MANAGEMENT DISCUSSION AND ANALYSIS
ANNEXURE A TO DIRECTORS REPORT
CESC limited (CeSC or the Company), is the flagship company of theRP- Sanjiv Goenka Group (the Group). Registered in 1897, the Company is afully integrated power utility engaged in the generation and distribution of electricityacross 567 square kilometres of licensed area in Kolkata and Howrah, West Bengal. Itsupplies safe, cost-effective and reliable electricity to over 2.7 million customers.
Apart from spearheading the Groups interest in the power sector, the Company,through its subsidiaries, is also active in the organised retail, BPO and infrastructuresectors as a part of its 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 market continued to witness structural changes which could havesignificant implications for long-term outlook for the sector. First, there has been aresurgence in oil and gas production in the US, where upstream technologies are unlockinglight tight oil and shale gas resources. This has stimulated economic activity withless expensive gas and electricity prices improving the competitiveness of the industry and is steadily changing the role of North America in global energy trade. Not onlyis the US expected to become the largest oil producer by 2020, but it is also projected tobecome a net exporter of oil around 2030. Second, this change is even more significant asa result of retreat from nuclear power in some countries as a policy response afterthe incident in Fukushima, Japan, in March 2011. Third, high oil prices continue to affecteconomic growth. Equally, fossil fuel subsidies continue to mount and affectgovernments ability to respond to the challenging macroeconomic scenario.
In this situation, the uncertainty around policy commitment to greater energyefficiency continues to persist. As far as demand for energy is concerned, emergingeconomies continue to drive the global markets. According to the World Energy Outlook2012, world primary energy demand under the New Policies Scenario will grow byaround 4,467 million tonnes of oil equivalent (Mtoe) between 2010 and 2035 a CAGRof 1.2% (Chart A). As expected, the demand in non-OECD countries will grow muchfaster, and will account for 93.5% of this increase in energy demand.
More important, 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 5,388 Mtoe (Chart B). As aresult, by 2035, these two countries will account for 31% of global energy demand, up from16.4% in 2000 and 24.4% in 2010. Fossil fuels coal, oil and gas are thedominant source of energy, meeting around 81% of energy demand. While this dominance isexpected to continue, their share is estimated to come down to around 75% by 2035.However, recent developments in the US oil and gas exploration, and indeed similar trendsin some other countries, pose fresh questions on the pace of this decline.
The situation of the power sector, which accounts for 53% 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. Capacity addition of 4,162 GW in the power sector is projected between 2010 and2035.
As shown in Chart C, this dominance of coal is expected to continue, althoughits share will come down in the long term with policies favouring the use of otherrenewable 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 30% of the totalgeneration as compared to 33% from coal. To that extent, securing supplies of coal andbuilding technology capabilities in the use of renewable sources of energy especially wind and solar will continue to dominate the global energy agenda in thefuture.
INDIAS POWER SCENARIO
Regarding the Indian power sector, 2012- 13 was another year of subdued activity. Apositive development was that the generation capacity targets were met adding 20.6GW against a target of 17.9 GW. The private sector added 11.3 GW compared to its target of7.3 GW. In contrast, the Central and the State sectors achieved 80.9% and 98.3% of theirrespective targets. The addition of transmission and distribution infrastructure was alsosatisfactory. With these capacity additions, generation capacity in India stood at 223 GWat the end of the year. Table 1 gives the details. Given that coal accounts for58.3% of the total generation capacity in India, the bigger worry for the power sector inrecent times has been availability of coal, not just for the new projects, but also forexisting plants. At the end of the year, 21 thermal power plants had a critical coal stockof less than seven days. With domestic coal availability virtually stagnant, imports havebeen increasing significantly over the yearsfrom 24.9 mtoe in 2006-07 to 54 mtoe in2011-12. This is further expected to increase to 90 mtoe by 2016-17. Given the growingimportance of India in the global market for coal, this rise in demand has pushed upglobal prices increasing not only the cost of generation, but also the uncertaintyof availability.
TABLE 2: POWER DEMAND AND D EFICIT: 2012-13
|Region ||Peak Demand (MW) ||Peak Met (MW) ||Deficit ||Deficit % |
|Northern ||45,860 ||41,790 ||-4,070 ||-8.9 |
|Western ||40,075 ||39,486 ||-589 ||-1.5 |
|Southern ||38,767 ||31,586 ||-7,181 ||-18.5 |
|Eastern ||16,655 ||15,415 ||-1,240 ||-7.4 |
|North- Eastern ||1,998 ||1,864 ||-134 ||-6.7 |
|All India ||135,453 ||123,294 ||-12,159 ||-9.0 |
Even with recent addition of capacities, the shortfall in generation and transmissioncapacities is far from over. During 2012-13, the all-India peak demand for power was 135GW of power, whereas the actual power met was 123 GW a shortfall of 9% (see Table2). The southern region was the worst affected in terms of power availability.
By 2016-17, demand for power is expected to increase to 1,403 billion units upfrom 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 FiveYear Plan. This will need to be complemented with adequate transmission and distributioncapacities.
Overall, the power sector in India is at the crossroad. Bringing in the private sectorhas led to investments and stepped up growth possibilities. Equally, privatisation ofdistribution utilities has increased efficiency resulting in better reliability of supplyand quality of services. But, for this to continue, there is an urgent need to address thepolicy challenges be it availability of coal and gas, or mounting losses ofdistribution utilities which have cascading effects on the health and outlook forthe entire sector. Also, greater focus needs to be accorded to alternative and renewablesources of fuel such as hydro, solar and wind to have a balanced portfolio of generationcapacities in the longer term.
POW ER BUSINESS
CESCs existing operations in the power sector comprise generation anddistribution of electricity to its 2.7 million customers across its licensed areas inKolkata and Howrah, West Bengal. The Company and its subsidiaries are actively pursuing amulti-pronged strategy for future growth of the Groups power business. This requiresit to:
Achieve a pan-India footprint by implementing coal and gas based thermal plants.This will add over 7,000 MW of generation capacity and will be complemented with effortsto secure fuel supplies both in India and abroad.
Make conscious efforts to build capabilities and a portfolio of projects basedon alternative and renewal sources such as solar as well as hydro-electric.
Leverage its expertise in distribution by taking up opportunities inprivatisation of distribution franchisees as and when these appear.
During the year, the Company successfully moved ahead with the execution of thisstrategy.
First, it is close to completing its new 2 x 300 MW thermal power project in Chandrapur(Maharashtra). Construction is also in progress at Haldia (West Bengal) for another 2 x300 MW thermal power project. Other new projects are in different stages of planning andapprovals.
Second, the Company has acquired two hydroelectric projects in Arunachal Pradesh duringthe year with a combined capacity of 146 MW. It also started commercial production at itsfirst wind power project in Rajasthan.
Third, the Company was chosen to operate the distribution franchisee for Ranchi,Jharkhand. Further details have been provided in the section on New Projects andInitiatives.
For its existing operations in Kolkata, the demand for power is quite variable, withthe Company registering a peak period demand higher than 1,900 MW and a lean period demandas low as 500 MW. During peak demand period, in addition to its own generation, CESC alsopurchases power from the state and national power grid. Conversely, during the leanperiod, it exports surplus power, when possible.
One of the key achievements of CESC as an 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 of the business be itgeneration, demand-supply management or distribution. These have been complemented withthe implementation of best-in-class IT solutions and CRM processes, to align allactivities to benefit the end-user. These have been discussed in greater detail in thesubsequent sections on Generation and Distribution.
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 CESCs powergenerating stations have been consistently better than the all-India average for thermalplants. During the year, CESCs composite PLF of the three PF plants was 86.41%, ascompared to the national average of 70.04%.
To achieve this, the Company has taken various steps such as full utilisation ofdesigned limit, benchmarking with best-in-class power plants, integrated operation andmaintenance planning.
Budge Budge is CESCs newest power generation plant, which comprises three unitsof 250 MW each. The first two units are a decade and half old and the third unit startedcommercial operations from February 2010. During 2012-13, Budge Budge generated 5,806.14MU (million units) of power, with a PLF of 88.37%. The plant availability factor (PAF)achieved in this year was 93.67%.
Southern generated 1,060 MU of power during the year, with a PLF of 89.63% and a PAF of95.8%. Various energy savings initiatives, energy audits, in-house refurbishment/renewalof major energy consuming equipment, adopting industry best practices and other similarmeasures have been undertaken at Southern. A unique innovative project has beensuccessfully commissioned involving installation of three micro hydel generating units,each having capacity of 15 KW in the circulating water outfall to river Hooghly.
Titagarh generated 1,649.64 MU of power during the year, with a PLF of 78.46% and a PAFof 87.08%. The station could generate these efficiencies in spite of its age (30 years)which bears testimony to the continuous and rigorous maintenance programmes that CESCconducts.
The Companys generating station at New Cossipore was established way back in1949. Yet, the 63-year old station generated 200 MU of power with a PAF of 80.91% duringthe year, thus extending reliable support to the system during peak hours.
During the year, the combined generation for the PF stations was 8,515.78 MU. Theoverall combined availability of the PF stations was 92.52%. The entire maintenanceplanning has been structured: (a) to reduce forced outages; and (b) to reduce capitaloverhauling time.
To reduce forced outages, CESC has adopted a number of measures. These include (i)detailed analysis of each failure, (ii) taking appropriate corrective actions or processmodification to eliminate these in the future, (iii) mean time before 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 introduced a round the clockmaintenance regime and modular replacement of components. The time saving techniqueof using a forced air cooling system to cool down the turbine in very short time has alsoyielded satisfactory results.
ENERGY CONSERVATION AND QUALITY
CESCs generating stations have also excelled in the field of energy conservationby achieving extremely low figures for auxiliary consumption and heat rate. To achievethis, it regularly undertakes technical enhancements, following best practices andimplementing recommendations of external energy auditors. During the year, severalon-going energy conservation measures 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 at Budge Budge.
Thermo-graphic studies of drains/pipelines of boilers and turbines; and checkingof boiler feed pump re-circulation at Titagarh and New Cossipore.
Installation of variable-voltage, variable-frequency (VVVF) controls for ID fansand FD fans at Titagarh and Southern.
All PF stations of CESC are ISO 9001:2008 certified in respect of Quality ManagementSystems. Various quality projects are undertaken and successfully implemented on a regularbasis. During the year, the Company extended the coverage of Kaizen. In 2012-13, 210improvement projects were implemented under the initiative, of which six were adjudged ashaving high impact. Overall, the programme has been a success and has achievedparticipation of all levels of employees. Winners are awarded on a monthly basis forencouraging the participants and promoting the Kaizen culture.
ENVIRONMENT MAN AGEMENT
At CESC, protection of environment is an integral part of the power generation process.The Company has laid out an Environment Policy which governs its activities.Apart from ensuring compliance with all applicable legal and regulatory requirements, ithas set more stringent in-house standards, and devised new and improved processes toachieve these. It has also adopted state-of-the-art technologies and the performance isclosely monitored for assessment and rectification.
All PF stations of CESC are ISO 14001:2004 certified in respect of EnvironmentalManagement Systems. The Company continuously explores ways and means by which pollutantslike suspended particulate matter (SPM) emitted from the PF stations can be reduced andmaintained below the prescribed limits. The boilers of the 63-year old New Cossiporegenerating station have been retrofitted with Wet Electrostatic Precipitators (ESPs) inorder to reduce the SPM level the first of its kind in any power plant in theworld. All three PF stations have attained zero effluent discharge status with100% recycling of effluents. In Titagarh, a root zone treatment system hasbeen installed 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 such projects have been registered and approved as CDM projects by CDM ExecutiveBoard under UNFCCC. Budge Budge was the first thermal power plant in the world to achievesuch distinction.
CESCs environment friendly status has been acknowledged over the years by thegovernment and leading agencies working in the area of environment. Asian Power Magazine,Singapore has declared CESC as a winner of the Asian Power Awards 2012 in thecategory of Environmental Upgrade of the Year for the Zero DischargeSystem for Process Water at the Titagarh Generating Station.
SAFETY AND HEALTH
CESC maintains high standards of industrial safety practices across its generatingstations. The Company has formulated a Safety Policy and carries out regularsafety and occupational health audits through external audit agencies.
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. Severalprogrammes have also been taken to promote safety awareness among employees, includingclassroom training, mock drill and demonstration and publishing safety manuals, magazinesand audio-visual aids. An internal magazine named Safety Net is published fordistribution among all employees of the generation division. As part of the occupationalhealth initiatives, immunisation programmes and medical tests are carried out for allemployees.
The Company ensures that even minor incidents are fully reported for analysis andinitiating corrective actions. Systems are also in place to encourage reporting ofnear misses for proactive identification of potential hazards and enablingpreventive action. 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.
CESCs customer profile reflects growing system demand, and the need forconsistently high quality supply with the increase of customers in the High Tension andMedium Voltage Alternating Current (MVAC) segments. The previous years report hadhighlighted CESCs success in achieving a load shedding free environment for itscustomers. During 2012-13, the Company made further progress in this regard, with HTfaults and restoration times coming down by 53% and 65% respectively as compared to2007-08.
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. Apart from these, CESC is also in the process ofcarrying out projects to upgrade its distribution network, enhance the network capacityand supply reliability for efficient handling of the demand growth. Some of the majorprojects include:
New substations: at Dum Dum and Patuli, first-of-its-kind undergroundsubstation at Park Circus, and an indoor multi-tier gas insulated switchgear (GIS)substation in New Cossipore;
Connectivity: river-crossing overhead connectivity between New Cossiporeand Belur receiving substation; installation of overhead transmission line forestablishing connectivity with National Grid from Subhasgram substation of PGCIL toCESC Eastern Metropolitan Substation.
Re-engineering and space consolidation: at Botanical Garden and EastCalcutta substations to generate space for augmentation of transformation capacity as wellas future upgrading.
These have been detailed further in Annexure D to the DirectorsReport.
During the year, CESC implemented a software module within DREAMS (Distribution RelatedEngineering Asset Management System) for handing-over / taking-over of assets fromConstruction to O&M to facilitate creation of assets that are First TimeRight in line with recommendations of Singapore Power.
Energy conservation and reduction of losses in the distribution network is a key areaof focus for all power utilities. During 2012-13, a number of measures were adopted thatcontributed to the on-going efforts to reduce ATC losses and increase energy conservation.Apart from the benefits from continuous upgrading of the T&D infrastructure discussedin the previous section, other initiatives include: regular energy audits, move to energyefficient lighting and air conditioners, energy efficient distribution transformers andinclusion of the energy efficiency metric in bid evaluation criteria for awardingcontracts.
The impact of these measures is apparent. CESCs ATC losses compare favourablywith the best in the industry and are significantly lower than the national average. Withthe Companys continued focus on these measures, it is expected that the distributionnetwork will consistently deliver high quality and reliable supply of power, whilesimultaneously enhancing operational efficiencies.
Condition monitoring of major plant and equipment of the distribution network has beenadopted as a non-negotiable imperative to predict potential failure before actualoccurrence. This has become an on-going process and has helped CESC to mitigate damage,significantly reduce downtime and improve reliability of the system network. On the HVdistribution network, the Company continued with its efforts to progressively switch overto sulphur hexafluoride gas (SF6) filled state-of-the-art Ring Main Units (RMU), thusenabling safe on-load operations and quicker restoration of supply outages. Technology isalso used to enhance service capability to HT customers, who are covered under automatedmeter reading from remote sites, using GSM and GPRS communication networks. Majorinitiatives in this regard during the year were:
Automated Meter Reading (AMR): Coverage of AMR of 5,900 LTCT operatedconsumers has been successfully completed for reading of energy consumption from remoteand subsequent monthly billing. AMR of 3,000 distribution transformers has also beencompleted and the meter reading data has been made available in the browser basedMeter Data Management System (MDMS) for viewing loading status, breakdowns ofLT HRC fusing and 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. 30 such systems were successfully commissioned during the yearusing optical fibre. These provide a reliable method to remotely monitor and control suchstations and help in rapidly restoring power supply in affected areas. Work is continuingto install such systems at the other stations at a fast pace.
Award of USTDA Grant for Feasibility Study on Smart Grids:The US Trade and Development Agency (USTDA) awarded a grant of $618,860 to CESC to financea feasibility study for recommending appropriate Smart Grid technologies and pilotprojects across the electricity distribution network. The project is a top priority forCESC and, when executed, will improve efficiency and energy reliability for its 2.7million customers.
As a utility company that services over 2.7 million customers, establishing andmaintaining high levels of customer service is the overarching objective of CESC. In ourlast years report, we had brought out how CESC moved from a situation where Kolkatahad an average load shedding of four hours per day in 2006-07 to a load shedding freeKolkata by 2011-12. This year, the Company followed it up with wide ranging measures aimedat redefining the customer relationship management (CRM) function at CESC.
CUSTOMER ID: A concerted campaign was implemented to collect customercontact information such as mobile phone numbers and e-mail addresses. These are now usedto provide information by SMS on both planned and unplanned outages as well as resumptionof services; bills are also sent by e-mails.
CUSTOMER CONTACT: Addition of a new mobile number to its existing callcentre contact number to address connectivity concerns when using mobile phones bycustomers; technology revamp at call centre to include intelligent ID features byleveraging the customer information collected.
CUSTOMER SERVICES: Introduction of boundary-less servicing at the regionaloffice where people from any area can get their commercial related transactions carriedout or queries addressed; automated queue management solution introduced for betterefficiency and transparency.
CUSTOMER WEB-BASED SERVICES: Significant upgrade of web-enabled services forinformation as well as transactions getting information on billing, tracking ofapplications, downloading forms, introduction of bill payment through ECS and Net Banking;RTGS/NEFT facility for HT customers.
CUSTOMER CONNECT: Participation at local events such as trade and bookfairs; meetings with customer clusters such as clubs and local associations; awareness andinformation at educational and other institutions; distribution of booklets to educatecustomers about business processes followed by CESC and educating them on conservation andsafety.
CUSTOMER FEEDBACK: Introduction of voice based perception surveys tocapture customer feedback after various events such as restoration of supply.
Built on the principle of customer centricity, these measures are on-going and areexpected to transform the overall experience of our customers. Box 1 gives thedetails.
In a special initiative during the year, CESC offered value added services to DurgaPuja organisers in the city. These included single window processing for temporaryconnections, two 24-hour helpline numbers, on-the-spot billing facilities, nodal officersfor every puja and continuous contact with the organisers through SMS and telephone calls.Feedback surveys carried out after the event revealed an overwhelming satisfaction of theorganisers with these services.
During the year, CESC added around 1.10 lakh customers. More importantly, withcontinuous efforts and deployment of technology solutions, the average time taken toprovide a new connection came down from 18 days to 15 days. The Company operates acentralised and fully computerised 24x7 call centre as a primary consumer touch point forcomplaints and queries. This is integrated with the Companys distribution system,and allows immediate routing of complaint to the nearest service team enablingprompt and effective attention. During the year, the Company set-up a three-shift LTControl Centre managed by engineers for trouble call management.
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 Groups power business expects to add 7,000 MW to its total generationcapacity.
Several of these projects will be carried out by the Companys subsidiaries andalso include the Companys foray into alternative and renewable fuel sources. Thecurrent projects under execution include:
Chandrapur, Maharashtra: This is a 2 x 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. Construction work of project isnow in its advanced stages.
For power evacuation, the work on a 400 kV transmission line was completed during theyear. The two units, 1 and 2, are expected to be commissioned in Q1 and Q4, 2013-14,respectively. The Company is constructing a line for connecting it with the nationalnetwork which will be completed by Q3 2013-14.
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% CESCsubsidiary. All requisite clearances, including environmental clearances for the projectare in place.
Civil construction work is going on in full swing in the main plant area. Thefoundations of critical BTG area is almost complete and structural erection of boiler andpower house building is in progress. Boiler drum lifting for Unit 1 was achieved in March2013. Construction of the intake water pump house and laying of cross-country pipeline isin an advanced stage. Work on railway infrastructure as well as 400kV transmission line,which will have 240 metre high towers for crossing a two-kilometre stretch of the riverHooghly, is in progress. The foundations of the two river crossing towers and two anchortowers have been completed and erection of the towers are in progress.
Bhagalpur, Bihar: Nalanda Power Company Limited, another 100% subsidiary of CESC,has signed an 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 allocation of coal and securing sources of long term coalsupply over 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 Hydropower Project Limited in 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 TOR for environmentalstudy have been approved by MOEF. Other project development activities are in progress.
Phangchung, Arunachal Pradesh: CESC acquired Pachi Hydropower Project Limited inMay 2012, which has a 56 MW project in East Kameng district of Arunachal Pradesh. Thefeasibility study report (FSR) for the project has been completed for 45 MW installedcapacity and the proposal for TOR clearance for environmental study is under process.Topographic survey and geo-technical investigation are also in progress.
The preparation of detailed project report is by the end of 2013-14, which will befollowed-up with project developmental activities.
Jarong, Arunachal Pradesh: Jarong Hydro Electric Power Company Limited, an SPVof CESC, was allotted 90 MW Jarong hydroelectric project in West Siang district ofArunachal Pradesh. The company took up project development activities and completed theDetailed Project Report (DPR) in December 2012. After techno-economic appraisal of theproject based on DPR, it was found that the project is commercially unviable due to highcapacity cost and high tariff. Subsequent to this, the company has written to the stategovernment for an allotment of alternate project in lieu thereof.
Dangri, Rajasthan: This is the Companys maiden venture into the wind power.The 24 MW project was implemented during the later part of the financial year 2012-13 bySurya Vidyut Limited, which is a wholly owned subsidiary of CESC. The power from theproject is being sold to State Discoms under two separate power purchase agreements.
Ranchi, Jharkhand: In a significant development during the year, CESC has beenselected through a process of competitive bidding to take up distribution franchising inRanchi Circle of Jharkhand State Electricity Board. Franchising operation will beundertaken through a wholly owned subsidiary, Ranchi Power Distribution Company PrivateLimited (RPDCPL), and will include operation and maintenance of the distribution system,capital investments for network augmentation and improvement, metering, billing andcollection activities and consumer service. The Distribution Franchisee Agreement (DFA) tothis effect was executed between RPDCPL and Jharkhand State Electricity Board on 5December, 2012, with CESC as the confirming party. The distribution area comprises Ranchiand Khunti Districts of Jharkhand covering around 7,800 square kilometres andapproximately 3.5 lakh consumers. Preparatory work is currently in progress.
Port Harcourt, Nigeria: In another development, CESC has emerged as part of awinning consortium for privatisation of Port Harcourt Electricity Distribution Company inNigeria. CESC would be providing technical advisory services for planning, design andengineering of the distribution network, loss control measures, process and practiceimprovements and consumer service enhancement.
CESC operates in the organised retail sector through its subsidiaries.
Spencers Retail limited (SRl), is a wholly owned subsidiary of CESC inthe sector with 132 stores across India under the Spencers label, including 26hypermarkets. The stores cater to all family needs groceries, home and personalcare products, apparel and accessories, consumer durables and lifestyle products. In spiteof a difficult environment for the retail sector, the Companys efforts at improvingprofitability across segments while controlling operating expenses resulted inconsiderable improvement in performance. During 2012-13, it registered a robust same storesales growth of over 16%, with an average revenue per square feet of Rs 1,226 per month ascompared to Rs 1,060 per month in the previous year. Overall, the company moved closer toachieving an operating breakeven, with operating loss for the year coming downsignificantly from Rs 140 crore in 2011-12 to Rs 78 crore in 2012- 13. During the year, itcompleted the final phase of closing down unprofitable stores in the smaller format thefull benefits of which will accrue in 2013-14. The next year will also see the companyrolling out new stores in hypermarket format, which will allow it to consolidate itspresence in its existing clusters. Apart from these, focus will be on improving thenon-food business and in-store experience as well as building team capability to supportthe companys future growth plans for the business.
REAL E STATE
CESC currently operates in the sector through its subsidiaries. CESC Properties Limitedis currently executing a shopping mall project in Kolkata. The total built up area of themall is envisaged at approximately 700,000 square feet, with shops, retail outlets, anentertainment zone, multiplexes, a food court and fine dining areas. Construction work onthe project is in its final stages and around 90% of the built-up area has been alreadyleased out. The project is scheduled to be completed during the first half of 2013-14.
Metromark Green Commodities Private Limited, a wholly owned subsidiary of CESCProperties Limited is currently engaged in constructing a warehouse in Howrah. Thewarehouse is expected to have a built-up area of 45,000 square feet, with ten loading andunloading bays and two goods lifts.
HUMAN RESOURCES (HR)
HR is the key enabler of CESCs achievement of its long-term goals of growth andcontinuous performance improvement. This has assumed even greater significance in thecontext of the Companys transformation into a multi-location entity engaged indiversified businesses such as power generation and distribution, retail, infrastructureand BPO. The HR strategy of CESC has kept pace with these developments and is aligned tothe corporate objectives while simultaneously focusing on individual career developmentand growth aspirations. In CESC, a structured recruitment and selection process is inplace, which takes into account current strength, anticipated attrition and future needs.Young graduates are recruited from leading engineering and management institutes. Over theyears, CESC has built a strong relationship with major campuses attaining aPreferred Employer status.
CESC invests significant resources in the training and development of its employees.New recruits and trainees undergo an extensive induction process followed by rigoroustraining in functional areas. Simultaneously, the training and development needs ofcurrent employees are identified through structured processes and addressed throughtraining programmes drawn at the start of each year.
During the year, CESC carried out customised curriculum based training programmesorganised jointly with XLRI (Jamshedpur), IIT (Kharagpur) and IIM (Kolkata) to address theneeds of capability building and multi-skilling for its executives. A specialisedtechnical programme on latest power plant technology in collaboration with IIT (Delhi) wasalso organised to equip the line function engineers with latest and modern developments.Initiatives such as Young Executive Board, Coaching and Mentoring, and Outbound Learningprogrammes have been institutionalised over the years to develop and build the youngtalent pool in CESC.
The implementation of the Oracle HRMS to streamline routine processes and makeinformation available for faster and better decision making is in its last stage ofcompletion and is likely to go live during the next financial year. The second edition ofthe knowledge carnival, a unique initiative fostering a culture of creativity andinnovation started last year, was held during 2012-13, to showcase the innovations ofindividual departments within the Company.
The Asia Institute of Power Management, the training wing of CESC, which has aprogramme collaboration with SP Global Solutions - a member of Singapore Power Group- hasestablished itself by training power professionals across the country and abroad.
The revision of the existing Memorandum of Settlement to be executed with theemployees unions covering the non-covenanted employees is in process and will coverall parameters related to remuneration of such employees. Compensation and rewards for theCompanys executives are determined through a structured on-line PerformanceManagement System (PMS) to ensure transparency and credibility. A Balanced Scorecard modelhas been adopted for middle and senior management and a Key Result Areas model for juniorlevel executives. A reward and recognition scheme covering all categories of executiveshas been put in place this year to recognise outstanding executives of each division /department.
The leadership team of CESC remains actively involved in capability buildinginitiatives at all levels, including leading the cross functional teams which have beenformed to deal with issues such as customer centricity, talent management, communication,CSR, organisational excellence and PMS as a part of the change management process.
The executive attrition rate has come down significantly from 3.9% in 2011-12 to 2.43%in 2012-13. In terms of industrial relations, CESC continued to enjoy industrial harmonyin its business operations throughout the year. A Joint Bargaining Council has been formedto promote good industrial relations practices and to engage employee representatives inthe process of collaborative participation. As the Company enters a renewed period ofsustainable and inclusive growth, the industrial relations system will continue to play avital role in the process of moderation and structural change in the foreseeable future.
As on 31 March 2013, CESC had a workforce of 10,177 people on its rolls. No majorincident of service interruption due to industrial relations issues was reported.
INFORMATION TECHNOLOGY (IT)
At CESC, IT is not just an enabler of business processes, but forms an integral part ofthe organisations strategic and performance objectives. IT has been identified as akey element 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.
During 2012-13, one of the most important focus areas for the IT function was to createand implement customer centric systems and processes. These involved:
Upgrading the web-based customer services infrastructure: website,application and tracking, registration for value added services, e-payments usingcredit/debit cards, net banking, ECS and NEFT/RTGS payments.
Automated e-mails and SMSs that are sent to customers periodically ortriggered based on events such as service disruptions and resolution.
The Company also extended the coverage of CESCNET, its captive optical fibre datanetwork, from 18 nodal centres to 130 service establishments. In the previous year, CESChas commissioned a state-of-the-art data centre for its IT applications. During 2012-13, adisaster simulation was carried out successfully to ensure business continuity if such anevent ever occurred.
In another important development, the Company has started roll-out and integration ofGIS-enabled distribution systems. Successful implementation of the system has broughtabout significant efficiency in network planning, identifying and rectification of faults.
This has earned the Company the prestigious Intergraph Icon Award, which ispresented to companies that have used Intergraph software technology to significantlybenefit their business or industry. The implementation of GIS will be expanded to otherparts of the licensed area.
Several other important projects are currently in different stages of planning andimplementation. These include:
Intelligent IvRS solution for the call centre which will have facilitiessuch as customer recognition and automatic docket generation.
Upgrading the ERP to the latest version of Oracle Apps.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
CESC is committed to creating sustainable social and environmental impact through itsCSR programmes. The Companys initiatives aim at comprehensive and long-termdevelopment of the communities that it interacts within the course of its business. In aconscious effort, the Company has formed partnerships with various non-governmentalorganisations (NGOs) and other resource agencies for implementation of its CSR projects.The focus areas of CESCs CSR initiatives are: education, health, environment andsustainability, and community development.
During the year, CESC has launched the Urja Chetana Programme in 16 schoolsin partnership with Centre for Environment Education (CEE). It seeks to generate awarenessand action on energy conservation amongst students, who would carry the learning to thelarger society through community outreach activities. The Company also supported andparticipated in an awareness programme on Fly Ash Management organised by WestBengal Pollution Control Board (WBPCB). Ten schools were selected from Titagarh, Khardahand Barrackpore and over 1,500 students were sensitised through the programme. Anawareness programme on Electrical Safety and Energy Conservation was organised by TitagarhGenerating Station (TGS) in Surya Sen Shikshaniketan in Khardah. A community outreachprogramme to create awareness on impact of greenhouse gases and other issues related toenvironmental pollution was organised by Titagarh Generating Station on 5 June 2012 toobserve the World Environment Day.
Developing parks and playgrounds for children around generating stations is animportant environmental initiative by CESC. Not only do these help in reclamation andbeautification of public spaces, but they also have a positive impact on the developmentof children and residents of the surrounding communities. In 2012-13, a childrenspark called Kishalaya Udyan and a playground called KishalayaPrangan were developed in the Titagarh Municipality. Budge Budge Generating Station(BBGS) has been participating in the Science Fair organised by Maheshtala Nature StudySociety for several years now. The Science Fair provides an opportunity to schools in andaround Maheshtala to demonstrate innovative models based on the principles of science.During the fair, BBGS demonstrated various models related to generation of electric power,rain water harvesting and pollution control. As a part of its commitment to environmentand sustainability, CESC has embarked on a drive to convert CESC House itscorporate office into a LEED Certified Green Building under the existing buildingcategory. During the year, nine significant facility improvement measures were implementedin various phases, which saw the energy consumption of CESC House going down by 2.3 lakhKwh. The energy savings are expected to be higher in 2013-14.
In a significant development during the year, the CESC Learning LabsProgramme was launched in September 2012 in four schools, in partnership with NIITLimited. The programme is a learning solution which integrates Science and Math Labs withclassrooms. It allows students to enhance their learning capabilities by helping themcorelate classroom learning with computer aided simulations. Learning Labs in Mathematicsand Science for Classes VI-X emphasises on learning by doing to foster appliedreasoning. The programme was conceived as a value added application of computer-aidedlearning as opposed to a general computer literacy programme.
Access to good libraries plays an important role in improving quality of education. Inview of this, CESC has launched a library programme in schools around its generatingstations. In 2012-13, a library was set up in Pour Madhyamik Balika Vidyalaya in Titagarh.The books donated cover a range of subjects from history, geography and mathematics toscience, literature and fiction as well as CDs on various topics.
Quality of education is determined to a large extent by the availability ofinfrastructure in schools. CESC has been regularly aiding the development ofinfrastructure of schools around its generating stations. In 2012-13, infrastructuredevelopment activities were undertaken in Pour Madhyamik Vidyalaya in Titagarh, and PujaliRaghunathpur School in Budge Budge.
Promoting high quality management education is another major thrust for the Company.CESC has been supporting the setting up of International Management Institute Kolkata, a state of the art management institute with hostel facilities in the heart ofKolkata at Alipore.
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. In 2012-13, CESC supported Titagarh Municipal Hospital insetting up ENT and ophthalmology wards and in upgrading the maternity ward. The hospitalprovides services to around 10,000 people from the Titagarh Municipality and nearby areas.
COMMUNITY DEVELOPMENT INITIATIVES
During the year, CESC initiated the Alor Disha Project in Antaranga School,in partnership with the Kalighat Society for Development Facilitation (KSDF). Antarangahas been working for the development of mentally challenged girls for the last 12 yearsthrough education, counselling, vocational training and cultural activities. AlorDisha aims at skill building of mentally challenged students for their sustainablerehabilitation. 25 students of above 18 years have been selected for training in makingjute products, kantha embroidery and bead jewellery. The students and their mothers arebeing provided all kinds of support from training in enterprise development to designdevelopment, market linkage, information about and links to government schemes andfacilities, etc.
In 2012-13, the Company undertook street lighting project in areas around Budge Budgeand Titagarh Generating Stations.
The objectives behind the intitiative were to ensure safe movement of people living inthe surrounding communities and better security surveillance of the localities after dark.
TABLE 3: STANDALONE FINANCIAL PERFORM ANCE OF CESC LIMITED FOR THE YE AR ENDED 31 MARCH 2013
|Fuel ||2012- 13 ||2011-12 ||% Change |
|Revenue from operations ||5,317 ||4,681 ||13.6% |
|Other Income ||93 ||101 ||-7.9% |
|Total Income ||5,410 ||4,782 ||13.1% |
|Cost of Power Purchased ||945 ||636 ||48.6% |
|Fuel Costs ||1,797 ||1,762 ||2.0% |
|People Costs ||559 ||471 ||18.7% |
|Generation, Distribution, Administration & Other Costs ||692 ||654 ||5.8% |
|Total Expenses ||3,993 ||3,523 ||13.3% |
|EBIDTA ||1,417 ||1,259 ||12.6% |
|Depreciation ||306 ||290 ||5.5% |
|EBIT ||1,111 ||969 ||14.7% |
|Finance Costs ||338 ||276 ||22.5% |
|PBT ||773 ||693 ||11.6% |
|Less: Provision for Taxes Current Tax ||155 ||139 ||11.5% |
|PAT ||618 ||554 ||11.6% |
Table 3 summarises the financial performance of CESC Limited for the year ended 31March 2013 as a standalone entity.
During 2012-13, total income (including other income) of CESC as a standalone entityincreased by 13.1%, from Rs 4,782 crore in 2011-12 to Rs 5,410 crore in 2012-13.
Overall operating expenses grew by 13.3% to Rs 3,993 crore in 2012-13 primarily drivenby increase in cost of power purchased. In spite of this, earnings before interest,depreciation and taxes (EBIDTA) went up by 12.6% over last year to Rs 1,417 crore in2012-13. Profit before depreciation and taxation (PBDT) reflected a year-on-year increaseof 9.8% to Rs 1,079 crore in 2012-13.
The Companys profit after taxes (PAT) for 2012-13 stood at Rs 618 crore, whichreflects a 11.6% increase over the previous year. The Earning per Share (EPS) during theyear stood at Rs 49.5 compared to Rs 44.37 in 2011-12.
A strong internal control framework is an essential pre-requisite of growing business.In this context, the Companys internal control systems are commensurate with itssize and the nature of its operations. It has well documented policies, procedures andauthorisation guidelines to ensure that all assets of the 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 and placed before the Board of Directors, wherenecessary. The Internal Audit Department also assesses the effectiveness of riskmanagement and governance process.
RISKS AND CONCERNS
CESCs Risk Management Committee operates on a comprehensive risk managementframework that the Company has put in place over time. The Committee is headed by theManaging Director and comprise the entire senior management team. Divisions identifyoperational and tactical risks and suggest measures for mitigation and control. TheCommittee supervises and monitors the risk identification and mitigation activities ofeach division.
CESC identifies the following key areas of risks and concerns.
MACROECONOMIC AND 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 Groups investment and long-term purchase agreement withResource Generation Limited.
It is becoming more and more difficult to build generating stations inside a congestedmegapolis like Kolkata not the least because of environmental concerns. AsCESCs plants age, it is natural that their operating efficiencies shall reduce;beyond a point in time, shutting down and replacement of these plants will becomeimperative. If the Company is not allowed to build replacement plants at the sites wherecurrent generating stations exist, the cost of evacuating and distributing power from farflung locations into the licensed area will increase substantially, in turn impactingquality 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 CESCs older plants hadbeen designed for high quality coal as input energy source. With the supply of this typeof coal drying up, it will become more difficult to operate these generating stations and replacing these with new plants capable of using currently available qualitiesof coal will become necessary, with its attendant capital cost commitments. There are alsoserious issues of consistent slippage of quality of coal supplied by the governmentmonopoly, which is well known in the sector. To mitigate the operational risks associatedwith availability and quality of power, the Company invests significant resources in themaintenance of its generation and distribution assets. At the same time, the newgeneration projects of the Company have been planned with an objective of ensuringcontinuity of availability of power in the medium to longer term.
Power is a highly regulated sector. This exposes the Company to risks with respect tochanges in policies and regulations. Besides, given the nature of the industry, there is arisk of more stringent policies and norms aimed at addressing environmental concerns. Thiscan make it more difficult to execute new projects as well as increase the cost ofoperations.
Efficient managing and recycling of fly ash is one such area.
CESC is conscious of these risks. To address the risks associated with fly ash, theCompany ensures that a large portion of CESCs dry ash is used by the cement andbrick industries; some of it is also exported to Bangladesh on river barges. All thegenerating stations of the Company have achieved 100% ash utilisation. As explainedearlier, CESC, through its subsidiaries and Group companies, is also exploringopportunities in power generation using alternative and renewable fuel sources to mitigatethese risks.
The global economic scenario continues to be uncertain. The global energy sector, too,is witnessing structural changes that may have long-term implications for demand-supplybalance as well as preferred choice of fuel. The economic environment in India alsoworsened during 2012-13. The GDP growth rate moderated further to 5%. Interest rates andinflation continue to be high, affecting business and consumer sentiment. But the biggestworry, especially for the power sector, has been uninspiring policy environment. This hasaffected not only fresh investments, but also project completion. Similarly, operationalperformance of the sector has suffered due to shortages and high global prices of coal which accounts for most of the generation capacity in the country.
However, the demand outlook for power in India continues to be strong. And CESC, withits experience and capabilities in the sector, is well positioned to benefit from theopportunity.
The Company, through its subsidiaries and Group entities, has been active in planningand implementing various power projects, one of which is likely to start commercialproduction in 2013-14. It has also undertaken investments in other sectors such as retailand BPO to mitigate potential long-term risks associated with power.
The financial statements appearing above are in conformity with accounting principlesgenerally accepted in India. The statements in the report which may be consideredforward looking statements within the meaning of applicable laws andregulations, have been based upon current expectations and projection about future events.The management cannot, however, guarantee that these forward looking statements willactually be realised or achieved.
| ||On behalf of the Board of Directors |
| ||Sanjiv Goenka |
|Kolkata, 28 May 2013 ||Chairman |