BHEL’s new fabrication policy upsets small vendors

May 4th, 2009 - 4:50 pm ICT by IANS  

By Venkatachari Jagannathan
Chennai, May 4 (IANS) A majority of over 500 steel fabrication units in Tiruchirapalli, one of the major engineering hubs in the country, are facing a new challenge as Bharat Heavy Electricals Ltd (BHEL), their main buyer, is shifting focus to bigger companies outside Tamil Nadu for fabrication works.

The Rs.27,500-crore BHEL, which plans to double its Tiruchirapalli-based boiler division’s capacity to 20,000 MW by 2012, is now depending on big vendors under its away-centre fabrication (ACF) policy to “execute projects faster”.

The mid-sized fabrication units in the area say they are worried over BHEl’s new move.

“Our members are worried by BHEL’s ACF. As a public sector unit it should support its small and medium-sized vendors,” said K.G. Muralidharan, president of BHEL Small and Medium Industries Association and managing director of an engineering firm.

With the country’s power sector slated to grow at an accelerated pace, BHEl has also started expanding its operations.

Last year, the boiler division of the company fabricated around 280,000 tonnes of steel and the expectation for the current year is around 450,000 tonnes.

BHEL general manager (outsourcing) A. Chandrababu said the company could not go ahead with its expansion plans unless it made deals with big vendors.

“The existing vendors are constrained by lack of finance and human resources to expand in line with our expansion. The business has become competitive these days and we have to execute our projects faster,” Chandrababu told IANS.

V. Sivamani, managing director of another mid-sized company, said the entry of big players posed a threat to them.

“Our fear is that big contracts would be garnered by ACF units, while the small players in Tiruchirapalli may be relegated to the level of sub-contractors,” Sivamani said.

Nearly 70 percent of around 300 mid-sized firms that are members of the association fall under the Rs.60 lakh-Rs.2 crore turnover category. These companies are not in a position to make major investments for expansion.

In Chandrababu’s opinion, the small fabrication units should form clusters to raise output and execute big orders.

Trichy Engineering Works chief executive V. Thiagarajan agreed: “Times have changed and now cluster approach may succeed. BHEL expects us to set up fabrication units in Nagpur, Bhillai and other places where its customers are located.”

“Fabricators may also look at forming joint ventures,” he added.

Tiruchirapalli offers ample opportunities for the fabrication industry. But most of the units in the city are dependent on BHEL, Thiagarajan said.

Allaying vendor’s concerns, BHEL’s Chandrababu said: “We will ensure the existing vendor capacity is kept fully engaged. We will get 200,000-tonne fabricated from Tiruchirapalli vendors and around 250,000-tonne from ACF units.”

Sensing the direction of the business tide, some fabricating units have already imported heavy cranes from China, spending around Rs.12 crore to undertake bigger contracts.

With private players like Larsen and Toubro (L&T) and BGR Energy planning to enter the power equipment segment, the fabrication industry is set to assume a bigger role.

The opening up of the nuclear power sector would also boost the prospects of the fabrication sector, industry officials said.

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