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(A Note From National Group On Power Sector)

Power equipment is very capital intensive. It is dominated by powerful Multinational Corporations (MNCs), which often form cartels. These MNCs are mostly in the G-7 countries and have the effective backing of the World Bank, OECD, OECF, their home Governments and financial agglomerates. The market for electrical power equipment in the developed countries is effectively protected; the market in the developing countries is therefore the major target for the MNCs. The only country having an indigenous manufacturing industry and not protecting it is India. BHEL is not even backed by its home Government. In fact, the World Bank studies on Capital Goods indicates that there is negative protection for BHEL. India offers one of the largest markets and also provides a base for the South Asian market which is at present the largest unprotected market. Indian market is one and half times the size of the combined market of 14 Middle East and West Asian countries put together; it is larger than the combined market of the eight East European nations or the combined market of 13 Latin American nations; it is larger than the combined market of 51 African nations; it is larger than the entire market of Western Europe excluding UK and Germany. Paradoxically, BHEL located in one of the largest markets and ranked 12th amongst the 15 odd comparable enterprises is faced with a recessionary situation. This is because the Indian market is intermediated by the source of financing. Bilateral credit imply import of equipment; multilateral credits imply international competitive bidding; credit from Germany explicitly stipulate import from Germany, Japanese credit is more discrete and ensures a reasonable share for the Japanese industry. Since the equipment is tailor made, specifications are often manipulated to make them suitable to only one or two manufacturers. Another device is to stipulate conditions of technical and financial performance. The pricing of power equipment is arbitrary and is manipulated by equipment manufacturers by various means. Inspite of meagre spending on R&D, it was possible for BHEL to remain technologically contemporary since BHEL was able to exchange the protected Indian market for technology. Now the MNCs have direct access to the Indian market where it becomes a competitor therefore, BHEL faces the prospects of technological autarky, ironically in the name of globalisation. BHEL is now compelled to form joint ventures where BHEL will essentially be providing cheap Indian skilled and unskilled labour with the other partner providing equipment and technology. Since the FIPP/IPP design their own stations and their own specifications, they would provide the equipment based on the standards most suitable to the equipment supplier. For example a foreign investor Gordon Wu intends to set up 16 machines of non standard 660 MW size. As a consequence, even if competitive bidding is made mandatory BHEL will not be able to quote. Also in case of political situation like economic sanctions and or nationalisation, there will be no access to spare parts. Due to non standard sizes even the possibility of copying the design for making spares will be eliminated since tooling will make the spares prohibitively costly. As a result of disinvestment, multiple ownership has created. The objectives of the various owners are often contradictory. Government ownership is asserted through Parliamentary and Executive control with social objectives overriding profit maximisation. The priority of the private owners is just the opposite. In a matter of time the private ownership of the disinvested equity will get concentrated; already Morgan and Stanly has about 12% share of BHEL's equity. Given the superiority of the MNCs in terms of technology and financial muscle, once this concentration reaches beyond 26% of the equity, the MNCs and their fronts would be able to exercise far greater control than the Government and a situation similar to that being witnessed in the BAT's attempt to take over ITC would become inevitable. Thus denied of market, technology, finances and lack of cohesion in managerial control enterprises like BHEL will effectively cease to remain Indian organisations serving Indian interests. They will then be resurrected as ancillaries of MNCs, who are desperately in need of a base for their Indian and South East Asian operations.