology could not be taken up. What is particularly disconcerting to note is that out of 25 tenders for 765 kV GIS (Gas Insulated Switchyard/Sub-station) issued during 2012-13 2015-16, BHEL could participate only in seven tender with equipment sourced from original equipment manufacturers(OEMs). More revealingly, analysis of BHEL’s success rate in securing turbine generators (TG) orders against competition showed that BHEL’s success rate steeply declined from 80.44 per cent in 2013-14 to 43.95 per cent in 2014-15 and to zero per cent in 2015-16! BHEL could not secure any of the four tenders (involving TG component) finalized against competition during 2015-16.

The report bluntly put it that in order to maintain growth in a changing business milieu, BHEL needed to enhance the competitiveness through cost reduction. Rationalization of manpower, according to level of operation was essential to maintain margin, competitiveness and business growth as manpower cost constituted significant component of the company’s expenses.

Despite slowdown in power sector since 2010-11 and dampening investment sentiment, in the wake coal scam and banks’ overexposure to infrastructure funding and the attendant non-performing loans they piled up on this count, BHEL inducted 9346 employees in the calendar year 2011 and 2012 as against retirement of 5844 employees during this spell. As a consequence, the percentage of employee cost to turnover increased consistently from 11.04 per cent in 2011-12 to 20.84 per cent in 2015-16.

The report is also critical of the company’s failure to complete any of the projects selected for performance audit within scheduled completion time. All 53 selected projects were commissioned with delays of three to 84 months. As a result, customers withheld Rs 1966.07 crore towards liquidated damages (LD) against 37 of these projects. The report said production units of BHEL are required to supply material/equipment complaint with quality standards to ensure intended performance level and the company does not face delays in erection and commissioning due to repairs/re-work. But, quality/ workmanship issues were detected at all stages of project execution, the CAG said adding that this led to Trichy and Hardwar units of BHEL incurring Rs 138.44 crore by way of cost of re-work in the sample projects selected for review by audit.

In order to hone the competitiveness of the public sector power equipment giant, the CAG said BHEL needs to foster its own products that excel over competitors through R&D initiatives. It further advocated ‘One BHEL’, enterprise resource planning (ERP) system for processes and systems improvement and better coordination between units of BHEL. It also suggested that more orders need to be finalized by BHEL through open tender system.

As the NDA government has lined up ambitious disinvestment plans including strategic sale to beef up its revenue kitty, it is time it should focus its attention to give importance to enhance or sustain the extant value of the PSUs before they become albatross around its neck by dint of neglect and apathy, policy analysts caution. (IPA Service)

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