Business Today

CESC: Let there be light

Sanjiv Goenka        Print Edition: Aug 5, 2012

The transformation of CESC, responsible for Kolkata's power supply, into one of India's best-run power utilities, is a remarkable story of a company reinventing itself . By 1989, when the Goenka association with CESC began, Calcutta, as it was known then, had earned the dubious distinction of being India's "load shedding city". Domestic and industrial consumers lived without power for 10 hours a day, and the problem was aggravated by power theft. There had been no worthwhile addition to CESC's generating capacity, a large part of which was half a century old. The lacklustre balance sheet provided no joy to investors. And the state government refused to revise tariffs or delayed revisions. Meanwhile, fuel and operational costs continued to rise.

THE CASE
CESC was deep in the red. It needed to raise tariffs, increase generation capacity and end load shedding.
THE STRATEGY
Took legal recourse. Set up a power plant. Improved distribution efficiency. Increased service quality.

Over the years, the state government passed the increasing cost burden to CESC's industrial consumers, which meant an alarming rise in cross-subsidies. The government had different and conflicting interests. Its electricity board supplied CESC, competed with it, and also played the role of the tariff regulator. This led to disallowance of CESC's legitimate tariff claims, almost forcing its business to become non-viable. CESC had no other option but to take legal recourse. This route was time consuming and the company also had to face government-appointed committees to examine issues relating to fuel surcharge. By 1999, the West Bengal Electricity Regulatory Commission was constituted. It had judicial powers to determine tariffs. But even after the notification of the commission, there was no tariff revision for two years. Costs remained unrecovered and for the first time in its history, CESC went into the red - the company's net worth was wiped out.

In a landmark judgment in October 2002, the Supreme Court upheld the claims made by CESC. With this, the utility eventually came back from the brink. In the meantime, the company set up a 500 MW (two units of 250 MW each) generating plant at Budge Budge. A third unit was added in 2010.

Today, Budge Budge is one of India's most efficient thermal power plants. The overall combined availability of CESC's power plants was about 95 per cent in 2011/12 and the three generating stations are among the top 10 in the country. Transmission and distribution losses are now among the lowest. By the end of 2011/12, there was no load shedding in Kolkata for want of supply despite the substantial rise in peak demand.

CESC, which had a debt equity ratio of 5.4:1 a decade ago, has improved its position remarkably and the ratio now stands at 0.6. The company added 100,000 new customers last year and the average time taken to provide new connections has come down to 18 days from 28. It is now ready to add generating capacity, invest in improving distribution efficiency and increase the overall quality of its services.

The author is Chairman, RP-SG Group, & Vice Chairman, CESC

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