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Construction : Industry View | October 2012 | Source : Construction Update

DPSC plans Rs 250 bn investment over 5 yrs

Power Generation and Distribution major DPSC (formerly known as Dishergarh Power Supply Company) was incorporated in the year 1919 in West Bengal. The company was set up primarily to supply power to the Bengal Coal Company, then the largest producer of coal in Asia. An Andrew Yule company, DPSC went for a disinvestment in the year 2009-10 and was taken over by IPCL.

In response to queries raised by Raja Iyer, research analyst at Asapp Media, Anup Bhargava, Managing Director, DPSC said the Group (IPCL & DPSC) plans an investment of Rs 25,000 crore for a generation capacity of 4,300 mw over the next 5 years. A 450 mw Thermal Power Plant in Haldia and 540 mw plant in Raghunathpur would also be commissioned by 2014, Bhargava said.

Following is the excerpts of his response to an email questionnaire sent by Asapp Media.

The company has posted remarkable growth in net sales and has more than doubled net profit in 2011-12. But net profit and revenue declined in the June 2012-13 quarter. Could you give us guidance for both these figures during 2012-13?

Net Sales for FY12 was reported at Rs. 538.73 Crore, a jump of 32.81% over the previous year. PAT jumped by 108% to Rs.11.80 Crore against Rs.5.67 Crore in FY11.

The Company has been focused towards ensuring continued quality and consistency in its power supply and services and has thus directed all efforts towards completion of its capital projects that can further strengthen its base and T&D operation parameters.

The slow growth in the overall economy has had an impact on the growth of our business as most of our users, i.e. industrial consumers have been adversely impacted in one way or the other. However, with the growth in the overall economy picking up, we are confident that our efforts would translate into higher growth figures in the coming months as well.

The company plans to bid for more franchise power distribution licenses. Could you give us details about your plan in this regard and the reason for expansion in this segment?
We believe that for the distribution sector in the country to improve, private sector investments as well as efficiencies need to be infused. The Distribution Franchisee (DF) model is one such effort. While there are several areas of improvement in the standard DF model that has been developed, we would still like to participate and support the development of the distribution sector in the country. It is from this perspective that we have been keen to participate in those DF bids where the fundamentals are appropriate.

What is your planned capital expenditure for the next five years?
The Group (IPCL & DPSC) plans an investment of Rs. 25,000 Crores for a Generation capacity of 4300 MW over the next 5 years. A 450 MW Thermal Power Plant in Haldia and 540 MW plant in Raghunathpur will be commissioned by 2014. The Company has executed MoUs with State Governments for setting up Generation plants of 1,320 MW in Bihar, 1,320 MW in Gujarat and 660 MW in Madhya Pradesh. The Company is achieving statutory approvals for the same and land identification is in process.

To strengthen its Distribution Network, the Company is planning to set up a 400 KV sub-station within the licensed area to provide required connectivity with the National grid. We are in the process of building a 220 kV sub-station at Asansol, which would provide us State Transmission Connectivity. We are also strengthening the Distribution Network by augmenting the lines and setting up several 33 kV Substations across the network to provide better services to our consumers. In this segment, the new investment will be around Rs. 1,450 Crores in the next few years capable to cater to a load growth of 1000 MVA in the license area.

Could you give details about your tie-up with IBM and how it would enhance your operational efficiency?
With IBM's new software – IBM Lotus Domino, DPSC will have access to the latest messaging and communication tools to accelerate business operations, improve decision making and enhance productivity. The new system automates workflows such as leave approvals, travelling, loans, advances, requisitions, purchase etc. increasing efficiency within the organization.

Can you give us the current status of your thermal power project in Haldia?
At Haldia, we are setting up a 450 MW (3x150) thermal power plant with an estimated cost of Rs. 2,415 Crores conceived in 2009. The plant is being constructed on a 200 acre piece of land allotted to India Power Corporation (Haldia), which is a subsidiary of IPCL, by the Haldia Development Authority (HDA). The HDA has also committed supply of 11 MGD water for the power plant.

In respect of an application for Environment clearance submitted to the West Bengal Pollution Control Board in 2009 the company has obtained "Consent to Establish". The project work is progressing well. Most of the required piling work has been completed. The BTG package is being supplied by BHEL and the BoP is being implemented by BF Infrastructure Ltd. The project is expected to be commissioned by end 2014.

IPC(H)L has entered into a Power Purchase Agreement for supply of power to The West Bengal State Electricity Distribution Company Ltd (WBSEDCL). Power will be evacuated from the plant 220 kV switchyard by WBSEDCL through their network connecting to Kolaghat power station.

The company has signed agreement with Bengal, Bihar, Madhya Pradesh and Gujarat governments to build more than 4,000 mw power capacity. Can you give us the current status of these projects?
Covered in future plans

The company is also focusing on renewable energy projects in wind, hydel segments. By the end of 12th five-year plan period,what is the share of renewable energy you target in the total power generation of your company?
At present, DPSC operates a 2 MW solar power plant in Shibpur, West Bengal. We also have an installed capacity of 95.2 MW of wind power generation through IPCL in the states of Karnataka, Gujarat and Rajasthan.

Going forward, we would like to see the fundamentals of the sector improving such that growth of the non-conventional power sources can be adequately supported by the distribution companies across the country. Additionally, we would also be eagerly observing the trajectory of market mechanisms implemented like the REC scheme. Till such time, we would be focused on ensuring efficient implementation of the projects already initiated by the Company in the conventional Generation space as also in the Distribution space.

According to you, what are the issues plaguing power sector in India and what is your suggestion to government to solve the issues?

1. Fuel availability --Coal and gas supply constraints have impacted operational power projects across the country and have created huge obstacles for projects that are under implementation.
2. Financial health of State power utilities – Huge accumulated losses and a continued resistance to increase tariffs, has created a situation where power at very low prices are available in the power markets and yet load shedding continues in several parts of the country. Tariff hikes have however been a significant issue and we have seen several distribution utilities facing severe problems due to this. We believe it is important that the process provided for in the Electricity Act 2003 and the tariff regulations in all the States are adequate to take care of these issues if followed in letter and spirit.
3. Private participation in distribution and open access – Power distribution in India needs infusion of private sector funds and efficiencies to draw it out of a downward spiral of technical and commercial losses, deteriorating network infrastructure and consequent financial ill-health. In addition to this, Open Access needs to be provided in both letter and spirit to users and suppliers across the country so as to instil competitive efficiencies in the sector

The most important step is to revive the financial health of the sector. This can be done only if power distribution sector becomes more efficient. The participation of private sector is extremely important as both private investments and efficiencies are critical in overhauling the fundamentals of the sector. In addition to that, support by Electricity Regulatory Commissions in ensuring that the sector remains financially viable through appropriate tariff adjustments is vitally important as well.

What is your view on the debt restructuring package announced by the Centre for power discoms?
The debt restructuring package fundamentally puts the onus of stabilising the health of the State Distribution Companies in the hands of the State Governments itself. The scheme looks at supporting the underlying principles for making the distribution companies more efficient and financially self-sufficient.

The immediate need to repackage the debt burden of the utilities has been handled by requiring the State Government to take over 50% of outstanding STL (March'12) from SEBs, in next 2-5 years by converting these loans into special securities, to be issued by Discoms, backed by State Govt guarantee. State Govt. would provide support to Discoms for repayment of interest and principal. Balance 50% of STL will be rescheduled by lenders and serviced by the Discoms with moratorium of 3 yrs on principal.

However, other than this, the requirements prescribed that include development and submission of a Financial Restructuring Plan, ensuring regular tariff notification on an annual basis, focused subsidy for agricultural consumers, prepaid metering for large defaulting consumers and a monitoring system at both the State and Central level are crucial measures taken with an intention to help the development of the distribution sector. In addition to this there are incentives for improving the efficiencies of the distribution companies at a faster trajectory and in inclusion of private sector participation in the distribution sector.

We believe the measures have been designed with the right mix of incentives and responsibilities and if adopted with the right spirit, would allow for the development of the electricity sector as a whole.
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