दृष्टिकोण – Indra's Viewpoint

Alternatives to BHEL’s Capacity Constraints

The future requirements of power for India to sustain and improve on the GDP growth are huge. According to the Planning Commission’s Integrated Energy Policy (IEP), even if India is to grow at a sustained 8% for the next 25 years, it must ramp up electricity generation from 1,60,000 MW to 8,00, 000MW. The more ambitious ones can calculate the multiplying factor if they wish a higher growth rate. Generation will add all sorts of power plants: hydel, gas, coal, nuclear. Naturally it will demand the power equipment sector to grow accordingly with annual capacity ranging between 30,000- 40,000 MW. China’s power equipment industry today has excess capacity capable of producing 35,000-40,000 MW of power

Solutions are obviously three. While BHEL must multiply its manufacturing capacity, India will certainly need more than one big manufacturer. Big enterprises must come out for manufacturing for power plant equipment. It may be in public as well as private sector. And the sooner they come, the better it will be for India. Import of equipment may also be one another solution, but it doesn’t build the manufacturing strength of the country that is essential when the domestic consumption is that huge. These future power equipment plants can compete and export too to the other emerging economy.

The power ministry of India is trying to bring in NTPC for manufacturing the power equipment too. However, it may be a shellfish move of the ministry, and it can’t be considered a technically prudent idea. NTPC must keep on setting up the power plants according to its plan of more than doubling its capacity in the next 10 years to 66,000 MW or more. It may enter the coal mining and nuclear power sectors. But manufacturing is not the core competence of NTPC. It can certainly go for the outsourcing business of setting power plants in other countries too.

As many private enterprises are entering power business beside Tata Power and Reliance Energy, few more equipment manufacturers must also get into the business.

Private Power Plant Equipment Manufacturers

Among the private sector power equipment manufacturers, Alstom India could have been of help but it is hesitant to add to its capacity and technology to meet the country’s need. Private sectors could supply equipment for just 7,000 MW in last plan period against the expectation of 14,000 MW.

The foreign equipment majors that have supercritical technology are not ready to set up a manufacturing facility in India without assured order. Larsen & Toubro (L&T) has tied to manufacture supercritical boilers in the company’s Hazira plant in collaboration with Japan’s Mitsubishi, one of the world’s leading manufacturers of supercritical boilers. The venture will invest about Rs 750 crore to set up a facility in India. But even L&T wants government protection. The L&T-Mitsubishi combine is asking the government to award it eight supercritical units without competitive bidding. The government must not restrict the power equipment sourcing for the plants of states and centre to BHEL, its public sector giant.

L&T has recently signed two joint ventures, one each with Mitsubishi and Toshiba, to produce supercritical boilers and turbines. L&T’s JV with Mitsubishi Heavy Industries is expected to start manufacturing boilers by the second half of 2008-09. The company will manufacture under license from MHIL for supercritical pressure boiler technology with generating capacities ranging between 500 and 1,000 mw. The JV will entail a capital investment of Rs 300 crore – MHI owning 49 per cent and L&T 51 percent.

It is but sure that L&T venture or any new venture will take time to be major power equipment supplier in competition with BHEL to make any significant impact on the overall shortage in power generating equipment. Setting up a manufacturing facility takes three to five years.

Another alternative will be to increase the import of power generation equipment from countries such as Japan, Germany, the United States, France and China, particularly since there is no import duty. China may appear to be an attractive place to shop with company such as Dongfang Electric, about 10 per cent cheaper than those in Europe and India, but the quality of design may be suspect and must be ascertained. Tata Power has tied up with South Korea’s Doosan to set up its mega power project at Mundra in Gujarat.

However, the country must go for its own manufacturing of power eqipment. Powering India provides a great opportunity to the entrepreneurs who are in manufacturing of electric equipment. Many of the smaller players such as Kirloskar Electric or Crompton Greaves must get into the sector.

I do also suggest that our IITs must not abandon and abolish these traditional engineering departments and work hard to keep the cutting edge researches going on in these fields.

President Kalam chosen for King Charles II Medal: Kalam is only the second head of State after Japanese Emperor Akihito to be honoured with the award given by the Royal Society.

India to be hub of KPO industry: India will be the future hub of KPO sector and competitors – China, Philippines, Russia – will be spokes of the, according to a report, ‘India’s Knowledge Process Outsourcing Sector: Origin, Current State, and Future Direction’. In India, KPOs employed 75,400 generating $3.05 billion in 2006-07.

INDIA’S UPSURGE: The number of Indian companies that made it into the BW 50 doubled from 2005. Bharti Airtel at No. 13 is the India’s largest mobile operator with nearly 26 million subscribers, or about 22% of the market, and is adding new ones at the rate of 1 million a month; it will spend $2 billion on network expansions and marketing to reach underserved markets in rural areas. Even the 2006 BW Asian 150 Scoreboard shows that.

Asia’s Most Admired Companies: This year’s winners include Toyota, Lenovo, and Infosys- have been pushing to build their businesses globally. Wipro is also a class in itself.
IOC, RIL advance in Fortune 500: Indian Oil Corporation (IOC) and Reliance Industries (RIL) advanced to the 135th (by 18 places) and 269th (by 75 places) places, respectively, in this year’s Fortune Global 500 rankings.

India added six million Internet users last year: India had 30 million internet users in April, six million more than it had a year ago, according to a survey released on Friday, and 20 million of these users are on the Net daily.

Idea Cellular awards Rs 250 cr contract to IBM: Idea Cellular, the Aditya Birla group company, has awarded a Rs 205-250 crore ($50-55 million) contract to International Business Machines (IBM) to deploy and maintain an interactive voice response (IVR) system for the GSM service provider.

Lucent bags $400 mn RCom network deal: Reliance Communications has awarded a $400 million (Rs 1,600 crore) network expansion contract to global service provider Alcatel-Lucent for expansion of its wireless network to over 20,000 towns and 600,000 villages in the country. Reliance Communications has also awarded $200 million (Rs 800 crore) network expansion contract to Chinese equipment vendor Huawei Technologies.

Aero bridge: Indian civil engineering skills have own a place with GMR having won a bid as part of a three-way consortium to build Istanbul’s new Sabiha Gokcen International airport.

India important for Boeing: Boeing has bagged orders for 68 aircraft from Air India worth over USD 11 billion at list prices. Boeing will invest USD 1.7 billion to buy goods and services from Indian companies and has already agreed to create a Maintenance, Repair and Overhaul (MRO) facility in Nagpur, besides set up a pilot training programme by funding some existing flying schools.

IT Sector Growth: In fiscal 2007, the ITES-BPO segment grew by 33.5%, contributing $8.4 billion to the total software and services exports of $31.4 billion from across finance and accounting, customer interaction services and human resources administration. The employee base in the segment grew to 550,000 in fiscal 2007 from from 410,000 the previous year.

Indian sugar exports seen doubling: Indian exports of raw sugar could more than double to over 3 million tonnes in 2007-08.

Samsung plans to make India an export hub: India is emerging as a major alternative export hub for Samsung Electronics, South Korea’s largest electronics manufacturer, for colour TVs, home appliances and mobile handsets.

India second in global M&A deals ranking: According to a report compiled by global consultancy firm Dealogic, Australia tops the Asia-Pacific cross-border outflow with over 125 deals worth $30 billion, followed by India with a total of 74 foreign acquisitions in the current year so far.

TVS to roll out bikes from Indonesia plant: Two-wheeler major TVS Motor Company would roll out its bikes from Indonesia plant this month eyeing a first year sales of up to 90,000 units in that market amidst plans to spread its wings in the South East Asian region.

BPOs enter tier-III cities: More and more domestic companies are setting up business process outsourcing (BPO) units in district headquarters, tier-III cities and non-IT clusters to save on real estate costs and stem attrition rates.

2 NRIs among top 100 who wield most power in UK media sector: Two Non-Resident Indians, Arun Sarin, Vodafone chief executive, and Zarin Patel, group finance director of BBC, are among the top 100 people who wield most power in the British media industry.

Bihar to help Indo-Mauritians trace ancestral roots: State Chief Minister Nitish Kumar’s government would collaborate with Mauritius to prepare a comprehensive database of all Biharis who had migrated to the Indian Ocean country in an effort to help them track their roots.

India Inc sits on cash pile of Rs 3.5 lakh cr: India Inc (excluding financial services companies) is sitting on a cash mountain of Rs 3,50,000 crore, nearly three times higher than Rs 1,25,000 crore at the end of March 2006. In 2006-07, industry has declared a total dividend of Rs 40,000 crore and declarations are still coming in. In 2005-06, the dividend payout was Rs 42,300 crore.

Srei to e-link Bengal villages: SREI Infrastructure Finance Limited plans to introduce e-commerce exchange portal by 2008 under its ‘Sahaj e-Village’ programme, in an attempt to create close to 100,000 jobs for people living in rural areas with an initial investment of Rs 100 crore with a typical breakeven time of two and a half years. Srei also plans to roll out its online job portal by October this year for villagers to submit applications and resume.. Each of the kiosks or common service centres (CSCs) would be owned and managed by a village level entrepreneur (VLE).

More than 750 screens have gone digital in India with the advantages of total elimination of print costs and hence, widespread release of all movies at no extra cost, protection of the content end to end against all forms of piracy by means of a 192-bit encryption technology, good quality at every run of the movie to name just a handful.

India’s largest nuclear power station in Orissa: The Nuclear Power Corp of India (NPCIL) is planning to set up the country’s largest nuclear power station in Orissa. It has submitted a proposal to the state government for a 6000mw station with an investment of Rs 36,000 crore.

BSNL slashes intl roaming rates for global visitors: State-run BSNL has reduced international roaming tariff for foreigners using its network in the country by up to 40 per cent, a relief for tourists who often complain of high telephone charges while on move in India.

A British Acquisition: A British company Sauer-Danfoss has been purchased by the Bangalore-based Dynamatic Technologies Ltd. Dynamatic Technologies Ltd manufactures highly engineered products in the automotive and defence sectors as well as the agricultural and construction equipment industries.

Tirupur-based group takes over European company: Tirupur-based Mehala Group has taken over Sanmarco, a well known group of companies from Europe, manufacturing textile machinery, situated in Sulur.

Indians prefer buying cars: Domestic passenger car sales in June grew by 16.36 per cent at 94,002 units as against 80,784 units in the same month a year ago. According to figures released by Society of Indian Automobile Manufacturers (SIAM), domestic motorcycle sales during the month were at 4,37,776 units as against 5,28,499 units in June 2006, down by 17.17 per cent.

Flowserve Corp. opens R&D facility in B’lore: Flowserve Corporation, a global provider of fluid motion and control products and services, has opened a new research and development facility in Bangalore.

All villages to have telephones by Nov: Telephone connectivity is likely to be provided to all the 66,822 villages by November under the Bharat Nirman programme-two years ahead of schedule. The final goal is to create five crore rural connections by 2007 and increase this to eight crore connections by 2010 and provide broadband connections in every village by 2012. On the performance of rural roads, the Prime Minister was informed that around 40,000 km of new link roads have been built and 50,000 km of existing rural roads upgraded in the first two years (2005-07) of Bharat Nirman. Besides, 66,802 villages have got all weather roads and 13,831 other villages have been provided connectivity.

Oxford prof documents India’s math contribution: A BBC crew, led by an Oxford professor, was in the country last week to film a documentary revealing Indians created some of the most fundamental mathematical theories. In The Story of Maths, Dr Marcus Du Sautoy, a professor of mathematics at the University of Oxford, claims Indians made many of these breakthroughs before Newton was born. The Story of Maths, a four-part series, will be screened on BBC Four in 2008.

Bharat Heavy Electricals Ltd. : The Culprit Can Reign

As per many reports recently, India remains starved of electricity, as Bharat Heavy Electricals Ltd (BHEL), the sole power equipment manufacturing public sector unit in India couldn’t supply the plant machinery. So only 21,000 MW generation capacity was achieved as against the target of 41,000 MW in tenth Five Year Plan period. The planning commission lists as many as 20 projects including four hydropower projects that slipped due to constraints on BHEL’s side. Of the thermal projects, some major ones include Sipat-II (1,000 MW) and Kahalgaon I&II (1,500 MW each).

And how does it affect the national GDP? . In 2004-05, the Economic Survey of India estimated that power shortages cost the country a GDP loss of Rs 3,00,000 crore in just that year.

NTPC has decided not to partner with BHEL after it lost out to Lanco in the bid for the Sasan project in Madhya Pradesh. NTPC blamed it on the higher engineering, procurement and construction costs quoted by BHEL that was Rs5 crore per MW against when it wouldn’t have been more than Rs3.6 crore. The NTPC-BHEL bid was for Rs2.12 per unit of power generated, compared with Lanco-Globeleq Singapore’s Rs1.19.

Even the present power minister claims that. However, I don’t understand why the government couldn’t have taken a corrective measure during the last fifteen years when it had been happening.
The Eleventh Plan requires 15,700 MW to be added every year during 2007-2012. But BHEL can currently supply equipment only for 6,000 MW a year. For a long time BHEL didn’t didn’t add to its capacity. Though it is doing now, the capacity expansion takes time. By 2011, BHEL will have a capacity of 15,000 MW.

Further, the government has decided to shift to supercritical boilers for the new power plants, which produce electricity more efficiently, for 33,000 MW. BHEL has recently signed deals with France’s Alstom and Germany’s Siemens to acquire supercritical boiler technology. But naturally BHEL will have to assimilate and master the technology besides setting up the additional facilities. Naturally, it means missing of the eleventh plan target too.

I am of opinion that BHEL can speed up its expansion processes with a change in manufacturing strategy and better supply chain management. It must use the ‘Theory of constraints’.

 It starts with the mindset of the chief executive and its core team and the government that are to work together to attain the unachievable target.

 Let BHEL openly come out with its bottlenecks in manufacturing. It must be few components and few manufacturing operations that must be the bottlenecks. It must go all out for outsourcing all the components that it can get without compromising quality from the local manufacturers. If it fails to find local source, it can go for even importing the components, again without sacrificing the quality.

 All the public and private sector units such as HEC, Defense manufacturing units, HMT’s facilities, Bharat Pump and Compressors and many others in the country can be part of the process.

 BHEL must put its best talent to speed up the bottleneck operations, as many a times the potentials of the equipment remain underutilized as it was not needed.

 It must invest immediately in procuring the machine tools required for the bottleneck manufacturing operations.

 Bottlenecks are resolved by cutting down on the cycle time (the time between the start and the end of the operation). Many times, it may mean increasing the cutting parameters that are normally kept low to be too much on the safer side, or by adding some roughing operation on a different machine. Sometimes, it can come from dimensionally controlled castings or forgings or an extra operation at the vendors’ end. BHEL has a huge resource of talent that can resolve amicably its bottleneck. But if necessary, let BHEL be given the autonomy to employ the best consultants from inside the country or by going offshore that can solve manufacturing bottlenecks.

 Let BHEL also engage the best brains of IITs and institutions such Mechanical Engineering Research Institute and other such facilities.

With all my experiences in manufacturing over all these years, though in automotive sector, I can assure that it is possible for BHEL to build a capacity of 20,000 MW a year or more in next two years. And if that is the challenge placed before its technocrats, why should they not find a solution?