Bhel SMEs seek policy changes to survive

Once the engineering cluster came up in 1968, about 500 ancillary units, all of them micro, small and medium enterprises (SMEs) started functioning. These provided direct employment to over 30,000 people and to one lakh labourers indirectly. But, most of the existing ancillary units are on the verge of closure due to reasons such as a faulty procurement policy, compulsory onsite dispatch of fabricated commodities and the exemption of excise duty for the boilers. 

In the last three years, the situation worsened with 117 units shutting down while 70-odd are now on the verge of closure. The failure to invest on the purchase of raw materials after BHEL had introduced a scheme of Outsourcing with Vendor Materials (OVM) in 2011 and thereafter, has impacted these units. With new restriction and regulations in place, the units which were running have been forced to undertake works that mean using the existing capacity to a minimum of 10 per cent. Also, many have switched over to concentrate on works received from other sectors. 

“In the past, BHEL purchased materials and distributed to the ancillary units thereby ensuring quality. But now, with the SMEs having to purchase the materials prescribed by BHEL, would naturally cost more. BHEL could get the materials on a lower price owing to bulk orders whereas ancillary units would have to purchase the limited quantum for the price fixed by the vendors,” laments MI Samy, Director, Fabrichem (Trichy) Pvt Ltd, who had a roaring business but now has to remain content with a minimal order. 

Appealing for a change in the purchase policy, he said such an approach could revive the dying units and maintain uniform quality. Out of the total 500 units, the closed down units apart, 200 units have been working less than 10 per cent of its capacity while 50 to 60 units have switched over to windmill fabrication works. There are 12 units which have been auctioned for non-performing assets.  

Earlier, goods made by the SMEs were delivered at the Tiruchy campus of BHEL. Eventually, BHEL transported it along with internal production to the sites. Now, SMEs  which do not have the logistics capacity to transport goods across the nation are forced to send their production teams to sites. “The SMEs have to face the risk of reaching the product on sites and fearing this issue, many units have opted for closure,” Samy said. 

The capital of the SME was blocked for additional time until the goods reach the sites. Most times, the transportation cost was much higher than the transportation cost spent by the SME. Also, when a project of BHEL faced difficulties on sites, BHEL asked the SME to stop production or hold up delivery. The SMEs having invested bank funds for the order were feeling suffocated as the payments were withheld for projects  on “hold,” he claimed. S Ashok Sundaresan, President, BHELSIA, says the procurement policy of BHEL is non-transparent and weakened the SMEs, which resulted in delayed supply. “Every organisation that procures items, prepares an Internal Estimate Price (IEP) for that item. This price is disclosed in the tender. Departments like Railways, Baba Atomic Research Centre, CPWD disclose their IEP in their tender. This IEP quoted in the tender acts a deterrent or a defence for the organisation against non-serious quoters, under-quoters, and people planted by competitors to spoil the procurement process,” Ashok pointed out. 

“Whenever, quotes are received significantly below this IEP, the tender management committee evaluates the bids and eliminates unrealistic bids, since orders placed on such unrealistic bids end up as failures and spoil the project. BHEL does not disclose this IEP in the tenders,” he elaborated. 

Despite repeated representations and recommendations in the annual meetings by the BHELSIA nothing fructified. The SMEs were closing down. Also, labour unrest was growing and banks were getting jittery. Skilled labourers were migrating to sectors such as agriculture and construction. Though it has taken years to build skills into world-class welders, the skillsets were now going waste, entrepreneurs lamented. 

However, BHEL officials, citing these to be problems arising out of government policy, say they were only following orders.