The Hindu Business Line : Cross-holding between NTPC and BHEL

PERHAPS all is not lost for the Finance Minister, Mr P. Chidambaram, stymied from raising Rs 2,000 crore through the disinvestment in BHEL because of political compulsions. There is another option. NTPC and BHEL may buy into each other's stock, say, 10 per cent from the government. Or, indeed, NTPC and BHEL, both power sector PSUs, can be encouraged to hold stake in each other. Both companies have enough financial resources to do this.

Apart from reducing the government stake in the two PSUs, without raising the hackles of some of the allies, the move will help the Government nourish the National Investment Fund (into which all divestment proceeds are to go) and build a corpus for social spending.

Also, such a move is not without precedent. Some years back, oil PSUs picked up stakes in one another. But there are better reasons for a structural integration between NTPC and BHEL, than just generating resources for the government.

Within the power sector, it is no secret that both companies view each other with some reservation, if not suspicion — a fact evident from private conversations with senior officials of the two companies. Sources in BHEL have often complained to this correspondent of an `I-know-better' attitude of NTPC. They say NTPC gives its product specifications so fine that it is almost like its taking over the design function of BHEL. When told of this, NTPC officials deny any supercilious attitude, but say they have a right to be demanding, because after all the power projects are NTPC's. The point here is not about who is right, but that the relationship is prickly.

A couple of instances illustrate the differences between the two companies. BHEL has experimented with Integrated Gassification Combined Cycle (IGCC) technology, with a 6 MW demonstration plant in Tiruchi, and claims to have gathered enough expertise to go in for a 100 MW prototype plant. The project would cost about Rs 600 crore and because it is a prototype plant, no banker will come forward with funds.

An idea was, therefore, mooted that NTPC and BHEL jointly put up the project, sharing costs, with the Union Government chipping in. NTPC dithered, wanting to access the IGCC technology from US-based companies. NTPC's contention was that when a time-tested technology was readily available, what was the point in going in for BHEL's unproven technology. But BHEL felt that American technologies were not suited for Indian coals.

The matter dragged on, but two years ago NTPC agreed to partner BHEL for the prototype project. However, till date there has been no progress. One view is that NTPC, which has to shell out much of the funds for the project, is getting too picky on technicalities.

The other instance relates to supercritical boilers. Even sources in BHEL admit that the company lost decades in getting and harnessing the energy-efficient supercritical technology. Therefore, when NTPC floated tenders for the first set of supercritical projects in the country, BHEL found itself scouting for overseas technology partners to even qualify to bid. Partnering in consortium costs money and BHEL's bid was out-priced by a Korean company, Doosan. The chasm between the two PSUs deepened, for BHEL believes that NTPC designed its tender conditions to nudge BHEL out. (BHEL has since entered into a formal tech-transfer agreement with Alstom for supercritical boilers.)

If the two companies have cross holdings, and therefore become `integrated', such differences would evaporate over a period. A closely-knit company will be in the country's interests too.

Differences apart, while many of BHEL's customers are able to give it contracts on a `negotiated basis', NTPC does so mainly through open competitive bidding, to be seen as transparent. But, as experts point out, negotiations can bring down prices better than a competitive bidding process, where the best bid is low only relative to other bids. Besides, a competitive bidding process is time and resource consuming.

BHEL bags about 85 per cent of NTPC's jobs, but the power generator has to select its vendor every time through a bidding process. While in the cases of externally-funded projects, NTPC may not have a choice but to go through global tendering, in other cases it could nominate BHEL as the vendor. But it does not do so, because the public sector company needs to be seen as not favouring anyone. However, if BHEL becomes a sort of an associate company of NTPC, nothing would be seen amiss in the power generator giving contracts directly to BHEL.

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