Business Today

"Saved 150 days in time and Rs 100 crore in cost"

Downturn helped the power company commission a plant five months ahead of schedule—and set a national record.

Somnath Dasgupta | Print Edition: January 10, 2010

When the downturn started, power equipment manufacturers had a lot of orders cancelled, and therefore they had capacities. I first picked up the reports of order cancellations at a meeting of past presidents of the Confederation of Indian Industry on the state of the economy in February-March last year, where they said companies were facing cancellation of orders.

So, for CESC, the downturn became a huge opportunity, inasmuch as we were able to drive the contractors of Budge Budge III [the third 250 MW unit of the 500 MW project] to deliver equipment ahead of schedule, and as a result of which the project actually got completed within 28 months of financial closure, a national record. For CESC, which supplies Kolkata and some adjoining areas, the third 250 MW unit is very important as it will help meet the peak system demand of 1,500 MW in our licensed area.

We will still have to import power, but Budge Budge will be the last expansion possible at the current locations in and around Kolkata because of increasing concerns about the environment. Interestingly, till the downturn actually happened and several capital goods manufacturers started facing cancellation of orders, equipment manufacturers were not willing to give you deliveries ahead of the schedule. We discussed the post-downturn scenario at a CESC team meeting; everybody said it was an opportunity.

The team, led by Jayanta Chakravarty (Executive Director, Projects), actually drove home this whole thing…. We had so many suppliers. We had to talk to BHEL, the sub-contractors, the suppliers. It was a call: you could have got lower prices, but then we had irrevocable letters of credit. So what happens is that if you save five months of construction, then you have saved interest for the full five months— our saving was nearly Rs 100 crore. So, to that extent you have saved on the project cost.

And what we needed to do was to push equipment suppliers, to incentivise them, to deliver ahead of plan. We could have stuck to the schedule and driven down costs, or preponed the schedule and maintained the same costs. We chose the second option because our sense was that if you could prepone commissioning by five months or four months, whatever, you could actually get…the contribution from the project would be higher.

This way, you honoured the contracts that were given, so you were different from everybody else who renegotiated contracts. And you got the benefit. It was a win-win for both—for the suppliers and for us. If we had not done this, it would have been completed four-five months ahead of schedule. Normally, we would have completed it by March 2010, but we did it in September 2009, in 28 months. We set a record as being the fastest-implemented power plant in India.

BHEL is happy, everyone is happy. There were certain incentives, which were built in for BHEL, but nothing substantial. But it's a matter of great achievement— it's the fastest-implemented power plant in India. And the motivation it gave the team—you have to meet the team to see how charged up they are…it's unbelievable.

The standard norm is 36 months, while Budge Budge was to come up in 33 months we did it in 28 months. At CESC, we have done other things like tying up with Singapore Power to improve our distribution set up, and become best in terms of reliability, but this is part of a continuous process, not because of recessionary pressures.

You strive for excellence. Budge Budge has been operating at a plant-load factor of 100.5 per cent, which is the second-highest among all thermal power plants in India. Also, we are implementing a CDM project that makes it the first thermal power plant in the world to earn carbon credits.

But the Budge Budge expansion is the lesson of a lifetime. Most CEOs will talk of some cost savings this way or that way, some will say how they have saved process costs, reduced people. I can also say how at Spencer's we saved Rs 150 crore a year…. But those are not lessons—you were forced to do it. But this was a lesson, which was that even a downturn presents an opportunity.

That was a huge learning, it's the biggest learning for me from the downturn. Who would have ever thought we would save five months of commissioning because of the recession?

The Spencer's Mall The other thing is that we have now awarded the contract to build a mall in Ballygunge, in Beckbagan for Spencer's Retail, a wholly-owned subsidiary of CESC. The costs were looking high, because steel, cement, everything was completely at crazily high prices. That was in the first quarter of 2008, around January.

We wanted to go to a reputed contractor like Shapoorji Pallonji, Larsen and Toubro, someone of that calibre. They said, "Oh, we will not take any contract below Rs 250 crore or 300 crore…we are overbooked…this is too small…we will have escalation clauses on steel, we will have escalation clauses on cement."

We have now signed a contract with Larsen and Toubro at a price at least 16 per cent lower than what we were facing then. Steel has not gone up to the extent that was anticipated. Now it is a turnkey project, there are no escalation clauses. The construction cost is Rs 200 crore. The 7,00,000 square feet mall will be the largest in Kolkata.

— Sanjiv Goenka, 48, Vice Chairman, CESC

)As told to Somnath Dasgupta)

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