CESC

The Directors have pleasure in presenting the Annual Report and Audited
 Accounts of CESC Limited for the year ended 31 March, 2008.
 
 Financial Results
                                                        (Rs. in Crores)
                                               2007-2008     2006-2007
 
 Profit before Depreciation, Taxation & Other 
 Appropriation                                       571         499
 Depreciation                                       (168)       (158)
 Taxation                                            (48)        (40)
 Profit before Transfer / Appropriation              355         301
 Profit brought forward from Previous year            52
 Transfer
 - Reserve for unforeseen exigencies                 (13)        (12)
 - Debenture Redemption Reserve                       (1)         (2)
 - General Reserve                                  (200)       (200)
 Proposed Dividend on Equity Shares
 @ 40% & tax thereon                                 (58)        (35)
 Leaving a balance carried forward                   135          52
 
 Members will be happy to note that, during the year, total income grew
 by about 14% and there was around 18% increase in profits.  This was
 achieved mainly due to further improvement in operational efficiency
 across the Company. The generating stations sent out higher volume of
 power, distribution loss dropped further, sales volume to all consumer
 segments recorded a growth and interest payout was lower. The relevant
 details appear later in this Report.
 
 DIVIDEND
 
 In view of the improved working results, the Board is pleased to
 recommend payment of equity dividend for the year ended31 March 2008 at
 a higher rate of 40% or Rs. 4 per share on the paid-up equity share
 capital as on that date, amounting to Rs. 49.97 crore. The dividend is
 proposed to be paid to those shareholders whose names appear in the
 Register of Members of the Company, or, appear as beneficial owners as
 per particulars furnished by the Depositories at the close of business
 on 19 July, 2008. No tax on the said dividend will be payable by the
 shareholders but, as required, the Company will pay appropriate tax
 thereon.
 
 GENERATION
 
 The generating stations of the Company continued to perform very well
 during the year under review. All three pulverized fuel (p.f.) fired
 stations - Budge Budge, Southern and Titagarh - have achieved further
 improvement in their Plant Load Factors indicating high level of
 capacity utilization. Their combined PLF of 97.32% in 2007-08 was the
 highest ever recorded at these stations. Members will be pleased to
 note that, as per the list published by the Central Electricity
 Authority, these three stations ranked among the generating stations of
 the country with highest capacity utilisation for the year 2007-08.
 They are also accredited with IS0 14000 and ISO 9000 certifications
 indicating very high level of environmental and quality standards
 respectively.
 
 The nine year old Budge Budge has many distinctions to its credit.  It
 had the second highest PLF in India in the year 2007-08 among all
 thermal power stations in India and achieved full generation capacity
 during the year under report. Budge Budge has also been acclaimed as an
 environment friendly station by a number of government agencies and
 other bodies. The other two p.f. stations - Southern being 17 years old
 and Titagarh in existence for about 25 years now - have also continued
 doing remarkably well during the year under review. New Cossipore, the
 1949 built vintage station, lends very useful support to the CESC
 system, especially during the peak hours.
 
 The steady performance of the above generating stations has contributed
 significantly to maintain the power availability position in CESCs
 licensed area. However, peak period power shortage, a national problem
 now, leads to occasional interruptions in CESC area as well due to
 restricted availability of power from sources outside the licensed
 area. The Company does everything feasible to mitigate such shortage.
 The Board is of the view that the overall power position in the area
 served by CESC is better than many other cities of the country. The
 Company will continue its efforts to improve the position.
 
 SALES & TARIFF
 
 During the year under report, the volume of sales recorded by the
 Company was 6948 million units - a growth of 8% compared to 2006-07.
 Significantly, all segments of both high tension and low tension
 consumers contributed to the above growth. Overall, sales volume to
 high tension consumers recorded an increase of 10% while the rate was
 7% for low tension consumers.
 
 The Board wishes to touch upon certain complexities faced by the
 Company in sale of power as a licensee under the Electricity Act, 2003.
 First, about 60% of our consumers billed for a meagre average sale of
 around 50 units per month and accounting for only 11% of units sold
 constitutes a large segment for whom all costs have to be incurred with
 no commensurate return. Secondly, the widely varying demand pattern is
 the other big problem. While the evening peak demand is in the order of
 1450 MW, the night lean demand drops to a level of around 800 MW during
 summer and to less than 400 MW during winter months. Such variations in
 demand present problems relating to underutilization of generation
 facilities.  The other problem beyond CESCs control is the steadily
 declining proportion of sales to high tension consumers - down to less
 than 39% for 2007-08 against 51% in the year 1993-94 - and the
 corresponding growth in the share of low tension sales. Such a shift of
 sales mix has exposed the Company in recent years to higher
 distribution loss for the reason that an increase in low voltage sales
 means more distribution loss due to technical reasons. A problem unique
 to CESC and not applicable to most other licensees, is its compulsion
 for historic reasons to operate the bulk of its primary distribution
 network at a voltage level of 6kV and not at 11 kV. This constraint
 also results in higher technical loss for the Company.
 
 The Board is happy to report about the growth in the volume billed to
 the consumers in spite of the above constraints. One special feature of
 CESC system is the centralized Oracle based billing of 2.3 million
 consumers every month based on meter reading and payment information
 collected in respect of individual consumers.  The process involves
 reading all the meters installed in the consumers premises every month
 and attending to the associated work in a time bound manner. The bills
 are sent to all the consumers well ahead of the due dates and they have
 multiple choices for payment of the bills.
 
 The Board wishes to share with the Members a feeling of satisfaction
 regarding the competitive tariff structure CESC has for its consumers.
 All round inflationary pressures in recent times have hit CESC very
 hard and made it difficult for the Company to contain the cost of its
 operations. In particular, there have been sharp increases in prices of
 both coal, the primary fuel for the Companys generating stations, and
 oil, the secondary fuel, in recent times. Yet, with no external subsidy
 and backed only by efficiency enhancement and allied measures, CESC has
 managed to operate with an average tariff of 376 paise per unit for the
 year 2007-08 (without considering a ten paise increase from February
 2008 to offset a part of the additional fuel costs) against 415 paise
 applicable four years ago in 2003-04.  The Board is glad to report in
 this context that the Regulatory direction of introducing multi-year
 tariff for the consumers from the current financial year is a positive
 development for supporting revenue predictability and planning of the
 Companys operations.
 
 DISTRIBUTION
 
 The Members would be aware of the risks associated with the power
 distribution business. Substantial investments for network maintenance
 and upgradation have to be made on an ongoing basis.  Unfortunately, a
 licensee like CESC can do little to control the environment in which it
 operates and on which the sustainability of its operation depends to a
 very large extent.
 
 In view of the criticality of the distribution business, CESC continues
 to make massive investments for upgradation of its 14000 circuit
 kilometer long distribution network. During the year under report, five
 new substation / distribution stations were commissioned, the plant
 capacities of two more strengthened, 6 /11 / 33 kV distribution network
 augmented by laying 325 Ckt. Km of new underground cable and other work
 carried out for lending greater reliability to the network. Some
 special projects have also been undertaken to strengthen the existing
 power import network and for meeting the increasing load growth in the
 Companys licensed area.
 
 LOSS CONTROL
 
 Distribution loss is a cause of major concern in power distribution
 business. In the Indian context, the problem is indeed serious. This is
 borne out by an average 40% level of such loss for a number of Indian
 states. Fortunately, CESCs loss is much lower at below 15% level now.
 At one stage, not many years ago, when the level of distribution loss
 had gone beyond 20%, CESC decided to address loss control with all
 resources at its command. The thrust continues in full vigour. The
 results are encouraging but the task is full of challenges. This is
 because controlling theft of electricity, the main component of
 distribution loss, in a hostile environment is a daunting task. The
 theft prone areas are often sensitive. Loss control staff face mob
 violence and manhandling, organized gangs operate in different
 localities to thwart anti-pilferage operations, administrative support
 is often not adequate and legal process does not always move fast
 enough to deter the culprits.
 
 The Board is happy to report that in spite of all the constraints, CESC
 personnel have shown remarkable courage and commendable dedication in
 combating the menace of power theft. Excellent teamwork and relentless
 efforts have helped progressive improvement in the power pilferage
 position over the last few years.  Intense efforts for further
 improvement continue in many forms.  Energy audit at distribution
 transformer level, meter checking, surprise inspections, removal of
 hookings, constant vigilance, filing of FIRs, pursuing legal cases and
 innovative services / metering arrangements in the theft prone areas
 are some examples. The Board considers that more active administrative
 support is a prerequisite for achieving further significant loss
 reduction in the present scenario.
 
 CONSUMER SERVICE
 
 CESC firmly believes that consumer satisfaction holds the key to its
 success. The Company serves a large base of 2.3 million consumers day
 and night. The responsibility of supplying quality power to such a huge
 number of city-centric consumers at reasonable rates is by no means
 easy. With a complex underground distribution network, the Companys
 problems are compounded by large scale road excavation work by various
 agencies operating in CESCs licensed area. The other reasons leading
 to excessive overloading of the Companys plant and equipment and
 consequential supply interruptions are rampant pilferage of electricity
 and unauthorized connected load.
 
 In spite of the above constraints, CESC does its best to serve the
 consumers with a network of six regional offices divided into ten
 districts, thirty-six emergency depots, more than 100 motorised mobile
 units and a host of other establishments spread across its licensed
 area. The Company has an elaborate system of maintenance / upgradation
 of its network. Supply interruptions are attended to promptly with the
 support of a well designed round-the clock mobile emergency service.
 The entire licensed area is now covered by an upgraded 24-hour Call
 Centre network for immediate logging of supply related complaints and
 prompt restoration of affected supplies. For the convenience of CESC
 consumers, there are now thirty-nine Cash Offices equipped with modern
 facilities across the licensed area of the Comapny.
 
 With the huge consumer base that CESC has, some consumers may at times
 have certain grievances. The Companys efforts are to keep such
 grievances to the minimum. An effective grievance redressal mechanism
 is in place in each Regional Office with a team of senior officers
 overseeing the function at the Head Office level.
 
 CESC has been following a system of keeping in touch with its
 consumers. Their feedback and suggestions immensely help the Company in
 its business operation. Mailers are regularly sent to the consumers on
 supply related matters of interest. Teams of senior officers visit high
 tension consumers at periodic intervals. Regular live phone-in
 programmes on radio are conducted to instill awareness in respect of
 various aspects of power supply.
 
 ENVIRONMENT
 
 CESC is an organization in existence for over a century and it has
 always been alive to the need of protecting the environment. Special
 efforts are made by the four generating stations to monitor and control
 emissions and effluents. The emission levels are much lower than the
 prescribed limits. In fact, Budge Budge and the other two pulverized
 fuel stations have been acclaimed by various government agencies and
 other bodies at different points of time for their proactive efforts in
 environment protection.
 
 All the three pulverized fuel stations of the Company have attained
 zero effluent status during the year under report. These stations also
 have in place recycling systems to take care of the effluents generated
 from the process. Special care is taken to control emission of
 Suspended Particulate Matters through ammonia dosing. The other
 generating station, New Cossipore, is old and Wet Electrostatic
 Precipitators have been retrofitted there for mitigation of particulate
 emission.
 
 The Companys own Mobile Pollution Monitoring Van which goes around the
 Generating Stations to monitor stack emission is the first of its kind
 introduced by any power utility in the country. Indian coal has high
 ash content. The Company selects right coal mix and washing of coal is
 undertaken in order to keep the ash content within a reasonable limit.
 So far as fly ash is concerned, CESC is the pioneer in collection of
 ash in dry condition. A large part of such ash is commercially utilized
 for making cement in India and also in neighbouring Bangladesh.
 
 In a significant development, the Company has earned Carbon Credits
 (Certified Emission Reduction) under Kyoto Protocol of the United
 Nations in recognition of its two Clean Development Mechanism (CDM)
 projects undertaken at Budge Budge and Titagarh Generation Stations.
 The CDM project at Budge Budge has the distinction of being the first
 such project earning Carbon Credits for any thermal power station in
 the entire world. Both coal and oil used by the Company as fuel to
 operate its generating stations result in emission of carbon
 dioxide(C02) which is believed to have the effect of warming up the
 atmosphere. The above two projects have been successful in reducing the
 C02 emission. Carbon Credits are saleable to the buyers from developed
 countries having greenhouse gas reduction commitments in their
 respective establishments.
 
 EXPANSION PROJECTS
 
 Your Board is of the view that CESCs licensed area is poised to
 witness phenomenal demand growth in future. As more than a century old
 licensee, the Company is keen to do its bit for capacity addition in
 both generation and distribution segments.
 
 The newest generating station, Budge Budge, has two units of 250MW each
 functioning steadily. The Companys project for installing the third
 250MW unit at the same site is progressing well and should be
 commissioned in 2009-10. Certain other projects in the State of West
 Bengal and in the adjoining states taken up for implementation by
 associate companies are in various stages of progress and have
 possibilities of augmenting the availability of power in future.
 
 Capacity addition in the distribution segment is as important as
 addition to the generating capacity in a city centric supply system of
 CESC. Simultaneously with implementing the third 250MW unit at Budge
 Budge, CESC is pursuing an associated project for Budge Budge power
 evacuation to the city through a 220kV overhead line.  Heavy congestion
 along the route and a myriad of other problems are making the project
 rather difficult but the experienced team of CESC engineers are doing
 their best for completing the project next year.
 
 Members are aware that, due to historical reasons, CESC can generate
 only a part of its power requirement and the balance is imported from
 other agencies. A special project has been undertaken to strengthen the
 existing import infrastructure in the interests of CESC consumers. This
 includes establishing a new Receiving Station on the west bank of the
 Hooghly river and connecting it to the Rishra Substation of West Bengal
 State Electricity Transmission Company Limited. Besides, plans are
 underway to connect Subhasgram Substation of Power Grid Corporation of
 India Limited, with the new substation under construction at Nonadanga.
 
 SUBSIDIARIES
 
 The Board is of the view that there is substantial growth potential for
 retail and real estate businesses. CESC Properties Limited, a wholly
 owned subsidiary of the Company, has plans for development of
 properties and related business activities in the city of Kolkata and
 various other parts of the country.
 
 Spencers Retail Limited (SRL), a well established company engaged in
 the business of operating and managing a large chain of retail stores
 across India with ambitious growth plans for the future, became CESCs
 subsidiary with effect from 1 April, 2007 with CESCs holding being
 94.7% in SRL. SRL currently operates 383 stores under Spencers brand
 name in 59 cities with retail space of approximately 1.2 million square
 feet. In addition, there are also around 90 stores in 28 cities under
 Music World and Books & Beyond brands for music, home video and
 related products.
 
 The attached Consolidated Financial Statements of the Company and its
 above two subsidiaries duly audited by Messrs.Lovelock & Lewes,
 Auditors, have been prepared in compliance with the applicable
 Accounting Standard and the Listing Agreements with the Stock
 Exchanges. The Company has been exempted from the provisions of Section
 212(1) of the Companies Act, 1956 from the requirement of attaching the
 accounts of its above two subsidiaries for the year 2007-08. We
 undertake that the annual accounts of the aforesaid subsidiary
 companies and the related detailed information will be made available
 to the investors seeking such information at any point of time. Copies
 of the annual accounts of the above two subsidiary companies will also
 be kept for inspection by any investor in the Head Office of the
 Company and of the subsidiary companies also.
 
 HUMAN RESOURCES
 
 Industrial relation in the Company continues to be cordial. CESC
 attaches great importance to HR functions across the organization.  The
 focus areas include ensuring safe working practices, improvement of
 consumer services, upgrading employee competencies, development of
 leadership skills and fostering human values. The Company recognizes
 the changes in business environment and appropriate HR strategies are
 in place to meet the future challenges. The emphasis is to sustain the
 environment in which CESC employees continue to have a sense of bonding
 with the Company, enjoy working to the best of their ability and take
 pride in what they do for the organization.
 
 DEPOSITS
 
 The Company has not accepted any deposit during the year. The balance
 of deposits as on 31 March, 2008 was Rs.0.54 crore. 1199 deposits
 aggregating to Rs.1.77 crore remained unclaimed as on 31st March, 2008.
 Out of these, 71 deposits totalling Rs.0.11 crore have since been paid
 and, for the balance amount, necessary instructions are awaited from
 the depositors.
 
 NEW SHARES
 
 During the year under report, 310.58 lakh fully paid equity shares of
 Rs.10 each were allotted in terms of a Scheme of Amalgamation of the
 holding company of Spencers Retail Limited with the Company,
 sanctioned by the Honble High Court at Calcutta. 95.60 lakh equity
 shares were allotted to Qualified Institutional Buyers in accordance
 with Chapter XIIIA of SEBI (DIP) Guidelines, 2000 for cash at a premium
 of Rs.608 per share.
 
 DIRECTORS
 
 The non-executive directors of the Company devote considerable time in
 connection with the affairs of the Company but do not currently draw
 any remuneration apart from sitting fees for attending meetings of the
 Board or the Board Committee. A Special Resolution in accordance with
 the Companies Act, 1956 (the Act) has been included in the Notice
 convening the forthcoming Annual General Meeting of the Company (the
 said Meeting) for payment of remuneration by way of commission to the
 non-executive directors at a rate not exceeding 1% of the net profits
 of the Company every year computed in the prescribed manner in respect
 of five years commencing from 2008-09. Also included in the said Notice
 is a Special Resolution seeking the members consent for increasing the
 remuneration of Mr. S. Banerjee, Managing Director, from 1 April, 2008
 till the end of his current tenure i.e. 31 July, 2008 and reappointing
 him the Managing Director for a fresh term of five years with effect
 from 1 August, 2008. The relevant details appear in the said Notice and
 in the Explanatory Statement in respect of the said Notice.
 
 In accordance with the provisions of the Act, Mr. A. Saraf and Mr. S.
 Banerjee retire by rotation and, being eligible, offer themselves for
 reappointment as Directors at the said Meeting.
 
 RESPONSIBILITY STATEMENT
 
 In terms of the provisions of Section 217(2AA) of the Act, the
 Directors confirm as under:
 
 (i) that in the preparation of the annual accounts, the applicable
 accounting standards had been followed along with proper explanation
 relating to material departures;
 
 (ii) that the directors had selected such accounting policies and
 applied them consistently and made judgement and estimates that are
 reasonable and prudent so as to give a true and fair view of the state
 of affairs of the Company at the end of the financial year and of the
 profit of the Company for that period;
 
 (iii) that the directors had taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of the Act for safeguarding the assets of the Company and
 for preventing and detecting fraud and other irregularities; and
 
 (iv) that the directors had prepared the annual accounts on a going
 concern basis.
 
 AUDITORS
 
 Messrs. Lovelock & Lewes, Chartered Accountants, retire at the
 forthcoming Annual General Meeting and, being eligible, offer
 themselves for reappointment.
 
 COST AUDIT
 
 Messrs. Shome & Banerjee, Cost Accountants, were reappointed to conduct
 the audit of the cost accounting records of the Company for the year
 under review.
 
 CORPORATE GOVERNANCE
 
 In accordance with the requirements of the Listing Agreements with the
 Stock Exchanges, a detailed report on the status of compliance of
 corporate governance norms along with the certificate of the Auditors
 form a part- of this report (Annexure -A). A report on Management
 Discussion and Analysis is also attached herewith (Annexure - B).
 
 ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE
 EARNINGS / OUTGO
 
 As required under Section 217(1)(e) of the Act read with the Companies
 (Disclosure of Particulars in the Report of the Board of Directors)
 Rules, 1988 the relevant information pertaining to conservation of
 energy, technology absorption and foreign exchange earnings and outgo
 is given in Annexure C forming a part of this Report.
 
 PARTICULARS OF EMPLOYEES
 
 In terms of the provisions of Section 217(2A)of the Act, read with the
 Companies (Particulars of Employees) Rules, 1975, the relevant
 particulars of employees are set out in an annexure to this Report.
 However, as per the provisions of Section 219(1)(b)(iv) of the Act, the
 Annual Report excluding the aforesaid information is being sent to all
 the members of the Company and others entitled thereto. Any member
 interested in obtaining such particulars may write to the Company
 Secretary at the Registered Office of the Company.
 
 ACKNOWLEDGEMENT
 
 The Company is now in a phase of consolidating its position as a very
 efficient power distribution licensee of the country. Its technical
 excellence and financial strength have allowed the Company to look for
 suitable business opportunities in a competitive environment. In all
 such endeavour, the passion for excellence of CESC employees is a
 source of great strength to the Company. The Board is thankful to the
 employees at all levels for their dedication to the organization.
 Without the support and cooperation of CESCs business associates, the
 operational results would not have improved the way they have during
 the year. The Board wishes to thank all of them for a successful year
 of operation of the Company.
 
                                   On behalf of the Board of Directors
 
                                                 R.P. Goenka
 Kolkata, 1 July, 2008                           Chairman