Management Discussion and Analysis
(Annexure 'A' to Directors' Report)
CESC Limited ('CESC' or 'the Company'), is the flagship company of the RP-Sanjiv GoenkaGroup (the 'Group'). Registered in 1899, it is a fully integrated power utility engaged inthe generation and distribution of electricity across 567 square kilometres of licensedarea in Kolkata and Howrah, West Bengal. It supplies safe, cost-effective and reliableelectricity to over 2.8 million customers - both consumers household and commercialestablishments.
CESC spearheads the Group's interest in the power sector. Its subsidiaries are activein the organised retail, business process management and infrastructure sectors as a partof the strategy for diversification and long-term growth.
This chapter presents an overview of the energy sector as well as details ofoperational and financial performance of the Company. It also discusses importantinitiatives taken by CESC and its subsidiaries during the year to achieve its growth andperformance objectives.
Global Energy Outlook
The global energy scenario is undergoing structural changes as new energy supplyoptions reshape the idea of distribution of resources. Major importers of energy such asthe United States of America are becoming exporters, whereas major exporters aretransforming into important centres of demand growth. As far as demand for energy isconcerned, emerging economies continue to drive the global markets. According to the InternationalEnergy Outlook 2013, world primary energy consumption under the 'Reference Case'1will grow by around 296 quadrillion Btu between 2010 and 2040 - at a CAGR of 1.5% (ChartA). As expected, the demand in Non-OECD countries will grow much faster, and will accountfor 86% of this increase in energy demand.
More importantly, over 50% of this increase will come from China and India, which alongwith the US, are the top three consumers of energy in the world. Energy demand from Chinaand India is expected to surge during this period to 275 quadrillion Btu (Chart B). As aresult, by 2040, these two countries will account for 34% of global energy demand, up from24% in 2010.
1The 'Reference Case' projection is a business-as-usual trend estimates, givenknown technology and technological and demographic trends.
Fossil fuels - coal, oil and gas - are the dominant source of energy, meeting around84% of the energy needs. While this dominance is expected to continue, their share isestimated to come down to around 78.5% by 2040. However, recent developments in the US oiland gas exploration, and indeed similar trends in some other countries, pose freshquestions on the pace of this decline.
The situation ofthe power sector, which accounts for over 50% of the increase in globalprimary energy demand, is not much different. Coal remains the leading fuel for generatingelectricity, accounting for 40% of total power generation, followed by gas, hydro andnuclear. More importantly, China and India account for 89% ofthe projected growth incoal-based generation during the period. As shown in Chart C, this dominance of coal isexpected to continue, although its share will come down in the long term with policiesfavouring the use of other renewable sources such as solar, geothermal and wind.
Overall, it is quite clear that even as coal continues to be the primary fuel for thegeneration of power, renewable sources will be the biggest beneficiary in the medium tolonger term. Hydro and other renewable sources will account for around 25% ofthe totalgeneration as compared to 35% from coal. To that extent, securing supplies of coal andbuilding technology capabilities in the use of renewable sources of energy - especiallywind and solar - will continue to dominate the global energy agenda in the future.
India's Power Scenario
During 2013-14, Indian power sector added 19.7 GW, which was in line with the targetsset for the year. The addition of transmission and distribution infrastructure was alsosatisfactory. With these capacity additions, generation capacity in India stood at 243 GWat the end of the year. Table 1 gives the details.
Table 1: Power Generation Capacity in India: 2013-14, By Fuel Source
|Fuel ||MW ||% Share ||Growth (%) |
|Coal ||145,273 ||59.7% ||11.6% |
|Gas ||21,782 ||9.0% ||8.3% |
|Diesel ||1,200 ||0.5% ||0.0% |
|Thermal ||168,255 ||69.2% ||11.0% |
|Nuclear ||4,780 ||2.0% ||0.0% |
|Hydro ||40,531 ||16.7% ||2.6% |
|Others ||29,463 ||12.1% ||7.0% |
|Total ||243,029 ||100.0% ||8.8% |
Source : Central Electricity Authority
Given that coal accounts for 59.7% of the total generation capacity in India, thebigger worry for the power sector in recent times has been availability of coal, not justfor the new projects, but also for existing plants. At the end of the year, 21 thermalpower plants out of 100 plants for which such data are available had a critical coal stockof less than seven days.2 Out of these, 13 plants had coal stock of less thanfour days. The average coal stock for these plants was 14 days compared to the normativestock of 22 days.
Even with recent addition of capacities, the shortfall in generation and transmissioncapacities is far from over. During 2013-14, the all-India peak demand for power was 136GW of power, whereas the actual power met was 130 GW - an all-India shortfall of 4.5% (seeTable 2). The southern region was the worst affected in terms of power availability,closely followed by the northern and north-eastern region. The shortfall in total supplyas compared to total demand of power was not much better at 4.2% during the year.
Table 2 : Power Demand and Deficit: 2013-14
|Northern ||45,934 ||42,774 ||-3,160 ||-6.9 |
|Western ||41,335 ||40,331 ||-1,004 ||-2.4 |
|Southern ||39,015 ||36,048 ||-2,967 ||-7.6 |
|Eastern ||15,888 ||15,598 ||-290 ||-1.8 |
|North-Eastern ||2,164 ||2,048 ||-116 ||-5.4 |
Sources: Central ElectricityAuthority
By 2016-17, demand for power is expected to increase to 1,403 billion units3- up from 998 billion units in 2012-13. This assumes energy conservation and demand-supplymeasures, without which demand is expected to be even higher. Accordingly, the TwelfthFive Year Plan (2012-2017) estimates an additional capacity requirement of 88.5 GW, 53% ofwhich is expected to come from the private sector - up from 19% in the Eleventh Five YearPlan. This will need to be complemented with adequate transmission and distributioncapacities.
Overall, the power sector in India is facing a difficult environment. Although privatesector investments in generation has brought about fresh capacities, the industry isfacing considerable risks in terms of availability of fuel. Equally, several majordistribution utilities have been making losses, which has resulted in scaling down oftheir purchases.
There is an urgent need to address the policy challenges - be it availability of coaland gas, or mounting losses of distribution utilities - which have cascading effects onthe health and outlook of the entire sector. Also, greater focus needs to be accorded toalternative and renewable sources of fuel such as hydro, solar and wind to have a balancedportfolio of generation capacities in the longer term.
CESC's existing operations in the power sector comprise generation and distribution ofelectricity to its 2.8 million customers across its licensed areas in Kolkata and Howrah,West Bengal. For its existing operations in Kolkata, the demand for power is quitevariable, with the Company registering a peak period demand higher than 1,900 MW and alean period demand as low as 500 MW. During peak demand period, in addition to its owngeneration, CESC also purchases power from the state and national power grid. Conversely,during the lean period, it exports surplus power, when possible.
One of the key achievements of CESC asan integrated power utility has been its abilityto provide its customers with reliable and uninterrupted power supply. This has been madepossible due to relentless efforts encompassing all aspects ofthe business - be itgeneration, demand-supply management or distribution. These are discussed in greaterdetail in the subsequent sections on 'Generation' and 'Distribution'.
2 Source : Monthly Review, March 2014, CEA
Source : Twelfth Plan (2012-2017) Document, Planning Commission
During the year, through its subsidiary, the Company commissioned 600 MW project inChandrapur, Maharashtra. Another 600 MW project in Haldia, West Bengal, is in advancedstages ofconstruction and is expected to be commissioned during 2014-15. These have beendiscussed in the section on 'New Projects and Initiatives'.
During the last few years, CESC has placed special emphasis on building a customercentric organisation through introduction of customer friendly processes and deployment oftechnology. Significant efforts have also been made in the area of Human Resources tobuild an organisation that can deliver on the growth aspirations ofthe Company. These havebeen covered in greater detail in subsequent sections on 'Customer Service' and 'HumanResources'.
CESC operates four generating stations: Budge Budge, Southern, Titagarh and NewCossipore, which cumulatively produce 1,225 MW. Three of these stations (Budge Budge,Southern and Titagarh) use pulverised fuel (PF) as the primary energy source. In spite ofthe different age, capacity and technologies of the four generating stations, CESC hasachieved the best possible results, some of which are nationally and internationallybenchmarked.
Output from a power plant is measured by plant load factor (PLF) which is the ratio ofactual power produced to the maximum power producing capacity. PLF for CESC's powergenerating stations has been consistently better than the all-India average for thermalplants. CESC's composite PLF ofthe three PF plantswas 89.34% in 2013-14, versus 86.41% inthe previous year. These are distinctly superior to the national average PLF of 65.6%during 2013-14.
To achieve this higher PLF, the Company has taken various steps such as fullutilisation of designed limit, benchmarking with best-in-class power plants, integratedoperation and maintenance planning.
Budge Budge comprises three units of 250 MW each. During 201314, Budge Budge generated5,989 MU (million units) of power, with a PLF of 91.16%. The plant availability factor(PAF) was 96.17%.
Southern comprises two units of 67.5 MW each. During the year, it generated 1,040 MU ofpower, with a PLF of 87.90% and a PAF of 95.56%. Titagarh
Titagarh comprises four units of 60 MW each. During the year, it generated 1,776 MU ofpower, with a PLF of 84.48% and a PAF of 96.59%.
The Company's generating station at New Cossipore was established way back in 1949 andhas a capacity of 100 MW. Yet, the 64-year old station generated 125 MU of power with aPAF of 83.79% during the year, thus extending reliable support to the system during peakhours.
During the year, the combined generation for the PF stations was 8,805 MU. The overallcombined availability of these stations was 96.19%. The entire maintenance planning hasbeen structured to reduce: (a) forced outages; and (b) capital overhauling time.
To reduce forced outages, CESC adopts a number of measures. These include (i) detailedanalysis of each failure, (ii) taking appropriate corrective actions or processmodification to eliminate these in the future, (iii) mean time between failure (MTBF)analysis and benchmarking, (iv) time bound action plans, (v) periodic inspection schedulesfor all units, and (vi) adopting integrated condition monitoring of dynamic equipment withsophisticated hardware and software.
To reduce the capital overhauling time, CESC has a 'round the clock maintenance' regimeand modular replacement of components. The time saving technique of using a forced aircooling system to cool down the turbine in a very short time has also yielded satisfactoryresults.
Energy Conservation and Quality
CESC's generating stations have also excelled in energy conservation. To achieve this,the Company regularly undertakes technical enhancements, following best practices andimplementing recommendations of external energy auditors.
During the year, installation of variable-voltage, variable-frequency (VVVF) controlsfor ID fans was completed in all four units at Titagarh and PA fansin one of the units ofBudge Budge Generating Station. Apart from this, several on-going energy conservationmeasures were undertaken across locations. These included :
Reduction of losses in compressed air systems and use of energy efficientlighting and equipment such as heaters, motors and measuring instruments.
Refurbishment of boiler feed pump, condensate extraction pumps and coolingtowers.
Thermo-graphic studies of drains/pipelines of boilers and turbines; and checkingof boiler feed pump re-circulation.
At CESC, energy conservation initiatives go beyond the core business activities. TheCompany had taken up the task of converting CESC House - its corporate office - into aLEED certified Green Building under the existing building category. During the year, CESCHouse has bagged the first runner-up position under the commercial building category, inthe CII-NDTV-Grundfos Mission Energy Challenge. This award recognizes the commitment ofCESC towards energy conservation.
All PF generating stations of CESC are ISO 9001:2008 certified in respect of QualityManagement Systems. Various quality projects are undertaken and successfully implementedon a regular basis. During the year, the Company extended the coverage of Kaizen. In2013-14, 216 improvement projects were implemented under this initiative, of which sevenwere adjudged as having high impact. Overall, the programme has been a success and hasachieved participation of all levels of employees. Winners are awarded on a monthly basisfor encouraging the participants and promoting the Kaizen culture.
At CESC, protection ofenvironment is an integral part ofthe power generation process.The Company has laid out an 'Environment Policy' which governs its activities. Apart fromensuring compliance with all applicable legal and regulatory requirements, it has set morestringent in-house standards, and devised new and improved processes to achieve these. Ithas also adopted state-of-the-art technologies and the performance is closely monitoredfor assessment and rectification.
All PF generating stations of CESC are ISO 14001:2004 certified in respect ofEnvironmental Management Systems. The Company continuously explores ways and means bywhich pollutants like suspended particulate matter (SPM) emitted from these PF stationscan be reduced and maintained below the prescribed limits. The boilers of the 64-year oldNew Cossipore generating station have been retrofitted with wet electrostaticprecipitators (ESPs) in order to reduce the SPM level - the first of its kind in any powerplant in the world. All three PF stations have attained 'zero effluent discharge' statuswith 100% recycling of effluents. In Titagarh, a 'root zone treatment system' has beeninstalled for treatment of sewage; and the treated water is reused for gardening. AContinuous Ambient Air Quality Monitoring Station has been installed at the Budge BudgeGenerating Station.
Ash is another area of environmental concern, the more so because of high ash contentin Indian coal. Since 2000, CESC has achieved 100% utilisation of ash in an environmentfriendly manner. At the generating stations, energy conservation projects are regularlyimplemented to reduce the coal usage and thus minimise carbon dioxide emissions. Few suchprojects have been registered and approved as CDM projects by CDM Executive Board underthe UNFCCC. Budge Budge was the first thermal power plant in the world to achieve suchdistinction.
CESC's environment friendly status has been acknowledged over the years by thegovernment and leading agencies working in this area. During the year, CESC's generationdivision received the Zero Waste Award for Environment Leadership (2013) byindiagreatest.com. All three PF generating stations ofthe Company were recognised at theAnnual Greentech Environment Award (2013). Budge Budge and Southern units were recognisedunder the Gold Category whereas Titagarh unit was recognised under the Silver Category.Budge Budge unit was also the first runner-up at the ICC Environment Excellence Awards(2013).
Safety and Health
CESC maintains high standards of industrial safety practices across its generatingstations. The Company has a safety cell with 15 dedicated officers from differentfunctional areas to ensure safe work practices across the organisation. It has a 'SafetyPolicy' in place and carries out regular safety and occupational health audits throughinternal safety committees, safety cell and external audit agencies. Recently, the Companyhas taken an initiative to undergo strategic training programmes for leadership people onsafety with international consultants, so as to help bringing a culture for safety withinthe organisation and to incorporate necessary changes in process.
All PF stations are OHSAS 18001: 2007 certified for occupational health and safetymanagement systems. In addition to following prescribed safety practices, use of personalprotective equipment as well as proper tools and tackles have been made mandatory. Safetydays are observed in all major establishments ofthe Company and many other programmes areregularly carried out to promote safety awareness among employees. These include classroomtraining, mock drill and demonstration as well as publishing safety manuals, magazines andaudio-visual aids. An internal magazine named 'Safety Net' is published for distributionamong all employees of the generation division.
The Company ensures that all incidents are fully reported. All such cases arethoroughly analysed to find the root causes and corrective and preventive actions areinitiated for implementation to avoid recurrences. Systems are also in place to encouragereporting of 'near misses' for proactive identification of potential hazards and enablingpreventive actions. At the same time, penalties are imposed if instances of nonconformitywith safety standards are reported. As a result of these initiatives, accident rates havereduced substantially over the last few years. During the year, Titagarh unit received theGreentech Safety Award (2013) in recognition of its safety record and practices.
As part of the occupational health initiatives, CESC conducts health check-up for itsemployees including employees of contractors engaged in generating stations. The Companyoperates 30 dispensaries across the organisation with doctors and pharmacists manningthese dispensaries. Best-in-class medical facilities including diagnostic clinic forpathological tests are also available to the employees alongwith tie-up with majorhospitals.
CESC's customer profile reflects growing system demand, and the need for consistentlyhigh quality supply with the increase of customers in the High Tension (HT) and MediumVoltage Alternating Current (MVAC) segments. Over the years, CESC has been successful inachieving a load shedding free environment for its customers. During 2013-14, the Companymade further progress in this regard, with Low Tension (LT) faults and restoration timescoming down further. Since 2007-08, when the Company embarked on its journey to strive fora load shedding free environment, LT faults and restoration times have come down by 39%and 45% respectively.
These improvements have been due to concerted efforts aimed at upgrading thedistribution infrastructure and processes for enhancing the quality and security ofsupply, reducing downtime and overloads. These include commissioning of new distributionstations, augmentation of transformation capacities, establishing ring-main connectivity,and substantial addition / replacement of the underground and overhead cable network alongwith the use of modern equipment. CESC is also in the process of carrying out specialprojects to upgrade its distribution network, enhance the network capacity and supplyreliability for efficient handling of the demand growth. These have been detailed inAnnexure 'D' to the Directors' Report.
New initiatives taken during the year include :
Installation of modified LT pillar boxes which have made supply restorationsmore efficient
Thorough renovation of meter boards and installation of circuit breakers incongested areas such as markets and slums to ensure public safety.
Installation of spaced aerial cable in selected 33kV network
During 2013-14, CESC put together a comprehensive master plan for development of itsdistribution network and infrastructure taking into account the long-term demand forecast.This includes a three-year short term plan up to 2016-17 as well as a 10-year master planup to 2023-24. This strategic plan also takes into account the philosophy andrecommendations of Singapore Power for achieving the following targets:
N-1 contingency provision in lines and substation / distribution stationtransformation capacity.
Development of 220 kV primary distribution network and bulk power handlingcorridors.
Installation of Indoor GIS Substations and conversion of outdoor 132/33kVsubstations to indoor GIS substations under T&D asset space consolidation programme.
Operational simplicity and load management at lower level with minimumswitching.
During the year, a study on multi-point synchronization has been carried out by PRDCand recommendations ofthe study have been jointly reviewed with WBSETCL for development ofthe interface import network. A study on the long-term system improvement plan is beingcarried out separately by PRDC which will also cover perspective power import plans fromWBSETCL / PGCIL. Similarly, studies on assessment of distribution loss are being carriedout by TERI for 6/11 kV and downstream system, and PRDC for the entire distributionnetwork based on which further detailed improvement plans will be formulated.
In recognition of its efforts in the area of distribution, CESC received severalrecognitions and awards during the year:
'Top lnfrastructure Company - Power Distribution' Award by Dun & Bradstreet.
'Innovation in Distribution' Award by lndian Chamber of Commerce
'Best Performing Power Utility - 'Urban' Award by Enertia'
Energy conservation and reduction of losses in the distribution network is a key areaof focus for all power utilities. During 2013-14, a number of measures were adopted thatcontributed to the ongoing efforts to reduce ATC losses and increase energy conservation.Apart from the benefits from continuous upgrading ofthe distribution infrastructurediscussed in the previous section, other initiatives include: reactive power compensation,standardisation to higher rated underground cables, regular energy audits, progressivevoltage upgradation of distribution lines, energy efficient distribution transformers andinclusion ofthe energy efficiency metric in bid evaluation criteria for awardingcontracts. These have been detailed in Annexure 'D' to the Directors' Report.
The impact of these measures is apparent. CESC's ATC losses compare favourably with thebest in the industry and are significantly lower than the national average. With theCompany's continued focus on these measures, it is expected that the distribution networkwill consistently deliver high quality and reliable supply of power, while simultaneouslyenhancing operational efficiencies.
Use of advanced technology-based systems and solutions has become an on-going processat CESC and has helped it to mitigate damage, significantly reduce downtime and improvereliability of the system network. However, a more important development in recent timeshas been increase in the use of technology in automation of processes, monitoring ofdistribution infrastructure and applications in customer service. Major initiatives inthis regard during the year were :
Introduction of Smart Meters : These enable availability of metering datato the customers where supply is provided at remote locations. 150 such meters wereinstalled during the year for telecom towers. Another application of such meters isproactive supply restoration in the event of a power failure even before customer lodges acomplaint. These will soon be deployed at 150 important installations.
Development of SMS alert units : Low cost modular microprocessor basedunits with GSM/GPRS communication cards and necessary software have been developed tocater to a range of applications. These include alerts for supply phase outages atimportant LT consumer premises, alerts during operation of circuit breakers in RMUs and atwo-way system for indicating operation of fault passage indicators and remote resettingofsame.
Automated Meter Reading (AMR): Coverage of AMR increased significantlyduring the year: 100% of HT (1,700) and LTCT (6,000) consumers and 60% of distributiontransformers (4,300). The coverage is being expanded in a phased manner to other bulkcustomers such as housing projects with over 20 metering points. The meter data isavailable in a browser based 'Meter Data Management System' (MDMS) for viewing loadingstatus and breakdowns to help take prompt corrective actions.
Modern Supervisory Control & Data Acquisition (SCADA) Systems : TheCompany embarked on a major drive to install and commission SCADA systems at unmanneddistribution stations. 33 such systems were successfully commissioned during the year.These provide a reliable method to remotely monitor and control such stations and help inrapidly restoring power supply in affected areas.
Award of USTDA Grant for Feasibility Study on 'Smart Grids':
The US Trade and Development Agency (USTDA) had awarded a grant to CESC Limited tofinance a feasibility study for recommending appropriate Smart Grid technologies and pilotprojects across the electricity distribution network. This study was carried out duringthe year.
As a utility company that services over 2.8 million customers, establishing andmaintaining high levels of customer service is the overarching objective of CESC. In ourlast year's report, we had shared information on wide ranging measures initiated by theCompany to redefining the customer relationship management (CRM) function at CESC.
Built on the principle of customer centricity, these measures have enabled significantimprovement in customer satisfaction and paved the way for more significant interventionsthrough deployment of technology and process-based improvements in the area of customerservice during the year. The key developments during 2013-14 are discussed below:
New Connections : CESC added around 1.4 lakh customers during 2013-14. Theaverage time taken to provide a new connection came down from 15 days to 12 days. This wasmade possible by a remarkable reduction in inspection-related delays throughmulti-skilling and computerisation of the entire inspection procedure. The Company alsointroduced a SMS-based system to inform the inspection andjob execution dates toprospective customers beforehand which increased the efficiency ofthe process. In anothercustomer-centric initiative, the Company has introduced the concept of a 'Welcome Kit' fornew customers which contains information on meter reading, billing and payment channels,safe use of electricity as well as other value added services such as AC applications andextension of load.
Billing and Payment : The deployment of Automated Meter Reading (AMR) forall HT and bulk LT consumers, which was discussed earlier, has significantly improved theefficiency and accuracy ofthe meter reading and billing processes. The Company was alreadyproviding web-based access to billing details and online payment facility throughcredit/debit cards and prepaid vouchers to its customers. During the year, it introducedthe online payment facility through net banking and ECS for LT consumers.
Customer Contact: The Company operates a centralised and fully computerised24x7 call centre as a primary consumer touch point for complaints and queries. During theyear, it introduced a state-of-the-art IVR at the front end which is supported by customercare executives at the back-end. This has enabled mapping of consumer's telephone numberswith connection details to avoid the hassle of quoting the 'Consumer Number' as well asauto docketing of calls through SMS and communicate power restoration status to theconsumer. This is also followed up by a personalised phone call. For consumers who preferface to face interaction, the company has introduced help desk kiosk and single windowconsumer service at the Regional Office to reduce wait time.
Supply Interruptions : As the call-centre is integrated with the Company'sdistribution system, it allows immediate routing of complaint to the nearest service team- enabling prompt and effective attention. CESC has recently launched the EmergencyRestoration Service (ERS) which is a 24x7 LT control room manned by experts to handle LTfaults who ensure that supply restoration delay is contained within 3 hours. The Companyalso operates 162 radio linked and mobile connected service vans at strategic locations toensure faster restoration. In yet another customer centric measure, generator facility isbeing extended to consumers in the event that restoration is not possible within thespecified time frame owing to the nature of the problem.
Customer E-services : CESC is continuously expanding the coverage of itsonline and phone based services. During the year, web-services were expanded to includeboth the application and payment processes in several areas such as new connections andtheir tracking, AC connections and name change. For consumers who have registered theirphone numbers and e-mail IDs, the Company has introduced a whole host of services.
SMS based services : Information on meter reading dates, docket numbers forcontact made at call centre, confirmation of restoration of supply and receipt of chequepayments as well as personalised greetings on birthdays and special occasions.
E-mail based services : monthly consumption bill, important information(including booklets and handbooks) related to supply, safety, energy conservation, CESC'snew initiatives and greetings on festivals.
Special Initiatives for Personal Connect: CESC regularly carries outactivities to reach out to its customers and establish an emotional connect with them.These include consumer meets at its regional offices, participation in events such asInternational Trade Fair and Kolkata Book Fair. In a continuation of its initiative thatwas very well received last year, CESC offered single window service to Durga Pujaorganisers in the city. The Company also distributed the much appreciated True Spirit PujaAwards. With the emergence of social media as an important medium of connecting with theconsumers, CESC started its online presence on Facebook and Twitter during the year andhas received a very encouraging response.
With these initiatives, CESC has transformed itself into a customer centricorganisation. The idea that the customer comes first will continue to guide its activitiesand initiatives in the future. Going forward, the focus will be to increase the coverageand penetration of customer centric services introduced by the Company, while at the sametime, ensuring that the customers have access to the best technology and servicesinfrastructure in the industry.
New Projects and Initiatives
CESC is in the process of undertaking many new power generation projects which areunder various phases of conceptualisation, planning and implementation. Over the nextdecade, the Group's power business expects to add 7,000 MW to its total generationcapacity. Several of these projects are proposed to be carried out by the Company'ssubsidiaries and also include the Company's foray into alternative and renewable fuelsources.
Chandrapur, Maharashtra : This isa 2x 300 MW coal fired thermal power project atChandrapur in Maharashtra, which is being executed by Dhariwal Infrastructure Limited(DIL), a 100% subsidiary of CESC Infrastructure Limited.
Units 1 was commissioned during the year and went into commercial operation in Q42013-14. Unit 2 is expected to start commercial operation in Q1 2014-15. The constructionof transmission lines for power evacuation is also complete. Two such transmission lineshave been constructed - one connecting to the state grid and the other to the nationalgrid. This will provide the Company flexibility in sale of power to customers from bothwithin and outside the state.
Haldia, West Bengal: This is a 2 x 300 MW coal fired thermal power project atHaldia in West Bengal, which is being executed by Haldia Energy Limited (HEL), a 100%subsidiary of CESC Infrastructure Limited. HEL has executed a long term power purchaseagreement with CESC Limited, its ultimate holding company, for selling entire powergenerated from the project.
The project is in advanced stages of construction and both units will be commissionedsequentially in 2014-15. Construction ofthe intake water pump house and laying ofcross-country pipeline was completed in 2013-14. Work on railway infrastructure as well as400kV transmission line, which will have 236 metre high towers for crossing nearbytwo-kilometre stretch of the river Hooghly, is in advanced stage of completion.
Bhagalpur, Bihar : Nalanda Power Company Limited, another 100% subsidiary of CESC,has signed a MoU with the Bihar State Electricity Board (BSEB) for development of a 2,000MW power project in Bhagalpur district of Bihar, in two phases of 1,000 MW each. Furtherprogress will be taken up upon receiving clarity on the land acquisition process which haschanged consequent to the new legislation and securing sources of long-term coal supplyover the life of the plant.
Dhenkanal, Orissa (Phase I) : This is a 2 x 660 MW thermal plant based onsuper-critical technology. Most of the statutory clearances have been obtained and theproject is waiting for coal linkage to be granted by Ministry of Coal, Government ofIndia.
Papu, Arunachal Pradesh : CESC acquired Papu Hydro Electric Power Project Limitedin May 2012, which has a 90 MW project in East Kameng district of Arunachal Pradesh. Thepre-feasibility report (PFR) of the project has been completed and environmental study isin progress. Other project development activities, including receiving clearances forsurvey and investigations, are in progress.
Phangchung, Arunachal Pradesh : CESC acquired Pachi Hydro Power Projects Limited inMay 2012, which has a 45 MW project in East Kameng district of Arunachal Pradesh. Detailedsurvey, investigation and preparation of Detailed Feasibility Report (DPR) is complete andthe report has been submitted to the state government for techno-economic clearance.Environmental studies, land acquisition and other pre-construction activities are also inprogress.
Jarong, Arunachal Pradesh : Jarong Hydro Electric Power Company Limited, a SPV ofCESC, was allotted 90 MW Jarong Hydroelectric project in West Siang district of ArunachalPradesh. The company took up project development activities and completed the DetailedProject report (DPR) in December 2012. After techno-economic appraisal ofthe project basedon DPR, it was found that the project is commercially unviable due to high capacity costand high tariff. Subsequent to this, the company has written to the state government foran allotment of an alternative project in lieu thereof.
Dangri, Rajasthan : This is the Company's first venture into the wind power. The 24MW project was implemented by Surya Vidyut Limited (SVL), which is a wholly ownedsubsidiary of CESC. The project, which has a power purchase agreement with Rajasthan UrjaVikas Nigam Limited, was commissioned last year. The plant is running successfully and hasachieved a net capacity utlilisation factor comparable to other projects operating in thesame area.
Surendranagar, Gujarat: This will be second wind power project of Surya VidyutLimited. The 26 MW project is expected to be commissioned during 2014-15. Power from thisproject will be sold to Gujarat Urja Vikas Nigam Limited under a longterm power purchaseagreement.
Ranchi, Jharkhand : CESC was selected in 2012-13 through a process of competitivebidding to take up distribution franchising in Ranchi Circle of Jharkhand StateElectricity Board (JSEB). The distribution area comprises Ranchi and Khunti districts ofJharkhand covering around 7,800 square kilometres and approximately 3.5 lakh consumers.Franchising operation will be undertaken through a wholly owned subsidiary, Ranchi PowerDistribution Company Limited (RPDCL), and will include operations and maintenance of thedistribution system, capital investments for network augmentation and improvement,metering, billing and collection activities and consumer service.
The Distribution Franchisee Agreement (DFA) to this effect was executed between RPDCLand JSEB in December 2012 and related preparatory work and activities towards obligationsto meet the conditions precedent in terms ofthe DFA are currently in progress.
Port Harcourt, Nigeria : CESC had emerged in 2012-13 as a part of the winningconsortium for privatisation of a distribution franchisee in Nigeria. CESC's role would beof providing technical advisory services for design, planning and engineering of thedistribution network and will not entail any financial investment.
CESC's subsidiaries operate in the organised retail sector as follows :
Spencer's Retail Limited (SRL), is the flagship CESC subsidiary in thesector with 128 stores across India under the Spencer's label, including 34 hypermarkets.The stores cater to all family needs - groceries, home and personal care products, appareland accessories, consumer durables and lifestyle products. In spite of a difficultenvironment for the retail sector, SRL's efforts at improving profitability acrosssegments while controlling operating expenses resulted in considerable improvement inperformance. During 2013-14, it registered a same store sales growth of over 9%, with anaverage revenue per square feet of Rs. 1,305 per month as compared to Rs. 1,226 per monthin the previous year. Overall, the company moved closer to achieving an operatingbreakeven, with operating loss for the year coming down from Rs. 84 crore in 2012-13 toRs. 70 crore in 2013-14. During the year, SRL rolled out eight new hypermarkets in linewith its strategy of growing the business through the hypermarket route on account ofbetter business viability. In 2014-15, SRL plans to roll out new stores in hypermarketformat which will allow it to further consolidate its presence in the existing clusters.This will also help in fully leveraging both back-end and marketing costs. Apart fromthis, focus will be on improving the non-food business and in-store experience as well asbuilding team capability to support the company's future growth plans for the business.
Au Bon Pain Cafe India Limited (ABPCIL) is a subsidiary of SRL, catering tothe retail coffee and fast food segment as the Indian master franchisee of ABPCorporation, USA. During 2013-14, ABPCIL opened seven new cafes across four tradechannels, high street/shopping malls, business and industry locations, hospital premisesand universities along with expanding its operations in the city of Kolkata. With these,the number of cafes that were in operation at the end ofthe year increased to 29 withpresence in the cities of Bengaluru and Kolkata.
Business Process Management (BPM)
Spen Liq, a wholly owned subsidiary of CESC, purchased a majority stake in FirstsourceSolutions Limited (FSL) in 2012-13. FSL is in the business of providing Business ProcessManagement (BPM) services in the areas of customer management, transaction processing andcollections services to Fortune 500, FTSE 100 companies in the US, UK and India markets inthe Healthcare, Telecom & Media (T&M), and Banking, Financial Services andInsurance (BFSI) industries.
FSL has a total employee strength of 27,666 and supports clients from 46 servicefacilities spread over United States, United Kingdom and Ireland, Philippines, India andSri Lanka. The company's clients include seven of the Top 10 general-purpose credit cardissuers in the US, the largest retail bank and mortgage lender in the UK, one of the topthree car insurance companies in the UK, a leading Irish bank, a leading credit cardissuer in the UK, a leading private life insurer in India, the largest pay TV operator inthe UK, the largest pay TV and leading telecom service provider in Australia, three of thetop five mobile service providers in India, a leading European telecom service provider,the largest telecom service provider in the UK, two of the top 10 telecom companies in theUS, one of the top five private banks in India, the largest telecom company in Sri Lanka,five of the top 10 Fortune 500 health insurers and managed care companies in the US, andover 700 hospitals in the US.
During 2013-14, FSL reported a growth of 10.2% in its revenues to Rs. 3,127 crore. Netprofits after tax stood at Rs. 193 crore. This acquisition is in line with CESC's strategyto diversify its operations and strengthen its presence in newer businesses withsignificant growth potential.
During the year, CESC Properties Limited, a subsidiary of CESC, launched Kolkata'sfirst upscale shopping mall, the Quest. Quest has a total built-up area of about 700,000square feet with shops, retail outlets, entertainment zone, multiplex, food court and finedining in seven floors opened with a thirteen-level car park with facilities for parkingabout 900 cars. Shop licenses have been selectively awarded based on brand mix andpositioning to create the right zoning. At the end of the year, occupancy was about 85% ofretail area with multiple anchors. The entire ground floor is dedicated to internationalluxury brands which include Gucci, Canali and Burberry. The remaining space is almost tiedup with 95% occupancy expected within the first quarter of 2014-15.
Quest has won several awards and accolades which highlight the differentiation it hasachieved in the market. These include:
'IMAGES Most Admired Shopping Centre Launch of the Year: East' at the IndianShopping Centre Awards, 2014.
'Best Shopping Mall ofthe Year - East' at the Indian Retail and 3rd e-RetailAwards 2014.
'Best Retail Project in Kolkata' in the Retail Segment category of CNBC AWAAZReal Estate Awards 2013.
HUMAN RESOURCES (HR)
CESC strongly believes that HR is central to the Company's growth trajectory and hasalways strived to achieve best-in-class HR practices. As the Company operates in a dynamicbusiness environment, HR is alert to and takes regular inputs through interactions withall cross-sections of employees, through perception studies and engagement surveys toalign its role with the company's changing business needs. In this context, OperationalHealth Index survey by McKinsey & Company, Great Place To Work survey, 90 dayson-board survey, and engagement survey for Gen-Y executives have been instrumental inidentifying the drivers for change. It has been acknowledged by the leadership team thatthe HR practices need to undergo continuous improvement to meet the challenges of thefuture.
Recruitment is a pivotal function in the HR strategy, which takes into considerationthe current executive strength, separation due to retirement and future requirements basedon new initiatives. CESC has relied on its well-structured recruitment and selectionprocess to improve and enhance campus relations, constantly endeavouring, with the help ofa cross-functional team of experts, to establish CESC as 'Preferred Employer' with premiereducational institutes. The paid internship programme named 'Unmesh', an innovation in theprocess oftalent acquisition, plays a major role in this direction.
Training and Development in CESC is a planned intervention for upgrading knowledge,skills, attitude and behaviour of employees for effective performance, together with valueaddition to self and the organisation. The focus areas of training and development foreach year are identified in alignment with the organisational strategy. CESC brings out anannual training plan covering all categories of employees using internal and externaltraining infrastructure. 'Anneswan', the Company's induction process, is an initiativetowards learning and development and aids in integrating the newly recruited executiveswithin the organisation.
The Asia Institute of Power Management, the training and consulting wing of CESC hasestablished itself by providing training to power professionals across the country andabroad. Details are provided in Box 1.
Box 1: Asia Institute of Power Management (AIPM)
AIPM has maintained a steady growth in training and consultancy services withsupport of CESC core team. A total of 50 national and international level trainingprogrammes were conducted in 2013-14 in the areas of power generation, transmission anddistribution. In addition, AIPM organised year-long training programmes for employees ofBESCOM at Bangalore, Kolkata and Singapore.
AIPM collaborated with Gujarat Energy Training & Research Institute (GETRI),the nodal training agency for the power sector in Gujarat, for providing faculty supportin their specialised training programmes in distribution and transmission. Seven trainingsessions were conducted at GETRI, Vadodara with good feedback.
AIPM has trained participants from Punjab and from WBSEDCL on advanceddistribution practices. Engineers from Punjab, Maharashtra, Chhattisgarh, Jharkhand, Assamand Delhi have participated in training programmes conducted by AIPM. Over 1,400participants were trained in the last financial year covering 4,000 man-days.
AIPM has developed a strong bond with the Bhutan Power Corporation (BPC) throughtraining services. USEA nominated AIPM to conduct training programme for a leadership teamof DABS (Da Afghanistan Breshna Sherkat) of Afghanistan. A national level workshop wasorganised with Central Electricity Authority (CEA) on Crisis and Disaster Management inKolkata.
AIPM is putting sustained efforts to develop strong connectivity with manystates in India, Ministry of Power, CEA, PFC and core sector companies for value additionin power sector capacity building, energy management, improvement in power quality andperformance optimisation.
During the year, CESC organised curriculum-based training programmes, in collaborationwith reputed institutes like XLRI, Jamshedpur, IIT-Kharagpur and IIM, Calcutta, in orderto impart a holistic view of various systems and processes for the executives. Specialisedtechnical programmes are being conducted for the supervisors, jointly with JU and BESU-S.Initiatives such as Young Executive Board, Coaching and Mentoring, Manager as BarefootCoach, and outbound learning programmes are in place over the years for the development oftalent at CESC.
Oracle HRMS, which makes transactions faster and streamlines routine processes on acommon e- portal, is being implemented and the system is being launched in June 2014. Thethird edition of Knowledge Carnival was held in March 2014, providing a platform forvarious departments to express their respective innovative ideas. Four innovationprojects, in the fields of Generation and Distribution-Automation, were completed duringthe year.
CESC is working towards creating a structured two-way communication platform. The topleadership team meets cross-section of employees to communicate with them about businesspriorities. In order to develop talent management and capability building initiatives,CESC leadership remains actively involved at all levels in leading the cross-functionalteams to deal with organisational issues as part ofthe change management process. Eventsand updates about the company are regularly released in newsletters and e-platforms. Ahelp desk named CARE has been formed to ensure continued relationship with the retiredcolleagues.
An 'Online Performance Management System' has been developed in-house with customisedfeatures which has made the process of performance appraisal fast, efficient anduser-friendly by eliminating paper work and associated problems of record preservation.With all-time availability of KRA/BBSC, midterm review and final appraisal, this onlinesystem has proved to be useful for the appraiser as well as the appraisee. The PMS processhas been audited, and is being further improved. A reward and recognition scheme, cateringto all categories of executives, has been institutionalised which acknowledges outstandingperformance in each division/ department.
A significant reduction in executive attrition rate from 3.9% in 201112 and 2.43% in2012-13 to 2.17% in 2013-14 bears testimony to CESC's employee friendly HR practices. CESCwas also recognised for its HR practices during the year. It was the Gold winner at the'HR Best Practices Award -2013' instituted by NIPM. It was also judged as the winner forits practices in Training Need Identification in 'People Management and Development'category in the power sector, organised by IUKAN.
As on 31 March 2014, CESC had a workforce of 9,956 people on its payroll. The Companycontinued to enjoy industrial harmony in its business operations. No major incident ofservice interruption due to industrial relations issues was reported during the year.
In a significant development, a Joint Bargaining Council (JBC) was formed withparticipation of representatives from recognised unions to promote good industrialrelations practices and to engage employee representatives in the process of collaborativeparticipation. This is a unique development in the Company as unions have collaborated onmajor issues including signing of the wage settlement. This enabled the Company to arriveat a final settlement in December 2013 for a six year term. Similar agreements were signedwith respective contractors' unions and contractors in almost all major functions.Progressive policies and practices like Family Medical Health Policy have been introducedby the Company. Going forward, reward and recognition schemes for all non-covenantedemployee will be implemented to drive employee engagement across the Company.
INFORMATION TECHNOLOGY (IT)
At CESC, IT is not just an enabler of business processes, but forms an integral part ofthe organisation's strategic and performance objectives. It has been identified as a keyelement to achieve greater operational efficiency and ensure success in a competitiveenvironment. Over the years, the Company has developed a strong IT backbone for carryingout its business.
CESC's IT infrastructure includes CESCNET, its captive optical fibre data network,which connects the Company's service establishments across the license area and astate-of-the-art data centre for its IT applications. The ERP solution used by the Companywas upgraded to the latest version of Oracle Apps during the year.
During 2013-14, one of the most important focus areas for the IT function was to createand implement customer centric systems and processes. These e-services which involve bothproviding information and facilitating transactions as well as payments have been alreadycovered in detail in the section on Customer Service. The Company's website and relatedservices work as fully functional offices of CESC that is available to the customers 24x7from the comfort of their homes. CESC also rolled out an intelligent IVRS solution for thecall centre which has facilities such as customer recognition and automatic docketgeneration.
Other key developments in the area of IT during the year were :
Implementation of advanced enterprise security applications for the Company's ITinfrastructure including the network and website.
Development and deployment of mobility applications for field force to enablemore efficient and accurate capturing of data from the Company's distribution assets.
Increase in coverage and use of e-procurement services which is now integratedwith the Company's ERP.
Going forward, even as CESC continues to focus on innovative e-services that directlybenefit the consumers, it has also identified other areas that are expected to augment theefficiencies of the business processes. Some of these include: data driven businessdecisions, wider deployment of mobility applications and enterprise applicationintegration.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
CESC is aware of its duties towards the society and environment in which it operatesand recognises its role in managing the social, economic and environmental challenges; andis committed to creating sustainable social and environmental impact through its CSRprogrammes. The Company's approach to CSR emanates from its intent to undertakeinitiatives that aim at comprehensive and long-term development of the communities amongwhich it works and, thereby, contribute to the larger development goals.
The CSR ethos and approach ofthe Company is drawn from the core values of the RP-SanjivGoenka Group: customer satisfaction, credibility, humaneness, execution excellence, speedand risk-taking. The focus areas of CESC's CSR initiatives are environment, education,health and community development. These activities are being planned to be undertaken on amuch larger scale from the current year.
During the year, CESC extended its 'UrjaChetana' programme from 16 schools to 20schools. Carried out in partnership with Centre for Environment Education (CEE), theprogramme seeks to generate awareness and action on energy conservation amongst students,who would carry the learning to the larger society through community outreach activities.More than 1,000 students and 55 teachers have been directly involved with the programmeand over 3,500 persons have been reached out through in-school and community outreachactivities.
During 2013-14, CESC planned to launch the Nabadiganta project in the ash pond area ofBudge Budge Generating Station, in partnership with CEE. The project has beenconceptualised with the following objectives : to develop a green belt (with communityparticipation); to demonstrate, on an experimental basis, reclamation of fly ash depositedland for agricultural/greening purpose; and to conduct alternative livelihood trainingprogrammes for the community with special focus on women and youth.
Other initiatives ofthe Company during the year include development of a children'spark called 'Bishalakshmi Sishu Udyan' in the Titagarh municipality, close to the TitagarhGenerating Station. The Budge Budge generating station participated in the MaheshtalaScience Fair organised by Maheshtala Nature Study Society, where various innovative modelsrelated to generation of electric power, rain water harvesting and pollution control weredisplayed. In another important initiative, CESC partnered with the Kolkata MunicipalCorporation for maintaining the green verges from the Park Street flyover to the Hazracrossing in Kolkata.
During the year, the 'CESC Learning Labs' programme was extended from four schools tosix schools. This programme, carried out in partnership with NIIT Limited, is a learningsolution which integrates science and math labs with classrooms. It allows students toenhance their learning capabilities by helpingthem correlate classroom learning withcomputer aided simulations. Learning labs in mathematics and science for Classes VI-Xemphasises on 'learning by doing' to foster applied reasoning. More than 60 teachers havebeen trained under the programme and over 13,000 students have benefited from it.
Access to good libraries plays an important role in improving quality of education. Inview of this, CESC has launched a library programme in government and government aidedschools around its generating stations that have limited facilities. In 2013-14, thelibraries of Kalipur Girls High School in Budge Budge and Bengali Bazaar High School inGarden Reach were upgraded. A community library was also established in TitagarhMunicipality. This programme has benefited more than 4,000 students.
During 2013-14, CESC adopted two Anganwadis in Metiaburz area of Kolkata, inpartnership with CII Foundation and UNICEF under the Integrated Child Development Services(ICDS) programme of Government of India to combat child hunger and malnutrition. Apartfrom providing direct support for infrastructure and capacity building ofthe Anganwadicentres, the objectives ofthe programme include provisioning of nutritional growth anddevelopment of beneficiaries as well as imparting early childhood education and makingthem school-ready.
Water, Sanitation and Hygiene (WASH) in Schools was another programme taken up by CESCin 2013-14. It was piloted in two schools during the year in partnership with GOAL Indiaand City Level Programme of Action for Street and Working Children (CLPOA). The programmefollows a two-pronged approach: (a) provisioning of adequate water, sanitation and hygieneinfrastructure in schools and (b) sensitising the teachers, students and their mothers forwider impact in their families and the surrounding communities. Around 400 students havebenefited from this initiative.
CESC is committed to improving the health of the communities with which it works.Towards this, the Company has been active in improving the public health infrastructurearound its generating stations. During 2013-14, CESC supported the setting up of aNeo-natal Intensive Care Unit (NICU) at the Titagarh Municipal Hospital.
CESC had undertaken a Health and Hygiene Awareness Project around its GeneratingStations, in partnership with CLPOA in 2013-14. The project sought to ascertain deficitsin the levels of existing health services and the prevalent knowledge, behaviour andpractice on health and hygiene related issues among communities living in the respectiveareas, and, thereafter, to disseminate appropriate information through street plays andfilm shows to address the prevalent issues.
Community Development Initiatives
During the year, CESC launched an artisans' cluster development project called 'EkKadam' in partnership with Kolkata Police and Kalighat Society for DevelopmentFacilitation (KSDF) in Garden Reach. The project works on skill upgradation of the zariworkers and providing them with financial and market linkages. A group of 50 mastertrainers were trained during the year. The zari workers will receive Artisan Cards fromthe Ministry of Textiles, Government of India, so that they are recognised as artisans andare able to participate in various fairs and exhibitions across the country. 'Ek Kadam'also seeks to link these artisans to various government schemes and programmes to getmaximum leverage. The project also has an adult education component in which 25 women fromthe community have been enrolled.
Last year, CESC had initiated an entrepreneurship development programme called 'AlorDisha' in Antaranga School for mentally challenged girls in Budge Budge, in partnershipwith Kalighat Society for Development Facilitation (KSDF). The project aims at skillbuilding ofthe mentally challenged students ofthe school for their sustainablerehabilitation. Students along with their parents/guardians have been trained in variouscrafts such as kantha embroidery, bead jewellery, jute products and hand-made paperproducts. Market linkages have been established with various agencies for sale ofproducts. The girls as well as their parents who have been trained under the project willreceive Artisan Cards from Ministry of Textiles, Government of India.
As a pilot project, CESC has launched a community sanitation project adjacent toTitagarh generating station, in partnership with GOAL India and the Barasat UnnayanProstuti (BUP). The objective was to improve availability, usage, quality andsustainability of water and sanitation facilities by involving community members as changeagents. A number of toilets and bathing cubicles have been repaired, renovated andconstructed. User groups and committee were formed to ensure maintenance ofthe toilets andto liaise with the Municipal authorities. Over 2,000 community members, including womenand children, have benefited from this initiative.
In another project initiated during the year, CESC has partnered with Dr. Reddy'sFoundation to implement a skill building programme in Howrah district called LABS(Livelihood Advancement Business School). LABS is a confidence and skill building journeythat the aspirants undertake in carving out their own place. Well thought out inputsranging from life skills, discipline building, team work and domain related technicalskills help them acquire marketable skills. The programme is intended to benefit 230people in the first year.
Table 3 summarises the financial performance of CESC Limited for the year ended 31March 2014 as a standalone entity.
Table 3 : Standalone Financial Performance ofCESC Limited fortheYearEnded31March2014
| ||2013-14 ||2012-13 ||% Change |
|Revenue from operations ||5,510 ||5,303 ||3.90% |
|Other Income ||100 ||97 ||3.09% |
|Total Income ||5,610 ||5,410 ||3.70%% |
|Cost of Power Purchased ||891 ||945 ||-5.71% |
|Fuel Costs ||1,861 ||1,797 ||3.56% |
|People Costs ||694 ||559 ||24.15% |
|Generation, Distribution, Administration & Other Costs ||631 ||692 ||-8.82% |
|Total Expenses ||4077 ||3,993 ||2.10% |
|EBIDTA ||1,533 ||1,417 ||8.19% |
|Depreciation ||339 ||306 ||10.78% |
|EBIT ||1,194 ||1,111 ||7.47% |
|Finance Costs ||369 ||338 ||9.17% |
|PBT ||825 ||773 ||6.73% |
|Less: ProvisionforTaxes || || || |
|Current Tax ||173 ||155 ||11.61% |
|PAT ||652 ||618 ||5.50% |
Total income (including other income) of CESC as a standalone entity increased by 3.7%,from Rs. 5,410 crore in 2012-13 to Rs. 5,610 crore in 2013-14.
Overall operating expenses grew by 2.1% to Rs. 4,077 crore in 201314 primarily drivenby increase in people cost. In spite of this, earnings before interest, depreciation andtaxes (EBIDTA) went up by 8.2% over last year to Rs. 1,533 crore in 2013-14. Profit beforedepreciation and taxation (PBDT) reflected a year-on-year increase of 7.9% to Rs. 1,164crore in 2013-14.
The Company's profit after taxes (PAT) for 2013-14 stood at Rs. 652 crore, whichreflects a 5.5% increase over the previous year. The earning per share (EPS) during theyear stood at Rs. 52.18 compared toRs.49.5in2012-13.
A strong internal controls framework is an essential pre-requisite of growing business.In this context, the Company's internal control systems are commensurate with its size andthe nature of its operations. It has well documented policies, procedures andauthorisation guidelines to ensure that all assets ofthe Company are safeguarded againstunauthorised use or losses, all the transactions are properly authorised, recorded andreported, and all applicable laws and regulations are complied with.
The effectiveness of internal control mechanism is tested and certified by the InternalAudit Department, covering all divisions and key areas of operation, based on an annualaudit plan giving due weightage to the various risk parameters associated with thebusiness. Major audit observations and follow up actions thereon are reviewed andmonitored by the Audit Committee of the Board of Directors. The Internal Audit Departmentalso assesses the effectiveness of risk management and governance process.
RISKS AND CONCERNS
CESC's Risk Management Committee operates on a comprehensive risk management frameworkthat the Company has put in place over time. Different divisions identify operational andtactical risks and suggest measures for mitigation and control. The Committee supervisesand monitors the risk identification and mitigation activities of each division.
CESC has identified the following key areas of risks and concerns.
Macroeconomicand Market Risks
The Indian power sector is witnessing significant capacity expansions to meet theincrease in demand from a rapidly growing economy, most of which will be coal-based. Evenas this is an opportunity, it has created shortages in coal supply and firming-up ofprices. Increase in the relevance of India in the global market for coal and high globaldemand in general further accentuates this trend. In this environment, securing coallinkages of appropriate quality and at competitive prices remains a challenge and a riskfor the Company.
To mitigate the risk of availability and cost of coal, CESC has adopted a strategy ofensuring long-term coal linkages for its existing and future projects. Apart from this,the Company is actively looking at securing resources abroad to effectively address itsenergy requirements. This is reflected in the investment and long-term coal purchaseagreement with Resource Generation Limited.
It is becoming increasingly difficult to build generating stations inside a congestedmegalopolis like Kolkata - not the least because of environmental concerns. As CESC'splants age, it is natural that their operating efficiencies shall reduce; beyond a pointin time, shutting down and replacement of these plants will become imperative. If theCompany is not allowed to build replacement plants at the sites where current generatingstations exist, the cost of evacuating and distributing power from far flung locationsinto the licensed area will increase substantially, in turn impacting quality of service,delivery and profitability.
There is also another associated risk. High quality coal, i.e. coal with low ashcontent and high heat value, is becoming scarcer. Some of CESC's older plants had beendesigned for such coal as input. With the supply of this type of coal drying up, it willbecome more difficult to operate these generating stations - and replacing these with newplants capable of using currently available qualities of coal will become necessary, withits attendant capital cost commitments.
To mitigate the operational risks associated with availability and quality of power,the Company invests significant resources in the maintenance of its generation anddistribution assets. At the same time, the new generation project at Haldia has beenplanned with an objective of ensuring continuity of availability of power in the medium tolonger term.
Power is a regulated sector. This exposes the Company to risks with respect to changesin policies and regulations. Besides, given the nature of the industry, there is a risk ofmore stringent policies and norms aimed at addressing environmental concerns. This canmake it more difficult to execute new projects and can increase the cost of operations.
Efficient managing and recycling of fly ash is one such area. To address the risksassociated with fly ash, the Company ensures that a large portion of CESC's dry ash isused by the cement and brick industries; some of it is also exported to Bangladesh onriver barges. All the generating stations of the Company have achieved 100% ashutilisation. As explained earlier, CESC, through its subsidiaries and other associatecompanies, is also exploring opportunities in power generation using alternative andrenewable fuel sources to mitigate this class of environmental risks.
In spite of some signs of revival in advanced economies, especially the US, the globaleconomic scenario continues to be uncertain. The global energy sector, too, is witnessingstructural changes that may have long-term implications for demand-supply balance as wellas preferred choice of fuel.
The economic environment in India also continues to be worrisome. The GDP growth ratefor 2013-14 has been 4.7%. Interest rates and inflation continue to be high, affecting theinvestment-growth cycle. But the biggest worry, especially for capital-intensiveinfrastructure sectors such as power, has been the unresponsive policy environment. Notonly has this posed serious questions on fresh investments in the sector, operationalperformance has also suffered due to shortages of coal - which accounts for most of thegeneration capacity in the country.
However, the longer term demand outlook for power in India continues to be strong.There is also an expectation that the policy environment is likely to witness somepositive change. These should benefit the Company, which, through its subsidiaries andassociate Group entities, has been active in planning and implementing various powerprojects. The project in Chandrapur was commissioned during the year and the other projectin Haldia will be commissioned in 2014-15. It has also undertaken investments in othersectors such as retail and BPO to mitigate potential long-term risks associated withpower.
The financial statements appearing above are in conformity with accounting principlesgenerally accepted in India. The statements in the report which may be considered 'forwardlooking statements' within the meaning of applicable laws and regulations, have been basedupon current expectations and projection about future events. The management cannot,however, guarantee that these forward looking statements will actually be realised orachieved.
| ||For and on behalf of the Board of Directors |
| ||Director ||Pradip Kumar Khaitan |
|Kolkata, 30 May 2014 ||Managing Director ||Aniruddha Basu |