ANNUAL REPORT 2000-2001
Ladies & Gentlemen,
It gives me great pleasure to welcome you to the 15th Annual General
Meeting of your Company. We are particularly happy that we have in our
midst today, Mr. Ole Johansson, President and CEO of our Principal
Shareholders Wartsila Corporation. His presence symbolises the importance
of India and South Asia to the long term business goals and objectives of
The Report and Accounts of your Company, including the Notice to the
Shareholders, have been in your hands for some time and with your
permission, I shall take them as read.
I am pleased to report on behalf of the Board that your Company's
performance for the year ended December 31, 2000 was creditable, given the
slowdown in fresh investments in the manufacturing sector, and the high
fuel oil prices prevailing through most of the year. Your Company earned a
PBT of Rs. 280 million on an income of Rs. 3465 million, representing a
growth of 11% and 6% respectively over the corresponding figures for 1999.
Your Company maintained its dominant market share in the residual fuels
based power generation market forging and sustaining long-term partnerships
with customers, driven by its commitment to offer energy solutions rather
than mere product packages. Cost efficient power generation, progressively
shorter installation periods and state-of-the-art technology combine to
satisfy users representing almost all major industrial houses. The
partnerships cover a spectrum of process industries of the "brick and
mortar" businesses such as cement, steel, paper textile, natural and man-
made fibre, caustic soda and chemicals and Software Technology Parks
representing the "new economy". In my statement last year, I had said that
both the "old economy" and the "new economy" are really complimentary to
each other - indeed they have "a distinction without a difference' to
quote from Business Week.
An interesting observation
During the year a total of 246 MW of Power Plants were delivered as against
267 MW last year. These included 26 MW from the Khopoli Plant. As of 315'
December 2000 the cumulative deliveries to India were 2084 MW of which 1718
MW are in operation. The difference of 366 MW represents the projects under
execution as at the end of December 2000. The year was particularly
satisfying insofar as it saw the realisation of the Management team's dream
of the early nineties to cross cumulative Power Plant deliveries of 2000 MW
by the year 2000.
In the year under review, the Marine Division secured orders for 14 engines
to be fitted on seven tugs. All tugs are being built by Indian shipyards,
four for an owner' in the Middle East, and the rest for Indian owners. Your
company was also successful in winning an order for the main propulsion
engine for a 93000 DWT Tanker being built by Cochin Shipyard. Total
deliveries during the year improved to 18 engines from 12 in the previous
year. Keeping pace with last year's success with the Indian Navy, your
Company consolidated its position with an award for the supply of yet
another 12 DG sets with acoustic enclosures to be fitted on three frigates.
Speech by the Fifteenth Annual General Meet
Your Company's-Service Division also achieved a satisfying milestone in
2000 crossing a turnover of Rs. 1000 million for the first time. The
critical success factors were shorter response times, quicker turnaround
during all types of overhauls, and winning customer loyalty through
technical interventions aimed at improving plant availability.
Your Company's O & M activity completed a successful third year of its
operation, with a 74% increase over the previous year's operating base
which at the end of year 2000 stood at 223 MW: The number of plants under
this Division's care increased from nine at the end of year 1999 to
seventeen at the end of year 2000 covering several industry sectors. Being'
a pioneer in developing the O&M competencies for all capacities of Wartsila
captive power plants, your Company aims to become preferred operator for
customers of the entire range of Wartsila Power Plants including gas power
Coastal Wartsila Petroleum Ltd., the 50:50 joint venture between your
company and Coastal Corporation has completed two years of operations in
the procurement and supply of Fuel Oil. With a strong focus on product
quality and customer service, the Company is steadily increasing its spread
of customers and volume of business.
ECONOMY: The economy is going through a difficult and recessionary phase.
Overall the economic growth for the Financial Year 2000-01 is estimated to
be 5.g% as against 6.4% in the previous year. The capital and intermediate
goods industry continues to witness sluggish and weak demand indicating
surplus capacities. Withdrawal of Quantitative Restrictions (QRs) on
additional products with effect from 1s April 2001 has further dampered the
confidence of domestic industry, which is experiencing for the first time
the full impact of global competition. The growth of exports has also been
depressed in the current year due to a fall in global demand as a result of
the slowdown in US and Japanese economies, although a handful of countries
like Germany Canada and some in Latin America have helped to mitigate the
impact to some extent.
Against this depressing backdrop, it is heartening that the recession has
not dampened the confidence of foreign investors, with FDI inflows
increasing by 39% to Rs 45 billion during the first quarter of the current
calendar as compared to Rs. 32 billion in the corresponding period last
year. This is a very strong indicator of the faith and confidence that
global players have in our economy, in our resources and in our market. It
is gratifying to ,note that the foreign exchange reserves have increased
from US$ 37 billion last year to a healthy US$42 billion currently.
A report published by A T Kearney in February this year entitled FDI
Confidence Audit:India states that "market size and potential give India a
definite advantage over most other comparable investment destinations..
Combination of Indian workforce's education levels and technical
capabilities with competitive wages are India's other principal asset".
This extract substantiates fully what I have just now said.
A major deterrent, of course, is the lack of proper infrastructure, an area
which for some inexplicable reason has not received its due attention since
our Independence. It is clear that the infrastructure that we have built in
the last 50 years would need to be doubled in the next 5ears if the
formidable economic challenges that stAre us in the face are to be met.
This highlights the enormity of the task that we have on our hands, which
must be tackled on the top most priority. I must confess that development
of infrastructure is an area where China scores heavily over us.
I feel that the current economic phase we are witnessing is a process of
correcting the imbalances in the economy. The inefficient and uneconomical
-units are being phased out even as the impact of global competition sinks
in. This;will doubtless be a difficult and turbulent period for some but at
the same time., it could present vistas of opportunities for others.
However, I am sure that with the continuing reform process, with the faith
of foreign investors in our economy, and most importantly with the
resilience, and technical and managerial competence of our people, we will
emerge a much stronger economic power . The following extract from the same
AT Kearney report confirms this when saying that "Indian Science and
Technology capability is extraordinary and is changing the world's
perception of India". You all know what tremendous success the IT
revolution in India has achieved within a short span of time. It has done
us all proud as Indians.
In this connection' another extract from the Economist 5'h-11'h May 2001
which carries a special article on "Out Sourcing to India" will I am sure,
be of great interest to you. It runs as follows: ".. Indian lawyers are
doing research for British and American firms; Indian engineers are
designing construction projects and testing Car parts for foreign clients.
At the most rarefied end of the spectrum, Indian scientists are conducting
basic research and development for western firms. In some cases, the
availability of low-cost, high quality expertise in India could transform
the economics of the industries that they serve." This is highly
complimentary, to say the least.
I am glad to say that, as a concept, a small beginning has already been
made by your company in this direction, we want to gradually expend this
activity as much as we can. This will help to enhance our shareholder value
to a great extent.
POWER:SCENARIO: December 2000 witnessed the crossing of yet another
important milestone this time for our country. The installed generation
capacity crossed 100,000 MW.
Electricity is an all pervasive commodity that surrounds us today. The
technology for producing electricity has existed for over a century and has
sufficiently matured. We have become more and more dependent on
electricity. It has become an increasingly important "raw material" input
for most manufacturing processes. On occasions it is a dominant and
critical input, witness the aluminum, steel cement and ferro-alloys
sectors' to name some. In the highly competitive WTO regime of lowering
tariff walls and borderless trade, every manufacturer in India is driven to
deliver products and services of increasing value at constantly lower
prices. The only way to sustain and enhance profits and shareholder value
is to reduce costs of all kinds, including the cost of energy. Whilst
manufacturers are free to procure all other "raw materials" from the most
competitive source, in India they are denied the freedom to choose their
source of electricity. In this deregulated delicensed and decontrolled
economy, they are compelled to seek the State's permission to move away
from a monopoly power provider.
This is an anomaly that needs correction. Industry should have the freedom
to source all its inputs, including electricity, as they consider
appropriate. They should have the freedom to produce the electricity needed
for self consumption whenever it is found that this is more attractive than
buying from outside. Fresh investments by Industry in their own captive
power plants needs to be encouraged as a first and important step, and not
stifled as is being done by a few myopic State Governments today. There
also exists a reservoir of captive power capacity lying under-utilised with
industry. The States would do well to encourage optimal use of such
national assets, by either purchasing excess energy at negotiated rates or
permitting these plants to sell energy to third parties.
Fortunately there is a glimmer of hope if one can go by recent
pronouncements. It appears that the Government may free captive power
generation; in this, it is gratifying to note that your company played a
very pro-active role by highlighting the imperative necessity of a shift in
policy. Likewise a heartening development is that some States may permit
Independent Power Projects (IPPs) to sell power direct to consumers instead
of to the State Electricity Board. One can only hope that this is a pre-
cursor to another major strategic policy shift.
It is now an acknowledged fact that to support a GDP growth rate of even
6% per annum, the next 11 years will require the addition of a further
100,000 MW to the present installed generating capacity. Power plant
financing is a daunting task even under normal circumstances. In conditions
prevailing in India, where SEBs are cash starved and have no escrow
capacity, it is difficult to fathom how the capacity addition of 100,000 MW
will occur during the next decade treading the old paths.
I have spoken at length over the years in my annual statements to the
shareholders on the nationwide compulsions to improve PLF, engage in
renovation and modernisation, lower our T&D losses and eliminate cross-
subsidisation of power. Many industry associations have also presented
papers and addressed these issues at numerous Seminars and Workshops.
Fortunately some changes have taken place, and as the process of consensus
building catches up, the pace of change too will quicken.
* A number of States have set up the mandated Electricity Regulatory
* The use of naphtha as a fuel for power generation, which led to
unaffordable tariffs, has now been correctly abandoned.
* T&D losses which hitherto escaped precise quantification, now have some
numbers thanks o the efforts of some of the State Electricity Regulatory
Commissions. Though high to the point of disbelief in some cases, these T&D
losses at least now have a reference point from which improvements can be
* Renovation and Modernisation are receiving significant budgetary
allocations and accrual of benefits has started
* The Electricity Bill 2000 has finally been presented to Parliament, after
a number of committees have deliberated over the provisions.
I see that an early adoption of the "Electricity Bill 2000" will accelerate
India's move from a publicly owned, vertically integrated, monopolistic
power system with fuel and electricity price distortions, to a more liberal
system with market prices competition, efficiency, accountability,
commercial incentives, freedom of choice and variable tariffs. I must,
however, sound a note of caution about the so called T&D losses of the
magnitude reported by some of the states- these are in fact to a major
extent, a euphemism for "theft". Immediate steps must be taken to reduce
these thefts though I wonder if there is the political will to deal with
this situation in which the vested interests are so deeply engrained.
I also believe that we should learn from the experiences of the advanced
economies and leapfrog the development process. We should balance fresh
investments intelligently between mega projects and distributed generation.
Let us strike a balance between generation at mine mouth, near coastal and
port sites, and close to load-centres. We should evaluate investment
efficiencies of the Power system as a whole rather than as the summation of
its constituent parts. We should encourage industry to choose its power
source and support them to become competitive. I firmly believe that
distributed power is the way forward. Power Plants close to load centres
obviate the necessity for heavy investments in transmission and
distribution. In the short and medium term our emphasis should be on small
and medium sized plants which would be simpler to finance and quicker to
set up. Early successes will help restore confidence of industry and boost
the lagging Power sector.
PROSPECTS: Notwithstanding the halting progress and occasional hiccups, the
principles of liberalisation and Government disinvestment are espoused by
all the major political parties. There is no doubt whatsoever that the way
forward is to press ahead with the agenda for economic reforms. I am
confident that once the privatisation birth pangs are over, National and
State policies that encourage captive and decentralised generation will
come to stay as I have said earlier. These will provide your Company the
momentum for growth in the times to come. You are all aware of your
Company's expertise in meeting industry'S needs for Captive Power Plants
that deliver reliable and cost-effective electricity. Last' year has
further enriched this with the construction of three large decentralised
generating plants at Samalpatti Belgaum, and Samayanallur. And all these
additions, be they CPPs or IPPs, will result in future revenue streams for
the After Sales division.
The activities of the Marine Division continue to contribute to the growth
of your Company. Our hew emphasis on being "the ship power supplier" with
turnkey and total solutions for complete propulsion systems and on-board
power auxiliaries and control systems will, I believe, yield good results
in the future.
The concept of outsourcing of on-site round-the-clock operations &
maintenance is relatively new to the captive power plants in India but is
steadily gaining acceptance. This is evident from the growing customer
demand for O & M services. Customers are realising the value derived by
concentrating on their core business and leaving support activities such as
power plant operations to specialists. Growing customer references &
encouraging response for O & M of new and owner-operated power plant augurs
well for the future prospects of this company.
Our Principals, Wartsila Corporation, are the leading global ship power
supplier and a major provider of solutions for decentralized power
generation and of supporting services. The Group's Power Divisions had a
successful year in 2000 and posted a profit after three years of losses.
This is a remarkable turnaround for which I would like to congratulate Mr.
Ole Johansson and his highly professional and committed management team.
As I said last year and many times before from different platforms, our
relationship with our principals right from the inception has been
exceptionally good and that is what makes this joint venture a role model
for others to follow. I will not say more on this and leave it to Mr Ole
Johansson to tell you in a few minutes about the Group as a whole, about
its activities, and its achievements.
Ladies and Gentlemen, I would now like to conclude my statement on a
personal note. I have been connected with your Company right from day one,
when the project was conceived in 1986. I was one of the promoter Directors
and your Company's first Chairman. It has indeed been a matter of great
satisfaction for me to see a sapling which was planted 15 years ago to grow
into a very healthy and robust fruit-bearing tree, poised to grow stronger
and bigger as years go by.
The time has now come when I must relinquish my appointment as the Chairman
and as a Directors of your Company. As I look back, I recall two stalwarts
who were associated with this project right from its inception - one was
Pentti Jantunen, and the other is llkka Aarnio. I am sure llkka is as
thrilled aas I am today to have helped to shape the success of this
Company. I also remember at this moment Mr Stolpe who was the Chairman of
Wartsila Group in 1986. It was his vision and his foresight which helped to
conceptualise this project.
At this very moment, I also think of our dear young colleague who would
have been present on this dais today if destiny had not decided otherwise.
Mr.P.D. Gupta, who had years ahead of him - years to see this fruit -
bearing tree start propagating, was suddenly snatched away from us a few
months ago. He was one of the promoter Directors of your Company, along
with me, but his association with the Wartsila Group started even earlier
as an agent for their DG sets. His dynamism, wise counsel and astute
business sense would be sadly missed.
I must also take this opportunity to thank Mr Georg Ehrnrooth, who recently
reliquished his appointment as Group Chairman, Mr Hintikka, Mr Virtanen,
Mr. Strand, Mr Norrgard, Mr Aarnio and many others who helped me personally
in this joint venture from time to time during our long association. I owe
a special debt of gratitude to Mr Christian Andersson who has been a tower
of strength through thick and thin. Based on his knowledge, experience and
unflappable disposition, his support to me and to this Company has been
Ladies and Gentlemen, it has been a matter of great pleasure for me to have
known Mr. Ole Johansson. I will always cherish my association with him as a
manager par excellence. Major restructuring of the parent company that he
undertook as soon as he came to the helm of affairs was, I am fully aware,
a difficult exercise but as I have said earlier, it has produced excellent
results. l am sure that this is a fore-runner of even greater achievements
in the years to come. I congratulate Mr. Johansson on his success and wish
him the very best in his future endeavours'.
At this stage I must also express my deep sense of gratitude to the
Government of Finland for the honour conferred on me some years ago with
the award"of the "Medal" of "Commander of the Order of the Lion of
Finland". It is a great distinction for re, which I will always cherish.
Last but not the least I must thank your Managing Director, Mr. Pradeep
Mallick and his comparatively young management team, which he has,
literally built "brick by brick" from scratch. It is this highly competent
and cohesive team which has delivered the 'goods even when the chips were
down In this great achievement, Mr. Mallick has displayed excellent
qualities as a manager and as a team leader and I compliment him on this.
The excellent support given by Mr V Ramachandran, our former VP (Finance) &
Company Secretary and by Mr Ashok Bapat our former VP (Manufacturing), in
the formative stages of this Company, helped in building a strong
With such a committed team and with a well- structured organisational
framework, I have no doubt whatsoever that your Company will not only
continue to maintain, but will also improve, its pre- eminent position in
Before I end, it is my very pleasant duty to announce Mr. Subodh Bhargava
as the Chairman of your Company. I have known Mr. Bhargava for many years -
he is a past President of CII and is highly respected by the industry at
large. I can only say that we could not have found a better person than him
as the Chairman of your Board of Directors. I wish him well.
The induction of Mr. Pradip Shah as a Director and as the Chairman of the
Audit Committee has further added strength to your Company. He is a venture
capitalist and a person of great eminence. I also wish to,thank each and
every employee of Wartsila India-for their sincerity, and for the sense of
commitment and belonging demonstrated by them .
Finally dear shareholders I thank you most wholeheartedly for the support
you have given to the Company and to me personally during the last 15 years
that I have chaired your AGMs. Your observations and comments have always
been results in the future. '
I am grateful to you for all that and above all for the courtesy extended
GOOD BYE AND GOD BLESS.
WARTSILA INDIA LIMITED
Registered Office: 76 Free Press House,
Nariman Point, Mumbai - 400 021.
Tel.: (022) 2815601 Fax: (022) 284 0427