CESC to focus on distribution over power generation

The Kolkata-based CESC, which supplies electricity to the West Bengal capital and neighbouring Howrah besides parts of Rajasthan and Greater Noida, is going to focus less on power generation and more on distribution. This is expected to drive the future growth of the flagship company of the RP-Sanjiv Goenka Group (RPSG).

The power business (generation and distribution) accounts for 56 per cent of the group’s annual turnover of Rs 17,260 crore. The CESC alone contributes Rs 6,616 crore to the top line. 

Since 2010, the RPSG has invested Rs 8,000 crore in its power-generating capacity, ramping it up from 800 Mw to 2,600 Mw. The CESC produces 1,125 Mw through its three power-generating stations, supplying electricity to 3 million people in Kolkata and its vicinity.

“There is not going to be further investment in power generation. Instead, we will continue to grow our (power) distribution business,” said Sanjiv Goenka, the group chairman, recently. He added there was enough power-generation capacity across the country.

The decision to focus on distribution could have been prompted by two factors: The group wants to focus on sectors that need less capital infusion. Also, it wants minimal government or regulatory intervention.

Besides Kolkata and its vicinity, the CESC operates in other parts of the country through its subsidiaries, which have bagged distribution contracts from various state electricity boards.

In Rajasthan, the CESC is betting on its wholly owned subsidiary, Kota Electricity Distribution. It has won 20-year contracts for Kota, Bikaner and Bharatpur. It is also eyeing a distribution contract for Ajmer.

“After the CESC’s experience in Jharkhand, it seems that the company is most likely to focus on expanding its distribution business in Rajasthan,” an analyst with Motilal Oswal said.

In 2012, the Ranchi Power Distribution Company, a CESC subsidiary, won the distribution contract for the Ranchi area from the state government. However, the distribution could not be started as it ended up in a legal battle.

Apart from Rajasthan, the CESC also has power distribution rights in Greater Noida in Uttar Pradesh, where it operates through Noida Power Company Limited. The firm is jointly owned by the CESC and the Greater Noida Industrial Development Authority.

The shift in focus is, however, unlikely to affect the current generation units or the ones already announced. One of the CESC’s subsidiaries has announced a 2,000-Mw power project in Bhagalpur, Bihar — to be built in two phases. Another 1,320-Mw project has been commissioned in Odisha. There are other projects in solar, wind and other renewal energy. Analysts at Motilal Oswal are of the opinion that this was a step in the right direction.

“Power is expected to be in oversupply in the near future and there can be some stagnation. However, distribution is a key opportunity, following the oversupply of electricity,” an analyst said.

The company expects pan-India power demand to increase from 2,035 Mw in 2015-16 to 3,000 Mw in 2025-26.

In the 1980s, Rama Prasad Goenka, the founder of the RP Group (RPG), undertook a series of acquisitions. Upon the insistence of Sanjiv Goenka, his younger son, Rama Prasad acquired the CESC. Subsequently, in 2010, during the split of the RPG between Sanjiv and his elder brother Harsh, the CESC landed up in the RPSG kitty.

As of September 30, 2016, the CESC had a total asset base of a little more than Rs 18,200 crore; its liabilities were about Rs 5,100 crore. RPSG’s total assets are valued at Rs 31,981 crore.

The group has faced some problems with its power-generation capacities. Its subsidiary, Jharkhand Electric Company was supposed to produce 600 Mw of thermal power in the state but is stuck on account of coal linkage and land issues. The upcoming 1,320-Mw project at Dhenkanal in Odisha is also yet to receive coal linkage.

The group has also undertaken a restructuring plan: Its power generation and distribution businesses would be separated into different entities. Besides, the CESC’s shareholding in 35 subsidiaries, spanning from power to retail to BPO, will also be bifurcated.