DOMESTIC equipment manufacturers like BHEL — facing tough competition from its Chinese and Korean counterparts like Dongfang and Doosan — are in for some more tough times ahead. The government is considering a proposal to do away with 15% price preference to public sector undertakings (PSUs) in procuring equipment for mega power projects. The proposed move is part of policy changes suggested by the power ministry for executing mega power projects (MPP).
The policy in the current form gives price preference of 15% to domestic bidders (main beneficiary is BHEL) to compensate them against higher interest rates, local taxes and infrastructural inadequacies. The provision gives the PSUs an extra edge vis-a vis global equipment suppliers who have made major inroads in the Indian market by winning international competitive bids (ICB) through aggressive price quotes. The ministry of power, however, feels that the provision is discriminative against other equipment players that have to give this preference and at the same time ensure cheap power to consumers.
The government has circulated a Cabinet note in this regard seeking opinion of various ministries. As per the Cabinet note, as ministry of power has been exempted from the purchase preference policy (PPP) of department of public enterprises announced in 2005 (subject to BHEL getting certain orders on negotiated basis), the present system in the mega power policy was not required.
Once implemented, the move could hurt BHEL that is the single largest equipment supplier in the country. The price preference provide the company protection against aggressive pricing strategy of Chinese and Korean companies. Infact, companies like Dongfang and Doosan have emerged successful bidders in several private sector power projects. Power generation PSU NTPC, which is also looking at enjoying price advantage by getting supplies overseas companies, is unable to do so on a large scale due to restrictive provisions in the mega policy.
When contacted, a BHEL official denied that the PSU would come under pressure from changes in the price preference policy. “We have never got equipment orders on the basis of the preference policy but have been the lowest bidders for several projects. Moreover, the policy itself has become defunct after the 2005 DPE order and bulk orders on negotiated basis are given only for introducing a new technology.”
However, a power ministry source said that the mega policy preference clause is still active. “This is also a pre-condition for a generation project to get tax incentives under the policy in the form of tax holiday and duty free imports.” the source added. Moreover, the ministry feels that as BHEL’s order books are full for next five years, any effort to give its price preference would be meaningless.