Monopoly supplier for 10,000 MW despite Bhutan’s efforts to get more players

The construction of Bhutan’s 10,000 MW hydropower projects is marked by competition between Indian construction giants fighting for price and quality.

However, the projects will continue to have only one monopoly supplier of electro-mechanical equipment for the foreseeable future, Bharat Heavy Electricals Limited or BHEL, which is an Indian government owned company.

Electro-mechanical equipment include runner or turbine and generators which cost between Nu 60 to Nu 90 million each.

An attempt to break this monopoly was made by a Bhutanese delegation led by Lyonpo Khandu Wangchuk which proposed that competitive bidding for electro-mechanical equipment be allowed as there are other qualified Indian companies.

The Indian delegation did not agree saying that both countries should stick to the bilateral agreement on the Punatsangchu-II project that allow only companies from India and Bhutan to compete.

It was also pointed out by the Indian side that though there were Indian Companies like Alstom and Andritz these were yet to have their hydro equipment run successfully for more than three years in India. Thus not fulfilling a technical criterion.

Alstom and Andritz are international electro-mechanical giants that set up shop in India in the last few years incorporating their branch companies as Indian companies.

This was during the February 3rd, 2012 8th Empowered Joint- Group (EJG) in New Delhi.

BHEL is supplying equipment worth Nu 11 bn to Punatsangchu-I while it will supply equipment worth             Nu 9.5 bn to Punatsangchu-II.

This development comes in the backdrop of concerns among Bhutanese officials that BHEL had supplied a damaged runner in Tala and also had failed to provide automated control systems there.

Sources had also said that BHEL being a government company took longer to follow up with more bureaucracy and service issues.  There is also concerns on BHEL’s ability to supply high head runners where there is more pressure on the runners.

However, what has surprised many is the fact that while the Indian government allowed Alstom to win a 2,000 MW project in Arunachal Pradesh the same Indian Incorporated company is not being allowed to compete with BHEL in Bhutan.

A Bhutanese businesswoman on the condition of anonymity said, “This is sheer hypocrisy that while they award these companies with big projects in India these same companies are not allowed to compete in Bhutan.”

Also, while the bilateral agreement forbids third country partners BHEL’s imports its runners from Korea.

The BHEL representative in Bhutan, A M Gupta said, “With the eligibility criteria, any eligible company can participate but under these criteria BHEL is the only eligible company for Punatsangchu II and Mangdechu.”

In reality, with tough technical requirements like three years operation of runners most Indian companies will be unable to compete as BHEL had been supplying runners to Bhutan since the inception of Tala.

Dasho Sonam Tshering, however, said: “We do not want projects to be experimental grounds by allowing companies with lower quality of technical equipment who offer lower prices. The concern with having lower eligibility criteria is that we might land up compromising the technical aspects.”

With such a monopoly the issue of getting the right price is a concern, especially since Bhutan has to take a 70% loan on its projects considerably increasing the burden since Tala.

On competitive pricing, Dasho Sonam Tshering said, “It is not likely that Bhutan would be losing out because the project authorities are the ones to provide cost estimate of the machines and then negotiate accordingly. They would know the cost as it is quite easy to find out in the market.”

“It is necessary for us to prepare our estimate so that we don’t get over charged or undercharged which might be very expensive in the long run if the machines do not perform,” he added.

Some Bhutanese officials still harbor hope that for the future projects other Indian companies may be allowed to compete as they get experience.

However, this may be more difficult in reality.

Managing Director of PHPA, R.N Khazanchi said, “Even in the case of the 2,000 MW Subansari project in India it was not the Alstom India that won the bid but Alstom France.”

He, however, said that Alstom India may have some chance in the future to compete as out of the 8 units in Subansari they may have installed a couple.

“The three-year rule is not forever but it can be relaxed a bit as long as the company is technically capable and proven which no one else is apart from BHEL right now,” said Khazanchi.

He said that both countries had decided to go for BHEL which was a proven company and the only one that could meet the technical criteria.

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