CESC drops plan to demerge power generation and distribution business

Shashwat Goenka inducted to the board of CESC as its vice-chairman and additional director, subject to the necessary approvals

CESC has decided not to pursue the demerger of its power generation and distribution business, which it had earlier planned.

In a filing with the BSE, CESC said: “The board of directors, at its meeting held today, inter alia, discussed the present status of the demerger and decided that it would be prudent and in the best interest of the company that its shareholders and other stakeholders no longer pursue the said demerger.” Demerger of these two lines of business into CESC (distribution company) and Haldia Energy (generation company) had met with opposition from the West Bengal Electricity Regulatory Commission (WBERC).

It had flagged concerns over asset distribution between the two firms in the case of a demerger, and had questioned if the demerged entities had received any favour from parent CESC. The power regulator refused to approve CESC’s planned power purchase agreement in case of a split.

People in the know said the regulator had sent a letter to CESC in this regard last year, to which CESC responded that none of the demerged entities had benefitted from the parent. Following this, the matter did not proceed any further.

According to WBERC sources, a relook into the valuation of entities, in case of a split, was also needed.

Even though CESC had obtained approval from the NCLT for a demerger, WBERC had stated that under Section 17(3) of the Electricity Act 2003 and provisions of the West Bengal Electricity Regulation Commission (licensing and conditions of license) Regulations, 2013, approval of the state power regulator is needed before approval for the power purchase agreement is granted.

In January, against the original plan to split CESC into four companies — CESC, Spencer’s Retail, CESC Ventures and Haldia Energy — it had proceeded with demerger of the company into three firms. The retail business was led by Spencer’s, the FMCG, services, and other wings of the business by CESC Ventures, and the generation and distribution businesses by CESC.

“The company will submit the necessary application to the Kolkata bench of the NCLT, in this regard,” the notice by the company added.

Previously, CESC Chairman Sanjiv Goenka had said that owing to the complexity of the power generation business in the country, and the low yield from this business, CESC will focus on strengthening its distribution business. On the other hand, investments in power generation are expected to be frozen.