BSES is one of the most efficient power licensee company in the country distributing electricity in the suburbs of North Mumbai, covering 75 per cent of Mumbai's total area. The company has been able to reduce its reliance on bulk suppliers after commissioning its 500 MW plant at Dahanu, Maharashtra. It has been consistently bringing down its transmission and distribution losses. BSES has combined all these advantages with a professional approach to business, making itself more profitable than other licensee like Ahmedabad Electricity and CESC.
Things have even moved faster in the last three years and the company is now planning to enter other states besides Maharashtra. RV Shahi, chairman and managing director, BSES, spoke to Rakesh Sharma about BSES's future plans.
Q: BSES has chalked out a 15 year business plan with the help of Administrative Staff College of India. Could you give details?
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A: BSES has developed a strategy to expand its activities. This corporate plan covers a 15 year period up to 2010. As per this plan, we will concentrate up to 80-85 per cent of our financial resources for expansion in core areas of competitiveness, which include generation, transmission and distribution projects.
On the generation side, we plan to expand our capacity by 2000 MW in the next five years from the current 500 MW. Our strategy is to develop short and medium gestation plants which will use naphtha or gas and long gestation projects which will use coal or lignite as fuel. Approximately, 1000 MW of this would be medium and short gestation plants.
On the transmission and distribution side, we plan to expand through joint ventures as a number of state electricity boards will be going for gradual privatisation of their distribution system. Currently, six to seven states are at different stages of privatisation. BSES has already offered its bids in Orissa, where four distribution companies are expected to be privatised through four joint ventures. We are also interested in other states like Haryana, Gujarat, Goa, Andhra Pradesh, Goa, Delhi and Uttar Pradesh. These states are likely to reorganise their distribution business and will gradually have joint ventures with private sector.
The balance 15-20 per cent of the resources will be utilised for integrated or synergistic operations. We plan to set up a coal washery at Korba in Madhya Pradesh with a capacity of 2.5 million tonne at a cost of Rs 55 crore. This will help us to reduce the ash content in coal from 42-45 per cent to less than 30 per cent. This coal will be used for our power station at Dahanu and will solve a lot of environmental problems. We also plan to develop high quality electric meters to be used by BSES and other utilities.
We have also evolved a strategy to slowly diversify into telecommunication. We plan to lay an optic fibre cable network to modernise our electricity distribution system in Mumbai. This network when completed will help us in augmenting and modernising our electricity distribution management. A part of this capacity will be used for communication, multimedia and telecom applications and would be given on hire to various agencies.
Q: Why is BSES expanding through the joint venture route?
A: Whenever we have gone for joint ventures, it is for strategic reasons. If we were to do all projects through BSES, we would not enjoy the strategic advantage which we would get otherwise. By joint ventures, we will able to create larger capacities. In some cases, the opportunities are coming only in the form of joint ventures. Most states are opening up the distribution privatisation business through joint ventures with the state electricity board.
In some cases the projects are awarded to a third party. For instance, in Andhra Pradesh, the 220 MW project was awarded to Shiv Construction on the basis of competitive bidding. We later picked up a 70 per cent stake in it.
Q: What is the present status of the proposed 495 MW Palghar project?
A: The Maharashtra government had constituted the Kukde Committee for examining Mumbai's power requirements. The committee is positive that the project is required. BSES has already received clearance from the State Irrigation Department for the availability of water.
The State Pollution Board has also cleared it. We expect to receive the government's approval soon and commence work in the next six to eight months. The papers for the proposed site have been submitted. Since 98 per of the land is non-agricultural, government clearance shouldn't be a problem.
Q: How will BSES's perform in 1997-98?
A: In 1997-98, net profit should be around Rs 250 crore and turnover should cross Rs 2000 crore. The Dahanu plant has worked on the highest plant load factor (PLF) in the country at 85 per cent.
Further, we have continued to reduce distribution loss, which is a big problem in the country's electricity industry. Distribution losses range from 20 to 50 per cent in different states. BSES's distribution losses have been reduced from 16.4 per cent four years ago to 11.7 in 1996-97. And in 1997-98 this has been further reduced to 11.5 per cent. As a result, we continue to become more and more efficient and able to control costs. One per cent reduction in distribution loss is Rs 17-18 crore improvement in profitability. In the last three years, we have improved our distribution losses by 3-3.5 per cent in the last three years.
Last year, one-third of the power generated at Dahanu was given to the grid. From February 1998, most of the power is being supplied to the BSES licensed area and only a marginal amount is being given to the grid.
Q: Do you think that the reasonable returns for a licensee company should be delinked from the RBI bank rate?
A: Yes, it should be delinked as there is no justification for the reasonable rate to be linked to RBI bank rate. A proposal has already been submitted to the government demanding reasonable returns as offered to independent power producers for generation companies and the rate of return for licencees to be delinked from the bank rate.
We have also made a proposal to the government that distribution business needs more attention and has been neglected. Efficiency is important. The rate of return must recognise this fact and should be linked to a proper element of incentive for efficiency. Reduction in distribution losses directly helps the consumer, because according to the Schedule VI of the Electricity Act, higher the distribution losses higher the burden on the consumer and vice versa.