Mumbai: Lalit Jalan, 52, is busy overseeing the transformation of Reliance Infrastructure Ltd, in which he’s a full-time director, into a project management company with focus on engineering, procurement and construction (EPC) in the power sector.
The firm, he said, had to diversify into infrastructure projects such as roads, airports and power needs of special economic zones and townships to meet shareholder expectations of 20% annual returns.
The EPC business will now be a key driver to profits, with the focus more on India than overseas, said Jalan, who manages key portfolios in the Reliance Anil Dhirubhai Ambani Group’s (R-Adag) energy business, handling distribution, transmission and trading.
In 2008-09, Jalan expects the EPC operations to add Rs2,500 crore to the company’s overall turnover.
Your company is transforming itself into an infrastructure company primarily focused on project management.
When we started planning to build 5-6 power plants in 2005 ... we found that the investment will cost more than Rs1 trillion and each of these projects had its own nuances. There was uncertainty on when will we get the land, the environmental clearances and fuel, among other things. We didn’t want this company to get bogged down by the weight of those plans, so we got these projects into a separate company, Reliance Power Ltd, that got listed this year.
Business makeover: Lalit Jalan at his office in Santacruz, Mumbai. Ashesh Shah / Mint
I can only grow my power distribution business if the state governments are willing to privatize the distribution. So, I’m at the mercy of the state governments but my shareholders don’t believe and want me to grow at 20% every year. How do I grow?
We realized the same skill sets that we used to put up our power plants, the same project and construction experience and similar finance expertise, could be used in infrastructure as well. So around 2005, we started moving towards that and over the last three years, we have built a portfolio of nine projects at various levels of execution. Power is anyway the biggest of all infrastructure pieces and we are in all chains of it from generation to transmission to distribution.
In the EPC vertical, we are in roads, highways, flyovers. Urban transport, and airports are a big area of focus for us. Then we are looking at certain speciality real estate such as the commercial business district in Hyderabad.
In steel, we are in talks with a Chinese company. We are good in power but for any other area, we will need to acquire the skill set. The EPC areas we have identified are the metro and monorail, in which we already have two projects, and nuclear power plants, besides steel plants. This (fiscal) year, EPC should contribute Rs2,500 crore and double next year.
But you seem to have slowed in expanding your order book. You have not added any new projects in the past six months. Is this a conscious decision?
We got the Sasan project (being developed by Reliance Power). Our hands are so full. Even today, there are a few transmission projects of Rs100 crore or so (but) we will not bid. At the end of the day, it has to be of a particular size and particular profitability criteria. In the last six months, we pre-qualified for eight road projects. We are waiting to bid for Amritsar and Udaipur airports.
Power distribution is becoming lucrative with state governments showing the will to privatize this. How do you plan to expand your power distribution portfolio?
We have started a three-pronged attack. One part is on talking to companies about privatizing the distribution or franchising it. Bihar wants to privatize 4-5 of its cities and we have had few rounds of discussions. Maharashtra wants to do so for Pune, Aurangabad, Navi Mumbai and Nasik, among others. Madhya Pradhesh started with Indore and wants to do some more. Then there are Tamil Nadu, Haryana and Andhra Pradhesh. Maharashtra is giving us a trial order soon.
Second, on the entire suite of products whether it is billing, automated meter reading or any technology, customer care or process improvements, we can act as a project implementer because we have done it (earlier).
Lastly, we are tying up with big builders of either townships or SEZs (special economic zones) to take care of all their electricity, whether it is generation or distribution or technical training.
Is the Mumbai license area stressed as your purchasing price for power is higher than the selling price?
It is not true because ... whatever be the price of power, we pass it through. But the marginal power we buy is at a higher price. Mumbai city is 800MW short of power and that (amount of power) is being bought at north of Rs9 per unit from West Bengal, Orissa and Madhya Pradesh. The average purchase price will be around Rs5.40 a unit and we are selling at Rs6.40 a unit.
Both Tata Power (Ltd) and Reliance Infrastructure have cut losses on theft, transmission and distribution in Delhi. Tell us about your experience of power distribution in Delhi and Mumbai. And to what extent have you managed to address the menace of power thefts?
At the time I took over in 2006, the gap (between the two power distribution players in Delhi) was humongous both in terms of cost reduction and customer satisfaction. So in the next two years, we redeemed everything and are now rated above NDPL (North Delhi Power Ltd). Now, the (theft) losses are very close to each other. By the end of this year, ours will be around 20%, down from 53%.
Secondly, we have 12-13% industrial consumption and that too is unorganized. NDPL has 30-35% organized industry.
We also found technical solutions to the problem of power theft through illegal hooking up of wires, which would be removed when there was a raid. We put up conductors in which they cannot simply hook up to get power. But we have realized that technical solutions are temporary and last for 2-3 months.
Mumbai was already semi-privatized. Because they were in a good system, there were losses of 14% when we came in, and we have brought it down to 10%. About 8-9% are technical losses that are normal electric losses and happen everywhere. The problem is much lesser in Mumbai.
(A) 1% loss in Delhi is worth Rs 90 crore, so on an average, if all the distribution companies are saving more than 35% losses annually this year, we calculated that Delhi government saves Rs4,000 crore a year.
There is a perception among investors that the Anil Dhirubhai Ambani group of companies announces a lot of projects but the execution skills are below expectations.
ADAG is barely three years old. We were one small asset management company in 2005 when we got Reliance Capital of Rs1,000 crore of assets under management. From Rs1,000 crore, in the most competitive industry with all the foreign fund houses in there, we became the largest player in three years. Reliance Life Insurance, General Insurance and Broking are all part of ADAG. From six people in R-Cap at the time of de-merger we now have 15,000 people.
In Reliance Infrastructure and (Reliance) Power together, we are the largest distribution company; (we) have turned Delhi power distribution and put together a basket of 30,000MW of various power generation projects when they come up. It will take time. If a Sasan is supposed (to take) nine years to build and I’m doing it in six years, you can’t be judged nine months down the line. Seven out of our nine infrastructure projects will be completed, (and be) up and running by September of 2010.