Interview with Atul Sobti

“Ordering activity is gradually picking up”

While the overall power equipment industry continued to suffer from underutilisation of manufacturing capacity, it was a fairly good year for equipment major Bharat Heavy Electricals Limited (BHEL). The company booked orders worth the highest value in the past five years. Optimistic about the equipment industry’s long-term prospects, Atul Sobti, chairman and managing director, BHEL, shares his perspective on the key challenges being faced, the future plans of the company and the outlook for the sector…

How has the power equipment industry evolved over the past two decades?

India’s power sector has evolved substantially over the last few decades and has witnessed a sea change across the entire value chain. The industry has responded strongly to the reform measures taken by the government with widespread participation across the public and private sectors, and Indian and multinational companies. From an installed generating capacity of about 63 GW in 1990, the installed capacity today stands at over 300 GW, growing more than three times over the past 25 years.

However, fresh investment in the sector has remained subdued during the past three to four years due to various issues on both the supply side and the demand side. Inadequate availability of fuel, land and finances and delays in regulatory clearances have dampened the interest of developers and investors in new projects. Today, we are seeing traction from the government to revive stressed projects, bring reforms in discoms, substantially improve fuel supplies, and fast-track clearances for new projects. Private investment in the sector is yet to revive but the new developments and upcoming opportunities point towards a positive outlook for the sector.

What is the current state of the power equipment industry? What are the biggest challenges facing it today?

The industry has been facing many challenges in recent years. With domestic power equipment manufacturing capacity at more than 30 GW, the industry is fully capable of meeting the country’s requirements. During the past three years, the average power project awards stood at less than 9 GW per annum. This was against an annual ordering rate of 25-30 GW during 2007-10. These two factors have resulted in the underutilisation of manufacturing capacities, locking of capital and spiralling of project costs. This is the biggest challenge that the industry is facing today, in addition to the shrinkage in demand due to various factors.

Has there been an improvement in equipment orders in the past year?

During 2015-16, BHEL booked the highest orders in the past five years. Ordering activity in the sector is gradually picking up, which is led by the government sector. Some of the stressed projects have been revived. With the economy and the sector picking up, we are hopeful of an improvement in order inflows in the coming years.

What are your expectations with regard to equipment orders for the power sector in the next one to two years? What will be the key business opportunities for equipment providers?

During financial year 2016, we booked orders for over 9 GW of projects. Looking at the tenders where we are favourably placed, we expect the momentum to continue. We are also expecting the bidding process for ultra mega power projects (UMPPs) to commence shortly. The government is laying special emphasis on replacing 30 GW of old and inefficient sets with supercritical sets. New emission norms for new and existing power plants also represent a business opportunity. Another significant development is that the issue pertaining to the civil liability of nuclear damage has been clarified. Thus, investment in the nuclear segment is expected to gain traction.

What have been the significant business highlights for BHEL in the past year?

Last year, the overall subdued business environment affected the financial performance of the company, but despite the challenges, it achieved some outstanding benchmarks, which are a reflection of the company’s strong fundamentals.

With our unyielding focus on execution, the company achieved an unprecedented feat in the execution of projects by commissioning/synchronising 15,059 MW of power generation equipment, up by 26 per cent over the previous year. This includes capacity addition by utility projects aggregating 13,061 MW, up by 23 per cent against the capacity addition target set by the Ministry of Power for BHEL. All the hydroelectric power projects that went onstream in India, totalling 810 MW, were commissioned by BHEL. With this, the worldwide installed base of power generating equipment supplied by BHEL has exceeded 170,000 MW.

We also booked orders worth Rs 437.27 billion, the highest in the past five years, with 42 per cent growth over 2014-15. We also filed 477 patents and copyrights, the highest ever in a year, enhancing our intellectual capital to more than 3,000 patents and copyrights filed.

What are some of the promising and relevant new technologies that BHEL plans to introduce in the Indian market?

BHEL’s focus on innovation-led strategy is one of its greatest strengths. In the more than five decades of our existence, we have built strong engineering and technology capabilities. From being a dominant player in the subcritical thermal power plant segment with product offerings limited to up to 500 MW, the company has progressively introduced 660 MW, 800 MW and 1,000 MW units, based on fuel efficient supercritical technology. The company has strengthened its focus on indigenisation of supercritical technology to enhance its competitiveness. We commissioned the country’s first, highest rated and indigenously manufactured 800 MW boiler at Andhra Pradesh Power Development Company Limited’s Krishnapatnam 2 plant and the country’s first 660 MW indigenously manufactured supercritical set at NTPC’s Barh 5 plant.

As a further commitment to increasing efficiency, BHEL is working on the indigenous development of India’s first coal-fired advanced ultra supercritical power plant, along with the Indira Gandhi Centre for Atomic Research and NTPC. The main power plant equipment will be manufactured with advanced indigenous technologies that no other company in the world has developed so far.

We are equally focused on technology development in all our business verticals including power, solar, transmission, transportation, industrial products and water management systems. Our recent in-house developments are testimony to this. These include 765 and 1,200 kV ultra high voltage alternating current transformers and reactors, IGBT (insulated gate bipolar transistor) propulsion technology for locomotives and alternate current electrical multiple units,  static compensators (statcom) for industrial and grid applications, gas insulated substations up to 420 kV, hotel load converters 2×500 kV for the Shatabdi train (Chennai-Coimbatore), phase shifting transformers and 500/630 kW power conditioning units for solar photovoltaic (PV) generation.

What are the company’s key priorities and focus areas for the next few years?

Regaining sustainable growth is the immediate priority. We are putting in tremendous effort to achieve a healthy order book and revive stressed projects. We are also working towards maintaining an accelerated level of project execution every year. We are working with customers, financial institutions and the government to fast-track some of the stressed projects. I expect things to improve.

Our focus is on creating a balanced portfolio of products and services with an enhanced focus on the non-fossil fuel-based power and industry business. We are working on many fronts to enhance our business in the transmission, transportation and defence areas. To harness the emerging opportunities in the renewables sector, BHEL is in the process of augmenting its manufacturing capacity and enhancing its EPC capability for large-scale solar PV-based plants. The company is also working towards the expansion of its defence portfolio. In the power sector, we will continue to offer more and more energy efficient, fuel efficient and environment-friendly technologies to our customers. We have focused on enlarging the scope of our offerings and enhancing competitiveness by adding flue-gas desulphurisation systems, air-cooled condensers and water management systems to our portfolio. We are also in the process of expanding our offerings for environmental solutions.

Most importantly, we realise that the business environment has changed radically with new dynamics – competition, globalisation, climate change, technology disruption and newer regulations. These trends are replacing the traditional sources of our competitive advantage – market position, scale and legacy. So, I have set three priorities for BHEL – first, enhancing responsiveness to the needs of customers, employees and shareholders; second, strengthening the existing capabilities and building new sources of competitive advantage in the new scenario; and third, put in place drivers for sustaining long-term growth. I will relentlessly be working on these three strategy themes.

What is the company’s outlook for the power sector for the next few years?

Home to 18 per cent of the world’s population, India uses only 6 per cent of the world’s primary energy. The country’s energy consumption has almost doubled since 2000 and the potential for further growth is enormous. India’s economy, already the world’s third largest, is growing rapidly and policies such as “Make in India” are in place to press ahead with the country’s modernisation and expansion of its manufacturing. Various studies project power demand in India to reach 4 trillion kWh by 2030 – four times the current level – primarily driven by manufacturing growth, rural electrification and the replacement of diesel generators with grid power. In this backdrop, we are upbeat about the long-term prospects of the Indian power sector.

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