In 1997-98, TEC earned a CP equal to the RR. Any increases in distribution will contribute to its bottomline, resulting in its CP exceeding the RR. The excess will then have to be refunded to the customers, BSES being the largest. It accounted for 33 per cent of TEC's sales during the year. TEC was unable to pass on the hike in demand charges in full to BSES mainly because BSES was able to establish that it would result in a hike in tariff by BSES and TEC already earns the RR.

Further, TEC will have to seek the approval of state government before it can go ahead with its plans. The permission won't be granted because it will result in lower cross subsidisation by BSES and hence a hike in tariff for retail consumers (at present residential consumers are subsidised by industrial and commercial clients). BSES' annual report clearly states that instructions have been issued by the ministry of energy and the state government that the existing customers will not be allowed to shift their supplier as it would result in a duplication of infrastructure.

TEC has also been trying to get the Bandra-Kurla complex (particularly the diamond bourse) for over a year. The complex is sub-divided into 7 sectors (A-G). BSES's licence area includes sectors A-F and sector G, in which the bourse is situated, is only partly fed by it. TEC's interest in the area is obvious as its line from Dharavi to Santacruz bisects sector G. The area is, however, fed by BSES through underground cables and hence, the TEC line is not utilised.

TEC's claim that BSES is "profiteering" by charging Rs 1.38 per unit for the power supplied to it at Rs 1.29 per unit is baseless. A distributor is entitled to earn the RR and in any case, distribution has a cost. TEC does not generate 1,800 mw of power as is generally believed. Its capacity is 1,774 mw (excluding 67.5 mw IPP at Jojobera) and it can't operate at a PLF of 101.5 per cent (without accounting for auxiliary consumption and T&D loss of 3 per cent).

It is hard to digest the claim that TEC is already supplying power to a residential complex in BSES' licensed area. Even in large residential societies each and every flat has to have a seperate meter. Bulk supply is possible to entities like an airport because it has sub-entities and power is supplied to a sub-station and from where it is distributed by the airport authorities. In a residential society, if the sub-station route is used, non-payment by one flat owner will result in power supply for the entire society being cut-off.

Another contentious issue is the payment of brand fee by TEC. Sch.VI Of the ESA allows for "expenditure properly incurred on... " Can the brand fee treated as expenditure properly incurred on generation/transmission/ distribution of power? TEC's action of acquiring 2*25 mw DG sets of ACC speaks louder about its growth prospects than its words. The markets too have given their verdict--BSES hit the upper end of the circuit on the BSE, yesterday.

VSNL

Videsh Sanchar Nigam's (VSNL) annual report for the year 1997-98 makes very interesting reading. It perceives the basic and value-added services telecom market of the future evolving to a brand-led race. The directors' report acknowledges the contributions of the DoT to VSNL's splendid growth in the period. Incidentally, DoT has been responsible for increasing the access lines within the country to 1.78 crore from 1.45 crore.

India's telephone penetration in the year 1997-98 rose to 1.7 per cent from 1.5 per cent. This proves that the country still is a long shot away from providing essential basic telephony to the masses. However, VSNL is still dependent on long distance basic telephony which contributes a whopping 94.7 per cent (Rs 5752.73 crore) to the total traffic revenue of Rs 6,074.98 crore. In the year 1996-97, basic telephony had contributed 95.3 per cent to the total traffic revenues.

During the course of the year, the accounting rates which the company garners from foreign carriers for transporting their calls to the terminating points within India declined. But VSNL was successful in insulating its bottomline (Rs 967.9 crore) from a volatile earnings scenario. This was because the company was reimbursed Rs 45.98 per minute by DoT for outgoing international calls whilst it paid DoT Rs 21.34 per minute for incoming calls.

VSNL's future earnings could be hampered with the inevitable drop in accounting rates. But current negotiations for a uniform settlement with all international carriers could prove to be crucial. This would reduce the refiling of calls from the US thereby balancing the incoming-outgoing US call ratio.

On March 31, 1998, VSNL Seamless Services was incorporated to market its value-added high margin service like Internet, e-mail, electronic data interchange and video-conferencing. The company is targetting an Internet user base of 1.80 lakh by March, 1999.

In the future, VSNL should be able to sustain a good growth rate owing to the following reasons. Firstly, low telephone penetration in India is set to expand owing to privatisation. Secondly, it is geographically well located to emerge as a regional hub for South Asia. Thirdly, GMPCS, Direct-to-Home (DTH) and Internet services would entail higher margins.

Emcee (With contributions from Urmik Chhaya and AG Krishnan)