Positive move but cuts import options for local mfg: BHEL

In a reaction to the imposition of duty on power equipment by the Cabinet on Thursday, BHEL chairman BP Rao explains to CNBC-TV18 though the move is a positive for the manufacturing sector, it leaves few options for domestic manufacturers to import the parts that are not available in the country.

He also denies any link between the Cabinet's decision today and the divestment of the government’s stake in BHEL. Below is the edited transcript of the interview on CNBC-TV18. Q: L&T and BHEL rallied on account of the possibility of this decision being taken. Today, it's a reality. What's your reaction?
A: Whatever has been in the news regarding the approval of import duty by the Cabinet, it is the detail that is really important. This includes details such as the time from when the decision is going to be applicable. However, this is a positive move for the Indian industry.
The domestic industry is in line with the government's policy for the manufacturing sector, to increase the contribution of manufacturing to a large extent to the GDP. The power sector is contributing quite a lot to the manufacturing segment.
But I must clarify that Indian manufacturers will face difficulties in importing a few materials as they are not available in the country. So, the net advantage is only about 5% custom duty and 12% CVD and the 4% SAD. The real benefit for domestic manufacturers is only 4%, against 14%. So 10% gap is still present an advantage for foreign vendors. Q: Do you now expect the divestment process in BHEL to resume because a decision on this matter has been finally taken?
A: As far as I am aware, this is not linked to any divestment of the government shareholding in BHEL, but that’ the government’s call and I am not aware that there is any link with that. Q: I want you to respond to the criticism and the charges that for instance Khurana of Association of Power Producers (APP) is making that in order to protect domestic manufacturers like BHEL and L&T the government has actually sacrificed an already uncertain future of power producers?
A: I don't think it is true, it unfounded. I have already mentioned earlier, there are number of things, which have been said, that the tariffs will go up and the power plants will not be commissioned. All that is not correct and is unfounded.
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Also if you look the performance of the power plant in various states like Haryana  and West Bengal, you know how the state governments are performing in the absence of service support. I feel all these fears unfounded. Q: Can you give us a sense of your current order book position and also whether you will be indeed able to deliver on time if indeed you see more orders coming your way?
A: We have been delivering on time. Last year was the highest megawatt commission in the country and more than 50% has been contributed by BHEL in that.
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In the current year also we have such a project, about 20,000 MW is likely to be commissioned. Our capacity has now ramped up to 20,000 MW and similarly our other domestic manufacturers have already brought up the capacity. In fact the demand in the country is going to be less than the capacity available in the country. Therefore, there is going to be always a very severe competition for this. Q: Do you see a pick up as far as demand is concerned especially now that we understand that the government is working on a restructuring or a rescue package for discoms?
A: Yes that is a very good move to activate the sector because on the distribution side, if the revenues are better they will be able to buy power and there will be a demand for power. Steps are also being taken on improving coal supplies, the government has intervened in the FSAs issue also.
So, all these are positive steps, however, they have to get converted into new projects happening. Last year the new projects, which have happened, were only 4,000 megawatts vis-à-vis to the level of almost 25,000 megawatts earlier years.
So, this year I am expecting this could go upto between 10,000-15,000 megawatts, so that's a trend upwards. Also, the dues of SEBs will be getting securitized, so these steps are very good for really remobilising the sector. Q: You said that the divestment is not linked to this particular decision, but nevertheless let me ask you whether there has been any forward movement as far as the divestment in BHEL is concerned?
A: This will purely be government's decision. I am not aware of the any move in the that direction.