BHEL takes MHPA to court over faulty third unit

It has been learnt that the Bharat Heavy Electricals Limited (BHEL) which is an Indian Public Sector Undertaking (PSU) has taken the 720 MW Mangdechu Hydro electric Project to court by filing a case in the Delhi High Court in August 2021.

BHEL filed the case after it was made clear to them that the MHPA would be deducting or cashing in on Nu 200 to Nu 250 mn of their Nu 700 mn bank guarantee after the MHPA had to conduct extensive repairs to a BHEL supplied faulty third unit.

BHEL undertook the action to freeze the cashing in of the bank guarantee (BG) as the guarantee is from an Indian bank named Allahabad Bank.

Though the contractual agreement between BHEL and MHPA clearly says that any dispute between two sides will be adjudicated in Bhutan under the Bhutanese judicial system, BHEL ignored that clause and filed the case in Delhi High Court.

Surprisingly, despite there being a clear agreement on the area of jurisdiction the Delhi High Court accepted the case and froze the cashing in of the bank guarantee, but the court at the same time also kept extending the validity of the BG as it heard the matter.

MHPA has had to hire a lawyer in Delhi to defend its case in court and the main argument being made is that the jurisdiction is in Bhutan and not Delhi. The Bhutanese side also requested the Delhi High Court to make BHEL bear its legal expenses.

It is now becoming clear that the Delhi Court will not be adjudicating on the merits of the case due to the jurisdiction and has so far only frozen the BG.

A final order on the issue is awaited, after which it is hoped that the matter can be transferred to Bhutan where it can either be mutually resolved or be adjudicated in Bhutan through the Alternate Dispute Resolution tribunal.

The Foreign Minister Lyonpo (Dr) Tandi Dorji said that the court case was not expected but he said that both India and Bhutan are looking for an amicable solution without even having to go for arbitration.

Lyonpo said that Lyonpo Loknath Sharma has met his counterpart in India’s Power Minister in the recent Delhi trip and said that we should not go to court be it in India or Bhutan given that the two countries are good neighbors.

Lyonpo Loknath Sharma said what has happened is not healthy and the aim will be to resolve the issue amicably.

Lyonpo said the two governments are setting up a team with nominations from both governments to discuss the issue.

Background

The troubled third unit supplied by BHEL in Mangdechu has given problems right from the beginning itself. In September 2019 this unit applied the breaks on itself leading to the break pad finishing and a lot of carbonization that spread throughout the equipment.

The same unit again gave problems on 23rd May 2020 in the peak monsoon season and there was a shutdown till 27th June. This is where most of the Nu 1.3 bn in revenue loss happened in 2020.

A major failure and fire took place on the same unit in 21st September 2020.

The local Bhutanese team right from 21st September opened up the whole machine and started repairs to do a complete overhaul.

In the meantime, the Project, DGPC and Department of Hydropower and Power Systems decided that given the earlier issues in the turbines and the earlier failures of the third unit this time some short cut or temporary work will not do and so it called on BHEL to do some extensive work.

BHEL on its part was miffed that some of its payment coming to around Nu 300 mn had been held up and so some time was taken in discussions between Bhutan and BHEL.

Ultimately Bhutan released those payments to BHEL which now totals around Nu 7 bn. However, the Bhutanese team did not stop working and continued work to overhaul the third unit.

On 27th January BHEL was given a Nu 162 mn tender to fix the third unit and BHEL also joined in the repairs and the third unit was up by late July 2021.

Here a revenue loss of Nu 1.2 bn or more is anticipated since the third unit was out of action during the peak monsoon period.

After the repairs, the MHPA informed BHEL that it would be deducting the repair cost from the BG since the unit malfunctioned well within the defect liability period and so BHEL was responsible to pay for the repairs.

BHEL stuck to its old stance and blamed the Operation and Maintenance (O&M) staff for the faults and it also said that this was new work and the company should be paid for it.

However, what bolstered the case of the MHPA was that an independent committee constituted by the Mangdechu Project found that BHEL is responsible for the failure of the third unit.

The four-member Technical Committee has three members from India in the form of Power Systems CEO from India, a former Director Technical from the National Hydropower Corporation of India, a senior former MD of various projects in India and only one member from Bhutan in the former MoEA Secretary Dasho Yeshi Wangdi.

The Technical Committee categorically says that there is no lapse on the part of the O&M staff of MHPA and instead pointed to various manufacturing defects in the unit.

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