Spinning out cost centres into profit centres

We've all heard about the in house services like HR, Training etc becoming new profit and revenue generating arms of large corporates. Even by those standards JUSCO will be a new concept.

For those who don't know ...Tata Steel one of India's largest steel producers and more than 100 years old, had its own township management operations which provided power, water, utility services, schools, hospitals and other township services to the small village of Sakchi which later became the steel city of Jamshedpur also known as Tatanagar.

Now the services will be offered for a fee to other organizations as well as other Tata group companies. With the amount of townships that India's PSUs and private organizations run JUSCO could either end up offering end to end township management or even go into niche utilities businesses giving competition to private and public electricity and water companies in larger cities.

Ah ! This is going to be an interesting story to watch!

From the Tata.com site:

“Jusco will be the first company in the country, which is likely to provide municipal services to the entire city of Jamshedpur,” said the Jusco managing director Mr Sanjiv Paul.

“The plan is to provide quality service for life,” Mr Paul told FE.

According to Mr Paul: “If India has to move forward, these services, some day or the other, will have to be privatised in the rest of the country also, and we will then be in a position to broadbase our services.”

For supply of water to the township, the company is already having a memorandum of understanding (MoU) with French utilities major — Veolia Water India Pvt Ltd — a part of Veolia Environment (earlier called Vivendi Universal) for management and technical consultancy.

“Although, it is yet to catch up in India, water & sewage is already a big business in the rest of the world,” said the Jusco managing director.

For the past few years, Tata Steel has incurred a deficit of around Rs 100 crore each year in running various town services, including healthcare, which has been kept outside the purview of Jusco. Although, creation of Jusco will not mean disappearance of the deficit in the immediate future, its formation, however, gives hope to both the companies to grow on their own competencies.

Jusco aims to serve various Tata group companies like Tata Engineering, Tata Rolls, TRF, Tinplate Company of India Ltd (TCIL) etc, in addition to Tata Steel. It is expected to gradually spread its wings outside Jamshedpur too.

Moreover, one of the major hurdle faced by Jusco, was the transfer of around 1,200 unionised employees represented mainly by Tisco’s town division.

It is learnt that several round of talks have been initiated between the Tata Workers’ Union (TWU) and the steel major’s management on the issue.

“Modalities are being worked out since the discussion is on, however, it would be unfair to make a comment at this stage,” Mr Paul said. The managing director was, however, optimistic that the impasse would soon be resolved.