Power Grid Corporation of India Ltd

To,

The Members,

Power Grid Corporation of India Limited,

1. We have audited the attached Balance Sheet of Power Grid Corporation of IndiaLtd. as at March 31, 2010, and the Profit and Loss Account and also the Cash FlowStatement for the year ended on that date annexed thereto. These financial statements arethe responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted inIndia. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material mis-statements. 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 the management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

3. The Company is governed by the Electricity Act, 2003. Though the said Act hasrepealed the Electricity (Supply) Act 1948 and Electricity Regulatory Commission Act,1998, certain provisions of the repealed Act, to the extent they are not inconsistent withthe provisions of said Act, continued to be applied by the Company while preparing thefinancial statements. Further, the provisions of the said Act read with the rulesthereunder have prevailed wherever the same have been inconsistent with the provisions ofthe Companies Act, 1956.

4. As required by the Companies (Auditor’s Report) Order, 2003, read withCompanies (Auditor’s Report) (Amendment) Order, 2004 issued by the Central Governmentof India in terms of section 227 (4A) of the Companies Act, 1956, we enclose in theAnnexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

5. We draw attention to :

a) Note No. 9 regarding levy of Service Tax on transmission charges, and

b) Note No. 17 (b) regarding provisional recognition of transmission charges.

6. Further to our comments in the annexure referred to in paragraph 4 above, we reportthat:

a) We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit.

b) In our opinion, proper books of account as required by law have been kept by theCompany, so far as appears from our examination of the books.

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

d) In our opinion, subject to our observations in paragraph 3 above, the Balance Sheet,Profit and Loss Account and Cash Flow Statement dealt with by this report comply with theAccounting Standards referred to in Sub-Section (3C) of Section 211 of the Companies Act,1956.

e) In pursuance to the notification No. GSR 829(E) dated 17.7.2003, issued by theDepartment of Company Affairs; clause (g) of sub-section (1) of section 274 of CompaniesAct, 1956 pertaining to disqualification of Directors is not applicable to a GovernmentCompany.

f) In our opinion and to the best of our knowledge and according to information andexplanation given to us, the said financial statements, read together with the Notes onAccounts given in Schedule 28 and Accounting Policies annexed thereto, in so far as theseare not inconsistent with the Electricity Act, 2003, give the information required by theCompanies Act, 1956, in the manner so required, and give a true and fair view inconformity with the accounting principles generally accepted in India :

i) in the case of Balance Sheet, of the state of affairs of the Company as at 31stMarch, 2010.

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 of the Company for the yearended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH 4 OF OUR REPORT OF EVEN DATE

1. a) The Company has generally maintained records of Fixed Assets, showing fullparticulars including quantitative details and situation of Fixed Assets .

b) The assets have been physically verified by external agencies during the year anddiscrepancies, though not material, noticed on such verification have beenreconciled/adjusted in the books of account. In our opinion, frequency of verification isreasonable.

c) During the year the company has not disposed off substantial part of its FixedAssets.

2. a) Physical verification of inventory has been conducted by external agencies duringthe year, except for the materials lying with contractors. In our opinion frequency ofverification is reasonable.

b) The procedures of physical verification of inventories, followed by the Managementare reasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

c) The Company has maintained proper records of inventory. The discrepancies noticed onphysical verification of the inventory have been properly dealt with in the books ofaccount except material lying with contractors where verification is not undertaken.

3. The Company has neither granted nor taken any loans, secured or unsecured to / fromcompanies, firms or other parties covered in the register maintained under section 301 ofthe Companies Act, 1956.

4. In our opinion and according to the information and explanations given to us, thereare adequate internal control systems, commensurate with the size of the Company and thenature of its business, with regard to purchase of inventory and fixed assets and incomefrom transmission, telecom and consultancy activities. During the course of our audit wehave neither come across nor have been informed of any continuing failure to correct majorweaknesses in the underlying internal control systems.

5. According to the information and explanation given to us, there are no contracts orarrangements referred to in section 301 of the Companies Act 1956, during the year, to beentered in the register maintained under that section . Accordingly Clause (v) ofparagraph 4 of the Order is not applicable.

6. Since the Company has not accepted any deposit from the public, the question ofcompliance with the directives issued by the Reserve Bank of India and the provisions ofsection 58-A, 58-AA and other relevant provisions of Companies Act, 1956, and rules framedthereunder, does not arise.

7. The Company has an Internal Audit system. In our opinion, the scope and coverage ofInternal Audit are commensurate with the size and nature of its business.

8. The Central Government has prescribed maintenance of Cost Records under Section 209(1)(d) of the Companies Act, 1956 in respect of Transmission & Telecom Operations ofthe Company. We have broadly reviewed the Records prepared by the Company and are of theopinion that, prima facie, the prescribed records have been made and maintained.

9. a) According to the information and explanation given to us, the Company is regularin depositing undisputed statutory dues with appropriate authorities including ProvidentFund, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and otherstatutory dues applicable to the Company and that there are no undisputed statutory duesoutstanding as on 31.3.2010 for a period of more than six months from the date they becamepayable.

As informed, the provisions of the Employees State Insurance Act are not applicable tothe Company.

Unclaimed bonds of Rs. 0.06 crore and unclaimed dividend of Rs. 2.96 crore which hasnot exceeded the time limit prescribed under Section 205C of the Companies Act, 1956 arelying as liability towards Investor Education & Protection Fund.

b) According to information and explanation given to us, following disputed income tax/ sales tax / customs duty / wealth tax / service tax / excise duty / cess dues have notbeen deposited.

10. The Company does not have accumulated losses at the end of financial year and hasnot incurred any cash loss in the financial year under audit, and also in the immediatelypreceding financial year.

11. On the basis of audit procedures adopted by us and according to the records, theCompany has not defaulted in repayment of dues to any financial institution or bank orbondholders.

12. The company has not granted any loans and advances on the basis of security by wayof pledge of shares, debentures and other securities.

13. The company is not a chit fund or nidhi/mutual benefit fund/society. Accordingly,Clause xiii of paragraph 4 of the Order is not applicable.

14. In our opinion, the Company is not dealing in or trading in shares, debentures, andother investments. Accordingly, Clause xiv of paragraph 4 of the Order is not applicable.

15. As informed to us, the Company has not given any guarantee for loans taken byothers from banks or financial institutions, except in the case of Powerlinks TransmissionLimited, wherein it has pledged its shares in favour of financial institutions forfinancial assistance obtained by the said company, as per the terms and conditions ofJoint Venture Agreement. In our opinion and to the best of our information and accordingto explanation given to us, the terms and conditions of share pledge agreement are not,prime facie prejudicial to the interest of the company.

16. In our opinion on an overall basis and according to the information and explanationgiven to us, the company has applied the term loans for the purpose, they were raisedduring the year.

17. In our opinion, on an overall basis, and according to the information andexplanation given to us, the company has not used the funds raised on short term basis forlong term investment.

18. The Company has not made any preferential allotment of shares to parties andCompanies covered in the register maintained under section 301 of the Act during the year.

19. The Company has not issued the debentures during the year.

20. The Company, during the year, has not raised any money by public issue.

21. According to the information and explanations given to us, no fraud on or by theCompany has been noticed or reported during the course of our audit.