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Vision of Shri Dhirubhai Ambani
This is the first annual general meeting of
our Company after becoming part of the Reliance group on January 18,
2003.
We, at Reliance and BSES, share a common
destiny that did not start just in the year 2003, but goes a long
way back.
It was way back in 1988-89 that Reliance
first acquired a small equity stake in BSES.
That first step, nearly 15 years ago, was
the first glimpse of the vision of Reliance's founder Chairman, my
father,
Shri Dhirubhai H. Ambani, for the power sector.
At a time when we lived in a controlled
economy, and economic reforms were nowhere on the horizon, Dhirubhai
visualised a future when the private sector would one day be
welcomed as a partner in the growth of the power sector in India.
The recent passage of the Electricity Act,
2003 stands in testimony to the farsightedness of his vision. I will
elaborate more on the provisions of the Electricity Act when I
comment on our future growth opportunities.
Dhirubhai recognised power is at the heart
of every aspect of our day-to-day lives.
He realised that the need for quality and
reliable power flows through every sector of the economy -
manufacturing, services and agriculture.
He realised that it is power that drives
economic growth. And, he identified BSES as the organisation for
achieving his dreams in the power sector.
In fulfillment of Dhirubhai's vision, after
being the single largest private sector shareholder in BSES for over
a decade, Reliance made 2 open offers for acquisition of BSES.
These open offers were made in a fair and
transparent manner, in accordance with the provisions of the SEBI
Takeover Code.
As a result, Reliance's stake in BSES has
now increased to over 58%, and we acquired management control of the
company in January 2003.
It is an irony of fate, and God's desire,
that the man who dreamt of all this, could not be with us, when his
dreams are becoming a reality.
Dhirubhai left for his heavenly abode on 6th July
2002.
His legacy will always remain with us.
His unmatched vision will guide our every
endeavor.
We take inspiration from his extraordinary
life.
We commit ourselves to the future growth of
BSES in line with his lasting vision, enduring values and
fundamental philosophies.
His dreams will always remain alive.
BSES will spearhead Reliance's foray to
emerge as India's leading integrated energy company. BSES will
emerge as a utility of global scale and standing - one that will
match up to Dhirubhai's expectations in every aspect. And only that
will be our lasting tribute to his memory, and to his glorious
vision.
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The Year Under Review
We presently rank among the top 25 private
sector listed companies in India, in terms of all major financial
indicators, such as sales, assets, profits and market capitalisation.
Our combined group sales are over Rs. 6,250
crore.
We serve over 5 million consumers, the
largest customer base for any power company in the country.
Our total asset base is over Rs. 5,000
crore.
During the year, our Company recorded its
highest ever sales of electrical energy of 5,880 million units,
registering growth of 4%.
We added 81,000 new consumers in the Mumbai
licensed area during the year.
During the year, the 500 MW Dahanu Thermal
Power Station further improved its performance, setting several new
records.
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The Dahanu plant achieved its highest
ever capacity utilisation, or PLF, of 90.5%, as against 87.83%
during the previous year.
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From April 2003 onwards, the plant is
consistently operating at a PLF higher than 100%, demonstrating
optimal capacity utilisation.
The Dahanu Power Station achieved this
significant improvement in productivity and efficiency despite the
shut down of one unit for annual maintenance for 34 days.
This record performance places our Dahanu
Power Station as the most efficient thermal power plant in the
country in the private sector.
I am happy to report that the financial
performance of our Company for the year was satisfactory:
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Total Income increased 5% to Rs 2,912
crore (US $ 613 million)
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Cash Profit increased 9% to Rs 557
crore (US $ 117 million)
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Net Profit increased 6% to Rs 297 crore
(US $ 63 million)
However, we took a one-time charge of Rs.
135 crore, by withdrawing bills raised over the past 7 years on
estimated/provisional basis.
This measure will benefit around 270,000
consumers, primarily comprising retail households in Mumbai. I am
sure our valued customers will appreciate this proactive step taken
by the company in their best interests.
BSES continues to enjoy the highest AAA and
MAAA credit ratings from CRISIL and ICRA respectively, reflecting
its inherent financial strengths.
During the year, our Company prepaid the
World Bank loan nearly 7 years before maturity, and retired other
debts, aggregating Rs 511 crore. Our debt-equity ratio as on
31.3.2003 is 0.25:1, significantly lower than our peer group.
During the year under review, the company
issued Foreign Currency Convertible Bonds aggregating US $ 120
million, nearly Rs 600 crore, as a low cost financing alternative to
rupee borrowings.
The cost of these borrowings is less than
2% per annum.
As and when the FCCBs are converted into
equity shares, the net worth of our company will increase by Rs 600
crore.
This will further enhance our financial
strength.
Only last week, we have concluded the
largest ever international syndicated loan by an Indian private
sector utility, of US$ 100 million, nearly Rs 500 crore. This loan
has been raised at a historically low interest rate of below 2.50%
per annum.
Both these offerings received an
overwhelming response from international investors, demonstrating
their confidence in BSES' future growth prospects.
Progress on Key Issues
When we last met at the EGM held in
February 2003, I had informed you of the challenges relating to
various existing operations of BSES and its group companies, which
required urgent resolution.
We have taken up each of these matters with
the highest urgency, and I am happy to report that we have already
made substantial progress in resolving several issues.
Firstly, the 165 MW BSES Kerala Power
station, which was not operating for over a year, has resumed
operations, and is now running at a capacity utilisation of 85%. The
monthly dues for sales of electricity to the Kerala State
Electricity Board (KSEB) are being realised. Pending issues with
KSEB and lenders are under discussion to facilitate an appropriate
restructuring package.
Secondly, the 220 MW BSES Andhra Power
power station has secured partial firm linkage of natural gas, and
is operating at 55% capacity utilisation. The Andhra Pradesh
Electricity Regulatory Commission has approved the Power Purchase
Agreement. Efforts are underway to source natural gas required to
operate the plant at rated capacity. Financial closure of the
project is expected to be achieved shortly.
Thirdly, BSES Rajdhani Power and BSES
Yamuna Power, our electricity distribution companies in Delhi, have
taken a series of steps for modernisation and upgradation of the
existing distribution infrastructure in Delhi, to improve the
reliability of power supply, and to enhance levels of service for
our 2 million customers. The 2 companies are implementing over 600
schemes at an outlay of Rs. 250 crore.
Fourthly, our 3 electricity distribution
companies in Orissa are pursuing various options to improve their
performance. Discussions are in progress with the Orissa Government
and other authorities to arrive at a comprehensive restructuring
proposal, in order to make the Orissa operations viable and
sustainable.
As far as operations in Mumbai are
concerned, the long standing matter relating to determination of our
liability for payment of standby charges has, last week, been
restored to the Maharashtra Electricity Regulatory Commission by the
Bombay High Court for de novo consideration. This will
provide the MERC the opportunity to fully examine all issues,
including the costs of power purchased by us, and determine our
liability afresh. The MERC has already heard our petition on
encroachment of our customer base by a bulk power supplier in
violation of license conditions. A decision is expected shortly.
We are confident that BSES and all group
companies will achieve improvement in their operational efficiency,
leading to enhanced profitability, and enhancement of overall value
for BSES shareholders.
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Power Sector Reforms
Power is a basic necessity, not a luxury.
Power is a critical building block for
development of the economy.
Power is a GDP multiplier.
Unfortunately, since independence, the
power sector in India never received its due importance.
The total installed power generation
capacity in the country at present has touched just about 105,000
MW.
In comparison, China has installed capacity
of 3,20,000 MW.
Over the last 5 years, average annual
addition to power generation capacity in India is around 4,000 MW.
In contrast, China has been adding nearly
20,000 MW of capacity every year.
Per capita consumption of power in India is
400 Kwh. This is less than 1/6th the
global level of 2,548 Kwh, and below even half the Asian average of
975 Kwh.
State and central utilities account for
almost 90% of India's total installed capacity. Capacity utilisation
is estimated at less than 60%.
The peak shortage in power is estimated at
over 10,000 MW. Even this estimate, in all likelihood, is far short
of the actual gap. Faced with chronic power deficits, and in the
absence of availability of reliable power at competitive rates,
there are no realistic estimates of actual demand.
To bridge this deficit, and cater to future
demand, the country needs additional power generation capacity of
approximately 100,000 MW over the next few years. This is equivalent
to the entire existing generation capacity in the country.
According to estimates made by a
Parliamentary Committee, the creation of adequate power
infrastructure in the country will require a capital outlay of Rs.
9,00,000 crore in aggregate - this is the size of the opportunity
before us!
It is against this backdrop that Parliament
has recently enacted the Electricity Act 2003. The Act aims at
liberalising the power sector, by creating a vibrant and progressive
legislative framework to facilitate India's accelerated economic
growth.
The Act is the single important piece of
legislation for the power sector in India, and perhaps even for
Indian industry in general, repealing 3 Acts, one of them dating
back to 1910 - nearly a 100 years old!
I would like to express my deep
appreciation to the Government, Parliamentarians and all political
parties, who cutting across party lines, have taken this
far-reaching initiative in the interests of millions of consumers
across the country.
The stated objectives of the Electricity
Act are:
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To consolidate various central and
state laws relating to generation, transmission, distribution,
trading and use of power
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To develop the electricity industry, by
promoting competition and protecting the interests of consumers
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To rationalise electricity tariff, and
ensure transparent policies for subsidies
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To promote efficient and environment
friendly policies
This landmark piece of legislation will
greatly benefit consumers by offering them the freedom of choice of
suppliers, leading to competitive tariffs and improvement in the
quality of power.
Electricity will soon be a service like any
other, traded on benchmarks of customer satisfaction such as
quality, pricing and service.
Competition among service providers will
demand improvement in efficiencies and productivity, and raising of
customer care to international standards.
A greater role for automation and
technology will pave the way for physical and operational
performance of Indian utility companies to match up to global
standards.
The Act will also accelerate the process of
privatisation of state electricity boards (SEBs) in the country.
As you may be aware, almost all SEBs are
financially distressed. Their Transmission and Distribution losses
have mounted from 21% in 1992-93 to as high as 45% for some SEBs, as
per latest estimates.
The losses of the SEBs are estimated at a
staggering over Rs. 30,000 crore per year!
Accumulated losses of the SEBs have crossed
a mind-boggling Rs. 3,00,000 crore!
The stringent anti-theft provisions in the
new Act have the potential to reduce these abnormally high T&D
losses, that have completely destroyed the finances of not just the
SEBs, but of several state governments as well.
In totality, the Electricity Act presents a
unique opportunity for BSES to participate in all segments of growth
in the power sector - contributing to the Government's objective of
ensuring reliable and quality power to all citizens by the year
2012, and attaining accelerated economic growth and development for
the country.
We believe BSES is ideally positioned to
exploit these opportunities. We have unique competitive advantages
across the value chain that will provide enhanced value addition to
consumers across the country. And, we are committed to pursue these
opportunities, delivering value to our customers, and earning their
trust and confidence.
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Our Vision and Mission Statement
Let me elaborate on BSES' Vision and
Mission statement that charts out our future growth path in the
backdrop of the enormous growth opportunities arising from
legislation of the Electricity Act, 2003:
Vision Statement
To be amongst the most admired and most
trusted integrated utility companies in the world, delivering
reliable and quality products and services to all customers at
competitive costs, with international standards of customer care -
thereby creating superior value for all stakeholders.
To set new benchmarks in standards of
corporate performance and governance, through the pursuit of
operational and financial excellence, responsible citizenship and
profitable growth.
BSES Mission: Excellence in Energy
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To attain global best practices and
become a world-class utility.
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To provide uninterrupted, affordable,
quality, reliable, safe and clean power, to millions of
customers.
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To achieve excellence in service,
quality, reliability, safety and customer care.
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To earn the trust and confidence of all
customers and stakeholders, exceeding their expectations, and
making the company a respected household name.
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To work with vigour, dedication and
innovation, with total customer satisfaction as the ultimate
goal.
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To consistently achieve high growth
with the highest levels of productivity.
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To be a technology driven, efficient
and financially sound organisation.
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To be a responsible corporate citizen
nurturing human values and concern for society, the environment
and above all, people.
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To contribute towards community
development and nation building.
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To promote a work culture that fosters
individual growth, team spirit and creativity to overcome
challenges and attain goals.
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To encourage ideas, talent and value
systems.
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To uphold the guiding principles of
trust, integrity and transparency in all aspects of interactions
and dealings.
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Future Growth Opportunities
Our strategy is focused on integration -
"FROM WELL HEAD - TO WALL SOCKET."
The pillars of our growth strategy are:
Owning the customer is the key to
profitability of our business.
The new Electricity Act gives us the
opportunity to enter new geographical areas, and to substantially
expand our customer base.
The Act provides us the flexibility to
increase our participation in the business of distribution of power
and to serve customers through various options:
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By obtaining the benefit of open access
on existing assets - utilising existing power lines to reach
customers, without having to replicate infrastructure.
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by creation of new state-of-the-art
distribution networks - which may often be a more optimal
solution, considering the obsolete nature of existing networks,
and the need for major capital expenditure to modernise the
same.
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by participating in the privatisation
of the undertakings of state electricity boards, as we have done
in Delhi and Orissa - a restructuring process that may well be
catalysed by the legislation of the Electricity Act and the
resulting onset of competition in the areas of operation of the
SEBs.
We are examining these various options, and
will develop our business plans adopting an appropriate mix of these
different strategies for different areas, with the objective of
maximising overall shareholder value.
To pursue opportunities in the transmission
sector, we intend to set up a separate company, Reliance Energy
Transmission. This will contribute to enhanced reliability in the
supply of power to our networks and across the country, balancing
deficits and surpluses in different regions.
In generation of power, we will examine new
growth opportunities, in both, conventional and non-conventional
energy.
We distribute over 15 billion units, or
over 5,000 MW, of power a year. As against this, our own generation
capacity is only 885 MW.
Our future generation strategy will be
directed towards fulfilling our own needs for power in different
parts of the country, to serve our customers better.
As far as feedstock for power generation is
concerned, it is clearly gas.
Gas is the preferred feedstock worldwide
for generation of power, being the most competitive, efficient and
environment friendly fuel. We at BSES will refer to this as -
"CLEAN GREEN POWER."
Reliance's recent gas finds in India
provide a unique opportunity to scale up levels of power generation,
and increase the level of integration in our operations.
Reliance's KG-D6 block in the Krishna-Godavari
basin alone has currently estimated in-place gas reserves of over 10
trillion cubic feet (TCF), capable of generating upto 15,000 MW of
power - an astounding 25% of the country's total operating capacity,
and more than one-and-a-half times the present capacity based on
liquid fuels!
Reliance and BSES, working together, can
create a win-win situation to utilise these gas reserves for the
generation of competitive, quality power, for the benefit of all
consumers and stakeholders of the two companies.
The new Act also gives us the freedom to
trade power, both, in physical terms and through derivatives. We
intend to set up a separate company, Reliance Energy Trading for
this purpose.
Worldwide, trading in power is a
multi-billion dollar business. Our entry into this field will enable
us to optimise the cost of power for our networks, and create
enhanced value for our customers.
The Electricity Act has created enormous
opportunities for growth. We are committed to achieving a leadership
role for BSES in this new and challenging environment, drawing on
the company's own strengths, and benefiting from Reliance's proven
management strengths, established project execution capabilities and
consistent track record of superior operational and financial
performance.
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From BSES to Reliance Energy
Looking to the immense growth opportunities
arising from the legislation of the Electricity Act, the Board of
Directors has placed a proposal for your consideration and approval,
to adopt the name of our company as Reliance Energy Ltd.
This change will reflect the ownership of
the Reliance group, consequent upon the change in control, and will
provide our company the opportunity to leverage the brand equity of
the Reliance name.
Reliance is India's largest private sector
company on all financial parameters, and India's only private sector
company among the world's 500 largest companies.
According to latest available information,
Reliance is likely to be ranked among the 175 largest companies in
the world by net profits, and among the largest 400 companies by
sales, in the internationally tracked Fortune Global 500 listing.
Reliance has a demonstrated track record of
superior and consistent operational and financial performance. The
Reliance name is widely accepted as a symbol of outstanding project
management, world scale and world class operations, global
competitiveness, and international quality of products and services.
Reliance has significant experience in
captive power generation with over 800 MW generation capacity, and
substantial in-house skills for planning and executing large
projects that can be used for the benefit of our company.
Our company's ability to mobilise financial
resources on competitive terms will increase significantly with the
adoption of the name, Reliance Energy.
I commend the resolution for the change of
name, and I am sure that you will whole-heartedly approve the
proposed change in name and corporate identity.
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Human Resources
Our company employs over 5,000 people
directly. The average age of our employees is 40 years. Taking into
account our acquisition of the State undertakings in Delhi and
Orissa, we have over 30,000 people in all. This ranks BSES Group as
one of the largest employers in the private sector in India.
We believe that human resources are the
most valuable assets of the Company. We will succeed in our mission
of consistently achieving high growth, only if we attain the highest
levels of productivity, and our people are motivated and satisfied.
To ensure this, we are promoting a work
culture that fosters individual growth, team spirit and creativity
to overcome challenges and attain goals.
Human resource synergies with Reliance will
ensure cross-fertilisation of talent and ideas across the group. In
turn, BSES will contribute substantially to Reliance's knowledge in
the power business.
We are committed to the development of a
vibrant and highly motivated work force, operating in a
performance-oriented meritocracy.
We look forward to Reliance and BSES people
working together to 'energise' the power sector!
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Health, Safety and Environment
We are committed to providing adequate and
modern health and medical care to all our employees. Annual
medical check-ups are conducted for our people, along with awareness
programmes to address health and lifestyle related issues.
Our Company attaches utmost importance to
personal safety of our people, and safety of our equipment. The
Dahanu Power Station regularly conducts safety audits, internal and
external, and emergency drills for disaster management. The Safety
Committee in the Supply Division identifies measures for continually
improving working procedures.
We are committed to protect and promote the
environment. The Dahanu Power Station is performing well beyond the
stringent operational norms prescribed by the Maharashtra Pollution
Control Board, and has received prestigious awards for its
achievements. The Power Station is also continuing its afforestation
drive, with plantation work in neighbourhood villages.
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Social Responsibility
Our Company is a responsible corporate
citizen and regularly undertakes various community welfare measures
and environment-friendly initiatives.
Our primary focus is on health care and
literacy, particularly among the tribal community in the vicinity of
our Power Station at Dahanu.
We also undertake similar programmes in the
suburbs of Mumbai, especially in slum areas.
We regularly sponsor, and participate in,
health camps and social awareness drives, and extend assistance to
social institutions and charitable trusts.
We have constructed the 6 storey, 100-bed
super-speciality BSES Municipal Hospital, in association with the
Municipal Corporation of Greater Mumbai. The hospital, which has
been operational for over a year, is being managed by the Brahma
Kumaris, and is rendering valuable service to our fellow citizens of
Mumbai.
We also maintain 8 public gardens in our
area of operations in Mumbai.
We are committed to improving the quality
of life in the communities in which we operate, and to contribute to
the overall development of society.
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Corporate Governance
We believe in proactive initiatives in
ushering in good governance practices and procedures. We have
reviewed our governance practices with reference to the existing
code of governance and the recommendations made for amending the
code.
The high standards of corporate governance
practices of our company have been recognised by various leading
institutions. BSES has received the Institute of Company Secretaries
of India (ICSI) award in recognition of its achieving the highest
standards of good governance practices.
The Company was also awarded the Golden
Peacock Award for pursuit of excellence in corporate governance by
the Indian Institute of Directors.
We are committed to practising sound
governance principles in order to further improve the performance of
the Company, with a view to maximising value for all our
stakeholders, including shareholders, customers and employees.
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Acknowledgements
I acknowledge my grateful thanks to the
Central and State Governments, financial institutions, bankers,
other lenders, vendors, suppliers and contractors, and various
regulatory authorities at the Central and State level for their
unstinted support, cooperation and guidance, and look forward to
their continued support in our efforts to create world class power
infrastructure in India.
I particularly wish to thank millions of
our customers for their continued support. I would also like to
thank all our employees for their commitment and dedication in their
performance. Finally, I thank my colleagues on the Board of the
Company for their guidance and support.
And with you, my dear fellow shareowners, I
look forward to a lasting and mutually rewarding relationship of
trust.
Ladies and Gentlemen, once again, I extend
my very warm welcome to each one of you personally, to the Reliance
family.
Thank you for your time, patience and
attention.
