Financial Daily from THE HINDU group of publications
Monday, Aug 04, 2003
`Captive generation can't bridge demand, shortfall'
Mr Sumantra Banerjee
Kolkata , Aug 3
FOR a company that brought thermal power to India, CESC has been in dire straits for quite some time now, primarily on account of what its MD, Mr Sumantra Banerjee, describes as a `time disconnect' between cash-payouts and cash-inflows.
This happened as the flagship company of the RPG group's tariff reviews for a few years got substantially delayed leading to payment defaults and increased borrowings.
Just at a time when the debt restructuring exercise launched over a year ago began reaching its logical conclusion, came the Electricity Act, 2003, opening up fresh areas of concern for the company.
The Rs 2,400-crore utility, which serves the city and its vicinity, has a consumer base of about 18 lakh and a generating capacity of 1065 MW.
Excerpts from an interview: What are the threats and the opportunities thrown up before CESC by the New Act?
The possible flight of some major consumers due to lack of a level playing field is one of the threats for companies like CESC. CESC is compelled to charge a cross subsidy under the New Act, which says that cross subsidy can be removed only progressively.
This makesits power costlier for some such as the high-end industrial consumers who might now choose to set up a captive generating facility where they do not bear the subsidy levy.
Licencees like CESC also run the risk of losing their customers if some bulk power generator goes cherry-picking from among its clients.
CESC cannot choose its customers in its licence area since it has mandatory responsibility as a licencee to keep supplying whoever is left within its area.
It is entirely possible that CESC might be left with the lower-end customers whose monthly consumption is hardly 100 units.
And the opportunities?
The Act gives fresh incentive to invest in generation capacities for sale to third parties. You see, the bulk of the new capacity has to come from existing large generators and it cannot come from captive generation.
Recognising the need for creation of additional capacity and given the past experience with IPPs, the captive generation sector has been opened up but an element of myopia has crept in.
Captive generation cannot be the bridge between energy demand and shortfall, and capacity addition would have to come from largely existing generators like NTPC in the Central sector and the existing utilities.
What are your plans in generation?
We plan to set up a new power plant and we are awaiting the new tariff policy before we crystallise our investment plans. Generation is the way to go.
But the company has undergone a severe financial crisis primarily on account of a time disconnect between cash inflows and outflows on account of operational expenditure and payment to lenders.
Now that CESC has returned to the black, what are your plans for the future?
Customer-wise tariff is not yet finally known (since 2000-01). We know our average rates for 2000-01 and 2001-02 (about Rs 3.9 per unit).
There has been no award as yet for 2002-03 and an interim award for 2003-04 is the current rate now (Rs 4.15). CESC's revenue arrears recoverable from its 18 lakh consumers are about Rs 540 crore for the two years since 2000-01.
As such a company that has never made a loss, it found itself in the red for nearly four years now from which it has now staged a comeback.
It faced an image problem with its customers as much with its creditors to which it owes Rs 3,000 crore.
A debt restructuring exercise had to be launched since servicing the annual debt burden was becoming a problem because arrear tariff revenues for 2000-01 and 2001-02 remain unrealised.
How is the debt restructuring exercise progressing?
We are hopeful of concluding this exercise by October and our lenders (including IFC, ADB, CDC and Kleinwort Benson Ltd, besides the Indian institutions) now believe that CESC remains a profitable and viable enterprise.
This would be a positive development for the utility as well as the consumers since future tariff increases would be marginal after lowered interest costs (brought about by lower interests which were likely after the CDR).
We will utilise the current year to consolidate our performance. The first quarter has been good with a Rs 15-crore net profit against a Rs 23-crore loss in the corresponding previous period. We have reduced T& D loss from peak 23 per cent to about 20 per cent.
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