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Change of scene at Tata Electric - Views on News from Equitymaster
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  • Jun 12, 2000

    Change of scene at Tata Electric

    The officials at the Tata Electric Companies (TEC) seem to be working overtime. First came the news that TEC was considering a counter bid to acquire BSES. Then it came to be known that the Tata Group was considering a merger of the 3 TEC companies into a single entity. Now we all know that TEC is planning an e-commerce foray.

    All this action must seem too much for the staid TEC, not known for this kind of aggression. Aggression! No way, some might say. The merging of the 3 TEC companies had always been on the managementís mind, the change in stamp duty structures prompted them to proceed with the merger only now. And even for the counter bid on BSES, the Tataís ultimately didnít go for it.

    But look a little deeper and one can sense that TEC has taken centre stage for the Tata Group. Many analysts and investors felt that TEC was not on the Tata priority list. It is functioning without a managing director for quite some time now. The company seemed to be slow to respond to the changes that have been happening in the power sector. Its relatively new counter parts BSES, Enron, and new entrants like Cogentrix etc. seemed more aggressive. But what has happened that TEC is changing tack? Take a look at its woes below and you will understand it has no alternative.

    For starters its main business - power generation for Mumbai circle is under fire. First BSES one of its largest consumers reduced off take once its 500 MW Dahanu power station became operational. As a result TEC was saddled with extra capacity at its new Bhivpuri plant. The Maharashtra State Electricity Board (MSEB) does not allow to it to sell power to other neighbouring states. Now the Maharashtra state government is even considering giving BEST (Bombay Electricity Supply and Transport) another big customer for TEC to get into generation. To add to its woes, BSES has also got permission to go ahead with its 495 MW Palghar project.

    As if all this was not enough, Reliance bid for a holding stake in BSES. To have an aggressive group like Reliance backing BSES means that its Mumbai circle is not safe anymore. TEC currently holds a licence to supply to the Mumbai area only till 2014. Post 2014, it can expect Reliance backed aggressive BSES to bid for its Mumbai licence. Secondly and more importantly, Maharashtra state government is planning to privatise its electricity board MSEB. TEC, BSES and Enron will be the major contenders during this privatisation exercise. If Reliance were to take over BSES, its marketing and financial clout will make it difficult for TEC to hold ground.

    So when the Tataís considered making a counter bid for BSES, it reflected correct thinking, albeit too late. But all these events seemed to have jolted this beleaguered Tata company.

    Of late, TEC has been in the news quite frequently. The company is competing with Reliance to bid for a 74% stake in Power Gridís national backbone plan. It is spending Rs 3 bn in the next few months to convert its existing 400 km fibre optic network across Mumbai into a broadband one, that will allow high speed Internet access. (One should note that BSES has only recently initiated laying optic fibre network in Mumbai). It is also applying for an Internet service provider (ISP) licence. It has bagged projects in Karnataka, Bihar, MP and Orissa.

    So has TEC finally arrived? The bourses seem to think so. All 3 Tata Electric Companies have steadily moved up. But the question now really is: Will TEC be able to sustain this?



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