Gujarat Mineral Development Corporation Ltd

To,

The Shareholders

Gujarat Mineral Development Corporation Limited

1. We have audited the attached Balance Sheet of Gujarat Mineral DevelopmentCorporation Limited as at 31st March, 2011, the Profit and Loss Account and also theCash Flow Statement for the year ended on that date annexed thereto. These financialstatements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

2. We have conducted our audit in accordance with Auditing Standards generally acceptedin India. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

3. As required by the Companies (Auditors' Report) Order, 2003 issued by the CentralGovernment of India in terms of sub Section (4A) of Section 227 of the Companies Act,1956, we enclose in the Annexure hereto a statement on the matters specified in paragraphs4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we reportthat:

(a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purpose of our audit;

(b) In our opinion, proper books of accounts as required by law, have been kept by theCompany so far as appears from our examination of those books;

(c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with bythis report are in agreement with books of account;

(d) In our opinion, the Balance Sheet, Profit & Loss Account and Cash FlowStatement dealt with by this report comply with the accounting standards referred to insubsection (3C) of Section 211 of the Companies Act, 1956;

(e) Since the Company is a Government Company, as per Notification No.: G.S.R. 829 (E)dated October 21, 2003 of Ministry of Finance (Department of Company Affairs) provisionsof clause (g) of Sub Section (1) of Section 274 of the Companies Act, 1956 are notapplicable to the Company;

(f) Without qualifying our report attention is invited to following Notes of Schedule17 to the Financial Statements.

f.1 Note no. 1(a) and 1(b) regarding non provision of compensation for land acquired.

f.2 Note no. 4 regarding non provision for lease rent and royalty in respect ofapplication made for renewal of lease for extracting lignite.

f.3 Note no. 7(c) regarding recognition of revenue in respect of sale of electricity toGujarat Urja Vikas Nigam Ltd. (GUVNL) on the basis of amount paid by GUVNL, pendingexecution of Supplementary Power Purchase Agreement.

(g) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read with the notes thereon and the statement onsignificant accounting polices give the information required by the Companies Act 1956 inthe manner so required and give a true and fair view in conformity with the accountingprinciple generally accepted in India:

(i) in the case of the Balance Sheet of the state of affairs of the Company as at 31^stMarch, 2011.

(ii) in the case of Profit and Loss account, of the profit for the year ended on thatdate; and

(iii) in the case of Cash Flow Statement, of the cash flows for the year ended on thatdate.

ANNEXURE TO AUDITORS' REPORT

(Referred to in Paragraph 3 of our report of even date)

1. In respect of its fixed assets:

a. The Company has maintained records showing full particulars including quantitativedetails and situation of fixed assets project wise.

b. The fixed assets were physically verified during the year by the firm of CharteredAccountants.

c. In our opinion, the Company has not disposed of substantial part of fixed assetsduring the year.

2. In respect of its inventories:

a. During the year, the management and the firm of Chartered Accountants havephysically verified the inventories. In our opinion frequency of verification isreasonable.

b. In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventories followed by the management arereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

c. The Company has maintained proper records of inventories. The discrepancies noticedon verification between the physical stock and book stock were not material and the samehave been properly dealt with in the books of accounts.

3. In respect of loans granted and taken to / from parties covered in the registermaintained u/s 301 of the Companies Act, 1956.

According to the information and the explanations given to us, the Company has notgranted nor taken any loans, secured or unsecured, to / from companies, firms or otherparties listed in the register maintained under section 301 of the Companies Act, 1956.Consequently requirements of clauses (iii) (a) to (iii) (g) of paragraph 4 of the Orderare not applicable to the Company.

4. In respect of internal control

In our opinion and according to the information and explanations given to us, there areadequate internal control procedures commensurate with the size of the Company and thenature of its business with regard to purchases of inventory, fixed assets and also forsale of goods. During the course of our audit, we have not observed, any continuingfailure to correct major weaknesses in internal controls.

5. In respect of contracts or arrangements need to be entered into a registermaintained u/s 301 of the Companies Act, 1956.

According to the information and explanation given to us, there were no contracts/arrangements that need to be entered into a register in pursuance of Section 301 of theCompanies Act, 1956.

6. In respect of deposits from public

In our opinion and according to the information and explanations given to us, thecompany has not accepted any deposits from the public during the year within the meaningof sections 58A, 58AA or any other relevant provisions of The Companies Act, 1956 and theCompanies (Acceptance of deposits) Rules, 1975. We are informed that, no order has beenpassed by the Company Law Board or National Company Law Tribunal or Reserve Bank of Indiaor any Court or any other Tribunal.

7. In respect of internal audit system

The internal audit during the year was carried out by the internal audit department ofthe Company and the firm of Chartered Accountants. In our opinion the scope of internalaudit needs to be strengthened so as to make it commensurate with the size of the Companyand nature of its business.

8. In respect of maintenance of cost records

We have broadly reviewed the books of account and records maintained by the Companypursuant to the Order made by the Central Government for the maintenance of cost recordsunder section 209(1) (d) of the Companies Act, 1956 in respect of Power Projects and areof the opinion that prima facie, the prescribed records have been maintained. Wehave, however, not made a detailed examination of the records with a view to determinewhether they are accurate or complete.

9. In respect of statutory dues:

a. According to the records of the Company, the company is generally regular indepositing with appropriate authorities undisputed statutory dues including providentfund, investor education and protection fund, income tax, value added tax, wealth tax,custom duty, excise duty, service tax, cess and other material statutory dues applicableto it. As informed to us, provisions of Employees' State Insurance Act are not applicableto the company.

b. According to the information and explanations given to us, no undisputed amountspayable in respect of Value added tax, income tax, wealth tax, customs duty, excise duty,sales tax, service tax and cess, were outstanding as at March 31, 2011 for a period ofmore than six months from the date they became payable.

c. According to the records of the company, there are no dues of custom duty, wealthtax, service tax, excise duty and cess which have not been deposited on account of anydispute. In respect of income tax and sales tax, details of disputed dues which havenot been deposited are given hereunder:

10. In respect of accumulated losses and cash losses

The company does not have accumulated losses at the end of the financial year. Thecompany has not incurred cash losses during the financial year covered by audit and in theimmediately preceding financial year.

11. In respect of dues to financial institution / banks / debentures

Based on our audit procedures and according to the information and explanation given tous, the Company has not defaulted in repayment of dues to a financial institution.

12. In respect of loans and advances granted on the basis of security.

According to the information and explanation given to us, no loans and advances havebeen granted by the Company on the basis of security by way of pledge of shares,debentures and other securities.

13. In respect of provisions applicable to Chit fund

The Company is not a chit fund or a nidhi /mutual benefit fund/ society. Therefore,clause 4(xiii) of the Companies (Auditor's Report) Order 2003 is not applicable to theCompany.

14. In respect of dealing or trading in shares, securities, debentures and otherinvestment

As the company is not dealing or trading in shares, securities, debentures and otherinvestments, the provision of clause 4(xiv) of the Companies (Auditor's Report) Order,2003 is not applicable to the Company.

15. In respect of guarantee given for loans taken by others

According to the information and explanation given to us, the Company has not given anyguarantees for loans taken by others from banks or financial institutions.

16. In respect of application of term loans

According to the information and explanations given to us, term loans have been appliedfor the purpose for which they were raised.

17. In respect of funds used

According to the information and explanations given to us and on an overall examinationof the Balance Sheet of the Company, we are of the opinion that funds raised on short termbasis have, prima facie, not been used for long-term investments.

18. In respect of preferential allotment of shares

During the year, the Company has not made any preferential allotment of shares toparties covered in the Register maintained under Section 301 of the Companies Act, 1956.

19. In respect of securities created for debentures

According to the records of the Company, the Company has not issued any debenturesduring the year.

20. In respect of end use of money raised by public issues

The Company has not raised any money by way of public issue during the year andtherefore paragraph 4(xx) of the Companies (Auditor's Report) Order, 2003 is notapplicable.

21. In respect of fraud

According to the information and explanations given to us, no fraud on or by theCompany has been noticed or reported during the year.