The civil strife in Syria has affected state-owned Bharat Heavy Electricals Ltd (Bhel), with work on the 400 megawatts (MW) Tishreen power project, awarded to India’s largest power generation equipment maker, coming to a halt.
The €300 million engineering, procurement and construction contract was awarded to Bhel by Syrian state-owned Public Establishment for Electricity Generation and Transmission (PEEGT) in October 2009 and was to be completed within 33 months.
“There is a problem in Syria. We can’t do anything about it till the situation improves,” a Bhel executive said, requesting anonymity.
The continuing spiral of violence in the civil war-torn country has claimed about 70,000 lives and resulted in one million refugees since 2011. Syrian President Bashar al-Assad has been accused of human rights violation, an allegation that Damascus denies.
“The project is stuck. We have already received around Rs.400 crore in payments from them and our equipment is at the project site. We can only hope for the resolution of the conflict for the work to start,” said another Bhel executive who also didn’t wish to be identified.
While such events exemplify the risks of doing business overseas, particularly in an unstable political environment, it comes in the backdrop of an order slowdown for Bhel. Also, Bhel’s customers owe it around Rs.20,000 crore in overdue payments.
The project was being constructed with the help of the Indian government. India has offered a line of credit of $240 million to the Syrian government for financing the Tishreen project. A line of credit is a specified amount of money a borrower may obtain without special checks, and offers concessional loans. It’s been used by governments around the world to shore up influence.
PEEGT couldn’t be immediately contacted.
Bhel’s orders rose 43% to Rs.31,528 crore in the last financial year but it secured no orders from non-state firms. The company has orders worth Rs.1.15 trillion on its book. Bhel had received orders worth Rs.60,507 crore in 2010-11 and Rs.22,096 crore in 2011-12.
Slowing economic growth, high borrowing costs and delays in securing regulatory approvals have hit many infrastructure projects in India, including power plants, hurting the ability of their promoters to repay creditors and vendors. Power project developers have been struggling with interlinked issues such as fuel shortages, delays in signing fuel-supply agreements and long-term power purchase agreements. This has forced Bhel to relook its target of achieving Rs.1 trillion revenue target by 2017.
“Execution of higher proportion of ‘at-risk’ orders to impact revenue growth ahead,” Credit Suisse India Research said in an 8 April report on Bhel.
Bhel reported an 8% drop in net profit for 2012-13 from the previous year because of a slowdown in orders.
For the fiscal year ended 31 March, the company reported a profit of Rs.6,485 crore, compared with Rs.7, 040 crore in the preceding year. It registered a 1% increase in revenue to Rs.50,015 crore in the last fiscal year.
“With Bhel heading into a structural downcycle over the next few years, unless the government initiates and implements coal production and evacuation reforms, Bhel is likely to witness its earnings, cash flows, RoE (return on equity) and margins falling each year, going forward,” the Credit Suisse report said.
Courtesy: live mint
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