Power Finance Corporation Ltd

2009-2010

To

The Members,

Your Directors have great pleasure in presenting the 24th Annual Report on theperformance of your Company for the financial year ended 31st March, 2010 along withAudited Statements of Accounts.

(a) PROFITABILITY

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2.1 REVENUE

The total income during the financial year 2009-10 was `8,076.86 crore registering anincrease of 22.68% as compared to `6,583.54 crore in financial year 2008-09. Operatingincome for the year increased from `6,557.37 crore to `8,002.10 crore showing an increaseof 22.03%. Interest income including lease income for the financial year 2009-10 washigher at `7,867.16 crore against 6,361.78 crore in 2008-09.

2.2 EXPENSES

Interest and other finance charges for the financial year 2009-10 amounting to`4,956.03 crore accounted for 97.88% of total expenses. Personnel and Administrationexpenses were 2.09% of total expenses and 0.13% of Loan Assets.

2.3 PROFIT

During the financial year 2009-10, your Company earned a net profit of `2,357.25 croreas compared to `1,969.96 crore for the financial year 2008-09 registering an increase of19.66%.

2.4 DIVIDEND

Your Directors have recommended a final dividend of `1.50 per equity share (15%) inaddition to an interim dividend of `3.00 per equity share (30%) paid in February, 2010.The dividend for the year 2009-10 thus aggregates to `4.50 per equity share as against`4.00 per equity share paid for the previous year. The final dividend will be paid afteryour approval at the Annual General Meeting. The total dividend pay-out for the yearamounts to `516.50 crore representing 45% of the paid-up capital of the company and 21.91%of profit after tax as against a dividend pay-out of 40% of the paid-up capital and 23.31%of profit after tax in the previous year.

2.5 SHARE CAPITAL

The paid-up share capital of the Company is `1,147.77 crore consisting of1,14,77,66,700 equity shares of `10 each. The Government of India holds 89.78% of theequity share paid-up capital.

3.0 LENDING OPERATIONS

Your Company issued sanctions of `59,228 crore during the financial year 2009-10. Anamount of `24,487 crore was disbursed during the same period to State, Central, Privateand Joint Sector entities, compared to `20,729 crore disbursed during the last year. Withthis, cumulative sanction of `2,70,480 crore and disbursement of `1,37,282 crore have beenmade by the Company as on 31st March, 2010. In addition to above, an amount of `6,237crore sanctioned and `1,321 crore disbursed during 2009-10 under R-APDRP scheme. Withthis, cumulative sanction under R-APDRP stands at `8,184 crore and disbursement at `1,646crore.

3.1.1 Sector-wise

3.1.2 Discipline-wise

** Others include Decentralized Management, Project Settlement, Pre Investment Fund,Technical Assistance Project, Medium Term Loan, Buyers Line of Credit, EquipmentManufacturing Loan, Loan for Asset Acquisition, Bill Discounting, Studies, Loan forRedemption of bonds, Purchase of power through PXI, Loan for Promoter’s Equity andComputerization etc.

3.1.3 Product-wise

** Others include Debt Refinancing, Bridge Loan, Associated Infrastructure, Loan toEquipment Manufacturers, Buyers Line of Credit, Loan for Assets Acquisition, BillDiscounting, Purchase of power through PXI and Loan for Promoter’s Equity etc.

3.2 Financial Assistance under R-APDRP

4.0 REALISATION

Your Company gives highest priority to the realisation of its dues towards principal,interest etc. Out of `16,602.40 crore to be recovered during the year towards principal,interest etc. under rupee term loans, bill discounting, working capital, lease financing,foreign currency loan, loans for equipment financing and guarantee fees, an amount of`16,541.54 crore was actually realised. This works out to an overall recovery rate of99.63% (previous year 97.58%). The overall recovery rate has been consistently maintainedat 96-99% for the last ten years. The company has achieved recovery rate of 99.89% inrespect of principal amount due during the year.

In terms of Prudential Norms applicable, the Company has not made any additionalprovision on Loan Assets during the year. The Company has made a total provision forNon-Performing Assets (NPA) against Loan Assets in its Annual Accounts upto the year2009-10 amounting to `6.92 crore equivalent to the previous year level. After makingprovision on NPA, the level of net Non-Performing Assets (NPA) has been recorded at `6.24crore forming 0.01% to the Net Loan Assets as on 31st March, 2010 equivalent to theprevious year level.

5.1 BORROWINGS FROM DOMESTIC MARKET

Your Company mobilized funds amounting to `20,922.91 crore from the domestic marketduring 2009-10 as against ` 21,482.59 crore during 2008-09. Out of the above, `12,283.30crore was raised by issue of unsecured taxable bonds in the nature of debentures,`8,004.50 crore by way of long/medium term loans from Banks/FIs, and `635.11 crore by wayof issue of Commercial Paper.

5.2 EXTERNAL BORROWINGS

During the financial year 2009-10, your Company raised External Commercial Borrowing(ECB) of USD 300 million through Syndicated Loan at a very competitive rate.

5.3 REDEMPTION AND STATUS OF UNCLAIMED AMOUNTS BONDS

The unclaimed balance amount of bonds as on 31st March, 2010 was `25.7 crore (previousyear – `1.09 crore). This represents the amount remaining unclaimed/unpaid afterredemption by the bondholders, as the bondholders had not surrendered their bondcertificates. The bondholders have been individually advised to surrender bondcertificates.

Domestic:

During the financial year 2009-10, your Company’s long term domestic borrowingprogramme (including bank loans) was awarded the highest rating of ‘AAA’ and‘LAAA’ by CRISIL and ICRA respectively. The Company’s short term domesticborrowing programme (including bank loans) was awarded the highest rating of‘P1+’ and ‘A1+’ by CRISIL & ICRA respectively.

International:

During the financial year 2009-10 the international credit rating agenciesMoody’s, Fitch and Standard & Poor’s have given to the company, long termforeign currency issuer ratings of ‘ Baa3’, ‘BBB- ‘ &‘BBB-’ respectively, which are at par with sovereign rating for India.

7.1 ASSET LIABILITY MANAGEMENT

Your Company has put in place an effective Asset Liability Management System and hasconstituted an Asset Liability Management Committee (ALCO) headed by Director (Finance).ALCO monitors risks related to liquidity and interest rate and also monitorsimplementation of decision taken in the ALCO meetings. The liquidity risk is beingmonitored with the help of liquidity gap analysis. The Asset Liability Managementframework includes periodic analysis of long term liquidity profile of asset receipts anddebt service obligations. Such analysis is made every month in yearly buckets for the next10 years and is being used for critical decisions regarding the time, volume and maturityprofile of the borrowings, creation of new assets and mix of assets and liabilities interms of time period (short, medium and long-term). The interest rate risk is managed byanalysis of interest rate sensitivity gap statements, evaluation of Earning at Risk (EaR)on change of interest and creation of assets and liabilities with the mix of fixed andfloating interest rates.

The maturity profile of certain items of assets and liabilities as at 31st March, 2010is set out below:

(` in Crore)

7.2 FOREIGN CURRENCY RISK MANAGEMENT

Your Company has put in place Currency Risk Management (CRM) policy to manage risksassociated with foreign currency borrowings. The Company enters into hedging transactionsto cover exchange rate and interest rate risk through various instruments like currencyforward, option, principal swap, interest rate swap and forward rate agreements. As on31st March, 2010, the total foreign currency liabilities are USD 541.84 million, JPY2307.69 million and Euro 28.60 million. On an overall basis, the currency exchange raterisk is covered to the extent of 20% through hedging instruments and lending in foreigncurrency.

7.3 ENTERPRISE-WIDE INTEGRATED RISK MANAGEMENT

Your Company had constituted the Risk Management Committee of Directors to monitorvarious risks, examine risk management policies & practices and initiate action formitigation of risks arising in the operations. To facilitate this, the Company had put inplace an Integrated Enterprise – Wide Risk Management Policy (IRM Policy). TheCompany has identified 26 risks (15 quantifiable risks and 11 non quantifiable risks)which may have an impact on profitability/business of the Company. In order to implementIRM policy, the Risk Management Committee of Directors constituted Risk ManagementCompliance Committee and a separate unit namely Corporate Risk Assurance unit (CRA) formonitoring of the identified risk. The identified risks were prioritized and initially topfive risks each from quantifiable and non-quantifiable category were considered formitigating. Further, during the financial year 2009-10, next 10 risks were also consideredfor monitoring and as such total 20 risks have been monitored. The status report onquarterly basis is being submitted to Audit Committee and Board of Directors.

8.1 THERMAL PROJECTS

Thermal Power generation comprises a major proportion of India’s total installedcapacity. During the year 2009-10, the Company has sanctioned loans amounting to ` 38,316crore and disbursed an amount of `16,818 crore. The cumulative financial support providedby the Company for thermal generation scheme is `1,55,387 crore out of which `64,059 crorehas been disbursed till 31st March, 2010.

The major thermal generation projects sanctioned by your Company during the year are:gas based CCPP of Pragati Power Corporation Ltd. in Delhi (1,371 MW), RRVUNL’s gasbased CCPP Stage-III (160 MW) at Ramgarh, MSPGCL’s Replacement Project at BhusawalTPS (250 MW), APGENCO’s coal based Unit - 6 stage - IV at Rayalseema (1x600 MW),WBPDCL’s coal based extension unit nos. 3 & 4 at Sagardighi (2x500 MW),DPL’s ext unit at Durgapur (1x250 MW), APGCL’s gas based project at Namrup (100MW), Nabinagar TPS (1,000 MW) of Bhartiya Rail Bijlee Company Ltd, 660MW super-criticalTPP of Adani Power Maharashtra Ltd. at Tiroda, Gondia distt., Maharashtra, East CoastEnergy Pvt. Ltd.’s coal based TPP at Srikakulam (1,320 MW), Indian Metals & FerroAlloys coal based captive Power Plant at Choudwar(120 MW), Ind Barath Energy UtkalLimited’s coal based TPP at Jharsuguda (2x350 MW), IRL’s Thermal Power Projectat Nasik (5x270 MW), Jhajjar Power Ltd’s coal based Thermal Power Project in Jhajjar(2x660 MW), ONGC Tripura Power Co. Ltd.’s CCGT project at Pallatana (726.6 MW),Pipavav Energy Pvt. Ltd.’s imported coal based thermal power project in distt.Amreli, Gujarat (2x600 MW), Raichur Power Corporation Ltd.’s (2x800 MW)super-critical Yermarus TPS in Karnataka, 2x660 MW coal based TPS in Nellore being set upby Thermal Powertech Corporation India Ltd. and Wardha Power Company Private Ltd.’s3,600 MW TPS in Chhattisgarh.

8.2 HYDRO GENERATION PROJECTS

Hydro generation capacity in the country needs significant augmentation for overallsystems to have optimal energy mix. During the year 2009-10, loans amounting to `2,758crore were sanctioned and an amount of `2,221 crore was disbursed by your company.

During the current financial year financial assistance was provided to the followinghydro generation projects: Shahpurkandi HEP(4x40MW+1x8 MW) of PSEB, KSEB’s SengulamTail Race Scheme (2x1.8 MW) and Vilangad Small Hydro Electric Project (3x2.5 MW), DansEnergy’s Jorethang Loop HEP (96MW) in Sikkim, Jal Power Corporation Ltd.’sRangit-IV HEP (3x40MW), Madhya Bharat Power Corporation Ltd.’s Rongnichu HE Project(2x48 MW), Nirgazini SHEP (7 MW) of UPJVNL in Uttar Pradesh, Periyar Vaigai 1 & 2 and3 & 4 (13 MW) of TNEB in Tamil Nadu, Ganol HEP (3x7.5 MW) and Myntdu Leshka Stage-IExtension (1x42 MW) of MeSEB in Meghalaya and Rellichu HEP (3x4 MW) of SPDCL in Sikkim.

9.1 THERMAL PROJECTS

During the year 2009-10, loans worth `1,950 crore were sanctioned for R&M and lifeextension of thermal power plants and an amount of `423 crore was disbursed. Cumulatively,an amount of `8,448 crore has been sanctioned and `4,991 crore stands disbursed till 31stMarch, 2010.

9.2 HYDRO PROJECTS

During the year 2009-10, the Company sanctioned `74 crore for R&M of hydro powerprojects and `73 crore was disbursed. Cumulatively, an amount of `1,497 crore has beensanctioned and `957 crore stands disbursed till 31st March, 2010.

10.0 ACCELERATED POWER DEVELOPMENT AND REFORM PROGRAMME (APDRP)

Government of India (GoI) had introduced the Accelerated Power Development and ReformsProgramme (APDRP) in X Plan to induce state power utilities to undertake reforms in powerdistribution.

Government of India (GoI) financed 90% of the project cost as grant in special categorystates. In respect of other states (non-special category states), GoI financed 25% of theproject cost as grant. SEBs/ Utilities have to arrange remaining 10% of the fund inrespect of special category states and 75% in respect of non-special category states fromfinancial institutions, including PFC.

As on 31st March 2010, your Company had sanctioned an amount of `2,319.41 crore asAPDRP counterpart loan towards 120 loans and has disbursed an amount of `1,730.67 crore.The eleven States funded by PFC under APDRP are Haryana, Rajasthan, Uttar Pradesh, Delhi,Bihar, West Bengal, Jharkhand, Orissa, Maharashtra and Goa. During financial year 2009-10,counterpart funds amounting to `58.53 crore was disbursed towards APDRP counterpart loans.

11.0 RESTRUCTURED ACCELERATED POWER DEVELOPMENT AND REFORM PROGRAMME (R-APDRP)

Ministry of Power, Government of India, has launched the Restructured Accelerated PowerDevelopment and Reforms Programme (R-APDRP) in July 2008 with focus on establishment ofbase line data, fixation of accountability, reduction of AT&C losses upto 15% levelthrough strengthening & up-gradation of Sub Transmission and Distribution network andadoption of Information Technology during XI Plan. Project area shall be towns and citieswith population of more than 30,000 (10,000 in case of special category states) as percensus 2001. Projects under the scheme shall be taken up in two parts. Part-A shallinclude the projects for establishment of baseline data and IT applications for energyaccounting/auditing & IT based consumer service centres. Part-B shall include regulardistribution strengthening projects and will cover system improvement, strengthening andaugmentation etc.

The programme size is `51,577 crore out of which `10,000 crore is for Part Aactivities, `40,000 crore is for Part B activities and the remaining `1,177 crore is forenabling activities to be implemented by Ministry of Power/PFC under Part-C which shallinclude capacity building and development of franchisees in Distribution Sector. Theentire amount of GoI loan (100%) for part A of the project shall be converted into grantafter establishment of the required Base-Line data system (IT implementation) within astipulated time frame and duly verified by Third Party Independent Evaluation Agency. ForPart B Projects upto 50% (90% for special category States) loan provided shall beconverted into grant progressively on achievement of AT&C loss reduction targets. Ifthe utility fails to achieve or sustain the 15% AT&C loss target in a particular year,that year’s tranche of conversion of loan to grant will be reduced in proportion tothe shortfall in achieving 15% AT&C loss target w.r.t the starting base-line figure.There is a provision of `400 crore as grant towards incentive for utility staff in projectareas where AT&C loss levels are brought below 15%.

Your company has been designated as the nodal agency to operationalise the programmeand shall act as a single window service under R-APDRP. As nodal agency PFC shall receivea fee as well as the reimbursement of expenditure in implementation of the progarmme asper the norms to be decided by the RAPDRP Steering Committee.

Sanctions and Disbursements

Your Company, as nodal agency, has contributed significantly during the year inimplementation of RAPDRP programme. Part A schemes of almost all the towns 1387 in number,out of eligible 1400 towns have been sanctioned. During the year, PFC appraised projectsand RAPDRP Steering Committee has sanctioned `6,237 crore of project during the financialyear 2009-10 against the MoU target of `1,900 crore set for PFC. The sanctions include`3,112 crore for Part-A (IT) covering projects of 781 towns, `66 crore for 3 projects ofPart-A (SCADA) and `3,059 crore for projects of 239 towns under Part-B.

PFC has also disbursed the entire amount of `1,321 crore released by Ministry ofPower(MoP) during the financial year 2009-10 upto 31st March, 2010 to the state utilitiesfor the projects sanctioned by the RAPDRP Steering Committee.

During the financial year 2009-10, validation of baseline data of 28 towns werecompleted as against the MoU target of 25 towns.

PFC/MoP recognizing the need and to keep pace with technology and contemporaryknowledge and skill, imparted training on various themes for various levels of PowerUtility personnel across the country. The broad categorizations of utility personnel areGroup A&B and Group C&D. PFC has imparted training to approximately 6100 GroupC&D and 625 Group A&B power distribution utility personnel across the country,against the MoU target of 2500 and 500 for Group C&D and Group A&B respectively.

Progress of Implementation of R-APDRP

As a result of the efforts made by your Company during the year, significant progresshas been achieved by the state utilities in implementation of the programme. About 39utilities out of 50 utilities have appointed IT Consultants for Part-A and 5 utilities arehaving their in-house team. IT Implementing Agencies (ITIA) have been appointed by 9States covering 26 utilities i.e. WB/Sikkim, Rajasthan, Gujarat, Karnataka, MadhyaPradesh, UP, Uttrakhand and AP have issued LoI/appointed ITIA. Further, 10 States are indifferent stages of bidding for appointment of ITIA.

Programme for FY 2010-11

To accelerate the pace of reforms in distribution sector for reduction of AT&Closses of towns and improvement of power supply, PFC under the aegis of Ministry of Powerhave drawn an ambitious programme of sanction of `9,000 crore and disbursement of `2,500crore under R-APDRP during the financial year 2010-11.

12.1 GENERATION PROJECTS

Your Company has been designated as the ‘Nodal Agency’ by Ministry of Power(MoP), Government of India, for development of Ultra Mega Power Projects (UMPPs), with acapacity of about 4,000 MW each. So far, 16 such UMPPs have been identified to be locatedat Madhya Pradesh (Sasan), Gujarat (Mundra), Chhattisgarh (Surguja), Karnataka,Maharashtra (Munge), Andhra Pradesh (Krishnapatnam), Jharkhand (Tilaiya), Tamil Nadu(Cheyyur), Orissa (Sundergarh), 2 Additional UMPPs in Orissa and 2nd UMPPs in AndhraPradesh, Tamil Nadu, Gujarat and Jharkhand and 3rd UMPP in Andhra Pradesh.

As on 31st March, 2010, twelve (12) Special Purpose Vehicles (SPVs) have beenestablished for these UMPPs to undertake preliminary site investigation activitiesnecessary for conducting the bidding process for these projects. Ministry of Power is the‘facilitator’ for the development of these UMPPs while Central ElectricityAuthority (CEA) is the ‘Technical Partner’. These SPVs shall be transferred tosuccessful bidder(s) selected through Tariff Based International Competitive BiddingProcess for implementation and operation.

Four (4) SPVs namely Coastal Gujarat Power Ltd. for Mundra UMPP in Gujarat, Sasan PowerLtd. for Sasan UMPP in Madhya Pradesh, Coastal Andhra Power Ltd. for Krishnapatnam UMPP inAndhra Pradesh and Jharkhand Integrated Power Ltd. for Tilaiya UMPP in Jharkhand have beentransferred to the successful bidders as indicated below:

In addition, Request for Qualification (RfQ) for Surguja UMPP in Chhattisgarh wasissued in March, 2010 and RfQ for Sundargarh UMPP in Orissa was issued in June, 2010.

12.2 INDEPENDENT TRANSMISSION PROJECTS (ITPs)

Ministry of Power has also initiated Tariff Based Competitive Bidding Process fordevelopment and strengthening of Transmission system through private sector participation.

The objective of this initiative is to develop transmission capacities in India and tobring in the potential investors after developing such projects to a stage havingpreliminary survey work, identification of route, preparation of survey report, initiationof process of land acquisition, initiation of process of seeking forest clearance, ifrequired and to conduct bidding process etc.

So far 4 Special Purpose Vehicles (SPVs), two by PFC namely East North InterconnectionsCompany Limited (ENICL) and Bokaro-Kodarma Maithon Transmission Company Limited (BKMTCL)and other two i.e. Jabalpur Transmission Company Limited (JTCL) and Bhopal DhuleTransmission Company Limited (BDTCL) by PFC Consulting Limited, a wholly owned subsidiaryof PFC, have been incorporated.

East North Interconnections Company Limited (ENICL) was established for enabling importof NER/NR surplus power by NR, has been transferred to the successful developer i.e. M/sSterlite Technologies Limited on 31st March, 2010. Bokaro-Kodarma Maithon TransmissionCompany Limited (BKMTCL) was established for evacuation system for Maithon RB, Kodarma andBokaro Extension. Ministry of Power, Govt. of India, has directed Power Grid Corporationof India Limited for taking up the said project. Thus, an application for closure of thecompany has been filed by PFC with Registrar of Companies.

PFC Consulting Limited (PFCCL), a wholly owned subsidiary of PFC, has been nominated as‘Bid Process Coordinator’ by Ministry of Power, Govt. of India for thedevelopment of independent transmission projects. Two other SPVs namely, JabalpurTransmission Company Limited (JTCL) and Bhopal Dhule Transmission Company Limited (BDTCL)have been incorporated by PFCCL. Request for qualification (RfQ) for these two SPVs havebeen issued in February, 2010 and March, 2010 respectively.

13.0 DISTRIBUTION REFORMS, UPGRADES & MANAGEMENT (DRUM)

The Distribution Reform, Upgrades and Management (DRUM) project is an Indo-USinitiative designed jointly by the Ministry of Power (MoP) and United States Agency forInternational Development (USAID) that complements the MoP’s Accelerated PowerDevelopment and Reform Programme (APDRP). DRUM addresses the critical developmentchallenge of providing commercially viable and dependable power.

The overall goal of the DRUM project is to demonstrate commercially viable electricitydistribution systems that provide reliable power of sufficient quality to consumers and toestablish a commercial framework and a replicable methodology adopted by Indian FinancialInstitutions for providing non-recourse financing for DRUM activities and programmes.

Your Company has been appointed as Principal Financial Intermediary responsible fortechnical assistance and training under DRUM components. The roles and responsibilities ofPFC for DRUM project are to i) provide management and implementation support, ii)co-ordinate with all stakeholders, iii) act as a financial intermediary and banker forcontrolling and directing funds (loans and grants) and iv) design mechanism for leveragingresources of other FIs/ Bankers.

DRUM Technical Assistance

DRUM team consists of USAID, MoP & PFC and the beneficiary States are Maharashtra,Delhi, Gujarat and Karnataka. PFC provides financial assistance in the form of loan whileUSAID provides the grant component for creating Centre of Excellence in Distribution area.

So far, your Company has sanctioned total amount of ` 164.55 crore for three DRUM PilotProjects costing total of ` 216.52 crore pertaining to Bangalore Electricity Supply Co.Ltd. (BESCOM), Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) and MadhyaGujarat Vij Co. Ltd. (MGVCL) and has disbursed an amount of ` 148.19 crore towards theseprojects as loan under DRUM scheme.

Further, the cumulative grant sanctioned from USAID is $3.278 million(i.e. ` 14.94crore at an exchange rate of $1=` 45.58 as on 31.03.10) for aforesaid three DRUM PilotProjects and an amount of $0.16 million(i.e. ` 0.78 crore at an exchange rate of $1=` 49as on 12.11.08, the date of approval for disbursement by USAID) is disbursed as USAIDgrant through PFC. The projects are under various stages of implementation.

DELIVERY THROUGH DECENTRALISED MANAGEMENT (DDM)

DDM is a scheme sponsored by Ministry of Power with the objective of showcasingparticipatory models of excellence in distribution predominantly in rural area, which aresensitive to the local aspirations and requirements.

PFC has been appointed as carrier agency for successful implementation of DDM Schemes.So far, Government of India (GoI) grant of ` 5.03 crore has been sanctioned for 14 schemesof NTPC Ltd. and ` 0.89 crore for 1 scheme of West Bengal Renewable Energy DevelopmentAgency (WBREDA) totaling ` 5.92 crore. An amount of ` 2.80 crore is disbursed to NTPC Ltd.towards their 8 schemes. NTPC Ltd. has already commissioned 8 schemes and other schemesare under implementation.

14.0 EXTERNALLY AIDED PROJECTS

Your Company has a Line of Credit of Euro 100.56 million from KfW to finance RM&Uof Hydro Electric Projects. Funds from the facility would be used to finance RM&Uschemes of six HEPs of Uttrakhand Jal Vidyut Nigam Ltd. (UJVNL). The contract for detailedfeasibility studies of these projects has been awarded by UJVNL and the studies are inadvanced stage of completion.

15.0 INITIATIVE TOWARDS REFORMS AND RESTRUCTURING

Your Company has been encouraging reforms for overall improvement in the financial andtechnical performance of the State Power Utilities (SPUs). During the year, PFC hasdisbursed an amount of more than ` 1 crore of grant for reform related studies to MeSEBand KSEB. Government of Meghalaya vide their notification dt. 31st March, 2010 hasunbundled/ corporatized Meghalaya State Electricity Board into four bodies namelyMeghalaya Energy Corporation Limited, the Holding Company, Meghalaya Power DistributionCompany Ltd, the distribution utility, Meghalaya Power Generation Company Ltd., thegeneration utility, Meghalaya Power Transmission Company Ltd., the transmission utility.

Your company is also encouraging IT initiatives in the SPUs for their overalloperational improvement. During the year, an amount of `52 crore has been sanctioned forcomputerization schemes of State Power Utilities (other than computerization schemescovered under R-APDRP). The status of reform and restructuring as on 31st March, 2010 isas under:-

Categorization of Utilities

Your Company classifies State Power Utilities, its principal borrowers, into A+, A, Band C categories. The categorization is based on the pre-determined parameters includingoperational & financial performance of the utilities. The categorization enables PFCto determine credit exposure limits and pricing of loans to the state power utilities. Ason 31st March, 2010, 90 utilities were categorized, 20 as "A+", 29 as"A", 20 as "B" and 21 as "C"

PFC is also stipulating appropriate conditions relating to implementation of reformsand improvement of performance while sanctioning financial assistance to its borrowersbased on their appraisal.

Quarterly Performance Research Report

Your Company is bringing out one page performance report of each state power utility(SPUs) on a quarterly basis. The report contains key operational and financial performanceparameters, reforms status, the status of implementation of Electricity Act 2003, areas ofconcern and conditions for improvement. The report is sent to the stakeholders in thePower Sector. In order to disseminate the quarterly performance reports and itsimportance, PFC has organized 5 regional workshops in financial year 2009-10 and madepresentations on the Quarterly Performance report to the SPUs. The workshops wereorganized at Shillong, Kolkata, New Delhi, Bangalore and Pune. It is the endeavor of PFCto make the utilities realize the importance of preparing the quarterly report and compareperformance of their utility vis--vis other utilities and taking the mid term correctivemeasures for the overall improvement of the sector.

Annual Performance Report of State Power Utilities

Your Company brings out a Report on the Performance of State Power Utilities (SPUs)annually. The 6th Report for the year 2005-06 to 2007-08 covering 90 SPUs has already beenpublished. The report contains analysis of various financial and operational performanceutility wise, state wise, region wise and at the national level. This is an outcome of oureffort to provide quality database to help to find out reform process outcome and thedirection in which the Power Sector is progressing. The report is also recognized byvarious stakeholders as an useful source of information on the SPUs. The report analysisthe financial and operational performance e.g. profitability, gap between average cost ofsupply and average revenue realization (`/kwh), net worth/capital employed, receivables,payables, capacity (MW), generation (MKWH), AT&C losses etc. and consumption patternof the sector at utility, state, regional and national level. The Report for the year2006-07 to 2008-09 covering 77 utilities out of total 93 utilities has been prepared andsubmitted to Ministry of Power as per the targets set in MoU. The final report (7th) onthe performance of all SPUs for the period 2006-07 to 2008-09 is under finalization.

16.0 POLICY INITIATIVES

Your Company constantly reviews and revises its lending & operational policies/procedures to suitably align these with market requirements as also with its corporateobjectives. PFC introduced policy guidelines relating to financing of projects havingbackward linkage to power sector in the area of fuel sources development & itsdistribution and equipment manufacturing for power sector. In order to facilitate thecapacity addition/ expansion programme at a faster pace and enable the experiencedutilities/promoters to leverage their operational strengths, PFC also launched a newfinancial product to provide financial assistance for equity infusion in new projects onthe strength of internal resources being generated from the commissioned projects.

PFC also reviewed its policy guidelines relating to debt-equity ratio, terms ofsubordinate debt, premature repayment of loans, issue of comfort letter, interestresetting methodology, ceding of charge on project assets, short term loan, mini shortterm loan etc. during the year with a view to make the same borrower friendly.

In spite of growing competition in the market as well as concerns on account of factorslike high government borrowings, increase in RBI policy rates, rising inflation etc, PFChas maintained healthy spreads balancing its objectives of business growth &profitability during the year. Further, the policies of extending special interest ratesfor large generation loans and renewable energy projects as per Ministry of New andRenewable Energy (MNRE) were continued during the current financial year.

17.0 ACTIVITIES UNDERTAKEN BY PROJECTS DIVISION

Your Company had reorganized its project division in the financial year 2008-09, inorder to increase the focus on appraisal of projects as well as to provide better servicesto our customers. The major activities undertaken by the units during the financial yearare:

17.1 CONSORTIUM LENDING GROUP

Consortium Lending Group (CLG) is primarily responsible for administering loans for theprivate(power) projects where the Company is the lead FI. The unit is also coordinatingwith developers of IPPs, corporate bodies, prospective lenders for identifying loansyndication proposals and coordinate with members of Power Lenders Club for providingsingle window facility to power project developers. CLG is thus, dedicated to the needs ofthose private sector borrowers who have reposed faith in the services of the Company.During the financial year 2009-10, CLG unit has achieved financial closure for 350 MW TPPof M/s RKM Ph-I, 1,350 MW TPP of M/s Indiabulls Power Ltd., 10MW Biomass project of M/sASN Power Ltd., 96 MW HEP M/s Dans Energy Pvt. Ltd., 120 MW HEP of M/s Jal PowerCorporation Limited, 545 MW co-gen power project of M/s Vadinar Expansion Ph-I&II and700 MW TPP of M/s Ind Barath Energy Utkal Ltd. An interactive meeting of IPPs was alsoorganized to get the suggestions and feedback to cater the growing requirements of IPPs inthe financial year 2009-10.

CLG has revived the Power Lenders Club (PLC) and has been regularly holding meeting ofits members to discuss the methodology of a common approach required for sorting outissues in funding of power projects, requirement of balance debt funds for the powerprojects sanctioned by the company and sharing of debt among members of PLC. During thefinancial year, CLG has achieved to successfully tie up `350 crore from Federal Bank andCorporation bank through PLC.

In order to increase the share balance debt tie up through PLC with the approach to tieup required balance debt to the maximum for the projects, whether private or state,sanctioned by PFC as lead, CLG is planning to float separate subsidiary company with theobjective to syndicate loans for projects, by providing complete end-to-end projectfinance solutions as well as generating business proposals by understanding the currenttrends in market and their regulatory environment.

17.2 FACILITATION GROUP

Facilitation Group (FG) has successfully grown business operation in its second year ofoperations in the emerging areas of power equipment manufacturing financing and fuellinkage financing.

During the year, facilitation group developed 2 new financial products to enablefinancing in the areas of Equipment Manufacturing (EM) for Power Sector and Fuel SourcesDevelopment & its Distribution (FSD&D) for Power Sector.

During the year, your company was actively involved in financing of the wind equipmentmanufacturer, Suzlon Group for its `11,040 crore rupee debt , as part of a pan Indiaconsortium of Banks and FI’s.

In the second year since inception (2009-10), FG was successful in business developmentefforts and sanctioned its first loan proposal. The sanction is made as an equipmentmanufacturing loan by way of RTL of ` 250 crore to KSK Suyra Photovoltaic Venture Pvt.Ltd. (KSK Surya) for setting up 146 MWp thin film based solar PV panels manufacturingfacility. Discussion has been initiated with NTPC BHEL JV, RITES, NPCIL among others forextending financial assistance.

In order to give a fillip to regional co-operation, your company has initiated dialoguewith M/s Feedback Ventures for exploring participation in proposed Nepal InfrastructureBank, being promoted by Nepal Rastra Bank along with ADB, IFC & DEG-KfW, for financingHydel Projects in Nepal.

While the company continues to finance equipment manufacturing and fuel linkages forthe power sector in India, it is also exploring the possibility of extending services inthe areas of financing of Nuclear Power Schemes, Hydel projects being developed in Nepalwith linkage to India and Hydel projects being developed in Bhutan by Indian entitiesunder Indo Bhutan bilateral treaty.

17.3 RE & CDM GROUP

The potential of Renewable Energy to provide clean and sustainable energy isuniversally accepted. Government of India is giving high focus for promotion of RenewableEnergy through Electricity Act 2003 and National Electricity Policy 2006. Renewable Energyhas been given a central place in Government of India’s National Action Plan onclimate change. The National Solar Mission is a major initiative of Government of Indiaand State Governments to give impetus to the development of solar power in India. TheMission has set a target of 20,000 MW under phase-I (upto 2013)

The SERCs in various states are making it mandatory for distribution utilities toprocure minimum percentage of energy from Renewable Energy generation sources andnotifying special tariffs for solar, wind, biomass and small hydro generation projects forpurchase of power by State Power Utilities. To tap the Renewable Energy business in stateand private sector, the Company is giving enhanced focus on financing of Renewable EnergyProjects.

During the current financial year, loans amounting to ` 603 crore were sanctioned tosupport a capacity of 234 MW for wind and small hydro generation projects in State andPrivate sector. Energy Efficiency Services Limited (EESL) is a Joint Venture of PFC, NTPC,REC & PGCIL formed with equal equity participation amounting to ` 190 crore among themwith an objective of implementing Energy Efficiency Projects. PFC has played a leadershiprole in formation of the company. The new company has commenced its operations on 11thFebruary, 2010.

Your Company is also facilitating SPUs for CDM benefits for R&M of old Thermal& Hydro projects as per mandate from MoP. Ten projects in the States of Meghalaya,Andhra Pradesh, Punjab, Himachal Pradesh, Madhya Pradesh, Kerala and Maharashtra have beenidentified for registration with UNFCCC. The Project Design Documents (PDD) for 5 projectshas been prepared through the consultant appointed by ADB. The PDD for R&M of MachkundHydro Power project, Umiam HEP (Meghalaya), Giri HEP (Himachal Pradesh) has been submittedto the DNA (MoEF).

18.1 ACQUISITION ADVISORY SERVICES

As India is committed to its vision ‘Power for all’, the share of privatesector is likely to increase to 28% in the XI Plan and to 63% in the XII Plan in terms ofcapacity addition. This would usher in competition among the private sector players.Besides, current requirement of procurement of power from private sector throughcompetitive bidding as well as from state power utilities from January 2011 would resultin lower tariff. The resulting low tariff regime coupled with open access and powertrading is likely to bring in fierce competition in future.

The above situation is likely to lead to consolidation in the power sector and hence,the need for assistance and advice in identifying suitable projects/partners for mergers& acquisitions in order to bring in synergies & economies of scale. It is in thisbackdrop that your company recently took the initiative of creating ‘AcquisitionAdvisory Services’ unit in the company. The broad scope of services offered by yourcompany through this unit would include (a) Identification of target project/company foracquisition/mergers (b) preliminary due diligence on the projects and (c) detailedtechno-commercial appraisal of projects etc. It will assist its clients in sale andacquisition of power projects, keeping in view the specific needs of its clients. Besidesthis, the unit has been mandated to explore the possibility of acquisition of a bank/FI,for which action for engaging a consultant is in progress.

18.2 POWER TRADING THROUGH POWER EXCHANGE

In the financial year 2008-09, the Central Electricity Regulatory Commission hadgranted its permission to set up power exchanges in the country. As on date two powerexchanges, namely, Power Exchange India Ltd. (PXIL) and Indian Energy Exchange Ltd. (IEX)are in operation. These power exchanges have a nationwide presence in the form ofelectronic exchange for trading in power. The trading through power exchanges havecertainly lent an impetus for power sector development since it acts as an open andtransparent mechanism for buyers and sellers and provides investment signal to theprospective investors. Further with the presence of these exchanges, the availableresources shall be used optimally.

In order to promote short term trading through power exchange, your company hadpromoted National Power Exchange Ltd (NPEX), jointly with NTPC, NHPC and TCS during2008-09. Your company has contributed ` 83.30 lakh (being 16.66% of paid up equity upto31st March, 2010) towards equity contribution. NPEX has obtained the in-principle approvalfor setting up of Power Exchange from CERC. This exchange is yet to start its operation.

Your company has also contributed ` 1.75 crore (being 5.1% of paid up equity upto 31stMarch, 2010) towards equity contribution in Power Exchange India Ltd., promoted by NSE andNCDEX.

In order to further boost the short term trading volumes through power exchange, PFChad decided to provide credit facility for purchase of power through Power Exchange IndiaLtd. (PXIL) in addition to playing the role of Professional Clearing Member (PCM). But thecompany had discontinued its credit and PCM facility to PXIL in compliance with the‘Power Market Regulations, 2010’, governing power trading activities, amongothers, notified by CERC in the month of January 2010. However, the company is likely toresume the credit facility to the buyers/sellers in its new role i.e. FinancialAssociates’. In this regard PXIL has already submitted revised Business Rules andByeLaws, defining the role of ‘Financial Associates’, to CERC for its approval.

18.3 EQUITY FINANCING

Equity investment business is generally considered as a logical extension of debtbusiness. Your Company is endeavoring to make a mark in the area of equity investment soas to capitulate on its vast domain experience that it has attained during its over 20years of operations in power sector debt financing. PFC aims to leverage its financialstrength, large debt providing capability and power sector expertise to invest in equityof attractive power projects. Over a period of time, your company proposes to build anequity portfolio of power assets which could provide consistent gains in the form ofdividend and/or capital appreciation.

19.0 SUBSIDIARIES

As a nodal agency designated by Government of India for development of Ultra Mega Powerprojects, your Company has so far established fourteen (14) wholly owned subsidiaries outof which twelve (12) are to facilitate the development of UMPPs and two (2) for thedevelopment of ITPs. On completion of the bidding process, so far five (5) subsidiarieshave already been transferred to the successful bidder for implementation of the projects.

In addition, the Company had also incorporated on 25th March, 2008, PFC ConsultingLimited, a wholly owned subsidiary company to promote, organize and carry on consultancyservices and for undertaking the work related to the development of UMPPs and ITPs.

19.1 PFC CONSULTING LIMITED

Background

As you are aware, your Company had been offering consultancy support to the PowerSector through its Consultancy Services Group (CSG) since October 1999. Leveraging theexperience of the CSG Unit and appreciating the growth in the services offered by theGroup and recognizing the potential of such services in the reforming Power Sector, yourCompany decided to organize the services as a distinct dedicated business entity.Accordingly, PFC Consulting Limited (PFCCL) was incorporated in the form of a wholly ownedsubsidiary on 25th March, 2008, in order to give it requisite autonomy in functions andflexibility in operations. PFCCL is mandated to promote, organize and carry on consultancyservices to the Power Sector and is also undertaking the work related to the developmentof UMPPs. PFCCL has been nominated as the ‘Bid Coordinator’ for selection ofdeveloper for the Independent Transmission Projects (ITPs) by Ministry of Power, GoI.

Range of Services Offered

The Services being offered by PFCCL in the following areas include:

• Procurement of Power by Distribution Licensees

• Govt. of India initiatives like UMPPs, ITPs etc.

• New & Renewable Energy Sources

• Selection of Developers for Power Projects linked to Coal Blocks & JointVenture Partners for Coal Blocks

• Project Advisory Services including Selection of EPC Contractor

• Reform, Restructuring and Regulatory Aspects

• Capacity Building and Human Resource Development

While PFCCL continues to undertake various assignments, its focus is on assignmentsrelating to:-

• Procurement of power through ‘Case 1’ and ‘Case 2’ of"Guidelines for Determination of Tariff by Bidding Process for Procurement of Powerby Distribution Licensees", issued by MoP, GoI.

• Overall advisory services for development of a new Thermal Power Station.

• Computerization of Accounting Systems for State Utilities.

• Restructuring/Implementation of reforms for State Utilities.

Client Base

Till date, consultancy services have been provided to 37 Clients spread across 20States. Assignments have been undertaken in various states, which include Punjab,Rajasthan, Jharkhand, West Bengal, Himachal Pradesh, Bihar, Jammu & Kashmir,Meghalaya, Assam, Andhra Pradesh, Uttar Pradesh, Haryana, Chhattisgarh, Meghalaya, MadhyaPradesh, Kerala, Maharashtra, Karnataka and Delhi. The numbers of states including theprofile of clients are given below:

During the financial year 2009-10, PFCCL has more than doubled the turnover (`45.27crore as compared to `22.39 crore of the previous year) and net profit (`21.66 crore ascompared to `9.75 crore in the previous year).

19.2.1 JABALPUR TRANSMISSION COMPANY LIMITED (JTCL)

SPV, Jabalpur Transmission Company Limited was incorporated on 8th September, 2009. Itis a transmission system project for ‘System Strengthening Common for Western Region(WR) and Northern Region (NR)’. The project includes 756 kV Single D/C line fromDhramjaygarh to Jabalpur and 765 kV S/C line from Jabalpur Pool to Bina. Request forQualification (RfQ) for the project was issued in February, 2010. RfQ responses werereceived from 33 developers. Evaluation of RfQ responses is in progress.

19.2.2 BHOPAL DHULE TRANSMISSION COMPANY LIMITED (BDTCL)

SPV, Bhopal Dhule Transmission Company Limited was incorporated on 8th September, 2009.It is a transmission system project for ‘System Strengthening for Western Region(WR)’. The project includes system Strengthening for WR (Jabalpur-Bhopal,Bhopal-Indore, Aurangabad-Dhule, Dhule-Vadodra, all 765 kV S/C lines with associated 765kV substation at Bhopal and Dhule.

Request for Qualification (RfQ) for the project was issued in March, 2010. RfQresponses were received from 28 developers. Evaluation of RfQ responses is in progress.

20.1 NATIONAL POWER EXCHANGE LIMITED

In order to promote short term trading through power exchange, your company hadpromoted National Power Exchange Ltd (NPEX), jointly with NTPC, NHPC and TCS during2008-09. Your company has contributed ` 83.30 lakh (being 16.66% of paid up equity upto31st March, 2010) towards equity contribution. NPEX has obtained the in-principle approvalfor setting up of Power Exchange from CERC. This exchange is yet to start its operation.

The Power Exchange will have a nationwide presence in the form of electronic exchangefor trading in power. Apart from power trading, transmission clearance will also be takencare of by power exchange simultaneously. It will provide its members a transparent,neutral and efficient electronic platform for power trading.

20.2 POWER EQUITY CAPITAL ADVISORS PRIVATE LIMITED

An advisory company namely Power Equity Capital Advisors Private Limited (PECAP) wasincorporated to provide advisory services related to equity investments in Indian powersector, where our Company is the largest shareholder.

20.3 POWER TRADING CORPORATION OF INDIA

Power Trading Corporation of India (PTC) was jointly promoted by Power Grid, NTPC, NHPCand PFC. PFC has invested `12 crore which is 4.07% of total equity of PTC. PTC is theleading provider of power trading solutions in India, a Government of India initiatedpublic-private partnership, whose primarily focus is to develop a commercial vibrant powermarket in the country.

20.4 ENERGY EFFICIENCY SERVICES LIMITED

Energy Efficiency Services Limited (EESL) was incorporated on 11th February, 2010. EESLwas jointly promoted by Power Grid, NTPC, REC and PFC with equal equity participation forimplementation of Energy Efficiency projects in India and abroad. EESL would be one of themain implementation arms of the National Mission on Enhanced Energy Efficiency (NMEEE),which is one of the eight National Missions announced by the Hon’ble Prime Ministeras a part of "National Action Plan on Climate Change".

21.0 MEMORANDUM OF UNDERSTANDING WITH GOVT. OF INDIA

For the Financial Year 2009-2010, your Company has surpassed all the‘Excellent’ level MoU targets in respect of the various performance parametersand is likely to be accorded ‘Excellent’ rating.

22.0 PRESIDENTIAL DIRECTIVES (REGARDING SALARY)

Your Company has implemented wage-revision w.e.f. 01.01.2007 for the employees in theExecutive Cadre as per Presidential Directives issued on 26.11.2008 and 02.04.2009.However, wage-revision for the employees in the Non-Executive cadre is under the processof negotiation.

23.0 HRD INITIATIVES TRAINING & DEVELOPMENT

In the field of Human Resource Development, PFC stresses on the need to continuouslyupgrade the competencies of its employees and equip them to keep abreast of latestdevelopments in the sector and industry practices. The Company is in a knowledge intensivebusiness and is committed to enhance the professional skills and knowledge of itsemployees. As a step towards this, it has a systematic training plan where the trainingneeds are assessed and professional skills are imparted at all levels of employees throughcustomized training interventions. PFC, in its role as a Development Financial Institutionhas also been supporting State Power Utilities (SPUs) through a variety of capacitybuilding measures. One such initiative is in the area of need-based training and capacitydevelopment to build up their institutional and managerial capacities in keeping with theincreased commercial orientation of these entities.

Employee Training

During the year 2009-10, PFC organized 16 in-house programs. A total of 1085 mandayswere achieved through in-house programs. In addition, 601 training mandays, including 276mandays of foreign training, were achieved through training programs organized by othertraining institutes.

DRUM and Utility Training

During the financial year 2009-10, 161 training programmes were organized through which3524 number of personnel were trained from various utilities. Apart from short-termtraining (5 days & less), the DRUM program also supports longer duration coursesthrough collaborations with leading Institutes such as the Management DevelopmentInstitute, Gurgaon, for an MBA in Power Distribution Management, The Energy ResearchInstitute, New Delhi, for an MBA in Infrastructure and with Indira Gandhi National OpenUniversity for Advanced Certificate in Power Distribution Management.

To further enhance the reach of its training activities PFC had initiated the distancelearning mode. In a collaboration agreement with the Indira Gandhi National OpenUniversity, in which PFC is the major sponsor, a certificate in Power DistributionManagement of six months duration has been initiated for utility linesmen/ technicianslocated at remote centers who would otherwise not have access to training for upgradationof their skills.

24.0RESERVATION OF POSTS FOR SC/ST/OBC/EX-SERVICEMEN AND PHYSICALLY HANDICAPPED PERSONSIN THE SERVICES OF COMPANY

Your Company as a part of its social responsibility makes all-out efforts to ensurecompliance of the Directives and Guidelines issued by the Government for the reservationto be allowed for SC/ST/OBC/Persons with disabilities. The steps taken include duereservations and relaxation as applicable under the various directives.

In the year 2009-10, total 18 new employees were recruited out of which 11.11% are SC(2) and ST (2), 16.67% are PWD (3) and 50% are OBC(9).

25.0VIGILANCE

During the financial year 2009-10, the Vigilance unit functioned as an effective toolof management with the thrust being on preventive vigilance. This aspect was emphasized byconducting periodic & surprise inspections of various units and by issuing effectiveguidelines to streamline systems with the aim of eliminating loopholes and ensuringtransparency in day to day operations. Vigilance Unit undertook the review of operationalmanuals of various activities of the Company. A number of comprehensive manuals ondifferent areas of company’s activities have already been notified after review andsome other manuals are in process of finalization. Further during this period detailedinvestigation was carried in several cases of registered complaints.

In accordance with the directives of CVC, Vigilance Awareness Week was observed from3rd to 7th November, 2009 in the head office and regional offices of the Company. In orderto increase scope of e-procurement in the Company and borrowers of the Company and todisseminate a strong message of integrity and transparency in public spending, interactivetwo days programme on "E-procurement in power Sector" was held for the benefitof the executives and borrowers of the Company so as to reap benefits of e-procurement andincrease of transparency in procurement process and also to educate them on theinitiatives taken for improvement in systems procedures.

Slogan writing, essay writing and pictorial theme representation competitions wereorganized on themes relating to preventive vigilance, e-procurement and use of informationtechnology in fighting corruption with the aim of involving employees and encouraging themto come forward with innovative ideas for prevention of corrupt practices. Internal Auditsystem in the company was reviewed and a report entitled "Review of Internal AuditSystem in PFC: A suggestive framework for effectiveness" was prepared.

26.0OFFICIAL LANGUAGE

In your Company, Official Language Policy Implementation has been taken as an integralpart of Management Operations. To enhance the environment of Rajbhasha Hindi, "HindiFortnight" was observed from 14th September, 2009 to 30th September, 2009. During theperiod, several Hindi Promotional activities were organized. On the occasion of Hindi Dayon 14th September, 2009, the messages of Hon’ble Minister of Home Affairs,Hon’ble Minister of Power and Chairman and Managing Director of Company weredistributed to all the employees of PFC. During the year, various competitions, like‘Katha Vistaran’, ‘Vartani Shodhan’, ‘Nibandh’,‘Samsmaran’, ‘On the Spot Chitrabhivyakti’, ‘Shrutlekhan fordrivers and attendants only’ were organized. A ‘Kavi Sammelan’ wasorganized wherein renowned Hindi and Urdu poets and poetess, like Shri Vaseem Baraelavi,Shri Rahat Indori, Shri Kunwar Baichen, Shri Surendra Dubey, Shri Popular Merathi and Ms.Kirti Kale recited their poems. In accordance with the statutory requirement and as perthe directions of MoP, Corporate version of ‘Saransh’ bilingual package waspurchased and installed on the computers of all the employees to help them to do theirwork in Hindi.

During the year, six workshops on Official Language Policy were organised to addressthe practical difficulties being faced by the employees in performing their day to daywork in Hindi. These workshops were attended by 50 participants. Two training programmeson use of ‘Saransh’ package were also organized wherein 40 employeesparticipated. A personal contact programme was also initiated to inspire each of theemployees personally to do their work in Hindi.

Internal inspections as part of personal contact programme were conducted in 26 unitsto enhance the scope of work in Hindi in their respective units. To help employees to dotheir day to day work in Hindi, several standard formats and other documents being used invarious units of PFC were made available on Intranet of PFC. A glossary of the words beingused in PFC was also uploaded on intranet.

The bilingual quarterly in-house magazine ‘Urja Deepti’ was brought outregularly. The employees and their family members were encouraged to send their articlesand incentive was given to all those who contributed. This magazine was adjudged first andreceived award in an Inter PSU in-house magazine competition conducted by Town OfficialLanguage Implementation Committee, wherein 86 organisations had participated. The magazinewas conferred First Prize in ‘All India Official Language In-House MagazineCompetition’ held by ‘Akhil Bharatiya Rashtrabhasha Vikas Sangathan’ andalso received ‘Rajbhasha Patrika Rashtriya Shield Samman’ from Rashtriya HindiAcademy, Rupambara.

27.0 AUDITORS

M/s. K.K.Soni & Co., Chartered Accountants and M/s. Raj Har Gopal & Co.,Chartered Accountants were appointed as Joint Statutory Auditors of the Company for thefinancial year 2009-2010 by the Comptroller & Auditor General of India.

28.0FOREIGN EXCHANGE EARNINGS AND OUTGO

The Foreign exchange outgo aggregating `132.40 crore was made on account of debtservicing, financial & other charges, travelling and other miscellaneous expenses.

29.0PARTICULARS OF EMPLOYEES U/S 217 (2A) OF THE COMPANIES ACT, 1956.

Particulars of employees as required to be furnished pursuant to Section 217(2A) of theCompanies Act, 1956, read with the rules thereunder, forms part of this Report. However,as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the reports andaccounts are being sent to all the shareholders of the Company excluding the statement ofparticulars of employees. Any shareholder interested in obtaining a copy may write to theCompany Secretary.

30.0HUMAN RESOURCE MANAGEMENT

Your Company places utmost importance on its Human Resources. It benchmarks itspractices with the best practices being followed by other corporate in the World. Thisalong with the other interventions in the effective management of Human Resources, ensuresa high level productivity in its employees. It enjoys a very cordial and harmoniousrelationship with its employees. The employees, in turn have aligned their individual goalwith that of the organization. There were no man-days lost during the year under review.

31.0WELFARE MEASURES

Your Company has ensured the welfare of the employees through a process of inclusivedevelopment. The participation of the employees and their constructive suggestions areencouraged in all major activities pertaining to the overall improvement in thefunctioning of the company. There is a systematic mechanism through which the employeescan air their opinions and suggest to the top management various ideas regarding theimprovement in its function. The employees are being provided with state of art facilitiesto ensure optimum productivity. Employees are encouraged to maintain a healthy lifestyleby providing them with facilities of regular workouts in the office premises. They arealso being provided with world class medical facilities.

32.0CORPORATE SOCIAL RESPONSIBILITY

Your Company is in the process of streamlining its Corporate Social Responsibility(CSR) activities through implementation of Corporate Social Responsibility Policy in theCompany. These CSR activities shall support initiatives which will bring qualitativechange in the daily life of the society/community without compromising on ecologicalconditions. Your company has entered into a Memorandum of Understanding (MoU) with Govt.of India for spending 0.05% of PAT(Profit after Tax) towards CSR Activities as a part ofits Corporate Social Responsibility.

33.0REPRESENTATION OF WOMEN EMPLOYEES

Your Company provides equal growth opportunities for its women employees and today theCompany can boast of having important and critical functional areas which are manned bywomen employees. There is no discrimination of employees on the grounds of gender. Thewomen employees represent 19.75% of the total work force.

34.0GLOBAL COMPACT

Your Company has always been a socially conscious organization and fully endorses thenine principles of Global Compact enunciated by United Nations Organisation (UNO) andencompassing areas of human rights, environmental protection and labour rights. Theseprinciples of Global Compact are embedded in our various organizational policies and thusfacilitate their implementation in a natural way. PFC has been an active participant invarious endeavors of Global Compact and apart from implementing Global Compact Principleson organizational level, it also provides sponsorship aid and support to other endeavorswhich are in line with the principles of Global Compact.

PFC lays special emphasis on medical facilities and health care for its employees andtheir families whereby they can avail best health care facilities. In pursuit of makingPFC a learning organization it also supports integrated learning of its employees througha variety of measures. Other aspects like promotion of sports, cultural heritage,community development etc. are also given due importance in our working by organizingvarious events etc. and also by providing sponsorship support on relevant occasions.

35.0GRIEVANCE REDRESSAL

Your Company has a Grievance Redressal System for dealing with the grievances of theemployees and the public at large. The systems are duly notified and the Nodal Officersensure quick redressal of grievances within the permissible time frame. The company alsohas a notified Citizen’s Charter to ensure transparency in its work activities. ThisCharter is available on the website of the Company to facilitate easy access.

36.0CORPORATE GOVERNANCE

A detailed report on Corporate Governance and Management Discussion & Analysisreport, pursuant to the requirement of Clause 49 of the Listing Agreement forms part ofthe Annual Report. A certificate obtained from a practicing company secretary, confirmingcompliance of conditions of Corporate Governance as stipulated under the aforesaid Clause49 is annexed to the Report on Corporate Governance.

37.0DEBENTURE TRUSTEES:

The Company in line with the requirements of SEBI, appointed following DebentureTrustees for their different series of Bonds:

38.0REPLIES TO THE REPORT/COMMENTS OF AUDITOR

Under Section 217 (3) of the Companies Act, 1956 the information/explanation to theAuditor’s observations are submitted as under:-

1(a) On the Report of Statutory Auditors:-

2. On the Comments of Comptroller & Auditor General of India:-

The Comptroller and Auditor General of India has mentioned that on the basis of audit,nothing significant has come to their knowledge which would give rise to any comment uponor supplement to Statutory Auditors’ Report under Section 619(4) of the CompaniesAct, 1956.

39.0DIRECTORS’ RESPONSIBILITY STATEMENT

As required under Section 217(2AA) of the Companies Act, 1956, your Directors confirmthat:

o In the preparation of the annual accounts for the financial year 2009-10, theapplicable accounting standards had been followed along with proper explanation relatingto material departures;

o The Directors had selected such accounting policies and applied them consistently andmade judgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the end of the financial year 2009-10 andof the profit of the Company for that period;

o The Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provision of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities; and

o The Directors had prepared the Annual Accounts on going concern basis.

40.0ACKNOWLEDGEMENT

Your Directors acknowledge and place on record their appreciation for the assistance,co-operation and encouragement extended to the Company by the Central and StateGovernments, Reserve Bank of India and various Government agencies, the World Bank, theAsian Development Bank, Institute of Chartered Accountants of India, USAID, KfW ofGermany, EDC of Canada and various international financial institutions/ banks, agencies.The Company is also thankful to the Comptroller & Auditor General of India, theStatutory Auditors and the bankers for their constructive suggestions and co-operation.

Your Directors would also like to convey their gratitude to the investors, clients andcustomers for their unwavering trust and support. Last but not the least the directorswould like to thank the employees for their continuing support and contribution inensuring an excellent all round performance.