Management Discussion and Analysis CESC Limited ('CESC' or 'the Company), is the flagship company of the RP-Sanjiv Goenka Group (the 'Group'). Registered in 1897, it is a fully integrated power utility engaged in the generation and distribution of electricity across 567 square kilometres of licensed area in Kolkata and Howrah, West Bengal. It supplies safe, cost-effective and reliable electricity to over 3 million customers -both consumer households and commercial establishments. Apart from spearheading the Group's interest in the power sector, the Company, through its subsidiaries, is also active in the organised retail, business process management and infrastructure sectors as a part of its strategy for diversification and long-term growth. This chapter brsents an overview of the energy sector as well as details of operational and financial performance of the Company. It also discusses important initiatives taken by CESC and its subsidiaries during the year to achieve its growth and performance objectives. ECONOMIC OVERVIEW Global Energy Outlook The demand-supply dynamics of the global energy markets are likely to be shaped by the two key issues it faces today - energy prices and policy action on climate change. On the supply side, if the lower prices persist and investments do not take place, there is a risk of rebound. But, this would increase the incentives for tight oil in the US and a more aggressive global renewables energy programme. As far as demand for energy is concerned, even with structural shift to a less energy intensive growth phase of China, emerging economies are expected to drive the global markets. According to the World Energy Outlook 2015, world primary energy demand under the 'New Policies Scenario'1 will grow by around 4,375 million tonnes of oil equivalent (Mtoe) between 2013 and 2040 - a CAGR of 1.0% (Chart A). Demand from OECD countries is expected to remain flat and the entire increase in energy demand will come from non-OECD countries. More important, over 48.4% of this increase will come from China and India, with their combined energy demand growing from 3,812 Mtoe in 2013 to 5,298 Mtoe in 2040 (Chart B). As a result, these two countries will account for 33.1% of global energy demand in 2040, up from 13.6% in 1990 and 28.1% in 2013. This will make China, US and India the top three consumers of energy in the world by 2040, with a share of 22.4%, 11.8% and 10.6% respectively. Fossil fuels - coal, oil and gas - are the dominant source of energy, meeting around 81.5% of energy demand (Chart C). As far as the long-term trends in fuel sources are concerned, there have been encouraging improvements in efficiency and efforts to innovate and reduce the cost of emerging energy technologies, such as solar photo voltaics (PV) are bearing results. As shown in Chart C, share of renewable sources is expected to increase-from 13.7% in 2013 to 18.7% in 2040. During the same period, even as the dominance of fossil fuels continues, its share is estimated to come down to around 74.7%. More important, this decline is only due to the drop in share of coal and oil in the energy mix, as the share of gas is expected to increase between 2013 and 2040. The power sector accounts for 37.7% of the global energy demand in 2013; and over 54.3% of the increase in energy demand between 2013 and 2040 is expected to come from this sector. Accordingly, capacity addition of 4,686GW is estimated between 2013 and 2040.The move to renewable sources will also gather steam, especially with availability efficient and cost effective technologies. As a result, renewable sources are expected to account for 64.1% of all capacity additions between 2013 and 2040. This will mean significant change in the fuel mix for the power sector, more so than the overall global energy mix. As shown in Chart D, dominance offossil fuels is expected to come down significantly by 2040. Hydro and other renewable sources combined (mainly wind, solar, bioenergy and geothermal) will account for 34% of the total power generation by 2040. Overall, it is quite clear that even as coal and gas continue to be the primary fuel for the generation of power, renewable sources will be the biggest beneficiary in the medium to longer term. To that extent, building technology capabilities in the use of renewables will continue to dominate the global energy agenda in the future. India's Power Scenario During 2015-16, Indian power sector added 30.4 GW in power capacity, up from 24.6 GW in the brvious year. With these capacity additions, generation capacity in India stood at 298 GW at the end of the year. The addition of transmission and distribution infrastructure was also in line with targets. Table 1 gives the details for generation capacity. Given that coal accounts for 62.1% of the total generation capacity in India, the bigger worry for the power sector in recent times has been availability of coal, not just for the new projects, but also for existing plants. This situation has eased considerably in the last couple of years, with the reallocation of cancelled coal blocks and increase in domestic production of coal. Even with recent addition of capacities, the shortfall in generation and transmission capacities have not been eliminated. During 201516, the all-India peak demand for power was 153 GW of power, whereas the actual power met was 148 GW - a shortfall of 3.2% (see Table2). The north-eastern and northern regions were the most affected in terms of power availability, followed by the southern region. What is more important to note is that the deficits reflected at the regional level are due to exceptionally poor situation in some states. For instance, J&K and UP in the northern region had deficit of 15.2% and 12.5% respectively; Karnataka in the southern region had a deficit of 6.7%; in the north-eastern region, Tripura had a deficit of 10.3% and Assam of 7.6%. In spite of a subdued macroeconomic environment, demand for power in India has been growing rapidly. This is expected to continue with ongoing efforts to electrify all villages and provide uninterrupted electricity for all by 2019. At the same time, government's focus on the manufacturing sector and electrification of railways is expected to provide further boost to demand. By 2022, demand for power is expected to increase to at least 239 GW2- up from around 150GW in 2015-16. This assumes meeting the new targets for energy efficiency as well as bringing down transmission and distribution losses, without which demand is expected to be even higher at 298 GW3. Meeting these demand projections would essentially involve significant investments in the sector. While thermal will continue to be the dominant source of fuel, renewable energy is seeing significant push - with a targeted addition of 175 GW of renewable power capacity by 2022. These capacity additions will also need to be complemented with adequate transmission and distribution capacities. POWER BUSINESS CESC's operations in the power sector comprise generation and distribution of electricity to over 3 million customers across its licensed areas in Kolkata and Howrah, West Bengal. For its existing operations in Kolkata, the demand for power is quite variable, with the Company registering a peak period demand that is higher than 2,000 MW and a lean period demand as low as 450 MW. During peak demand period, in addition to its own generation, CESC purchases power from the state and national power grid. Conversely, during the lean period, it exports surplus power, when possible. CESC's key achievement as an integrated power utility has been its ability to provide its customers with reliable and uninterrupted power supply at competitive rates. It has continued to move further in this direction by ramping-up utilisation from its new 600 MW Haldia plant in 2015-16, subsequent to the start of its commercial operations towards the end of brvious year. This plant is operated by CESC's subsidiary, Haldia Energy Limited. At the same time, its existing generating stations at Titagarh and Southern continue to have high rate of availability, which is especially useful in meeting peak load demand or in emergencies. Operational performance during the year is discussed in greater detail in the subsequent sections on 'Generation' and 'Distribution'. Besides these, the Company is taking several initiatives to expand its generation capacities and build its brsence in the renewable energy sector. These have been discussed in the section on 'New Projects and Initiatives'. CESC has placed special emphasis on building a customer centric organisation through introduction of customer friendly processes and deployment of technology. Significant efforts have also been made in the area of Human Resources to build an organisation that can deliver on the growth aspirations of the Company. These have been covered in greater detail in subsequent sections on 'Customer Service' and 'Human Resources'. Generation CESC operates three generating stations: Budge Budge, Southern and Titagarh, which cumulatively produce 1,125 MW. These three stations use pulverised fuel (PF) as the primary energy source. In spite of the different age, capacity and technologies of the generating stations, CESC has achieved the best possible results, some of which are nationally and internationally benchmarked. All generating stations are ISO 9001:2008 certified in respect of Quality Management Systems. During the year, the combined generation for the stations was 6,988 MU. The overall combined availability of these stations was 96.15%. The entire maintenance planning for the three stations has been structured to reduce forced outages and capital overhauling time. This includes stringent benchmarking, brventive inspection schedule and round the clock maintenance. Output from a power plant is measured by plant load factor (PLF) which is the ratio of actual power produced to the maximum power producing capacity. CESC's composite PLF of the three PF plants was 70.72% in 2015-16 which is distinctly superior to the national average PLF of 62.28% during 2015-16. A brief review of plant-wise performance during 2015-16 is given below : • Budge Budge generating station (BBGS) comprises three units of 250 MW each. During 2015-16, Budge Budge generated 5,793 MU (million units) of power, with a PLF of 87.94%. The plant availability factor (PAF) was 95.87%. During the year, BBGS received the bronze shield in the category of "Performance of Thermal Power Stations" by Central Electricity Authority. • Southern generating station (SGS) comprises two units of 67.5 MW each. During the year, it generated 531 MU of power, with a PLF of 44.80% anda PAF of 96.77%. • Titagarh generating station (TGS) comprises four units of 60 MW each. During the year, it generated 664 MU of power, with a PLF of 31.49% and a PAF of 96.7%. CESC's generating stations have also excelled in energy conservation by achieving extremely low figures for auxiliary consumption and heat rate. To achieve this, the Company regularly undertakes technical enhancements, following best practices and implementing recommendations of external energy auditors. In recognition of its efforts in the area of energy conservation and innovation, BBGS received the "Excellent Energy Efficient Unit" award at the 16th National Awards for Excellence in Energy Management 2015 by Confederation of Indian Industry and the "Asia Region Plant Operational Excellence Award" by Navigant and EEI of the USA. Protection of environment is an integral part of the power generation process. Apart from ensuring compliance with all applicable legal and regulatory requirements, the Company has set stringent in-house standards, and devised new and improved processes to achieve these. All generating stations are ISO 14001:2004 certified in respect of Environmental Management Systems. These have attained 'zero effluent discharge' status with 100% recycling. Since 2000, CESC has continuously achieved 100% utilisation of ash in an environment friendly manner. During the year, BBGS received the Silver Shield in the category of Environment Management by CEA, and the Gold Award at the 16th Annual Greentech Environment Awards. Distribution CESC undertakes continuous upgrading of the distribution infrastructure to enhance the quality and reliability of supply, and to reduce downtime, overloads and distribution losses. During 201516, 3.28 lakh meters were installed on account of new supplies and replacements. CESC expects its peak power demand to increase from around 2,035 MW in 2015-16 to about 3,000 MW in 2025-26. The Company has put together a master plan for development of its distribution infrastructure taking into account this long-term demand forecast. Investments were made during the year to strengthen the distribution network to cope with growing system demand, as well as for the replacement of old and ageing plant and equipment. These include commissioning of new distribution stations and substations, augmentation of transformation capacities, establishing ring-main connectivity, and substantial addition/replacement of the underground and overhead cable network along with the use of modern equipment. CESC is also in the process of carrying out special projects to upgrade its distribution network, enhance the network capacity and supply reliability for efficient handling of the growth in demand. Energy conservation and reduction of losses in the distribution network is a key area of focus for all power utilities. During 2015-16, a number of measures were adopted that contributed to the ongoing efforts to reduce AT&C losses and increase energy conservation. These include: standardisation to higher rated underground cables, regular energy audits, energy efficient distribution transformers and inclusion of the energy efficiency metric in the bid evaluation criteria for awarding contracts. Use of advanced technology and innovation helps keep CESC ahead and ensures improved services to customers. Major initiatives in this regard during the year were: • To increase the Company's capabilities in servicing the growing energy demand in space-starved city such as Kolkata, CESC deployed new technologies: (a) country's first underground EHV substation by Discom- with gas insulated switchgears underground and power transformers at ground level, (b) country's first "Unit-Cooled" 100 MVA power transformer which takes upto 35% less space than a conventional transformer, thereby allowing larger capacity substations in limited space. • Over the years, the Company has been carrying out technology trials in both AMI (Automated Metering Infrastructure for Smart Meter deployment) and DA (Distribution Automation for Ring Main Unit Automation). This year too, trials were conducted using RF Mesh technology at different frequency bands and Power Line Carrier, to build a common communication canopy for both Smart Meters and RMU Automation. A larger pilot is planned in 2016-17. • Pending availability of Smart Meters with BIS 16444 certification, CESC continued to install AMR (Automatic Meter Reading)Meters for selected customer segments. By the end of 2015-16, 31,613 AMR meters were installed, including 13,496 used for street lighting. In recognition of its efforts in the area of distribution, CESC received several recognitions and awards during 2015-16 : Customer Service CESC's customer centric approach ensures that our 3 million plus customers have access to the highest levels of customer service in the industry. Continuous improvements in customer satisfaction through adoption of new technologies, processes and innovative ideas is therefore a strategic focus area for the Company. During 2015-16, it initiated a number of measures to strengthen customer service, aimed at both consumer households and businesses. Some of the key developments are discussed below : • New Connections : CESC added around 1.4 lakh customers during 2015-16. The average time taken to provide a new connection came down significantly due to further reduction in time taken for inspection, which is now at 1-2 days. Moreover, where brmises have an existing connection, supply is being effected within a day of payment and compliance. Online applications for connections were made simpler by redesigning the entry module. As a result, 38.17% of applications were received online in 2015-16, compared to 17.15% in 2014-15 and 4.09% in 2013-14. • Billing and Payment: Meter reading through tablet computers was implemented during the year, which has improved the efficiency and accuracy of the billing process. The Company also introduced online payment through e-wallets and, in yet another customer friendly move, waived convenience fee for all modes of online payments. Besides, doorstep collection of ECS Mandate Forms was introduced to assist customers. Net-banking option for online payment of bills in addition to RTGS/NEFT has been introduced for high tension (HT) consumers. During the year, CESC renovated 12 more cash collection offices and introduced six more Anytime Payment Machines at locations where cash offices are not nearby. Complete renovation of the Regional Offices is also in progress. • Customer Contact: The Company operates a centralised 24x7 call centre as a primary consumer touch point for complaints and queries. Weekly online chat with senior officers of CESC, where the Managing Director also participates, was expanded, with 45 such sessions organised in 2015-16. To further increase contact points, two WhatsApp numbers were introduced during the year for customers to raise queries and complaints, ask for online assistance and report pilferage. CESC also connects with its customers through its Facebook page and Twitter handle. • Supply Interruptions : As the call-centre is integrated with the Company's distribution system, it allows for immediate routing of complaint to the nearest service team, enabling prompt and effective attention. CESC has a 24x7 low tension (LT) control room and radio linked service vans at strategic locations to ensure faster restoration. Utilisation of GIS and field force automation has resulted in optimisation of manpower and further reduction in restoration time. During the year, a special drive was launched for HT consumers, through which all planned outages are proactively informed by the call-centre. • Customer E-services : CESC is continuously expanding the coverage of its online and phone based services. During the year, it revamped its corporate website, which is now more user friendly and functions as a 24x7 virtual office for most service requests. New online services launched during the year include entry of PAN, refund tracker and a payment module for meter replacement charges. Adoption of e-services increased substantially during the year. For instance, 50.48% of the total name change requests were received online, versus 26.27% a year ago; and 34.74% of the total AC applications were received online compared to 18.76% in 2014-15. For consumers who have registered their phone numbers, e-mail IDs or use smartphones, the Company has a complete set of information and services delivered through SMS, e-mail and CESC's Mobile App. Box 1: Special Initiatives Introduced by CESC during 2015-16 CESC values customer feedback and is responsive to the requirements of its customers. Based on feedback received through its various engagement drives, it introduced several special initiatives to enhance customer satisfaction during theyear.Some of thesewere: • Bill Language : Customers were given the choice to opt for monthly electricity bills in Hindi or Bengali in place of English. 1,363 consumers have opted for bills in Bengali while 176 consumers have availed the option to get Hindi bills. • Centralised Complaint Management Centre: A central set-up was created for quick, efficient and end-to-end resolution of customer complaints. Focused attention to each case is going a long way in improving consumer perception about CESC's customer services. • Technical Workshops : CESC started organising technical workshops for its HT consumers, where brsentations are given on relevant topics, followed by discussions and interactive sessions. Three such workshops were organised during the year, which were well apbrciated. • Doorstep Consumer Meets : As part of CESC's customer reach-out, it organised meets at consumers' localities, in collaboration with residential housing societies and local clubs. These provided opportunities for consumers to interact with CESC management while giving the Company the opportunity to generate awareness on new customer-centric initiatives and demonstrate their benefits, especially the e-services. An online module has been created on CESC's website through which a club or housing society can register itself for such a meet. In recognition of its efforts in the area of customer service, CESC won a number of awards during 2015-16 - such as the "Frost & Sullivan Best Practices Award", "IUKAN: Utility Best Practices Award" and "The SKOCH Award". In the future, focus will continue to be on enhancing consumer satisfaction. Towards this end, efforts are on to improve the adoption of technology-based customer-centric solutions. At the same time, it will be the Company's endeavour to employ the latest technology and customer friendly processes to reduce transaction times at each touch-point. Safety and Health CESC adheres to a high standard of industrial safety practices across its operations. It has a safety department with dedicated officers from different functional areas to ensure integrated approach on developing safe work procedures. Last year, the Company initiated wide-ranging changes to imbibe a culture for safety within the organisation and carry out necessary changes in policies, processes and technology. Several initiatives were carried out during 2015-16 to take this forward. The Company redefined its safety vision and policy, which now also includes a policy on use of personal protective equipment. 150 critical jobs were identified and safe work practices (SWPs) were created and subsequently implemented through rigorous training and workshops. By the end of March 2016, all regular as well as contractual workmen have undergone safety training. Besides, all officers in operating departments have gone through multiple safety-related training programmes conducted by internationally reputed consultants. The SWPs implemented during the year have gone through regular safety and occupational health audits by internal safety committees, safety department and external auditors. As per practice, 'safety days' are observed in all major establishments of the Company. During the year, the "Central Safety Day" was organised at the Science City Auditorium where more than 4,000 regular and contractual employees participated. Besides, programmes are regularly carried out to promote safety awareness among employees. These include safety workshops, classroom training, mock drill, demonstration as well as publishing safety manuals, magazines and audio visual aids. The safety department publishes a safety magazine "Surakshabarta" in both Bengali and Hindi version which are distributed to employees. Separate newsletters and bulletins are also published for the generation and distribution divisions. The Company ensures that all incidents are fully reported. All such cases are thoroughly analysed to find out root causes and corrective and brventive actions are initiated for implementation to avoid recurrences. Systems are also in place to encourage reporting of 'near misses' for proactive identification of potential hazards and enabling brventive actions. At the same time, penalties are imposed if instances of nonconformity with safety standards are reported. Consequently, accident rates have reduced over the last few years. All thermal stations are OSHAS 18001:2007 certified for occupational health, and safety management systems. During the year, the Southern Generating Station received the 14th Annual Greentech Safety Award(2015)- Gold Award; and the Budge Budge Generating Station received the 14thAnnual Greentech Safety Award (2015)-Platinum Award in recognition of our adherence to safety standards, and practices followed for maintaining occupational health and environment. CESC operates 30 well-equipped dispensaries across the organisation with doctors and pharmacists. Best-in-class medical facilities including major super speciality hospitals, nursing homes and diagnostic clinic are also available to the employees through tie-ups in the city. It also conducts regular health check-up as a part of the occupational health initiative for its employees including employees of contractors. During the year, the Company also carried out several drives to sensitise employees on brvention of lifestyle diseases and a focus on wellness over curative approach towards illness. A team of dedicated doctors was engaged to initiate health consciousness among the employees and a Mega Health Awareness Programme was organised in March 2016 to sensitise and encourage employees to adopt a healthier lifestyle. New Projects and Initiatives Thermal Chandrapur, Maharashtra : This is a 2 x300 MW coal fired thermal power project at Chandrapur in Maharashtra, implemented by Dhariwal Infrastructure Limited (DIL), a 100% subsidiary of CESC Infrastructure Limited. Unit I was commissioned in 2013-14 and went into commercial operation in February 2014. Unit II was commissioned in 2014-15 and went into commercial operation in August 2014. For power evacuation, Unit I is connected with the state grid and Unit II with the central grid. This provides the flexibility in sale of power to customers from both within and outside the state. During the year, the subsidiary signed a Fuel Supply Agreement (FSA) with South Eastern Coal Fields Limited for its coal requirements. It had entered into a power purchase agreement (PPA) for supply of 100 MW power with TANGEDCO, for which supplies started in December 2015.It <http://2015.It> is in the process of tying up balance capacity. In recognition of its innovative and environment friendly practices to save energy and natural resources, DIL won the Srishti Green Cube Award 2016. Haldia, West Bengal: This is a 2 x 300 MW coal fired thermal power project at Haldia in West Bengal, implemented by Haldia Energy Limited (HEL), a 100% subsidiary of CESC Infrastructure Limited. Both the units were commissioned and started commercial operation towards the end of 2014-15.HEL has executed a long term PPA with CESC Limited, its ultimate holding company, for selling entire power generated from the project. It has also entered into a FSA with Mahanadi Coalfields Limited (MCL), a subsidiary of Coal India Limited (CIL), for sourcing coal. The power evacuation arrangement is through 400 kV transmission line to the Power Grid Corporation India Limited substation at Subhasgram, which has 236 metre high towers for crossing a two-kilometre stretch of the river Hooghly. During 2015-16, which included a large part of the six-month stabilisation period, HEL achieved the remarkable feat of over 85% plaint availability factor. It successfully implemented Integrated Management System [ISO 9001, ISO 14001 and OHSAS 18001]. It also received several awards and recognitions: Dun & Bradstreet Award in the Project Implementation category; Green Tech Environment Award in the Gold Category for Outstanding Achievement in Environment Management; and, Gold Award for CSR from the Green Tech Foundation. Asansol, West Bengal: This is a 40 MW atmospheric fluidised based combustion (AFBC) power plant using shale and washery rejects from the adjacent captive coal mine in Sarisatolli, which is operational since July 2009. The power plant is owned by Crescent Power Limited, which operates in the merchant market. During the year, the plant achieved 100% PLF in generation. Bhagalpur, Bihar : Nalanda Power Company Limited, another 100% subsidiary of CESC, had signed a MoU with the Bihar State Electricity Board (BSEB) for development of a 2,000 MW power project in Bhagalpur district of Bihar, in two phases of 1,000 MW each. Further progress will be taken up upon receiving clarity on the land acquisition process, arrangements for capacity tie-up for power supply and sources of long-term coal supply over the life of the plant. Dhenkanal, Odisha (Phase I): This is a 2 x 660 MW thermal plant based on super-critical technology. Most of the statutory clearances have been obtained and the project is awaiting coal linkage to be granted by Ministry of Coal, Government of India. During the year, the Government of Odisha extended the MoU for the project by two years, reaffirming its support for the project. Hydro Papu, Arunachal Pradesh : CESC acquired Papu Hydro Electric Power Project Limited in May 2012, which has a 90 MW hydro project in East Kameng district of Arunachal Pradesh. The br-feasibility report (PFR),detailed topographic survey and environmental studies for the project are complete. Other project development activities, including receiving clearances from the wildlife standpoint for carrying out investigations and DPR brparation, are in progress. Phangchung, Arunachal Pradesh : CESC acquired Pachi Hydro Power Projects Limited in May 2012, which has a 45 MW hydro project in East Kameng district of Arunachal Pradesh. Detailed survey, investigation and brparation of Detailed Feasibility Report (DPR) is complete and techno-economic clearance has been obtained from IIT Roorkee and the state government. Environmental studies and public hearing are also complete. A social impact assessment study and public consultation, as required under the new Land Acquisition Act, were completed during the year. Land acquisition and other br-construction activities are in progress. Wind Dangri, Rajasthan : This is the Company's first venture into the wind power business. The 24 MW project was implemented by Surya Vidyut Limited (SVL), which is a wholly owned subsidiary of CESC. The project has two long-term power purchase agreements with Jaipur Vidyut Vitran Nigam Limited and Ajmer Vidyut Vitran Nigam Limited, subsidiaries of Rajasthan Urja Vikas Nigam Limited. Since its commissioning in 2012-13, the plant has been running profitably with a net capacity utilisation factor comparable to other projects operating in the same area. Surendranagar, Gujarat: This is the Company's second wind power project. The 26 MW project, undertaken through SVL, was commissioned in December 2014. Power from this project is being sold to Gujarat Urja Vikas Nigam Limited under a long term power purchase agreement. The plant is running successfully and is profitable since its first full year of operation. Nipaniya, Madhya Pradesh : SVL has set up the third wind power project (36 MW) in Madhya Pradesh. Power from this project is for sale to Madhya Pradesh Power Management Company Limited through a long term power purchase agreement. Solar Ramnathapuram, Tamil Nadu : The 15 MWac solar power project, undertaken through Crescent Power Limited, a subsidiary of CESC, was commissioned in January 2016 and is operating as per target parameters. Power is being sold to the Tamil Nadu Generation and Distribution Corporation Limited under a long term energy purchase agreement. Distribution Franchisee Ranchi, Jharkhand : CESC, through its wholly owned subsidiary Ranchi Power Distribution Company Limited (RPDCL) was awarded distribution franchising in Ranchi Circle of Jharkhand State Electricity Board (JSEB) through a Distribution Franchisee Agreement (DFA) executed in December 2012. Subsequently, the DFA was purportedly terminated by Jharkhand Bijli Vitaran Nigam Limited (JBVNL), the distribution company formed out of the unbundling of JSEB. This was challenged by the Company in the High Court at Ranchi and the single bench has since quashed the letter of termination and remanded the matter to JBVNL. JBVNL has brferred an appeal in the division bench of the High Court at Ranchi, which is currently pending. Kota and Bharatpur, Rajasthan : In a significant development since the close of the financial year, CESC has emerged as the winner in two separate bids floated by Jaipur Vidyut Vitaran Nigam Limited for appointment of distribution franchisee in the cities of Kota and Bharatpur in Rajasthan. CESC's appointment is for a period of twenty years each for the purpose of distribution and supply of electricity in the two cities as per the relevant Bid Specifications and other applicable documents. Necessary details for formalising the appointment will be worked out by two SPVs to be formed for the above purpose. OTHER BUSINESSES Retail CESC operates in the organised retail sector through its subsidiaries. • Spencer's Retail Limited (SRL), is the flagship company of CESC in the retail sector with 118 stores across India under the Spencer's brand name, including 36 hypermarkets. The stores cater to all family needs - groceries, home and personal care products, apparel and accessories, consumer durables and lifestyle products. During 2015-16, it registered a same store sales growth close to 8.4%, on the back of a similar growth in the brvious year, with an average revenue per square feet of Rs.1,452 per month, versus Rs.1,350 per month in the brvious year. Focus continues be on growing the top-line, keeping costs under control and revamping / exiting from non-performing stores. In 2016-17, SRL plans to roll out about five to six new stores in the hypermarket format, which will allow it to further consolidate its brsence in the existing clusters. This will also help in fully leveraging both back-end capabilities and optimise marketing costs. Apart from this, focus will be on improving the non-food business and in-store experience as well as building team capability to support the company's growth plans for the business. Overall, SRL is moving closer to achieving an operating breakeven in the year 2016-17. • Au Bon Pain Cafe India Limited (ABPCIL) is a subsidiary of SRL, catering to the 'fast casual restaurants' segment as the Indian master franchisee of ABP Corporation, USA. During 2015-16, ABPCIL opened two new cafes across its existing four trade channels, namely, high street/shopping malls, business and industry locations, hospital brmises and universities, along with expanding its operations in the city of Delhi. With these, the number of cafes that were in operation at the end of the year was 24, with brsence in Bengaluru, Kolkata and Delhi. Business Process Management (BPM) SpenLiq, a wholly owned subsidiary of CESC, purchased a majority stake in Firstsource Solutions Limited (FSL) in 2012-13. FSL is in the business of providing Business Process Management (BPM) services in the areas of customer management, transaction processing and collections services to Fortune 500, FTSE 100 companies in the US, UK and India markets in the Healthcare, Telecom & Media (T&M), and Banking, Financial Services and Insurance (BFSI) industries. FSL has total employee strength of 23,886 and supports clients from 47 service facilities sbrad over the USA, the UK, Philippines, India and Sri Lanka. The company's client base is large. It includes (i) six of the Top 10 general-purpose credit card issuers in the US, (ii) the largest retail bank and mortgage lender in the UK, (iii) one of the top three car insurance companies in the UK, (iv) a leading Irish bank, (v) a leading credit card issuer in the UK, (vi) a leading private life insurer in India, (vii) the largest pay TV operator in the UK, (viii) the largest pay TV and leading telecom service provider in Australia, (ix) three of the top five mobile service providers in India, (x) the largest telecom service provider in the UK, (xi) the largest news and broadcasting company in the UK, (xii) one of the world's largest media and entertainment conglomerates, (xiii) two of the top 10 telecom companies in the US, (xiv) one of the top five private banks in India, (xv) the largest telecom company in Sri Lanka, (xvi) five of the top 10 Fortune 500 health insurers and managed care companies in the US, and (xvii) over 700 hospitals in the US. FSL provides a combrhensive range of services to clients across the customer lifecycle in each of its focused industries. It delivers innovative and value added business process management services through a combination of deep domain knowledge, strategic alliances and internal competence building, backed by the right technology. During 2015-16, FSL's revenue was X 900.53 crore and profit before tax grew by 9% to X 174.12 crore. Real Estate Quest Properties India Limited (QPIL, formerly CESC Properties Limited), a wholly owned subsidiary of CESC, launched Kolkata's first upscale shopping mall, the 'Quest' in November 2013. During 2015-16, Quest completed the second full year of operation. It has been a huge success maintaining annual footfall of 12 million and a combined gross sale of around X 520 crore by all retailers. It has become an iconic shopping centre brand with pan-India fame. During the year, Quest won several awards and accolades including "Shopping Mall of the Year - East" and "Retail Property of the Year - East" at the8th Estate Awards organised by Franchise India;the "Most Admired Shopping Centre - East (Metro)" at the India Shopping Centre Awards - Images;and CMO Asia's "National Award for Marketing Excellence" for best use of social media marketing. The restaurants in Quest, namely, Chili's, Yauatcha, Serafina, Smoke House Deli, Bombay Brasserie and Irish House have also won awards in their respective categories. QPIL is entering into a residential project in Haldia to cater to the housing requirement of some large corporate houses and individual residents in the port township. The project will be sbrad across 3.5 acres of land and will be carried out in phases. The first phase, for which planning is currently in progress, will have a total saleable area of about 2 lakh square feet. HUMAN RESOURCES (HR) Employees are our greatest assets and CESC continually strives to create a work environment that ensures their growth, capability building and well-being. Accordingly, all HR strategies are formulated keeping employees at the core, and supporting them to contribute to the organisation. Processes are in place by way of engagement surveys and perception studies to receive regular feedback from a cross-section of employees to align the Company with the changing business needs. In the area of recruitment, the Company has established itself as a "Preferred Employer" at brmier educational institutions through its initiatives to enhance campus relations, a process driven by a dedicated cross-functional team of senior executives. "Unmesh", the paid summer internship programme for students of brmier engineering colleges and business schools, has played a major role in this direction."Anneswan", the annual induction process, has established itself as a highly popular initiative for integrating the newly recruited executives within the organisation. Talent acquisition activities progressed well during the year. Learning and development is a key focus area. Curriculum based programmes and special courses in collaboration with brmier institutes play a major role in this regard. Special emphasis is given on building a safe workplace and fostering a customer centric culture among employees. During 2015-16, the Company carried out 930 training programmes totalling around 18,700 man days of training. To meet the needs of leadership development and talent management, several structured initiatives such as leadership retreat, coaching and mentoring, and outbound learning programmes were also carried out. Knowledge and innovation management play a pivotal role in building organisational capability. To achieve this, CESC organises an annual "Knowledge Carnival", a platform to bring out innovative ideas to the fore. The Company has an in-house knowledge and innovation portal, "e-prognya", to support the process. Innovative projects are also published in the in-house bi-annual technical journal. HR has also played an important role in restructuring the organisation to meet the changing needs of the business. Two new teams - Business Excellence and Disaster & Risk Management - were created during the year to institutionalise positive work in these areas. The Asia Institute of Power Management (AIPM), the training and consulting wing of CESC, has established itself in training power professionals across the country and abroad. During 2015-16, AIPM carried out 86 training programmes for 1,900 executives, which aggregated 6,150 training man days. These programmes covered diverse areas: capacity building, infrastructure development, network planning and development, reliability improvement, loss reduction, safety and renewable energy. In the area of industrial relations (IR), the unions rebrsenting the employees continued to play a positive role in partnering with the management to drive and maintain excellence in operations. They also extended full support in implementing advanced technology, modernisation and improvement in consumer service, which entailed rationalisation and skill upgradation. During 2015-16, a number of employee centric initiatives such as "Employee Suggestion Scheme", "Reward and Recognition Programme" and "Small Group Interactive Meetings" were launched to enhance employee engagement and cater to the changing needs of the work force. The Company has taken special initiatives to communicate more actively with its employees and their family members through events such as Annual Sports Day, Mega Health Awareness Programmes and "Ankur Samman"- a programme to felicitate meritorious children of employees. In the course of the year under review, CESC won several awards and recognitions which underscore its employee friendly HR practices. These include: the "CBIP Award" for capacity building and training; the "NIPM National Award" for HR best practices; the "World HRD Congress National Award" for excellence in innovative use of training and development; and, the "Energy and Environment Foundation Award" for Global HR skill development. As on 31st March 2016, CESC had a workforce of 9,494 people on its payroll. The Company continues to enjoy industrial harmony in its business operations. No major incident of service interruption due to industrial relations (IR) issues was reported during the year. Quality Quality is intrinsic to CESC's philosophy and is imbibed in a strong process driven business model that the Company follows in all key areas of its operations. Over the years, the Company has been implementing quality management principles to achieve consistency and scalability in its functioning. During the year, CESC moved ahead to institutionalise its activities in the area with the formation of a Business Excellence team. This increased participation in quality and workplace organisation projects from nine to 13 departments. During 2015-16, 245 Kaizens were identified and approved. A reward and recognition programme has also been put in place to encourage greater participation in the initiative. Going forward, focus will be on increasing the scope and coverage. Efforts are also on to build capabilities and create a central team for regular cross-functional audits. The Company has also put in place a roadmap to implement the European Foundation for Quality Management (EFQM) model of excellence. In recognition of its initiatives, CESC received the commendation for "Strong Commitment to Excel" at the CII-Exim Bank Award for Business Excellence. INFORMATION TECHNOLOGY (IT) At CESC, IT is not just an enabler of business processes, but forms an integral part of the organisation's capability to deliver on its strategic and performance objectives such as cost control, superior performance and customer delight. Over the years, the Company has developed a strong IT backbone for carrying out its business. CESC's IT infrastructure includes CESCNET, its captive optical fibre data network, which connects the Company's service establishments across the license area and a state-of-the-art data centre (DC) and disaster recovery (DR) site for its IT applications. Use of advanced IT solutions and processes have enabled continuous monitoring of its network and carrying out brventive maintenance of electrical assets, resulting in fewer breakdowns and a consequent fall in maintenance cost. During 2015-16, focus was on further enhancing operational efficiencies and building on the 'SMAC Framework' (Social Media, Mobility, Analytics and Cloud Computing) introduced during the brvious year. In line with this, the Company has also invested significant resources in augmenting its computing infrastructure at DC and DR, as well as expanding coverage of high-availability cloud-based services during the year. A number of software solutions were implemented to increase automation in the generation and distribution divisions which, apart from increasing efficiencies, also introduced highest standards of safety and security in the day to day activities. Similarly, tablet computer based meter reading was introduced, which increased accuracy and saved time by validating readings and eliminating the need for back-end entries. In a customer-centric initiative, the Company launched a centralised call management centre which routes and redresses all commercial complaints irrespective of their service region. Significant progress was also made in the area of business analytics with the implementation of applications in diverse areas : reducing theft and pilferage, proactive identification and resolution of root-cause of frequent complaints from a service areas, reducing capital expenditure by optimising distribution assets and customer segmentation. Going forward, CESC will continue to build on its strengths, with greater focus on performance and business continuity, to service its growing customer base. Special emphasis will be on improving the customer-centric processes and deploying useful applications in the area of analytics. CORPORATE SOCIAL RESPONSIBILITY (CSR) CESC is committed to carrying out its business in a socially and environmentally responsible manner that enriches people's lives through inclusive and sustainable development. Its initiatives, designed specifically to benefit the economically and socially disadvantaged communities, focus on impact-driven projects, which are measurable and generate noticeable results over a period of time. The CSR ethos and approach of the Company is drawn from the core values of the RP-Sanjiv Goenka Group: customer satisfaction, credibility, humaneness, execution excellence, speed and risk-taking. CSR initiatives at CESC cover four thematic areas: education, health, environment, and community development. During the year, the Company won "Gold Award" for its achievements at the Greentech CSR Awards. It also won "Asia Best CSR Practices Award 2015" in the category "Support and Improvement of Quality of Education" by CMO Asia. Education Initiatives CESC's "School Build Programme" has been focusing on infrastructure development of government and municipal schools through repair and renovation of school buildings, provision of facilities such as safe drinking water facility, benches and computers. During 2015-16, the Company implemented the programme in eight schools benefiting approximately 10,000 students. Under its "Nirmal Abhiyan" programme, carried out in partnership with City Level Programme of Action for Street and Working Children (CLPOA), the Company seeks to improve health of vulnerable and poor students through provisioning of safe drinking water and appropriate sanitation facilities in government and government aided schools. During 2015-16, infrastructural support was extended to five schools to upgrade their sanitation facilities which benefited 761 students. Till date, it has been implemented in 12 schools and has benefitted approximately 1,614 students. "Muktangan" is a remedial education programme for under privileged students implemented in partnership with Hope Kolkata Foundation (HKF). The project seeks to provide academic support to underprivileged students from class VII to class X, to brvent drop outs and ensure appropriate learning achievements. During the year, 578 students in 15 centres benefited from the initiative. The Company continued working with ten schools in the "CESC Learning Labs" programme. The programme, carried out in partnership with NIIT Limited, is a learning solution that integrates science and math labs with classrooms. It allows students to develop their learning capabilities by helping them associate classroom learning with computer aided simulations. It emphasizes on "learning by doing" to foster applied reasoning. During the year, more than 34 teachers were trained under this programme and approximately 2,138 students benefitted from it. Health Initiatives "Hamari Sehat" is a maternal and child health project carried out in partnership with City Level Programme of Action for Street and Working Children (CLPOA). The objective is to improve status in terms of reduced mortality and morbidity, improvement in general health seeking behaviour, increased coverage of immunization, reduced malnutrition and improved hygiene practices. During 201516, 517 households or approximately 1,020 people directly benefited from the project. "Suswasthya" is a health project carried out in partnership with Association for Social and Health Advancement (ASHA), which aims at improving the health of women, adolescents and children in selected slums. Specific focus is on brvention of severe malnutrition among children and appropriate ante-natal care (ANC) and postnatal care (PNC) for women. 1,650 beneficiaries were provided support under the programme during the year. Environment Initiatives CESC continued working with 30 schools under its "Urja Chetana" programme, carried out in partnership with Centre for Environment Education (CEE). The programme strives to generate awareness on energy conservation amongst students, who would carry the learning to the larger society through community outreach activities. During the year, 780 students and 41 teachers were directly involved, whereas another 3,030 students were indirectly involved with the programme. Over 1,110 persons were also engaged through in-school and community outreach activities. During the year, CESC continued with its partnership with the Kolkata Municipal Corporation for maintaining the green verges from the Park Street flyover to the Hazra crossing in Kolkata. Community Development Initiatives "Nirmal Sankalp" is a combrhensive water and sanitation project in Titagarh Municipality, in partnership with Water for People India Trust (WFPIT). Started in 2014-15, it seeks to improve availability, usage, quality and sustainability of water and sanitation facilities by involving community members as change agents. A number of toilets and bathing cubicles were repaired, renovated and constructed during the year in Ward No. 13 of the Municipality. A user group committee was formed to ensure maintenance of the toilets and to liaise with the Municipal authorities. The entire Municipality is expected to be covered over a period of five years. The project received 'Rashtra Vibhushan Award - Gold' by Foundation ofAccelerated Community Empowerment. Skill development is the key to improving the employability and livelihood opportunities of our youth. Keeping this in mind, CESC has been supporting a skill building programme in Howrah called LABS (Livelihood Advancement Business School), in partnership with Dr. Reddy's Foundation (DRF). The programme involves training and placement of underprivileged youth in hospitality, ITES (IT enabled Services), customer service, multi-skill tasking and automobile sectors. During 2015-16, 230 people benefited from the project. FINANCIAL PERFORMANCE Overall operating expenses grew by 5% to Rs. 4,895 crore in 2015-16 primarily driven by an increase in cost of power purchased. This coupled with a reduction in fuel costs reflect the change in energy mix due to lower utilisation of the Company's generation assets (TGS and SGS) subsequent to the ramping-up of generation at the new plantin Haldia (HEL). Earnings before interest, debrciation and taxes (EBIDTA) went up by 5% over last year to Rs. 1,721 crore in 2015-16. Profit before debrciation and taxation (PBDT) reflected a year-on-year increase of 3% to Rs. 1,268 crore in 2015-16. The Company's profit after taxes (PAT) for 2015-16 stood at Rs. 707 crore and the earnings per share (EPS) during the year stood at Rs. 53.34 compared to Rs. 54.51 in 2014-15. INTERNAL CONTROLS A strong internal controls framework is an essential br-requisite of growing business. In this context, the Company's internal control systems are commensurate with its size and the nature of its operations. It has well documented policies, procedures and authorisation guidelines to ensure that all assets of the Company are safeguarded against unauthorised use or losses, all the transactions are properly authorised, recorded and reported, and all applicable laws and regulations are complied with. The effectiveness of internal control mechanism is tested and certified by the Internal Audit Department, covering all divisions and key areas of operation, based on an annual audit plan giving due weightage to the various risk parameters associated with the business. Major audit observations and follow-up actions are reviewed and monitored by the Audit Committee and placed before the Board of Directors, where necessary. The Internal Audit Department also assesses the effectiveness of risk management and governance process. RISKS AND CONCERNS CESC's Risk Management Committee operates on a combrhensive risk management framework that the Company has put in place over time. The Committee is headed by the Managing Director and comprises the entire senior management team. A Risk and Disaster Management cell was created during the year to further strengthen the process. Divisions identify operational and tactical risks and suggest measures for mitigation and control. The Committee supervises and monitors the risk identification and mitigation activities of each division. CESC has identified the following key areas of risks and concerns. Macroeconomic and Market Risks Even though availability of coal has improved, coal quality and linkages for new projects continues to be an issue. Surplus power generation capacities in the short term exposes the Company and its subsidiaries to risks associated with difficulties in executing PPAs and adverse price movements in the short-term power market. To mitigate the risk of availability and cost of coal, CESC has adopted a strategy of ensuring long-term coal linkages for its existing and future projects. Apart from this, the Company is actively looking at securing resources abroad to effectively address its energy requirements. The Company is well placed to access for state and national grids to sell surplus power. It is also actively looking at PPAs to further mitigate such risks. Operational Risks It is becoming increasingly difficult to build generating stations inside a congested megalopolis like Kolkata - not the least because of environmental concerns. As CESC's plants age, it is natural that their operating efficiencies shall reduce; beyond a point in time, shutting down and replacement of these plants will become imperative. If the Company is not allowed to build replacement plants at the sites where current generating stations exist, the cost of evacuating and distributing power from far flung locations into the licensed area will increase substantially, in turn impacting quality of service delivery and profitability. Other operational risks pertain to natural and man-made disasters such as earthquake, floods and fire that can affect the Company's ability to supply quality power to its customers. As mentioned earlier in the report, CESC has deployed advanced technologies to address space related constraints. To mitigate the risks associated with availability and quality of power, the Company invests significant resources in the maintenance of its generation and distribution assets. At the same time, the new generation project at Haldia will ensure availability of cost-effective power in the medium to longer term. To mitigate risks associated with disasters, the Company has a combrhensive disaster management plans and SOPs, which it updates regularly. Mock drill on fire fighting and evacuation during emergency has become a part of training calendar and vital installations are being brought under 24x7 CCTV surveillance system to protect against external attack, security breach or similar activities. Regulatory Risks Power is a highly regulated sector. This exposes the Company to risks with respect to changes in policies and regulations. Besides, given the nature of the industry, there is a risk of more stringent policies and norms aimed at addressing environmental concerns. This can make it more difficult to execute new projects as well as increase the cost of operations. Efficient managing and recycling of fly ash is one such area. CESC is conscious of these risks. All the generating stations of the Company have achieved 100% ash utilisation. As explained earlier, CESC, through its subsidiaries, is also exploring opportunities in power generation using renewable fuel sources to mitigate this class of environmental risks. FUTURE OUTLOOK Even with a modest recovery in the advanced economies, the global economic environment continued to be subdued. Growth also decelerated in most emerging markets, which have otherwise been driving global demand in the last few years. The situation in China, which is moving towards consumption and services in an attempt to rebalance its economic activity, is likely to also have a significant impact on global energy markets. India is among the very few large economies with a stable macroeconomic outlook. Its GDP growth in 2015-16 was 7.6 per cent, higher than 7.2 per cent recorded in the brvious year. Inflation also remained stable during the year, prompting the RBI to maintain an accommodative monetary stance-bringing down policy rates by 100 basis points during the year. With the Government's resolve to maintain fiscal prudence, inflation is likely to remain in check, especially with global commodity prices not showing signs of any significant upward movement. As far as power sector is concerned, domestic demand is projected to grow significantly in the future, more so with the focus on rural electrification and ensuring 24x7 power to all by 2019. Although the investment cycle is yet to kick in, focus on the manufacturing sector is likely to provide further boost to demand for power in India. At the same time, policy changes for the sector have been encouraging. There has been considerable forward movement on increasing supply of coal and efforts are in process to reduce the stress of debt-ridden state power distributors. Besides, policies for encouraging renewal fuel sources will reduce implementation risks for such projects and help create a more balanced generation capacity in the country. These developments should benefit the Company, which, through its subsidiaries and Group entities, has been active in planning and implementing power projects based on thermal as well as renewal sources of fuel. Cautionary Statement The financial statements appearing above are in conformity with accounting principles generally accepted in India. The statements in the report which may be considered 'forward looking statements' within the meaning of applicable laws and regulations, have been based upon current expectations and projection about future events. The management cannot, however, guarantee that these forward looking statements will actually be realised or achieved. On behalf of the Board of Directors Sanjiv Goenka Chairman Kolkata, 19 May2016 |