Power cos cancel 6,000 crore equipment orders; very few contracts awarded

Power companies have cancelled about Rs 6,000-crore equipment orders in the past few months, leaving domestic equipment suppliers in distress as very few contracts have been awarded in the current fiscal.

The power sector is in trouble because of fuel scarcity, sluggish approvals and lack of distribution reforms. The sector’s distress has affected equipment suppliers, who have seen orders worth only Rs 9,465 crore in the past 10 months, which is meagre by industry standards.

In the previous fiscal, state-run monopoly BHEL alone booked 8,921 MW orders worth Rs 36,000 crore during April-December, including orders worth Rs 7,877 crore in a single quarter.

Advances from customers for companies like BHEL and L&T have declined while receivables and working capital have soared. The two companies, however, have sizeable order backlogs. For new electrical equipment companies, capacity is lying idle, making it difficult to recover capital and costs.

Industry sources said L&T, Ansaldo Caldaie India,Cethar Vessels and Kalyani Alstom Power Ltd have not bagged any significant power equipment contract so far in the fiscal.

Thermax India Managing Director MS Unnikrishnan told ET that his company would wait for 6-9 months for the market to pick up before booking orders. “But the wait cannot be long as the fixed costs have to be recovered,” he said.

Electrical equipment association IEEMA President Ramesha Chandak said manufacturing facilities of electrical equipment like transformers, transmission lines, switchgears, conductors and cables are producing about half of their capacities. The growth of the industry, consisting mainly small and medium companies, slowed to 4% this fiscal against 14% till last year.

Crompton Greaves Vice-President (power systems-Asia) JG Kulkarni said the transmission electrical equipment industry was witnessing shifting of deliveries due to uncertainty at project sites.

Equipment tenders for at least 20 power projects with about 34,000-mw generating capacity are stuck for the last 18 months due to uncertainties of fuel, environment clearances and land and water availability. Going by industry estimate of Rs 6 crore per megawatt cost, the projects would require over Rs 2,00,000 crore of investment.

“Roughly Rs 5,847 crore is the size of orders where there is a cancellation or change in the scope… Some of these projects have not started at all because of lack of coal linkage. Also there are sub-critical sets. Most of the customers are changing from sub-critical to super-critical and that is why they are cancelling these sub-critical orders and may go for super-critical later. And with the current environment, they are not able to finance the new projects yet. There are one or two customers who have cancelled,” says BHEL Chairman and Managing Director BP Rao.

L&T, Bharat Forge, Toshiba, Ansaldo Caldaie India, BGR Energy, Cethar Vessels and Thermax India are expected to put together equipment production capacity of about 20,000 MW per annum by 2014-15 against 20,000 MW annual capacity of BHEL. Domestic power equipment companies, including BHEL and L&T, have already expressed concern over Chinese imports flooding the Indian market.

Source: ET

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