NTPC Ltd

GENERATION

India ranks 5^th in the world in terms of total installed capacity, it is oneof the lowest in terms of per capita consumption of power. The National Electricity Policy(NEP) stipulates "power for all" and annual per capita consumption ofelectricity to rise to 1000 units by 2012. The policy aims at inclusive growth of powersector by providing adequate reliable power, at reasonable rates with access to allcitizens. The 17^th Electric Power Survey (EPS) forecast that the peak demandwould grow at a CAGR of 7.8% in the 11^th Plan as compared to growth in supplyexpected around 6.8% to 7% resulting in continued upward trend of power deficit in India.The demand projections as per 17^th EPS for next 11-12 years on all-India basisshow that the energy requirement and annual peak load will be 2.30 times and 2.50 timesrespectively of the existing requirement as detailed hereunder:

Source-17^th Electric Power Survey of CEA

However, over last 3 years, the CAGR of peak demand as well as energy shortages haveshown a downward trend as compared to projections considered in the 17^th EPS.

Mid Term Review of 11^th plan

Based on the progress made so far during 11^th plan, Planning Commission inits draft midterm review has assessed that against a target of 78,700 MW, a total capacityof 62,374 MW is likely to be added with high certainty alongwith 12,590 MW capacity thatmay be added on best efforts basis.

Capacity in MW

So far, in the 11^th Plan, 29,023 MW (including Renewable Energy Sources-RES)capacity has been added (upto May, 2010). In absolute terms, this capacity addition in the11^th plan is much higher as compared to the capacity added in each of lastthree five-year- plans.

The main issues in capacity addition during 11^th plan are delayed supply ofequipment due to issues concerning shortages, non-sequential supply of material bysuppliers, shortage of skilled manpower for construction and commissioning of projects,contractual disputes between project authorities, contractors and their sub-vendors, delayin readiness of balance of plants by the executing agencies. Hydro capacity addition hasslipped substantially. Difficulties have been experienced by developers in landacquisition, rehabilitation, environmental and forest – related issues, inter-Stateissues, geological surprises (particularly for Hydro projects) and contractual issues.These issues continue to pose challenges to maintain the pace of development of powerprojects.

Advance action for 12^th Plan

As regards 12^th Plan, it is expected that capacity addition close to1,00,000 MW will take place. In this proposed capacity, the major portion is expected tocome through super-critical technology. In order to achieve the 12^th Plantarget and in order to augment the domestic manufacturing base of main plant equipment,bulk tendering of supercritical units was approved by the Cabinet Committee onInfrastructure in August 2009 with emphasis on phased manufacturing programme so thatdomestic manufacturing capacity of super-critical units is established in the countrythrough new manufacturers apart from BHEL. It was also decided to invite separateinternational competitive bids (ICBs) for the boiler and the steam turbine generator (STG)islands, i.e. one bulk package for all the boilers and another bulk package for all theSTGs, instead of a single common boiler turbine generator (BTG) bulk package, as there arelimited manufacturers who manufacture both boilers and STGs. Following the approval ofGovernment of India, NTPC was entrusted with the task of issuing NIT for bulk ordering of11 units of 660 MW (totalling 7260 MW).

CEA has also set up 18^th EPS committee to forecast electricity demand indetail upto the end of 12^th Plan (2012-13 to 2016-17) and to projectprospective electricity demand for 13^th and 14^th plans.

Substantial capacity is also expected to be added through Ultra Mega Power Projects.

Existing Installed Capacity

The total installed capacity in the country as on March 31, 2010 was 159,398.49 MW withState Sector leading with a share of 49.80%, followed by Central Sector with 32 % shareand balance 18.20% contributed by Private Sector entities.

*Excluding captive generating capacity connected to the grid 19509 MW as on 31.3.2010

Source: CEA’s Reports

Capacity addition gained momentum during the year 2009-10 with 9,585 MW (excluding RES)of capacity being added as compared to 3,454 MW added during the previous year,registering a growth of 178%.

Out of 11,433.08 MW (including RES) added during the year in the country, the CentralSector contributed to an addition of about 17.69%, State Sector 28.65% and 53.66% wascontributed by Private Sector.

The total thermal capacity, including gas stations and diesel generation accounts forabout 64.27% of installed capacity of the country followed by hydro capacity at 23.13%.Nuclear stations account for 2.86% and the balance 9.74% is contributed by RenewableEnergy Sources.

@ Renewable Energy Sources

Source: CEA’s executive summary

With 84,198.38 MW of the installed capacity contributed by coal based stations which is52.82% of nation’s capacity, coal remains key fuel for power generation.

Existing Generation

The total power available in the country during the year 2009-10 was 771.551 billionunits as compared to 723.794 billion units during last year, registering a growth of 6.6%.

The sector wise and fuel wise break-up of generation for the year 2009-10 is detailedas under:

*Bhutan Import.

Source: CEA’s Reports

Although the State Sector accounts for 49.80% of installed capacity, its contributionto national generation is only 45.14%. Central Sector utilities have better performingstations as compared to those of State utilities and contribute 42.03% of nation’sgeneration with a share of 32% in installed capacity.

Demand and Supply position

The supply of power improved during the year 2009-10 owing to increase in capacity incoal as well as gas based plants. Gas based supply also increased primarily due toavailability of KG basin gas.

For the first time since 2003-04, energy deficit declined on a year-on-year basis in2009-10 to 10.1 % from 11.1 %. The base load demand increased by 7.26% while base loadsupply grew by 8.36% over last year. This is also attributed to higher capacity additioncoupled with higher utilisation owing to improved fuel availability.

Peak load demand, however, increased by 8.52% whereas peak supply grew by 7.6 %resulting in raising peak load deficit to 12.7% in 2009-10 from 11.9 % in the previousyear. The reversal of the downtrend witnessed last year is mainly due to resumption inindustrial activity as reflected in the change of growth rate of Index of IndustrialProduction (IIP) from 2.7% in 2008-09 to 10.4% in 2009-10. (source: CSO)

As per IMF’s World Economic Outlook 2010 update, India’s GDP is expected togrow at 9.4%, next only to China which is expected to grow at 10.5% this year incomparison to other countries. In order to sustain the growth in GDP, India needs to addpower generation capacity commensurate with this pace since growth of power sector isstrongly co-related with the growth in GDP and going forward it is expected that supplywill create further demand.

Central Electricity Authority in its 17^th Electric Power Survey (EPS) hasprojected that in order to completely wipe off the energy deficit, the energy requirementat the power station bus bar would be of the order of 968.659 Billion Units in 2011-12.

Currently, the sector is characterized by acute shortages. The demand and supplyposition during the last five years in the country is indicated as under:

Actual Power Demand- Supply Position

MU denotes Million units,

Source: Executive Summary Reports of CEA.

Structure of power market

Power is transacted in India largely through long term Power Purchase Agreements (PPA)entered between Generating/Transmission Companies with the Distribution utilities. A smallportion is transacted through various short-term mechanisms like trading throughlicensees, bi-lateral trading, trading through power exchanges and balancing marketmechanism (i.e. Unscheduled Interchange (UI) mechanism).

In the year 2009-10, around 93.17% of power generated in the Country was transactedthrough the long term PPA route. 5.35% of the power was transacted through tradingmechanism which included trading through short term licensees, bi-lateral trading, tradingthrough power exchanges and the balance 1.48% of the power was transacted through UImechanism.

Consumption

The end users of power in India are broadly classified into industrial, domestic,agricultural and commercial categories. The share of each of these categories in theconsumption of electricity during the fiscal 2008 was approximately 38%, 24%, 22% and 8%respectively. The balance pertains to various other consumers. The per capita consumptionof electricity of 704.2 kWh (2007-08) in India is quite low as compared to the worldaverage of 2750 kWh in the year 2006.

Capacity Utilisation

Capacity utilisation in the Indian power sector is measured by Plant Load Factor (PLF).

Sector wise PLF (Thermal)

Further, PLF of gas stations improved considerably from 57.6% clocked in 2008-09 to67.28% during 2009-10 owing to improvement in gas supply.

TRANSMISSION AND DISTRIBUTION

In India, the power transmission and distribution (T&D) system is a three-tierstructure comprising of distribution networks, state grids and regional grids. Thedistribution networks are owned by the distribution licensees and the state grids areprimarily owned and operated by respective state utilities. In order to facilitate thetransmission of power among neighbouring states, state grids are interconnected to formregional grids.

Most of the inter-state transmission links are owned and operated by Power GridCorporation of India Limited. Power Grid also owns and operates many inter-regionaltransmission lines (forming a part of the national grid), in order to primarily facilitatethe transfer of power from a surplus region to a deficit region. The regional grids arebeing gradually integrated to form a national grid enabling inter-regional transmission ofpower facilitating optimal utilization of the national generating capacity. Thegeographical distribution of primary sources of power generation in the country is uneven.The hydro potential is in the Northern and North-Eastern States and coal is primarilylocated in the Eastern part of the country. The focus of planning the generation and thetransmission system in the country has shifted from the orientation of regionalself-sufficiency to the concept of optimization of utilization of resources on all-Indiabasis. Development of a strong National Grid has become a necessity to ensure optimalsupply of power to all. The Ministry of Power (MoP) has envisaged establishment of anintegrated National Power Grid in the country by the year 2012. The program envisagesaddition of over 60,000 ckt km of Transmission Network in a phased manner by 2012. Theintegrated grid shall evacuate additional 100,000 MW and carry 60% of the power generatedin the country. The existing inter-regional transmission capacity connects the northern,eastern, northeastern and western regions in synchronous mode and the southern regionasynchronously. The inter-regional power transmission capacity as on March 2010 is 20,800MW. This capacity is expected to be further augmented to 37,700 MW by 2012. High capacitytransmission corridors need to be developed for the viable and economic evacuation of sucha quantum of power. For this, high capacity HVDC links and 1,200 kV and 765 kV UHV (UltraHigh Voltage) AC corridors with pooling stations at suitable locations in Jharkhand,Orissa, Chhattisgarh, Madhya Pradesh, Andhra Pradesh and Tamil Nadu have been envisaged.Work has started on the first 800 kV HVDC bipole line from the northeastern region to thenorthern region.

POWER TRADING

Trading of power is recognized as a distinct license activity under the Electricity Act2003 (EA 2003). The Central and State Electricity Regulatory Commissions have powers togrant inter-state and intra-state trading licenses. As per CERC, there are 39 inter-statetrading licensees on March 31, 2010.

The volume of electricity transacted through trading licensees and on power exchangeshas increased from 20.18 BUs in 2007 to 30.60 BUs in 2009 representing 3% and 4% of totalgeneration respectively in the country. The weighted average price of electricitytransacted through two power exchanges are showing a downward trend and came down fromRs.7.57/kWh in the year 2008 to Rs.5.73/ kWh in the year 2009.

BUs

Source: Annual Report of CERC for the year 2009

India has two power exchanges – India Energy Exchange (IEX) promoted by FinancialTechnologies (India) Limited (FTIL) and PTC India Financial Services Ltd. and PowerExchange India Limited (PXIL), promoted by NSE and National Commodities & DerivativesExchange Ltd. (NCDEX). Both the power exchanges are operational contributing to trade anddistribution of market information, promoting competition and creation of liquidity in aderegulated power market. The trading is done through on-line satellite connected exchangethat ensures transparency and price discovery.

Open access in inter-state transmission is fully operational. To boost open access, theCERC has recently notified a regulation on Connectivity, Long-term Access and Medium-termOpen Access in inter-state transmission. The regulation introduced medium-term open accessto the inter-state grid. A transmission corridor can now be availed for a period rangingfrom 3 months to 3 years. Provisions have also been made for seeking connectivity to grid.The new dispensation has abolished the discrimination between public-sector andprivate-sector generators in the matter of connectivity to grid. Also, now any 100 MW andabove consumer can be connected directly to the Central Transmission Utility grid withouthaving to go to State Load Dispatch Centers (SLDCs).

RURAL ELECTRIFICATION

As per Central Electricity Authority (CEA), around 83.9% villages have been electrified by end March, 2010. The Central Govt. launched a scheme "Rajiv Gandhi GrameenVidyutikaran Yojana" (RGGVY) in April 2005 with the goal of electrifying all (around118500) un-electrified villages and hamlets and providing access to electricity to allhouseholds in next five years. Under RGGVY, 80,864 villages have been electrified andconnections to 1.15 crore Below Poverty Line (BPL) households have been released up to15.6.2010.

(Source: Ministry of Power –RGGVY projects)

R-APDRP

Accelerated Power Development and Reforms Programme (APDRP) was modified and renamed asRestructured APDRP (R-APDRP).The program was approved by CCEA on July 31, 2008. R-APDRP islinked to actual demonstrable performance in terms of AT&C loss reduction to 15% orless by the end of 11^th plan through adoption of IT for energy accounting/auditing and strengthening /up-gradation of distribution network.

The R-APDRP program size is Rs.51,577 crore. Projects under the scheme are classifiedin 4 parts – ‘A’, ‘B’, ‘C’ and ‘D’. Part‘A’ is for establishment of baseline data and IT applications for energyaccounting/auditing & IT based consumer service centers and Part ‘B’ istowards regular distribution strengthening projects. The expected investment in Part‘A’ is Rs.10,000 crore and that in Part ‘B’ would be Rs 40,000 crore.PFC is the nodal agency for operationalizing the programme. Part ‘A’ & Part‘B’ projects can be implemented simultaneously with a gap of 3-6 months which isneeded to establish the baseline figure of AT&C loss of the project area through ringfencing by installation of boundary (import/ export energy meters). A steering committeehas been constituted under the Secretary (Power) in order to sanction projects, monitorand review implementation, approve guidelines for operationalizing the components of thescheme. The steering committee has approved 1,344 projects for 22 states under Part‘A’ at the cost of Rs.4,859.60 crore. 6 states, namely West Bengal, MadhyaPradesh, Rajasthan, Karnataka, Uttarakhand and Gujarat have awarded the work forimplementation of projects approved under Part ‘A’ of the R-APDRP to the ITImplementing Agency.

R-APDRP also has provision for Capacity Building of Utility personnel and developmentof franchisees through Part ‘C’ of the scheme. The part ‘D’ of R-APDRPprovides for payment of incentive for utility staff in towns where AT&C loss levelsare brought below the baseline. (Source : Economic Survey 2009-10, MoP)

POLICY FRAMEWORK

Electricity is in the concurrent list of the seventh schedule of the Constitution ofIndia and therefore the responsibility for the development of the power industry is withboth - Central Government and the State Governments. Distribution of electricity, inparticular comes in the domain of the states. The Electricity Act 2003 (EA 2003)provides the overall legislative framework for the sector.

MoP oversees the operation of all Central Sector Power utilities. The CentralElectricity Authority (CEA) advises the MoP on electricity policy and technical matters.The government has constituted CERC to regulate the tariffs for the central powerutilities and other entities with inter-state generation or transmission operations. TheEA 2003 also requires state governments to set up State Electricity Regulatory Commissionsfor rationalization of energy tariffs and formulation of policy within each state. As ofMarch 31, 2010 all the states except Arunachal Pradesh and Nagaland have set up theirRegulatory Commissions. In addition, two Joint Electricity Regulatory Commissions havebeen set up for Manipur & Mizoram and Goa & UTs. So far, eighteen states haveunbundled their electricity boards into Generation Companies, Transmission Companies andDistribution Companies.

The Electricity Act 2003 (EA 2003), National Electricity Policy (NEP) 2005 and TariffPolicy 2006 set the enabling framework for power development in the country. EA 2003has promoted a liberal, transparent and enabling legal framework for power development forcreation of a competitive environment and reforming distribution segment of powerindustry. It allows open access in transmission and distribution. It provides forregulatory oversight for fixation of tariff. Definition of theft was expanded to cover theuse of tampered meters and their use for unauthorized purpose. Theft of power was madeexplicitly cognizable and non-bailable offence. Rural Electricity Policy waslaunched in August, 2006 to provide access to electricity to all areas including villagesand hamlets through rural electricity infrastructure and electrification of households. NationalHydro Policy was launched in fiscal 2008 allowing private producers to undertake hydroprojects based on PPA route with a facility of merchant sale upto 40% from saleable energyfrom hydro plant.

a) Distribution reforms modified under "Mega Power Project Policy"

On December 3, 2009, MoP notified that under Mega Power Project Policy, the conditionof privatization of distribution by power purchasing states would be replaced by thecondition that power purchasing states shall undertake to carry out distribution reformsas laid down by MoP.

b) Revision in "Mega Power Project" conditions

The following amendments have been made with regard to classification of a project as"Mega Power Project" and being eligible for the benefits under mega powerpolicy:

I. Revision with regard to threshold capacity of the project -

a) A thermal power plant of capacity of 1000 MW or more; or

b) A thermal power plant of capacity of 700 MW or more located in the States ofJ&K, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland andTripura; or

c) A hydel power plant of capacity of 500 MW or more; or

d) A hydel power plant of a capacity of 350 MW or more, located in the States ofJ&K, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland andTripura.

II. Mega policy benefits extended to brownfield projects also subject to certainconditions.

III. Mandatory condition of inter-state sale of power for getting mega power statusremoved.

IV. Goods required for setting up a mega power project, would qualify for the fiscalbenefits after it is certified by designated MoP official that (i) the power purchasingStates have constituted the Regulatory Commissions with full powers to fix tariffs and(ii) power purchasing states shall undertake to carry out distribution reforms as laiddown below:

• Timely release of subsidy as per Section 65 of Electricity Act, 2003.

• Ensure that Discoms approach SERC for approval of annual revenuerequirement/tariff determination in time according to the SERC regulations.

• Setting up special courts as provided in the Electricity Act 2003 to tackletheft related cases.

• Ring fencing of State Load Dispatch Centres.

V. Mega Power Projects would be required to tie up power supply to the distributioncompanies/ utilities through long term PPA(s) in accordance with NEP 2005 and TariffPolicy 2006 as amended from time to

VI. No further requirement of ICB for procurement of equipment for mega projects if therequisite quantum of power has been tied up or the project has been awarded through tariffbased competitive bidding.

VII. The present dispensation of 15% price preference available to the domestic biddersin case of cost plus projects of PSUs would continue. However, the price preference willnot apply to tariff based competitively bid project(s) of PSUs.

c) Scheme for Supply of Power to Rural Households notified by MoP

MoP on April 27, 2010 notified that electricity will have to be supplied to householdsof the villages located in the areas which fall within 5 kilometer radius around CentralPower Plants for minimum 6-8 hours on daily basis. The scheme covers all the existing andupcoming power plants of CPSUs. The cost of providing infrastructure is to be borne by theCPSUs to which the plant belongs and the same will be booked by the CPSUs as part ofproject cost. The scheme shall be implemented under the supervision of a nodal officerappointed by the State Utility. Separate transformers with suitable meters will beinstalled for accounting energy for supply of households, agriculture and industry byState Utility at their expense. The tariff for supply of electricity to these villageswill be notified by the SERC. MoP shall allocate adequate power to the state utility forsupplying to identified villages.

d) Inter-State trading margin regulations 2010

The CERC issued new regulations fixing trading margins for inter-state trading inelectricity. The main features of the new regulations are:

• The trading margin shall apply only to short-term buy – short-term sellcontracts for inter-state trading,

• Trading margin shall not exceed 4 paise per unit if the sell price ofelectricity is less than or equal to Rs.3 per unit. The ceiling of trading margin shall be7 paise per unit in case the sell price of electricity exceeds Rs.3 per unit.

• If more than one trading licensee is involved in a chain of transactions, theceiling on the trading margin shall include the trading margins charged by all the tradersput together.

• Long-term agreements have been exempted from trading margins to facilitateinnovative products and contracts for new capacity addition which involve higher risk intransactions.

e) CERC’s 2009-14 Regulations

CERC tariff regulation for power generation and transmission for 2009-14 ensurescertainty of RoE at base rate of 15.5% to be grossed up with normal tax rate as applicableto the concerned utility. There is an additional 0.5% RoE if projects are commissionedwithin given time-lines in addition to retaining contribution on account of effi cientoperation subject to certain conditions. In the year, in which the concerned utility paysMinimum Alternate Tax (MAT), the base rate will be grossed up by applying MAT rate. Otherprovisions of Regulation have been discussed elsewhere in this report.

f) New Indian Electricity Grid Code (IEGC) and amendments to Unscheduled Interchange(UI) regulations

CERC notified new IEGC effective from 3^rd May, 2010. While the new Grid Codewill facilitate larger integration of renewable energy sources with grid, the amended UIregulations will bring stricter grid discipline. To discourage states from overdrawingelectricity from the grid, CERC increased the overdrawing charge to Rs 12.25 per unit. Anadditional unscheduled interchange (UI) charge of 40% on the normal UI rate of Rs 8.73 perunit will now become applicable when the frequency is below 49.5 Hz.

As a further deterrent on overdrawals, the additional UI charge rate will be 100% (onthe normal UI rate) on overdrawals when the grid frequency is below 49.2 Hz instead of49.5 Hz earlier.

No slowing of demand for electricity

Although, the Indian power sector is one of the fastest growing sector in the world andenergy availability has increased by around 36% in the past 5 years, the demand for poweroutstrips the supply. Nearly 60 crore Indians do not have access to electricity. Theenergy and peaking deficits have been hovering around double digits for the past twoyears. There is therefore ample scope for rapid capacity expansion. It is widely believedthat the demand of power is understated and supply will also create further demand.Although, the peaking shortages have reduced over the years, however the energy deficitsare expected to remain in double digits. Going forward, the peak deficit is expected toincrease since only base load capacity is being planned and implemented.

Favourable environment to induce investment in power sector

100% FDI is allowed in Generation, Transmission and Distribution segments. Governmentof India has allowed

Income-Tax holiday for a block of consecutive 10 years in the first 15 years ofoperation. Further incentives from Government include waiver of duties on capitalequipment under mega-power project policy.

Government has taken a number of steps, including the enactment of Electricity Act(2003) and Securitisation of SEB dues to reform the power sector and to attractinvestments. Distribution reforms were brought under focus besides making theft of power apunishable offence. Further APDRP was launched to improve the T&D infrastructure inthe country and electricity regulatory commissions have been set up at the state level todelineate tariff setting from extraneous infl uences. In addition, Government has taken anumber of measures to encourage new capacity addition such as allowing non-discriminatoryopen access to transmission and distribution besides introducing setting up of newcapacities on competitive bidding route. Govt. has also allowed developers to set upmerchant power plants without entering into long term PPAs. Coal blocks have beenallocated to power project developers to strengthen fuel security.

Ultra Mega Power Projects

Recognizing the fact that economies of scale leading to cheaper power can be securedthough large size power projects, Govt. of India alongwith CEA and PFC has taken aninitiative for the development of coal based Ultra Mega Power Projects (UMPPs) as pit headstations and coastal based stations each with a capacity of about 4000 MW using supercritical technology under Public –Private Partnership mode. So far, 4 such projectshave been awarded international competitive bidding route namely Sasan in MP, Mundra inGujarat, Krishnapatnam in AP and Tilaiya in Jharkhand. As per Economic Survey 2009-10, oneunit of 660 MW of the Sasan UMPP and two units of 800 MW each of the Mundra UMPP areexpected to be commissioned in the 11^th Plan. Government has decided to includean additional bidding qualification criterion stating that no bidding company or group mayhold more than 3 UMPPs at the pre commissioning stage. The competitive bidding process forselection of developer for Surguja UMPP in Chattisgarh has also commenced during the year.

Green power: Opportunities in Renewable Energy Sources (RES) based Power generation

Even though RES account for only 9.74% of installed capacity, their share in the totalenergy basket is gradually increasing. Under the National Action Plan on Climate Change(NAPCC), Jawaharlal Nehru National Solar Mission is one of the eight National Missionslaunched by Govt. on January 11, 2010 with the twin objectives of contributing toIndia’s long-term energy security and its ecologically sustainable growth. TheMission will be implemented in 3 stages leading to an installed capacity of 20,000 MW ofgrid power, 2,000 MW of off-grid solar applications and 20 million sq. m. solar thermalcollector area and solar lighting for 20 million households by the end of the 13^thFive Year Plan in 2022. The immediate aim of the Mission is to focus on setting up anenabling environment for solar technology penetration in the country and includes feeding1,000 MW of solar power (solar thermal and photovoltaic) to the grid under the first phaseby March 2013. Govt. of India has designated NVVN, a wholly owned subsidiary of NTPC asthe nodal agency for the purchase of up to 1,000 MW of solar power commissioned by Fiscal2013 under the National Solar Mission and sale after bundling an equivalent MW capacityfrom our stations.

EA 2003 requires SERCs to specify a percentage for purchase of electricity fromcogeneration or renewable sources termed as Renewable Purchase Obligation (RPO). SERCs in16 States have already specified the percentage–Andhra Pradesh, Gujarat, Karnataka,Madhya Pradesh, Orissa, Rajasthan, Tamil Nadu, Kerala, Haryana, Maharashtra, UttarPradesh, West Bengal, Uttarakhand, Punjab, Chattisgarh, and NCT of Delhi. (Source:Ministry of New and Renewable Energy)

CERC has notified tariff regulations for electricity generated from renewable energy(RE) sources.

The Forum of Regulators has evolved a Renewable Energy Certificate (REC) mechanism atnational level to facilitate inter-state transaction of RE sources. CERC has notified theregulation for implementing the REC framework. The REC mechanism is aimed at addressingthe mismatch between availability of RE resources in a State and the requirement of theobligated entities to meet the renewable purchase obligation.

Slow investment in power sector

Although 100% FDI is permissible in power sector yet share of power sector in FDI ishovering around 18-19% of total infrastructure investment as compared to Telecom sectorwhere it has increased to 47% during 2008-09.

FDI flows in infrastructure:

(US $ million)

The FDI inflow in power sector has improved during the year 2009-10 and was over USD1.4 billion.

The reason for low FDI inflow in the power sector is that there is a lack ofpolitico-administrative support on containment of commercial losses coupled with poorfinancial health of state utilities in addition to capped regulatory returns on equity.Delays in land, forest and environmental clearances resulting in cost escalation are otherreasons for low inflow of FDI into power sector.

Constraint on Power Equipment manufacturing capacity

The capacity addition in the country has taken gigantic proportions compared to theearlier plan periods. The huge capacity addition programs entail the timely availabilityof power equipments – both the main plant as well as Balance of Plants like CoalHandling Plant, Ash Handling Plants, Water Treatment Plants, Cooling Towers and CoolingWater Systems etc. Despite the growing need of power, the capacity addition in the lastthree plan periods has been less than encouraging and one of the main reasons has been thelack of adequate power equipment manufacturing capacity in the country. In view of thehuge requirement for power equipment the Government of India has taken various initiativesfor encouraging the setting up / enhancement of manufacturing capability. The preconditionof phased setting up of manufacturing capacity, by the suppliers of the Super Criticalpower equipment under the bulk tendering is a step in this direction. Several players haveformed joint venture companies with global manufacturers and domestic power equipmentsuppliers are also enhancing their manufacturing capacity. Apart from the adequatemanufacturing capacity, Technology absorption, adaptation and assimilation is alsoessential. Further, critical raw materials like Alloy Steel, Cold Rolled Grain Oriented(CRGO) steel etc. for forgings, castings, transformers etc. need to be developedindigenously matching with the quantum of capacity addition planned. There is also a needto develop adequate erection and construction agencies for executing civil and mechanicalworks and engineering consultants for engineering and design of various packages formeeting the requirements of huge capacity addition targets in the country.

High AT&C /T&D Losses

Aggregate Technical and Commercial (AT&C) loss captures technical, commerciallosses in the network and also loss due to non realization of billed amount and is a trueindicator of total losses in the system.

High technical losses in the system were primarily due to inadequate investments intosystem improvement works, which resulted in unplanned extensions of the distributionlines, overloading of transformers and conductors, and lack of adequate reactive powersupport. The commercial losses are mainly due to low metering effi ciency, theft &pilferages. This may be eliminated by improving metering efficiency, proper energyaccounting & auditing and improved billing & collection efficiency. Fixing ofaccountability of the personnel / feeder managers may help considerably in reduction ofAT&C loss.

T&D (Transmission and Distribution) losses represent the difference in the amountof electricity supplied and the amount actually metered. The gap between average tariffand average cost of supply, which was historically high, has declined to around paisa 49per kWh in 2006-07 (Rs.2.76/kWh less Rs.2.27/kWh). The tariffs for agricultural anddomestic consumers is subsidised in most states.

AT&C losses currently exceed 29% for the country as a whole.

Source : Ministry of Finance, PFC Report

This issue is being addressed by Govt. through R-APDRP. AT&C losses are showing adeclining trend and have come down from 38.86% in 2001-02 to 29.24% in 2007-08

(Source : PFC).

Strained commercial viability of State Power Utilities

As per the report of 13^th Finance commission, during 2007-08 subsidiesamounting to Rs. 16,950 crore were given to state utilities. The subsidies have persisteddue to:

a) Inability of the state utilities to enhance operating efficiencies and reduceT&D losses adequately.

b) High cost of short term power purchases. Several utilities have not planned capacityaddition in time and are relying on short term purchases at high rates (an average ofRs.7.31 per kWh as compared to Rs.4.52 per kWh in 2007-08). The inability to reduceT&D losses has increased the purchase levels and supply costs.

c) Due to lack of political will, there is an absence of timely tariff increase leadingto increased gap in tariff and cost of supply resulting further in impairedutilities’ operations.

Some states have not raised tariffs for the past eight to nine years in spite ofincreasing deficits. Tariff increase requirements to bridge the gap, even in the betterperforming states, are as much as 7 % p.a. on an average at the 2007-08 subsidy levels. Insome of the poorly performing states the increase in tariff requirement is as much as 19 %p.a. and the same is very difficult to achieve. As a result, the net losses (financiallosses & subsidies) of state T&D utilities are on the increase and are projectedat the level Rs.68,643 crore for the year 2010-11 (being over 1% of GDP) and the sameposes a high risk to their commercial viability.

Fuel Constraints

As per CEA, due to non availability of coal, the loss of generation was around 14.5BUs. The power generation in India is predominantly based on coal, 70% of generationduring 2009-10 was based on coal. This trend is likely to continue in the future. Almost74% of domestic coal production is utilized for thermal power generation. The total coalproduction for the year 2009-10 was 526.6 MMT(source: Monthly economic Report,March’2010, MoF). India is the third largest producer of coal in the world.National energy requirement is expected to grow to almost 4 times of present level to 2BMT/annum by 2030-31. The domestic coal production has to grow in the range rate of 7%-9%range in order to match with the growth in demand. This is a big challenge.

As per Coal India Ltd (CIL), as against demand of 732 MMT as at the end of 11^thplan, the supply is expected to be of the order of 628 MMT(as against PlanningCommission’s forecast of 680 MMT) leaving a shortfall of 104 MMT. The shortfall insupply is made good by importing 59 Million Tonnes of coal during 2008-09 (Source:Economic Survey 2008-09). The indigenous coal supply has to be augmented to match thegrowth in power sector since most of the thermal plants may not use coal blended with morethan 15% of imported fuel because of the design of the boilers. Imported coal is alsosubjected to wide price fl uctuations.

Slow development of coal mines allocated to Power Developers

In order to augment coal resources, the government is promoting captive blockallocation to match rising demand. So far, 208 coal blocks, with geological reserves of 50BMT have been allocated to public and private companies for captive and commercial mining.However, less than 20 of these coal blocks have started production and it is expected thatthey will contribute to about 21 MMT of coal production during 2010-11. The coal ministryhas issued 40 show cause notices and allocations of 7 coal mines have been cancelled. Thedevelopment of coal mines has been delayed primarily due to delay in site exploration andsigning of mining lease for appointment of contractors and also delay in environmentclearances.

Slow Diversification of Fuel basket

With the total coal reserves assessed in the country at 267 BMT, (proven reserves ofaround 106 BMT), the known coal reserves are expected to exhaust in about 45-50 years,assuming an annual growth in domestic consumption of 5% as per Integrated Energy Policyissued by Planning Commission. Going forward, coal will remain the mainstay for powergeneration in India and the share on coal based stations for power generation is expectedto be in the range of 75%-78%. However, it would be a challenge to diversify the fuelbasket to reduce uncertainties in energy supply.

• Hydro based power generation

India is endowed with an estimated hydro power potential of more than 150,000 MW.However, installed capacity of hydro electric projects is only 36,863 MW contributing toonly 23.13% of the fuel basket. Hydro- electric power contributed 13.83% of totalgeneration during last fiscal. No capacity addition took place in hydro sector during2009-10 and it is expected that the 11th plan achievement will also be around 50% of thetarget. Private sector accounts for only about 3 per cent of the installed capacity.However, the share of private sector in hydro capacity is slated to grow. There are 14schemes with an installed capacity of 4,383 MW under construction in the private sector.Private developers have been allotted 129 schemes with an installed capacity 36,123 MW byStates which are yet to be taken up for construction.

The share of hydro generation is low since these projects are dependent on the rainfall and are used primarily to meet peaking demand. The hydroelectric potential has beengiven thrust by government of India by launching New Hydro Power Policy 2008 offeringincentives to investors in order to increase the installed capacity of hydro projects toover 50,000 MW by 2012.

(Source: Economic Survey 2009-10)

• Nuclear based power generation

At present the installed nuclear power capacity in the country is only 4560 MW which isabout 3% of the total power generating capacity. India, though, has limited Uraniumreserves; it has the second largest deposits of Thorium in the world. India’s threestage nuclear power programme envisages increasing the role of nuclear power for thenational development. The first stage of this programme with setting up of PressurizedHeavy Water Reactors (PHWR) is already in the commercial domain. The second stage of thisprogramme comprises setting up of Fast Breeder Reactors (FBR) and the third stage will bebased on Thorium Reactor Technology. With the development of Thorium based technology,role of nuclear power will increase significantly in the future. Looking at thetechnological development, the energy security, the absence of Green House Gases (GHGs)and the economics of nuclear power, Government of India has planned to have a nuclearpower capacity of 20,000 MW by the year 2020 and about 60,000 MW by the year 2030.

• Renewable Energy Sources (RES) based Power generation

The share of RES based capacity to total installed capacity in India has increasedgradually from 8% in 2007-08 to 9.74% in 2009-10. Although there is immense potential forgrowth of RES based power generation in the country, the challenges in formulating futureenergy policies are too many. The new technologies used in this sector are faced withmarket acceptability and credibility problems.

Power generation from RES increases the uncertainty in accurate availability of powerwhich in turn affects grid reliability and operations.

Further, the cost-competitiveness of renewable technologies vis-a-vis conventionalsystems is another issue that requires to be tackled. The high capital cost of RES basedpower generation is the biggest market barrier for increasing share of generation.

OUTLOOK

Power sector in India is poised to have a CAGR of 9.0%- 9.8% upto end of 12^thPlan and hence offers multiple opportunities of growth to public as well as private sectorentities so as to achieve Govt’s objective of "power for all". The mainfeatures of India’s power generation programme would be:

• To continue rapid capacity addition

• To augment indigenous power equipment manufacturing capacity

• To reduce uncertainties of supply of energy

• To reduce price vulnerability

• Minimize the risks arising out of equipment failures

• Diversification of its fuel basket

We attempt to give some more details concerning certain aspects of the sector and theCompany by way of information and analysis.

NTPC VIS–A-VIS ALL INDIA

With approximately 20% of capacity, your Company contributes to around 30% ofcountry’s generation.

Source: All India Data - CEA’s executive summary

Your Company is the largest utility in Asia and 8th largest amongst listed globalutilities as per Forbes Global 2000 ranking published in the year 2010. It has also beenranked No.1 Independent Power Producer in Asia and No.2 Independent Power ProducerGlobally in Platts Top 250 Global Energy Company for 2009. It has also been ranked as the10^th largest electricity producer in the World and 3^rd largest inAsia based on its generation during 2008-09. It is also ranked as 341^st largestcompany in the world in the Forbes Global 2000.

Over the last fiscal, operationally NTPC stations performed better than collectiveperformance of any other sector.

PLF COMPARISON (%)

After excluding your Company’s PLF, national average PLF will reduce to 73%approximately during fiscal 2010 as compared to 72.23% approximately during last fiscal.

National Availability Factor for coal stations was 85.45% during fiscal 2010 ascompared to 85.04% last year. As against national AVF, your Company’s coal stationshad AVF of 91.76% during fiscal 2009 as compared to 92.23% last year.

COMPETITION

Due to the gap between demand and supply in the Indian power sector, there hasgenerally been a stable market for power generation companies in India. NTPC is thelargest power generating company in the country having a market share of approximately 18%in terms of installed capacity and about 28% in terms of national generation. TheMaharashtra State Power Generation Company Ltd with an installed capacity of 11,330 MWwith market share of 7.1% is the next largest entity.

The share of private sector capacity has increased to 29,041 MW as of March 31, 2010and going forward the same is expected to increase even more aggressively as is evidentfrom capacity added during 11th plan so far. Private sector has contributed to around12.14% to total electricity generation in the year 2009-10 as compared to their share of9.5% in the previous year.

EA 2003 and other reforms in the power sector provide opportunities for increasedinvestment in power generation. Specifically, non-discriminatory open access regulationsof state regulatory commissions which enable generators to sell directly to bulkconsumers, have made investment in power generation more viable.

Further, the Tariff Policy issued in January 2006 provides that all future requirementsof power should be procured through tariff based competitive bidding by distributionlicensees. There are exceptions in the tariff policy for cases of expansion of existingprojects or where there is a state controlled or state-owned company as an identifieddeveloper and where tariff is regulated.

The Competitive Bidding Guidelines have created a level playing field for both CPSUsand private sector developers to participate in the tariff based bidding process forsecuring power projects including coal based ultra mega power projects. This competitionis likely to increase further in future.

With proven in house engineering capabilities built in the past and wide rangingexperience of project execution, we are confident that we shall be able to retain ourleadership position in the industry and are on our way to become 75000 MW plus company by2017. Further, our high operational efficiency enables us to sell power at competitiveprices and achieve savings. We believe that our monitoring and maintenance techniquesoffer us a competitive advantage in an industry where reliability and maintenance costsare a significant determinant of profitability.

RISKS AND CONCERNS

The Company has to sustain its leadership position in the country by growing at anappropriate rate and at the same time improve its operational efficiency to continue togenerate at high PLF minimizing the outages. In order to reduce dependence on conventionalfuel, the Company is foraying into hydro, nuclear and non-conventional energy sources. Asa step in backward integration, the Company is entering into coal mining business and alsoLNG value chain.

To sustain its leadership position in the country and befitting its"Maharatna" stature, the company has drawn an ambitious Corporate Plan up to theyear 2032 with diversified power generation portfolio based on thermal, hydro, nuclear andrenewable energy sources. Though our growth strategies are built upon the inherentstrengths of the company, various activities undertaken to achieve the targets make ussusceptible to various risks. We recognize and realize that risks are not merely thehazards to be avoided but in many cases offer opportunities which create value ultimatelyleading to enhancement of shareholders’ wealth.

To effectively manage the risks associated with our business, we have taken adequatemeasures to institutionalize risk management process in the company by implementing anelaborate Enterprise Risk Management (ERM) framework. As part of implementation of the ERMframework, an Enterprise Risk Management Committee (ERMC) has been constituted withExecutive Directors representing geographically dispersed regions and core functions ofthe company. ERMC, as owner of Enterprise Risk Management framework has been entrustedwith the responsibility to identify and review the risks and formulate action plans andstrategies for risk mitigation on short-term as well as long-term basis. The ERMC hasidentified key areas out of which following have been classified as the top risks for thecompany:

• Inconsistent fuel supply

• Delay in execution of projects

• Risks related to coal mining and coal washeries

• Risks pertaining to Hydro Projects

• Hindrances in acquisition of land

• Non compliance with environmental, pollution and other related regulatory normsincluding Ash Utilization

• Inability to attract and retain skilled employees

These areas are being regularly monitored through reporting of key performanceindicators of identified risks and exceptions with respect to risk assessment criteria arebeing reported to the top management. The ERMC meets every quarter to deliberate onmitigating strategies. So far, eight such meetings of ERMC have been held.

On the above issues, a number of initiatives have been taken such as establishing astate of the art Project Monitoring Centre at Delhi. PMC provides milestone based projectmonitoring, real time network updation, real time video capture apart from latest videoconferencing facility leading to speedy resolution of critical issues, review of projectprogress by top management alongwith chief executives of major agencies. As regardsaugmentation of fuel supply, a three pronged strategy is in place- spot purchase of coal/gas, coal imports and production of coal by acquiring coal mines in India or abroad. Asregards other risks, appropriate actions are taken for their mitigation.

INTERNAL CONTROL

Your Company has robust internal systems and processes in place for smooth andefficient conduct of business and complies with relevant laws and regulations. Acomprehensive delegation of power exists for smooth decision making. Elaborate guidelinesfor preparation of accounts are followed consistently for uniform compliance. In order toensure that all checks and balances are in place and all internal control systems are inorder, regular and exhaustive internal audits are conducted by experienced firms ofChartered Accountants in close co-ordination with Company’s own Internal AuditDepartment. Besides, the Company has two Committees of the Board viz. Audit Committee andCommittee on Management Controls to keep a close watch on compliance with Internal ControlSystems.

A well defined Internal Control Framework has been developed identifying key controlsand supervision of operational efficiency of designed key controls by Internal Audit. Theframework has been partially rolled out and tested at some of the locations. The systemprovides elaborate system of checks and balances based on self assessment as well as auditof controls conducted by Internal Audit at process level. Gap Tracking report for testingof controls for design efficiency and operating efficiency has been reviewed by AuditCommittee and action has been taken to further strengthen the Internal Control System byfurther standardizing systems and procedures. The system presents a written assessment ofeffectiveness of company’s internal control over financial reporting by the processowners, project/office heads to facilitate certification by CEO and CFO and enhancesreliability of assertion.

FINANCIAL DISCUSSION AND ANALYSIS

A detailed financial discussion and analysis is furnished below on Reported AuditedFinancial Statements and Adjusted Profit. The Adjusted Profit has been arrived at afteradjustments on account of one-off items/extra ordinary items which have been indicatedagainst each broad category of revenue and expense to explain better the year on year(YoY) performance.

1 Gross Income

*OTSS-One Time Settlement Scheme

The gross income of the Company comprises of income from sale of electricity,consultancy and other services, and interest earned on investments such as term deposits,mutual funds and bonds (issued under one-time-settlement scheme). The gross income forfiscal 2010 is Rs.492,339 million as against Rs.452,291 million in the previous yearregistering an increase of 9%. This gross income excludes provisions written back. Eachelement of income is discussed below:

Tariffs for computation of Sale of Energy

The charges for electricity are based on tariff rates determined by the CERC. Thetariff rates consist of a capacity charge for recovery of annual fixed cost based on plantavailability, energy charges for recovery of fuel costs and an unscheduled interchangecharge for the deviation in generation with respect to schedule payable (or receivable) atrates linked to frequency prescribed in the regulation to bring grid discipline. The CERCsets tariff rates on a plant-by-plant basis in accordance with the tariff regulations/norms notified by them. CERC has issued new Tariff Regulations for the period 2009-14,Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations,2009, which is a balanced regulation for both consumers and investors.

Capacity Charge

The capacity charge for making plant capacity available is allowed to be recovered infull if plant availability is at least 85%. If the availability of the plant is lower than85%, the capacity charges are recovered on a pro rata basis. The significant elements ofthe capacity charges permissible under the Tariff Regulations 2009 are:

• Return on equity on pre-tax basis at a base rate of 15.5%, to be grossed up bythe normal tax rate as applicable for the respective year on a prescribed 70:30 debt toequity ratio for new projects. For projects commissioned on or after April 1, 2009, thereis an additional return of 0.5% if the new projects are completed within the timelinespecified in the 2009 Regulations. In the year, in which the concerned utility paysMinimum Alternate Tax (MAT), the base rate will be grossed up by applying MAT rate.

• Interest cost incurred on normative debt at weighted average rate of interest onloan portfolio of the project

• Interest on working capital determined on a normative basis

• Depreciation up to 90% of capital costs, excluding the cost of freehold land,based upon the rates of depreciation prescribed in the regulation, for a 12 year periodfrom the date of commercialization. The remaining depreciable value thereafter, is to bespread over the balance useful life of the assets.

• Normative operation and maintenance costs determined by the CERC based oncapacity of unit, on a per megawatt basis.

• Normative secondary fuel oil costs for coal-based stations.

• Special allowance per annum per MW for plants in operation beyond their usefullife in lieu of recovery for capital expenditures on renovation and modernization.

• Compensation allowances on a per annum per MW basis to meet expenses on newcapital assets, including minor capital assets, after 10 years of commercial operation.

Energy Charges

Energy charges for the electricity sold are determined on the basis of landed cost offuel applied on the quantity of fuel consumption derived on the basis of norms for heatrate, auxiliary consumption, specific oil consumption etc.

Other Charges

Besides the capacity charges and the energy charges, the other elements of tariff are:

• Cost of hedging interest on and repayment of foreign currency loans and exchangerate fluctuations for unhedged portion of interest on and repayment of foreign currencyloans on a normative basis.

• The unscheduled interchange charge payable (or receivable) at rates notified bythe CERC from time to time.

For the fiscal 2009, our tariffs were determined pursuant to the CERC’s TariffRegulations, 2004 while for fiscal 2010, Tariff Regulations, 2009 are applicable. In thenew regulations the following changes have been made as compared to Tariff Regulations,2004:

Key changes over Tariff Regulations 2004-09

• Pre-tax return on equity (ROE) to be computed by grossing up post-tax ROE of15.50% p.a. (base rate) for existing stations with the applicable tax rate (with the taxto be borne by the company) as against post-tax ROE of 14% p.a. in old regulations (withtax on generation income as a pass through). The concept of grossing up of ROE by MATintroduced, in case a utility pays MAT.

• Secondary oil component of 2 ml/kwh which was a part of variable charges hasbeen reduced in the new regulations to 1 ml/kwh and has been made part of fixed chargeswith the condition that savings made, if any, are to be shared with beneficiaries equally.

• Full capacity (fixed) charges to be recovered at 85% normative plantavailability factor as against 80% under old regulations.

• Incentive of Rs.0.25 per unit for more than 80% Plant Load Factor in oldregulations has been done away with and in new regulations, recovery of fixed charges hasbeen made proportionate to the availability factor. Thus, incentive/disincentive are apart of the fixed charges in the new Regulations.

• O&M charges have been increased considering the infl ation, employees’wage revision etc. and are available on a normative basis on per MW capacity of stations.

• Deprecation which was being allowed at rates specified by CERC till therepayment of normative loan and thereafter spread over useful life of assets in oldregulations is now to be given as per the rates provided in new regulations in the initial12 years and thereafter spread over the balance useful life of the assets.

• Advance against Depreciation (AAD) which was provided under old regulations hasbeen done away with, in new regulations.

• Many of the operating parameters like heat rate, allowed auxiliary consumptionetc. have been tightened.

During fiscal 2010, final tariff orders for the period 2004-09 have been issued forunit 1 and 2 of Sipat-II. Thus, under Tariff Regulations, 2004, tariff orders have beenissued for all the stations except for unit 1 and 2 of Kahalgaon-II declared commercialduring fiscal 2009 and NCTPP unit 5 & Kahagaon-II unit 3 which were declaredcommercial during fiscal 2010. Tariff orders are yet to be issued for all the stationsunder CERC Tariff Regulations 2009-14.

Sale of Electricity

Your Company sells electricity to bulk customers comprising, mainly, electricityutilities owned by State Governments. Sale of electricity is made pursuant to long-termPower Purchase Agreements (PPAs) entered into for 25 years in case of most of ourcoal-fired plants and for 15 years in case of most of gas-fired plants in line with theestimated average life of the plants. The actual lives of the stations are often longerand unless, customer ceases to draw power, contracts continue to be in force until theyare formally extended, renewed or replaced. With the issuance of CERC Tariff Regulation2009, the estimated average life of the gas stations is also estimated as 25 years. Hence,the long-term power purchase agreements for new gas stations hence forth will also be forthe same period.

Income from sale of electricity for the fiscal 2010 was Rs.461,687 million whichconstituted 94% of the gross income. The income from sale of electricity has increased by10% over the previous year’s income of Rs.417,913 million. The increase is mainly onaccount of 5.89% increase in units sold partly due to increase in the commercial capacityby 990 MW comprising unit 5 of 490 MW of NCTPP Stage-II w.e.f. 31.01.2010 and unit 7 of500 MW of Kahalgaon Stage II w.e.f. 20.03.2010 and partly due to higher generation fromgas stations due to improved gas supply. Sale of electricity is also higher on account ofunit 1 & 2 of 500 MW each at Sipat-II and unit 5 & 6 of 500 MW each atKahalgaon-II being in commercial operation for the entire fiscal 2010 as compared to partof fiscal 2009.

Tariff Regulations, 2009 provide that the company shall continue to provisionally billthe beneficiaries with the tariff approved by the CERC and applicable as on 31^stMarch, 2009 till approval of tariff in accordance with these Regulations. The tariffpetitions have been made to CERC for all stations under Tariff Regulations, 2009. Pendingdetermination of station-wise tariff by the CERC, sales of Rs.444,739 million for fiscal2010 have been recognized on provisional basis (explained in note 2(a) of Notes onAccounts, Schedule-26).

For the units commissioned during fiscal 2010, namely, unit 7 of Kahalgaon, Stage IIand unit 5 of NCTPP, Stage-II, CERC is yet to issue final tariff orders. Accordingly,sales of Rs.17,354 million for fiscal 2010 relating to these units/ stations have beenrecognized on provisional basis (explained in note 2(b) of Notes on Accounts,Schedule-26). It is pertinent to mention that unit 5 (490 MW) of NCTPP, Stage-II hascommenced commercial operation within the normative schedule given by CERC and is eligiblefor additional 0.5% Return on Equity as per Tariff Regulations, 2009.

While revising the rates of depreciation and removing the provision for Advance AgainstDepreciation (AAD), CERC Tariff Regulations, 2009 also provide that the balancedepreciable value of the each of the existing stations as on 1st April, 2009 shall beworked out by deducting the cumulative depreciation including AAD as admitted by the CERCup to 31^stMarch2009fromthegrossdepreciablevalueoftheassets thereby merging AADwith depreciation for tariff recovery. Accordingly, the accounting policy relating to AADhas been revised (please refer to Accounting Policy no. 12.1.2) and the amount of AADrequired to meet the shortfall in the component of depreciation in revenue over thedepreciation to be charged off in future years has been assessed station-wise and whereveran excess has been determined as on 1st April 2009, the same has been recognised as salesduring the year amounting to Rs.3,115 million. In addition, Rs.53 million has beenrecognised as sales during the year out of AAD consequent to this change (explained innote 17(a) of Notes on Accounts, Schedule-26).

As per Tariff Regulations, 2009, the deferred tax liability for the period up to 31^stMarch 2009 whenever it materializes shall be recoverable directly from the beneficiaries.Accordingly, the deferred tax liability recoverable from beneficiaries has been computedby identifying the major changes in the deferred tax liability/asset and an amount ofRs.2,485 million has been included in sales (explained in note 2(d) of Notes on Accounts,Schedule-26).

If the income tax/deferred tax recoverable from or payable to beneficiaries is excludedfrom income from sale of electricity (pl. refer to Sch.17), it has increased by 14% overlast fiscal.

Rs.million

The average selling price this year has increased to Paise 227.41 per kWh compared toPaise 211.85 per kWh in the previous year. The increase is mainly due to increase in fixedcharges consequent upon change in CERC norms w.e.f 01.04.2009. The average tariff includesadjustments pertaining to previous years. Excluding adjustment of sales pertaining toprevious period, the average selling price would be 226.83 p/Kwh in the current year asagainst 206.63 p/Kwh in the previous year.

There has been 100% realization of the dues during the last seven years. All thebeneficiaries have opened and are maintaining Letter of Credit equal to or more than 105%of average monthly billing as per One-Time Settlement Scheme (OTSS). In order to ensureprompt and early payment of bills for supply of energy to beneficiaries, your company hasformulated a Rebate Scheme by way of providing graded incentive for early payment based onthe provisional bill raised on the last working day of the month.

Under OTSS, tri-partite agreements are valid up to 31^st October, 2016. Forthe period beyond October 2016, the supplies which will be made to state utilities, thesame shall be covered by an escrow arrangement. The supplementary agreements have beensigned with all state utilities which have a provision of keeping a first charge on theirrevenue streams for supplies made by your company. Under the Supplementary Agreement, thestate utilities have agreed to provide payment security through execution of theHypothecation Agreement and the Default Escrow agreement. Further, this will be over andabove the LC requirement of 105% of average monthly billing.

Energy Internally Consumed

Energy internally consumed relates to own consumption of power for construction worksat station(s), township power consumption etc. It is valued at variable cost of generationand is shown in sales with a debit to respective expense head under power charges. Theincrease in energy internally consumed is 7% which is lower than increase in fuel chargesover the previous year.

Consultancy and other services

Accredited with an ISO 9001:2000 certification, the Consultancy Division of yourCompany undertakes the consultancy and turnkey project contracts for domestic andinternational clients in the different phases of power plants viz engineering, projectmanagement, construction management, operation and maintenance of power plants.

During the year, Consultancy Division posted an income of Rs.1,513 million as againstRs.1,313 million achieved in the last fiscal. In the fiscal 2010, it has recorded a profitof Rs.557 million as against Rs.452 million in the last fiscal. A total of 53 ordersvalued at Rs.2,511 million were secured by the Division during the year including 4overseas assignments of Rs.266 million.

Other Income

‘Other income’ mainly comprises of income from bonds issued under OTSS,income from investment of surplus cash, dividend on equity investment in joint ventures& subsidiaries and miscellaneous income.

‘Other income’ in fiscal 2010 was Rs. 28,562 million as compared to Rs.32,539million in the fiscal 2009. Broadly the break up of other income is as under: Rs Million

Interest income from OTSS bonds (including loan to State Government) for fiscal 2010 isRs.9,991 million as compared to Rs.11,476 million in fiscal 2009.The reduction in interestincome to the extent of Rs.1,485 million is due to redemption of OTSS bonds amounting toRs.16,515 million and repayment of loan amounting to Rs.957 million in lieu of settlementof dues. We have earned income of Rs.13,447 million during fiscal 2010 on account ofinvestments made from surplus cash as against Rs.15,909 million earned last year. Theincome on investment of surplus cash has registered a 15% decrease over last fiscal mainlydue to reduction in interest earnings due to low interest rate regime. However, thedividend earned from investments made in mutual funds has registered a 81% increase fromRs.361 million to Rs.654 million.

We have earned Rs.173 million as dividend from our investments in joint venture andsubsidiary companies. Another Rs.35 million has been earned as interest from loan ofRs.263 million extended to Kanti Bijlee Utpadan Nigam Limited, one of our subsidiaries.Further, an amount of Rs.4,707 million has been earned from various other sourcesconsisting of miscellaneous income of Rs.2,254 million, surcharge received from customerson late payment as per CERC regulations amounting to Rs.623 million and interest of Rs.196million earned from loan of Rs.1,417 million extended to Ratnagiri Gas and Power PrivateLtd. etc.

During fiscal 2009, Commissioner of Income Tax (Appeals) had issued a favourabledecision on certain issues relating to previous years consequent to which net tax refundof Rs.2,400 million was payable to your company and the interest earned on this refundamounting to Rs.2,199 million had been accounted under "other income".

Adjusted Gross Income

The gross income reported for the year includes certain revenues pertaining to previousyears. The revenue from sale of electricity for fiscal 2010 is reduced by Rs.6,006 millionpertaining to previous years which have been recognized in sales based on the orders ofthe CERC / Appellate Tribunal (explained in note 2(c) of Notes on Accounts, Schedule-26).This reduction in sales is on primarily on account of income tax pertaining to previousyear amounting to Rs.7,199 million payable to the beneficiaries. If this income taxelement is excluded from total reduction of Rs.6,006 million, the balance amount ofRs.1,193 million represents sales pertaining to previous years which have been included insale of electricity for fiscal 2010. Similarly, for fiscal 2009, an amount of Rs.10,201million pertaining to previous years was included in the sales.

As per our accounting policy (please refer to Accounting Policy no. 12.1.3), foreignexchange variation on restatement of foreign currency loans as at the Balance Sheet datewhich is payable/recoverable to/from customers later on settlement as per CERC Regulationsis accounted for by creating a deferred liability/asset in the accounts instead ofadjusting the same in the profit & loss account. Accordingly, Deferred ForeignExchange Fluctuation Asset of Rs.319 million on account of exchange differencesrecoverable from customers has been created with corresponding credit to sales duringfiscal 2010 as against Rs.1,894 million accounted in previous year.

In addition, interest earned on income tax refund amounting to Rs.2,199 million hadbeen adjusted as one-off item during fiscal 2009.

The gross income of the company after such adjustments is as under: Rs Million

2 Expenditure

2.1 Expenditure related to operations

Rs.Million

The expenditure incurred on fuel, employees, generation, administration and otherexpenses for the fiscal 2010 was Rs.339,692 million which is 8% more than the expenditureof Rs.313,930 million incurred during the previous year. In terms of expenses per unit ofpower produced, it was Rs.1.56 per unit in fiscal 2010 in comparison to Rs.1.53 per unitin the previous year. This increase is mainly due to increase in cost of coal and increasein operation and maintenance expenses. The increase in commercial generation due toadditional capitalization has resulted in an additional operational expenditure ofRs.10,917 million. A discussion on each of these components is given below.

2.1.1 Fuel

Expenditure on fuel constituted 87% of the total expenditure relating to operations ascompared to 86% in previous year. Expenditure on fuel was Rs.294,628 million in fiscal2010 in comparison to Rs. 271,107 million in fiscal 2009 representing an increase of 9%.The break-up of fuel cost in percentage terms is as under:

The higher fuel expenses were mainly on account of increase in cost of coal partly dueto increased consumption resulting mainly from additional capitalization of 990 MW andpartly due to increase in price of coal. Coal India Limited (CIL) and SCCL increased theprices of coal by about 10%-15% w.e.f. 16.10.2009 and 30.12.2009 respectively dependingupon grade of coal. Also, the stations generally consumed a greater proportion of costlierimported coal in fiscal 2010 than in fiscal 2009. However, there has been decrease in theprice of gas and oil during fiscal 2010. Fuel cost per unit generated increased to Rs.1.35in fiscal 2010 from Rs.1.32 in fiscal 2009. The increase in fuel cost due to addition ofcommercial capacity is Rs.8,633 million.

The power plants of the company use coal and natural gas as the primary fuels. Oil isused as a secondary fuel for coal-fired plants and naphtha as an alternate fuel ingas-fired plants. Under the tariff norms set by the CERC, your Company is allowed to passon fuel charges through the tariff, provided the company meets certain operatingparameters. The company purchases coal under the long term coal supply agreements withsubsidiaries of Coal India Limited (CIL) and with Singareni Collieries Company Limited(SCCL). A model Coal Supply Agreement (CSA) was signed with CIL on May 29, 2009. Based onthe revised model CSA, coal agreements have been signed with the various subsidiary coalcompanies of CIL by the various coal based stations except Farakka and Kahalgaon. The CSAfor Ramagundam with SCCL is in an advanced stage of finalization (explained in note 10 ofNotes on Accounts, Schedule-26).

As per the provisions of the new CSA, the CSA is valid for 20 years and has a provisionfor review after every 5 years. The annual quantity envisaged to be supplied to theexisting power stations against the various CSAs is 98.7 million tonnes. The CSAs containa provision for payment of incentive/levy of penalty to/from coal companies on supplies inexcess of 90% of the Annual Contracted Quantity (ACQ).

In an effort to encourage coal companies to supply Annual Contracted Quantity (ACQ),new CSA provides for incentive payments as a percentage of Weighted Average base price ofcoal in the following three slabs:

CSA also contains clauses of penalty for under supply/ under off-take by coal companiesand power plants respectively. The price and other charges for coal, as per new CSA, willbe as notified by CIL for its subsidiary companies from time to time.

During the fiscal 2010, coal based stations consumed 135.10 Million Tonnes of coal asagainst 129.49 Million Tonnes in the fiscal 2009.This was including 6.76 Million Tonnes ofcoal which was imported as compared to 4.71 Million Tonnes imported in fiscal 2009.

In order to ensure uninterrupted supply of coal to its power stations, your companyduring fiscal 2010 resorted to sourcing of coal through e-auction and bilateralarrangements. Your company participated in 23 e-auctions conducted by the subsidiarycompanies of CIL and procured 0.58 Million Tonnes of coal for Farakka & Kahalgaon. Abilateral agreement was reached with Eastern Coalfields Limited (ECL) for supply of 2Million Tonnes of coal to Farakka and Kahalgaon projects. In addition, bilateralagreements were entered with SCCL for supply of one Million Tonne to Farakka and Kahalgaonproject, one Million Tonne to NCTPP and Sipat project and 2.5 Million Tonnes to Ramagundamproject.

The company sources gas domestically under an administered price and supply regime. Themain gas supplier is GAIL. Gas prices are fixed by the Ministry of Petroleum and NaturalGas. 13.88 Million Metric Standard Cubic Meters per Day (MMSCMD) of gas was receivedduring the fiscal 2010 as against 10.75 MMSCMD received in fiscal 2009. This includes 3.88MMSCMD of spot gas and fall back RLNG as compared to 2.02 MMSCMD received last year. Theincreased gas supply has resulted in the increased PLF of gas stations to 78.38% duringfiscal 2010 as compared to 67.01% last year.

The gas supply for fiscal 2010 also includes 0.35 MMSCMD of KG D6 gas. Government ofIndia has allocated 4.46 MMSCMD of KG D6 gas for company’s National Capital Region(NCR) stations of Anta, Auraiya, Dadri and Faridabad. Gas Supply and Purchase Agreements(GSPA) have been signed for the supply of 0.61 MMSCMD which was subsequently revised tosupply of 1.81 MMSCMD. The supplies have started for 0.61 MMSCMD from 01.11.2009 and 1.81MMSCMD from 25.02.2010.The supplies of balance 2.65 MMSCMD of this gas are expected tostart as soon as the GAIL’s pipeline capacity is made available.

To meet the shortfall in supply of Natural Gas from GAIL, the Company sought suppliesof RLNG on limited tender basis from all the known gas suppliers in the country. Thesesupplies are being contracted on best effort basis with no penalty either on the supplieror the buyer for supplies not offered / not off taken. During fiscal 2010, supplies to theextent of 887 MMSCM were received from the various suppliers. Further, supplies were alsoreceived from GAIL/IOCL/ BPCL on "fall back" basis to the extent of 529 MMSCM.Thus, the total consumption of RLNG during the year was 1416 MMSCM.

In order to meet the gas requirements of its NCR power stations, your company hadsigned RLNG agreement with GAIL for supply of a firm quantity of 2.0 MMSCMD of RLNG (withsupplies of additional 0.5 MMSCMD on fallback basis) for a period of 10 years. Thesupplies under this agreement have started from 01.01.2010.

Rajiv Gandhi Combined Cycle Power Project (RGCPP), Kerala generates power on naphtha asno gas supply is available. Besides RGCPP, other gas based stations also used Naphthadepending upon the demand from customers and schedule from load dispatch centres. Duringthe fiscal 2010, 0.578 million MTs of naphtha was consumed as against 0.923 million MTs inthe previous year.

2.1.2 Employees’ Remuneration and Benefits

Employees’ remuneration and other benefits have reduced by 2% from Rs. 24,631million in fiscal 2009 to Rs.24,124 million in fiscal 2010. Employees’ remunerationand benefits expenses include salaries and wages, bonuses, allowances, benefits,contribution to provident and other funds and welfare expenses. These expenses account forapproximately 7% of our operational expenditure in fiscal 2010 as compared to 8% in fiscal2009.

The main reason for reduction in employee cost is the additional provision of Rs.4,144million that was made towards gratuity/pension during fi scal 2009 due to increase inceiling of gratuity payment to Rs.1 million from Rs.0.35 million for an employee. Since,no such additional provision is made in the fiscal 2010, there is a decrease in theemployee cost per unit of generation from Rs.0.12 in the previous fiscal to Rs.0.11 in thecurrent fiscal.

The pay revision of the executive category of employees of the Company which was duew.e.f. 1st January 2007 has been approved during the current fiscal based on theguidelines issued by Department of Public Enterprises (DPE), GOI. However, pay revision ofthe employees of the non-executive category is under finalisation and a provision ofRs.3,145 million has been updated for fiscal 2010 as compared to Rs.1,767 million providedin fiscal 2009 on estimated basis having regard to the guidelines issued by DPE. Out ofthe total wage provision, an amount of Rs.1,387 million has been paid as ad-hoc advancetowards pay revision (explained in note 6 of Notes on Accounts, Schedule-26).

The increase in employee cost due to additional commercial capacity is Rs.1,040million.

2.1.3 Generation, Administration and Other Expenses

Generation, administration and other expenses consist primarily of repair andmaintenance of buildings, plant and machinery, power and water charges, security,insurance, training and recruitment expenses and expenses for travel and communication.These expenses have remained at approximately 6% of our operational expenditure in fiscal2010. In absolute terms, these expenses increased to Rs.20,940 million in fiscal 2010 fromRs.18,192 million in fiscal 2009 registering a hike of 15%. Out of this, the increase ofRs.2,748 million is attributable to addition of commercial capacity during fiscal 2010. Interms of expenses per unit of generation, it is Rs.0.10 in fiscal 2010 as compared toRs.0.09 in previous fiscal.

Repair & Maintenance expenses constitute 61% of total Generation, Administrationand Other Expenses and have increased to Rs.12,783 million from Rs.10,992 millionresulting in an increase of 16%.

The other increase in generation & administration expenses is mainly attributableto increase in water charges and security expenses. Water charges have increased by 30%from Rs.932 million in fiscal 2009 to Rs.1,209 million in fiscal 2010 due to revision ofwater charges in certain stations. Security expenses have increased to Rs.2,014 million infiscal 2010 from Rs.1,490 million in fiscal 2009 on account of levy of service tax on thisservice during the current fiscal.

The miscellaneous expenses have reduced from Rs.827 million in fiscal 2009 to Rs.373million in fiscal 2010 since Rs.531 million was included in fiscal 2009 on account ofarbitration award issued against the Company at one of our gas projects.

2.1.4 Adjusted Expenditure related to Operations

If the impact of wage revision is adjusted, the operational expenditure for the fiscal2010 and fiscal 2009 would be as follows: Rs Million

2.2 Depreciation

The depreciation charged to the profit and loss account during the year was Rs. 26,501million as compared to Rs.23,645 million in fiscal 2009, registering an increase of 12%.This is due to increase in gross block by Rs.44,971 million i.e. from Rs.623,530 millionin the previous fiscal to Rs.668,501 million in the current fiscal. The increase in grossblock is largely on account of increase in commercial capacity by 990 MW resulting fromadditional capitalization amounting to Rs.38,324 million on account of unit 5 of NCTPPStage-II and unit 7 of Kahalgaon Stage II. Further, depreciation for units 1 & 2 of500 MW each at Sipat-II and units 5 & 6 of 500 MW each at Kahalgaon-II were chargedpro-rata during fiscal 2009 while depreciation on the same has been charged for the entirefiscal 2010. The impact on depreciation from additional capitalization during the fiscal2010 is Rs.2,020 million.

As per the accounting policy of the company, depreciation is charged on straight linemethod as per the rates given in schedule set forth in the CompaniesAct,1956exceptforsomeitemsforwhichdepreciation at higher rates is charged (please refer toAccounting Policy No.12.2.1). Government of India in January 2006 notified the TariffPolicy under the provisions of the Electricity Act, 2003 which provides that the rates ofdepreciation notified by the CERC would be applicable for the purpose of tariff as well asaccounting. Subsequent to the notification of the Tariff Policy, CERC through TariffRegulations, 2009 notified the rates of depreciation for the purpose of determination oftariff. CERC exercising its powers under Section 79 of the Electricity Act, 2003 requestedthe Ministry of Power to advise the Ministry of Corporate Affairs to notify the rates ofdepreciation considered by the CERC for tariff determination as depreciation under Section205 (2) (c) of the Companies Act, 1956. However, Ministry of Corporate Affairs is yet tonotify such rates under Section 205 (2) (c) of the Companies Act, 1956.

As per the legal opinions obtained, the Tariff Policy cannot override the provisions ofthe Companies Act, 1956 and your company is required to follow Schedule XIV of theCompanies Act, 1956 in the absence of any specific provision in the Electricity Act, 2003.Hence provisions of Section 616 of the Companies Act, 1956 are also not applicable in thisregard. Accordingly, depreciation is being charged consistently at the rates specified inSchedule XIV of the Companies Act, 1956 with effect from the financial year 2004-05(explained in note 4 of Notes on Accounts, Schedule-26).

2.3 Provisions made (and written back)

During the fiscal 2010, the Company had made provisions amounting to Rs.109 million incomparison to Rs.246 million provided for in fiscal 2009. The provisions were made mainlyin respect of doubtful advances and claims, obsolescence /diminution in value of surplusstores and for other items. During the fiscal 2010, the Company had also written backprovisions made in earlier years amounting to Rs.128 million in comparison to Rs.170million of provisions written back in fiscal 2009. During fiscal 2010, there is write-backof Rs.44 million in respect of doubtful construction advances for one of the projects.

2.4 Interest and Finance Charges

The interest and finance charges for the fiscal 2010 were Rs.18,089 million incomparison to Rs.19,962 million in fiscal 2009. The details of interest and financecharges are tabulated below:

Rs.Million

Interest amount on long term borrowings (including Interest during Construction) hasincreased by 13% over last fiscal due to increase in long term borrowings (net ofrepayment) during the year by Rs. 32,176 million. However, average cost of borrowing hasreduced marginally to 7.1576% in fiscal 2010 from 7.1618% in previous fiscal due to yourcompany’s ability to raise loans at competitive rates from domestic as wellinternational sources as well as reduction in interest cost of foreign loans. Ourborrowings are denominated in Rupees and foreign currencies.

The exchange differences in respect of overseas borrowings relating to fixedassets/capital work-in-progress are treated in accordance with provisions of AccountingStandard (AS) 11 issued by ICAI based on guidelines issued by Companies (AccountingStandards) Rules, 2006 issued by National Advisory Committee on Accounting Standards fromtime to time. Out of this, the exchange differences in respect of assets during the periodof construction /renovation and modernisation are capitalized by transfer to EDC.

During the fiscal 2010, an unfavourable exchange rate variation treated as adjustmentto interest costs amounting to Rs.1million increased the interest expenses as againstRs.2,688 million in fiscal 2009. The reason for substantial reduction in adverse amount ofexchange rate variation is depreciation in the currencies of all our foreign denominatedloans against Indian rupee namely, US dollar by 11%, Japanese yen by 7% and Euro by 10%.The USD, Japanese yen and Euro denominated loans contributed to about 68%, 28% and 4%respectively in the loan basket at the end of fiscal 2010 as compared to 67%, 29% and 4%in previous fiscal. The component of USD has increased marginally since all the drawdownsmade under foreign loans during the year were denominated in USD.

In respect of one of our hydro power project, the construction work has been suspendedtemporarily from 18th May 2009 on the advice of the Ministry of Power, Government of India(GoI). Presently, the issue regarding resumption of the project is under considerationwith the GOI. Pending decision, borrowing costs of Rs.237 million have not beencapitalised from the date of suspension. (explained in note 12 of Notes on Accounts,Schedule-26). The gross amount of interest amounting to Rs.288 million has been treated asone-off adjustment from Profit after Tax in the adjusted income for the year 2009-10.

During fiscal 2009, interest charges (others) also include Rs.538 million towardsinterest cost on account of award issued by the Arbitration Tribunal for one of our GasProject.

The finance charges have increased by 6% from Rs. 7,293 million in fiscal 2009 toRs.7,704 million in fiscal 2010. The increase is mainly due to increase in rebate payableto customers as per the Rebate Scheme of the company from Rs.6,700 million in previousfiscal to Rs.6,937 million in current fiscal. In order to secure 100% realization ofamounts billed, the Company had introduced a revised Rebate Scheme 2009-10. The currentRebate Scheme provides for a rebate of 2.25% on the amounts credited to the Company’saccount on the first day of the month which gets reduced by 0.05% for each day’sdelay upto the 5th day of the month provided that entire amount is credited to theCompany’s account. Beyond 5th day, 2% rebate is allowed for credit to Company’saccount which gets progressively reduced to nil after last day of the month. Financecharges for fiscal 2010 also include an amount of Rs.206 million on account of upfront feepaid towards loans tied-up with a nationalized bank for financing projects underconstruction and has been consequently capitalized.

For the fiscal 2010, an amount of Rs.14,808 million relating to interest and financecharges of projects under construction was capitalized while the corresponding amount forthe previous year was Rs. 12,252 million. However, if the impact of exchange difference isexcluded, the interest and finance charge capitalized during fiscal 2009 is Rs.11,441million. Thus after excluding exchange rate variation, interest and finance chargescapitalized registering an increase of 29%.

The interest and finance charges for fiscal 2010 after these adjustments and withouttaking into account the exchange differences treated as adjustment to interest costs isRs.17,800 million.

Rs. Million

2.5 Prior period income / expenditure

Certain elements of income and expenditure have been charged to the profit and lossaccount relating to previous years. For the fiscal 2010 a net amount of Rs. 779 millionwas booked as prior period income whereas a net amount of Rs. 1,083 million was charged asprior period expenditure to the profit and loss account in the previous year. For thecurrent fiscal, an amount of Rs.973 million which was charged to employee cost in earlieryear (towards excess provision on account of fitment benefit under pay revision) has beenwritten back through ‘Prior Period’ adjustments on finalisation of the payrevision.

3 Profit before tax, provisions and prior period adjustments

The profit of the Company before tax and prior period adjustments for the current andthe previous year, both on reported and adjusted basis, is tabulated below:

Rs. Million

4 Provision for Tax

The Company provides for current tax and deferred tax computed in accordance withprovisions of Income Tax Act, 1961. The payment of fringe benefit tax (FBT) has beenabolished by Finance Act 2009 from 1st April 2009 and accordingly, no FBT is payable forthe year.

As per erstwhile Tariff Regulations, 2004, the Company recovered actual tax payments inrespect of generation business from its customers while taxes on the income from all otheractivities was borne by the Company. However, under Tariff Regulations, 2009, w.e.f. 1^stApril 2009, income tax is recoverable on normative basis as Return on Equity following theapplicable rate of tax for respective year. The actual income tax liability, if any, (moreor less than the normative) is to be borne by NTPC. Accordingly, provision for current taxhas been computed at the applicable rate of 33.99% for the financial year 2009-10.

The deferred tax liability related to the period upto 31^st March 2009 isrecoverable from customers as and when the same materializes. However, the deferred taxliability/asset for the period after 1^st April 2009 is to the account of thecompany.

During the year, the deferred tax liability (net) of Rs.51,350 million that existed ason 31^st March 2009 (out of which Rs.51,349 million was recoverable fromcustomers) has been reviewed and restated to Rs.24,942 million. In terms of Regulation 39of CERC Tariff Regulations, 2009, the Company has determined the amount of the deferredtax liability (net) materialised during the year pertaining to the period up to 31^stMarch 2009 by identifying the major changes in the elements of deferred taxliability/asset, as recoverable from the beneficiaries. Accordingly, deferred taxliability (net) and the deferred tax recoverable from the beneficiaries as at 31^stMarch 2010 works out to Rs.30,494 million and Rs.28,402 million respectively resulting inincrease in the deferred tax liability amounting to Rs.2,091 million arising during thecurrent year. The same has been debited to Profit

& Loss Account (explained in note 26 of Notes on Accounts, Schedule-26).

*FBT-Fringe Benefit Tax

**Rs.7,583 million is recoverable from customers

Net provision of tax for the fiscal 2010 was Rs. 21,573 million in comparison to Rs.11,582 million in the fiscal 2009, an increase of Rs.9,991 million. The net tax was lowerduring fiscal 2009 as company had received tax refund of Rs.13,953 million on account ofthe favourable decisions relating to previous years by CIT (Appeal) , out of which anamount of Rs.2,400 million was retained by your company and the balance was paid tocustomers.

5 Profit After Tax before provisions written back and prior period adjustments

Rs.Million

The profits before prior period adjustments and provisions on reported basis have grownby almost 4% while on an adjusted basis have grown by 16%.

6 Net Profit After Tax

The net profit after tax after provisions (made and written back) and prior periodadjustments on a reported and adjusted basis are as follows: Rs.Million

On a reported basis, the net profit after tax for the fiscal 2010 has increased byabout 6.42% while on an adjusted basis, the net profit after tax has grown by 14.58%.

7 and Segment-wise performance

For the purpose of compiling segment-wise results, the business of the Company issegregated into ‘Generation’ and ‘Other Business’. The Company’sprincipal business is generation and sale of bulkpower.Otherbusinessincludesprovidingconsultancy, project management and supervision, oiland gas exploration and coal mining.

The profit before tax and interest in the generation business for the fiscal 2010 wasRs. 101,524 million as against Rs. 90,531 million for fiscal 2009. Excluding income taxpayable/recoverable from customers amounting to Rs. 4,714 million for fiscal 2010 and Rs.7,583 million for fiscal 2009, the above has increased by 28% mainly on account ofincreased generation. For the profit before tax on ‘Other Business’ representedby income from consultancy, the same was Rs. 582 million for fiscal 2010 and Rs. 418million for the previous fiscal registering a growth of 39%.

1 Net worth

The net worth of the Company at the end of fiscal 2010 increased to Rs. 624,375 millionfrom Rs. 573,701 million in the previous year registering an increase of 9% mainly due toretained earnings. Correspondingly, the book value per share also increased from Rs. 69.58to Rs.75.72.

2 Loan Funds

The loans as on March 31, 2010 were Rs. 377,970 million in comparison to Rs. 345,678million as on March 31, 2009. A summary of the loans outstanding is given below:Rs.Million

GOI-Government of India

Over the last fiscal, the debt has registered a growth of 9%. Debt amounting to Rs.69,824 million was raised during the year 2009-10 and as against this, an amount of Rs.69,703 million was utilized to finance capital expenditure. The balance amount of Rs. 120million was towards accretion in Public Deposits of the Company. The domestic debt fundsincluded term loans amounting Rs.47,510 million raised and bonds aggregating to Rs.15,000million (including bonds of Rs.8,000 million utilized for refinancing loans) privatelyplaced during the year.

Rs. Million

During the year, fresh agreements for term loans aggregating Rs. 168,190 million wereentered into including the loan agreement of Rs. 85,000 million with State Bank of Indiasigned on May 14, 2009 and Rs. 27,500 million signed with Canara Bank on June 23, 2009 tofinance capital expenditure of power generation projects, coal mining business andRenovation and Modernisation activities.

Your Company has redeemed bonds amounting toRs.4,000millionduringtheyear.Repaymentsamounting to Rs.18,637 million were made undervarious term loans extended by Indian Banks and Govt. of India. Repayment of Rs.3,907million was made during the year towards foreign currency loans. Fixed Deposits for Rs.4million were also discharged during the year.

The credit rating by CRISIL and ICRA of the Company as an issuer and also the ratingfor rupee bonds & fixed deposits program continued to be ‘AAA’ and"LAAA" respectively, being the highest rating. During the rating exercise of ourdomestic borrowings from banks including the amounts committed by them, CRISIL hasassigned the highest possible rating i.e. ‘AAA’. In addition, during the fiscal2009, ICRA has assigned ‘LAAA’ rating for sanctioned lines of credit extendedfrom domestic banks.

During the year, Standard and Poors’ and Fitch Ratings maintained the"Investment Grade" foreign currency ratings of your company. While, FitchRatings continued to maintain the ‘stable’ outlook for the ratings, the outlookon the company’s rating was revised from ‘negative’ to ‘stable’by Standard and Poors’ in March 2010. The Company’s foreign currency ratings areat par with sovereign ratings of India.

The debt to equity ratio at the end of fiscal 2009-10 of the Company increased to 0.61from 0.60 at the end of the previous fiscal.

The Debt Service Coverage Ratio (DSCR) for the year has improved to 3.92 from 3.67 inthe previous financial year and Interest Service Coverage Ratio of fiscal 2010 hasimproved to 13.64 from 10.19 in previous fiscal. Both these ratios have shown improvementdue to higher Earnings Before Interest, Tax and depreciation and also due to reduction innet interest charged to P&L Account.

Formula used for computation of coverage ratios DSCR = Earnings before Interest,Depreciation and Tax/ (Interest net off transferred to expenditure during construction +Principal repayment) and ISCR = Earnings before Interest, Depreciation and Tax/(Interestnet off transferred to expenditure during construction).

The maturity profile of the borrowings by the Company is as under: Rs million

3 Fixed Assets

During the year your Company added Rs.44,971 million to the gross block mainly onaccount of capitalization of one unit of Kahalgaon-II (500MW) Power Project and one unitof Dadri-II (490MW) Power Project. Due to increase in construction activities, there wasan addition of Rs.55,413 million in the capital-work-in-progress registering an increaseof 26% over the last year. In addition, there was also an increase of 3% in ConstructionStores and Advances.

Rs.Million

4 Investments

The Investments consist mainly of bonds issued under One Time Settlement Scheme andbonds issued against outstanding dues besides equity participation in joint ventures andsubsidiaries. The investments also include the deployment of surplus cash generated out ofoperations in various treasury instruments issued by Government of India. During fiscal2010, the investments increased by about 6%. Broadly the break-up of investments is asfollows: Rs.Million

Bonds issued against settlement of receivables account for 66% of total investments atthe end of fiscal 2010. Bonds received under One Time Settlement Scheme (OTSS) amountingto Rs.16,515 million were redeemed during the year as per scheduled redemption. These OTSSbonds carry a ‘call option’ giving right to SEBs to redeem the bonds beforescheduled redemption date. However, no call option was exercised by any SEB during theyear 2009-10.

Your company fully redeemed Rs.243 million of 10% Secured Non- CumulativeNon-Convertible Redeemable GRIDCO Bonds as per redemption plan, during the fiscal 2010.

Your company invested Rs.6,074 million in following joint ventures during the year: Rs.Million

The company also invested Rs.1,350 million in subsidiaries as under: Rs. Million

During the year, there was an investment of surplus funds in short term funds forRs.19,435 million.

5 Current Assets

The current assets and current liabilities as on March 31, 2010 and March 31, 2009 andthe changes therein are as follows:

Rs.Million

A major portion of current assets comprised of Cash and Bank balances. As on March 31,2010, cash and bank balances stood at Rs.144,595 million being 47% of the total currentassets in comparison to Rs.162,716 million as at March 31, 2009 which was 53% of the totalcurrent assets as on that date. Of this, Rs.138,255 million was kept as term deposits withbanks as on March 31, 2010 while the term deposits for the last year was Rs. 159,998million.

The next largest component of current assets is Sundry Debtors. Sundry Debtors net ofprovisions have increased from Rs 35,842 million in previous financial year to Rs. 66,514million showing an increase of 86%. Sale of energy, however, only grew by 10%.

As on 31.03.2010, Sundry Debtors amounted to Rs. 74,875 million as compared to Rs.44,203 million as at the end of previous year. As a percentage of sales, the sundrydebtors represent are 16% of sales as compared to 10% in previous financial year. TheSundry debtors were equivalent to 59 days of sales for current year compared to 38 days inprevious year. Reason for increase in debtor balances is mainly the discontinuance ofSpecial Rebate Scheme by the company w.e.f 01.04.2010. Special Rebate Scheme had aprovision for giving additional rebate to customers who made payments on the last day ofthe month on the basis of provisional billing to be adjusted from the final bill raised inthe subsequent month. This resulted in reduced debtors at the end of each month. Due todiscontinuation of Special Rebate in the first five days of the month w.e.f 1st April,2010, the sundry debtors as on 31^st March, 2010 have increased.

Loans and advances reduced by 19% as compared to previous financial year mainly onaccount of Lower Advance tax and tax deducted at source (Net of Provision for tax).Besides advance tax and tax deducted at source (net of provisions) amounting to Rs.20,644million, this includes a loan of Rs.6,222 million to the Government of Delhi subsequent tothe conversion of the dues of Delhi Vidyut Board under the one-time-settlement scheme. TheGovernment of Delhi pays 8.5% tax-free interest on this loan. The other loans and advancesare mostly to suppliers and contractors and also on account of advances extended toemployees for various purposes such as building of house, purchase of vehicles etc. as perthe policies of your Company. The advances to employees mainly include Rs.1,387 millionpaid as adhoc advance to employees in non-executive category pending pay revision(explained in note 6 of Notes on Accounts, Schedule-26).

Inventories as at March 31, 2010 were Rs.33,477 million being 11% of current assets asagainst Rs. 32,434 million as on March 31, 2009. Inventories mainly comprise of componentsand spares and coal which are maintained for operating plants. Components and spares wereRs.16,500 million as against Rs.15,662 million in previous year end. Coal inventoryamounted to Rs. 11,175 million as against Rs. 11,133 million in previous year.

6 Current Liabilities

Rs.Million

The current liabilities as at March 31, 2010 were Rs. 76,876 million as against Rs.74,391 million in the previous year. The current liabilities mainly comprise of creditorsfor capital expenditure, creditors for supply of goods and services, deposits andretention money from contractors. The creditors and retention money, deposits etc. at theend of the year stood at Rs. 68,844 million as against Rs. 64,469 million in the previousyear.

The current liabilities have also increased by Rs. 2,869 million on account ofunsettled liabilities due to price variation claims accounted on estimation basis ratherthan on acceptance basis due to change in accounting policy (explained in note 17(b) toNotes on Accounts, Schedule-26).Besidesthese,advancesfromcustomers were Rs. 2,935 millionas against Rs 4,520 million in the previous year. These sums include amount payable to thecustomers on account of income tax refunds.

7 Provisions

As on March 31, 2010, your Company had provisions outstanding amounting to Rs. 30,705million as against Rs. 32,495 million on 31^st March 2009. This mainly comprisedRs.20,345 million (previous year Rs. 21,927 million) being provision for estimatedemployee benefits under AS 15 (Revised 2005) "Employee Benefits" and estimatedbenefits payable pending pay revision w.e.f. 01.01.07.

The provision in current year is lower mainly due to reduction in provision amountafter payment of pay revision arrears to employees on finalization of pay-revision ofemployees in executive category.

Further, provisions include Rs 6,596 million on account of proposed dividend whichwould be paid subject to approval of our shareholders. The income tax payable on theproposed dividend is Rs.1,072 million included in the Provisions of FY 2009-10.

8 Cash flows

Cash, cash equivalents and cash flows on various activities for the past five years aretabulated below: Rs. Million

Net cash from operating activities for the year ended March 31, 2010 increased by 9%from the previous year. Net cash from operating activities was Rs.105,942 million asagainst Rs 96,881 million for the previous year.

Net cash used in investing activities increased to Rs 104,977 million in FY 2009-10from Rs. 75,004 million in the previous year registering an increase of 40%. Cash flows oninvesting activities arise from expenditure on setting up power projects, investment ofsurplus cash in various securities, investments in joint ventures and subsidiaries. Cashutilized for purchase of fixed assets increased by 8% from Rs. 100,087 million in theprevious year to Rs. 107,741 million during FY 2009-10. Net cash used in purchase ofinvestments (after adjusting sale of investments and the redemption of OTSS bonds)increased by Rs.17,732 million during the year. No call option was exercised by SEBs onOTSS bonds during the FY 2009-10. The investment in Joint Venture companies andsubsidiaries was Rs.7,424 million in current financial year as against Rs.4,093 millionduring previous year. Cash generated from investing activities also reduced due toreduction in interest amount on OTSS bonds.

During the year, out of cash raised from operating activities the company paid netRs.19,086 million of cash for servicing financing activities as against Rs.8,493 millionin the previous year. During the FY 2009-10 the company had an infl flow of Rs.69,824million from long term borrowings as against Rs. 73,600 million in the previous year. Cashused for repayment of long term borrowings during the current fiscal was Rs.26,548(excluding exchange rate variation of Rs.10,983 million) million as against Rs.22,666million repaid in the previous year. Cash used for paying dividend and the tax thereon wasRs.36,639 million as against Rs.34,718 million in the previous year.

BUSINESS AND FINANCIAL REVIEW OF SUBSIDIARIES

NTPC has six subsidiary companies. The financial statements of the subsidiaries areincluded in this Annual Report elsewhere. Out of six subsidiary companies, one companynamely, Pipavav Power Development Company Limited (PPDCL) is under winding up. Theperformance of remaining five subisidiaries is briefl y discussed here:

(a) NTPC Electric Supply Company Limited (NESCL)

The financial highlights of the Company are as under:

The company was formed on August 21, 2002 as a wholly owned subsidiary company of NTPCwith an objective to make a foray in the business of distribution and supply of electricalenergy as a sequel to reforms initiated in the Power Sector. Presently the company isundertaking the following activities:

• The company has been involved in the execution of work on turnkey basis underthe government’s rural electrification program namely "Rajiv Gandhi GrameenVidyuti-Karan Yojana" in 29 districts in 5 states, namely, Chhattisgarh, Jharkhand,Madhya Pradesh, Orissa and West Bengal covering more than 38000 villages and approximately27 lakh Below Poverty Line (BPL) connections. During the year 2009-10, the Companyachieved electrification of 8,017 villages and provided electricity connection to 8.6 lakhBPL households which is higher then the MOU target of 7,500 Un-electrified/ De-electrifiedand 8.5 lakhs BPL connections. So far the Company has achieved electrification of 16,954villages.

• The Company is assisting the DISCOMs and utilities for enhancement and bringingthe sectoral reforms process and has been participating in the distributioninfrastructural development programme under consultancy assignments. The Company isexecuting project management consultancy work for setting up 220 KV substations, switchyard and associated facilities at BPCL Kochi Refinery.

• The Company is also involved in the turnkey execution of infrastructure forPower supply arrangement for Port based Special Economic Zone at Vallarpadam for CochinPort Trust (CPT) as well as turn key execution of development of infrastructure for powersupply arrangement for all coal mining projects of NTPC.

• NESCL is also trying to implement a new business model in which bulk power isbrought to the load centre from NTPC merchant plants & is distributed to apredetermined geographical area having dedicated consumers as an independent licensee.This model shall not only pave the way for NESCL to take up the retail distribution butalso assist the state utilities in meeting the power shortages in the respective states.

As on 31.3.2010, paid up capital of the Company is Rs. 0.8 million. The Company haspaid a dividend of Rs.40 million for the year 2009-10 as against Rs 25 million paid in theprevious year.

Joint venture of NESCL

NESCLhassetupaJVwithKeralaIndustrialInfrastructure Development Corporation (KINFRA), astatutory body of Government of Kerala with equity participation of 50% each named asKINESCO Power and Utilities Pvt. Ltd on 17^th September 2008, to take up retaildistribution of power in various Industrial parks developed by KINFRA in Kerala and otherSEZs and industrial areas. The license has been issued for Kakkanad, Kalamassery andPalakkad by the state regulator. The new JV Company has taken over the operations from 1stFeb 2010 in the Kakkanad Industrial area of KINFRA.

As on 31.3.2010, the paid up capital of the Company is Rs. 1 million and Rs. 2.6million of share application money is pending for allotment.

(b) NTPC Vidyut Vyapar Nigam Limited (NVVN)

The financial highlights of the Company are as under:

The company was formed on November 1, 2002 as a wholly owned subsidiary company of NTPCwith an objective to undertake business of sale and purchase of electric power, toeffectively utilise installed capacity and thus enabling reduction in the cost of power.During the year 2009-10, the company transacted business with various state electricityboards spread all over the country and traded 5.549 billion units of electricity incomparison to 4.831 billion units traded in the previous year.

As on 31.3.2010, the paid up capital of the Company is Rs. 200 million. The Company haspaid a dividend of Rs.100 million for the year 2009-10.

(c) NTPC Hydro Limited (NHL)

The financial highlights of the Company are as under:

In furtherance of its efforts to take forward the hydro capacity addition and to giveexclusive thrust to small and medium sized Hydro Power Projects upto 250MW capacity, NTPCLtd. had set up a wholly owned subsidiary company named "NTPC Hydro Ltd." inDecember, 2002. Presently the company is implementing the following projects:

• Lata Tapovan hydro electric project (171 MW) in the state of Uttrakhand. All thestatutory clearances have been obtained and entire land required for the project has beenphysically acquired. The main EPC package, namely, Civil & HM Works (Hydro Mechanical)is currently under tendering process and award is envisaged during the current calendaryear. The project is to be developed as a regional power station with 12% free power toGovt. of Uttarakhand and balance to be supplied to the beneficiaries of Northern states.PPAs with number of beneficiary states have also been signed. The project is slated forcommissioning during 12th Plan. Annual generation from this project is estimated as 869MU.

• Rammam-III (120 MW) in the state of West Bengal- All the statutory clearanceshave been obtained and majority of land acquisition activities have been completed.Various infrastructure developmental works are under progress. The main EPC package,namely, Civil & HM Works is currently under tendering process and award is envisagedduring the year 2010-11.The project is for the benefit of West Bengal and Sikkim statesand is slated for commissioning during 12th Plan. Annual generation from this project isestimated as 476 MU.

As on 31.3.2010, the paid up capital of the Company is Rs. 1,008 million and Rs. 18million of share application money is pending for allotment.

(d) Kanti Bijlee Utpadan Nigam Limited

As per the decision of Govt. of India, a new company named ‘Vaishali PowerGenerating Company Ltd.’ was incorporated on September 6, 2006 as a subsidiary ofNTPC to take over Muzaffarpur Thermal Power Station (MTPS) (2 x 110 MW). The Company wasrechristened as ‘Kanti Bijlee Utpadan Nigam Limited’ on 10.04.2008. The presentequity contribution in the company is 64.57% by NTPC and 35.43% by BSEB.

Unit 2 of 110 MW of the transferred station is under operation w.e.f. 29.01.08 afterrestoration and refurbishment and generated infirm power of 460.58 MUs during financialyear 2009-10 which is highest ever generation by this unit since its inception. Renovationand Modernization (R&M) of existing units 2X110 MW is to commence in 2010-11 for whichcontract has been awarded to BHEL on 15.04.10.

The Board of the Company has approved the Feasibility Report for the expansion of MTPSby 2x195 MW. Main Plant package award has been finalized and Letter of Intent (LOI) wasissued to BHEL in March 2010 for Rs.1,076 crore.

As on 31.3.2010, the paid up capital of the Company is Rs. 885 million and Rs. 44million of share application money is pending for allotment which includes Rs. 22 millionas the share of NTPC Ltd.

The financial highlights of the Company are given below:

(e) Bhartiya Rail Bijlee Company Limited (BRBCL)

"BhartiyaRailBijleeCompanyLimited"wasincorporated as a subsidiary of NTPC onNovember 22, 2007 having equity participation of 74:26 by NTPC Ltd. and Ministry ofRailways, Govt. of India respectively for setting up of 4 units of 250 MW each of coalbased power plant at Nabinagar, district Aurangabad, Bihar. Land measuring 1,250 acres(approx) was taken under possession during the year. As on 31.3.2010, the paid up capitalof the Company is Rs. 4,000 million and Rs. 1,462 million of share application money ispending for allotment which includes Rs. 712 million as the share of NTPC Ltd.

The financial highlights of the Company are given below:

a) Utility Powertech Limited (UPL)

The financial highlights of the Company are as under:

UPL is a joint venture company of NTPC and Reliance Infrastructure Limited formed totake up assignments of construction, erection and supervision in power sector and othersectors in India and abroad as well as to provide man power to power, telecom and othersectors. As on 31.3.2010, the paid up capital of the Company is Rs. 40 million (includingRs. 20 million of paid up equity capital issued as fully paid up bonus shares in theprevious year) with 50% initially contributed by NTPC Ltd.

b) NTPC-SAIL Power Company Pvt. Ltd. (NSPCL)

NSPCL, a 50:50 Joint venture Company of NTPC and SAIL was incorporated on 08.02.1999for running the Captive Power Plants of SAIL at Durgapur, Rourkela. Later, BhilaiElectricity Supply Company Ltd. merged into NSPCL.

NSCPL owns and operates a capacity of 814 MW mostly as captive power plants forSAIL’s steel manufacturing facilities located at Durgapur, Rourkela and Bhilai. Twounits of 250 MW each of Bhilai expansion were commissioned during 2008-09 out of which 255MW capacity is allocated for captive use and the balance 245 MW is allocated for CSEB, UTDaman & Diu and UT Dadra & Nagar Haveli. Both the units were declared commercialduring 2009-10. The above stations generated a total of 5.043 BUs (including 2.418 BUsfrom Bhilai expansion units) during 2009-10 as compared to 2.389 BUs during thecorresponding previous year. Captive power plants (314 MW) of NSPCL recorded annualgeneration of 2625 MUs at 95.5% PLF, highest ever since inception. Further, both 250MWunits of Bhiliai Expansion (2X250MW) achieved 100% PLF & AVF during March ’10 andachieved 85% AVF during 2009-10 after commercial operation.

As on 31.03.2010, the paid up capital of the Company is Rs. 9,505 million and out ofthis, 50% has been contributed by NTPC Ltd.

The financial highlights of this Company are as under:

NSPCL has recommended a final dividend of Rs.290 million of which NTPC’s share isRs.145million.

c) NTPC-ALSTOM Power Services Private Limited (NASL)

The financial highlights of the Company are as under:

NASL is a 50:50 joint venture company between NTPC and ASLTOM POWER GENERATION AG,Germany. The company was formed on 27.09.1999 for taking up Renovation & Modernizationassignments of power plants both in India and SAARC countries. During 2009-10, NASL hassubmitted technical bids for Badarpur and Bandel projects. As on 31.3.2010, the paid upcapital of the Company is Rs. 60 million with 50% being contributed by NTPC Ltd.

d) NTPC Tamil Nadu Energy Company Ltd. (NTECL)

NTPC Tamil Nadu Energy Company Ltd, was formed as a 50:50 joint venture between NTPCand Tamil Nadu Electricity Board (TNEB) on May 23, 2003 to develop and operate 1500MWpower project at Vallur. The project is named as Vallur Thermal Power Project and isexpected to use Ennore port infrastructure facilities. Mega Power Status was accorded tothe project (3x500 MW) on 12.03.08.

Investment Approval of Stage-I, Phase-II (1 x 500MW) expansion of the Project wasaccorded by the NTECL Board on 19.05.09.MOEF clearance for phase-II (1 x 500 MW) wasaccorded on 03.06.09 while Main Plant Boiler & Turbine contract was awarded to M/sBHEL on 28.07.09.Financial closure of Phase-II was achieved with signing of Loan Agreementwith M/s REC on 06.03.10 for Rs. 21,140 million. The construction work at site is in fullprogress.

The paid up capital of the Company is Rs. 8500 million and out of this, 50% has beencontributed by NTPC Ltd. Further as on 31.03.2010, the amount of Share Capital Depositpending for allotment is Rs. 555 million. Out of this, Rs. 155 million was contributed byNTPC Ltd. during 2009-10.

e) Ratnagiri Gas and Power Pvt. Limited

Ratnagiri Gas and Power Private Ltd has been formed as joint venture between NTPC,GAIL, Maharashtra State Electricity Board and Indian Financial institutions with NTPChaving a stake of 29.65% for taking over and operating gas based Dabhol Power Project.Block # I RGPPL was also revived and declared commercial on May 19, 2009.The totalgeneration from all the Power Blocks during 2009-10 is 8,289 MUs. All the power blocksmachines are in operation. GoI has allocated full quantum of gas required for Power Blocks(about 8.5 MMSCMD). RGPPL commenced power generation using domestic gas from KG D-6 basinfrom September 30, 2009. The current drawl is around 7.2 MMSCMD.

As on 31.3.2010, the paid up capital of the Company is Rs. 20,000 million and out ofthis, Rs.5,929 million has been contributed by NTPC Ltd. Further as on 31^st March2010, out of Share Capital Deposit pending allotment amounting to Rs 2,970 million, anamount of Rs. 1,000 million has been contributed towards equity by NTPC Ltd.

The financial highlights of the Company are as under:

Rs. Million

f) Aravali Power Company Private Limited

Aravali Power Company Private Limited (A Joint Venture Company of NTPC Ltd.,Indraprastha Power Generating Co. Ltd. [IPGCL] of Delhi Govt. and Haryana Power GeneratingCo. Ltd. [HPGCL] of Haryana Govt.) is setting up Aravali Super Thermal Power Project of1500 MW (3x500 MW), a coal fired power plant, in Jhajjar district of Haryana. The projectis being set up by NTPC on concept-to-commissioning basis. NTPC Ltd. would also operateand maintain the station on Management Contract basis for at least 25 years. The projectis being set up for meeting the power requirement of Haryana and NCT of Delhi. The powerwill be shared on 50:50 basis between Haryana and NCT of Delhi.

Construction activities at the site are in full swing. Boiler Hydro Test for Unit-I hasbeen completed on 26.01.10. For Unit-II, TG erection work commenced in January, 2010.Boiler Drum Lifting of Unit-III was completed on 12.11.2009 and TG Deck casted on14.02.2010. Unit-I & II is expected to be ready during 2010-2011. For the fuellinkage, Letter of Assurance obtained from MCL for 6.94 MTPA (F Grade Coal). Wateragreement signed with Haryana Irrigation Department on 21.12.09 for supply of 150 cusec ofwater from JLN canal.

As on 31.3.2010, the paid up capital of the Company is Rs. 13,170 million with 50%being contributed by NTPC Ltd.

g) NTPC-SCCL Global Venture Pvt. Ltd

NTPC Limited alongwith Singareni Collieries Company Limited formed a 50:50 jointventure Company under the name and style of "NTPC-SCCL Global Ventures PrivateLimited" on July 31, 2007 to undertake various activities in coal and power sectorsincluding acquisition of coal/lignite mine blocks, development and operation of integratedcoal based power plants and providing consultancy services. In the proposed Joint VentureCompany both NTPC and SCCL shall hold 50% equity each.

As on 31.3.2010, the paid up capital of the Company is Rs. 1 million, out of which 50%has been contributed by NTPC Ltd.

h) Meja Urja Nigam Private Limited

NTPC has formed a JV Company with Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited(UPRVUNL) under the name "Meja Urja Nigam Private Limited" on April 2, 2008 forsetting up a power plant of 1320 MW (2X660 MW) at Meja Tehsil in Allahabad district in thestate of Uttar Pradesh.

All significant clearances except MOEF clearance have been obtained. Application forMoEF clearance submitted on 30.03.10. CWC/MOWR clearance for use of Ganga Water receivedon 17.11.09. In-principle approval for Coal Linkage received from the MOC. Landacquisition has been completed. Further, possession & mutation for 1,118 Hectares ofGovernment & Private Land & Resettlement of PAPs has commenced. The project isidentified under Bulk Tendering for 660 MW units.

As on 31.03.2010, the paid up capital of the Company is Rs. 604 million and out ofthis, 50% has been contributed by NTPC Ltd. Further as on 31.3.2010, out of Share CapitalDeposit pending for allotment amounting to Rs. 385 million, Rs.192 million being 50% ofthe total Share Capital Deposit has been contributed by NTPC Ltd.

i) NTPC BHEL Power Projects Pvt Ltd. (NBPPL)

"NTPC BHEL Power Projects Pvt Ltd." (NBPPL) was formed on April 28, 2008 as aJV Company with Bharat Heavy Electrical Ltd (BHEL) for carrying out EngineeringProcurement and Construction (EPC) activities in the power sector and to engage inmanufacturing and supply of equipment for power plants and other infrastructure projectsin India and Abroad. The Company has acquired 750 acres of land at YSR Puram in Chittoordistrict (Andhra Pradesh) for setting up manufacturing plant. The company has also baggedcontracts for execution of Balance of Plant package for a value of Rs. 79 Crore forPalatana Combined Cycle Power Plant in Tripura and 1x100 MW Namrup Thermal Power Stationvalued at Rs. 71.81 Crore.

As on 31.03.2010, the paid up capital of the Company is Rs. 500 million, out of this,50% has been contributed by NTPC Ltd.

j) BF-NTPC Energy Systems Limited

"BF-NTPC Energy Systems Limited" (BFNESL) was formed on June 19, 2008 withBharat Forge Limited (BFL) to establish a facility to take up manufacturing of castings,forgings, fittings and high pressure piping required for power projects and otherindustries, Balance of Plant (BOP) equipment for the power sector.

BFNESL has finalized land in Solapur, Maharashtra for setting up manufacturingfacilities; foundation stone for the same was laid on 20th March, 2010.

As on 31.3.2010, the paid up capital of the Company is Rs. 21 million with 49% beingcontributed by NTPC Ltd. Further, out of Rs. 99 million of share application money pendingallotment as on 31.03.2010, Rs.49 million has been contributed by NTPC.

k) Nabinagar Power Generating Company Private Limited

"Nabinagar Power Generating Company Private Limited" (NPGCL) was incorporatedas a JV Company on September 9, 2008 with equal equity contribution from Bihar StateElectricity Board for setting-up of a coal based power project at New Nabinagar indistrict Aurangabad of State of Bihar. The project will have a capacity of 1,980 MW (3X660MW). The Company will also undertake operation & maintenance of the project after itscommissioning.

Feasibility Report of the project was approved by NPGCL Board on 02.07.09.Landacquisition activities have been initiated. Application for MoEF clearance submitted on29.03.10. In-principle approval for Coal Linkage received from the MOC. The project isidentified under Bulk Tendering for 660 MW units.

As on 31.3.2010, the paid up capital of the Company is Rs. 1 million with 50% beingcontributed by NTPC Ltd. during 2009-10. Further as on 31.3.2010, out of share applicationmoney pending for allotment amounting to Rs. 2,229 million, Rs.950 million has beencontributed by NTPC Ltd.

l) National Power Exchange Limited (NPEX)

"National Power Exchange Limited" (NPEX) was incorporated as a JV Companywith NHPC Ltd., Power Finance Corporation Ltd. and Tata Consultancy Services Ltd. onDecember 11, 2008 to operate a Power Exchange at National level. This Power Exchange wouldprovide a neutral and transparent electronic platform for trading of power on "dayahead basis" and ensure clearing of all trades in a transparent, fair and open mannerwith access to all players in the power markets. NTPC Ltd. & NHPC Ltd. havecontributed 16.67% equity each, Power Finance Corporation Ltd. 16.66% of equity while TataConsultancy Services has contributed 50% equity in the share capital of this Company. Anin-principle approval by CERC to set up and operate a national level power exchange wasreceived on July 1, 2009. New Regulations for power exchange have been issued by CentralElectricity Regulatory Commission on 20^th Jan 2010.The Company has initiatedaction for compliance and aligning itself to these regulations.

As on 31.3.2010, the paid up capital of the Company is Rs. 50 million with 16.67%amounting Rs. 8 million contributed by NTPC Ltd.

m) International Coal Ventures Private Limited (ICVL)

A JV Company was incorporated on May 20, 2009 under the name "International CoalVentures Private Limited" (ICVL) in association with Steel Authority of India (SAIL),Coal India Limited (CIL), Rashtriya Ispat Nigam Limited (RINL) and NMDC Limited (NMDC).SAIL, CIL, RINL, NMDC and NTPC shall contribute in the equity share capital of the Companyin the ratio of 2:2:1:1:1 respectively. The Company has been incorporated for the purposeof carrying on business for overseas acquisition and/ or operation of coal mines orblocks/ companies for securing coking and thermal coal supplies. ICVL is pursuing coalopportunities from countries like Australia, Indonesia,Mozambique,SouthAfricaandUSA.Ason31.03.2010, the paid up capital of the Company is Rs. 7million

n) National High Power Test Laboratory Private Limited (NHPTLPL)

NTPC has formed a JV Company on May 22, 2009 under the name "National High PowerTest Laboratory Private Limited" (NHPTLPL) in association with NHPC Limited (NHPC),Power Grid Corporation of India Limited (PGCIL) and Damodar Valley Corporation (DVC). AllJV partners have contributed equally in the equity share capital of the Company. TheCompany has been incorporated for setting up an On-line High Power Test Laboratory forshort-circuit test facility in the Country. The project Feasibility Report has beensubmitted by Technical Consultants, CSEI, Italy.

As on 31.03.2010, the paid up capital of the Company is Rs. 35 million which includesRs. 9 million being 25% of paid up equity capital contributed by NTPC Ltd.

o) Energy Efficiency Services Pvt. Limited

A JV company has been formed on December 10, 2009 under the name "EnergyEfficiency Services Limited" with Power Finance Corporation Limited (PFC), PowergridCorporation of India Limited (PGCIL) and Rural Electrification Corporation Limited (REC)to carry on and promote the business of Energy Efficiency and climate change includingmanufacture and supply of energy efficiency services and products. NTPC, PFC, PGCIL andREC hold shares in the equity share capital of the Company equally.

As on 31.03.2010, the share application money pending for allotment in the Company isRs. 25 million which includes Rs. 6 million being 25% of this amount contributed by NTPCLtd.

p) Transformers and Electricals Kerala Limited (TELK)

In line with the Business Collaboration and Shareholders Agreement executed betweenNTPC Limited, Government of Kerala and Transformers and Electricals Kerala Limited (TELK),44.6% of presently paid-up capital of TELK were acquired from Government of Kerala at atotal value of Rs. 313.4 million during 2009-10. The shares were credited in NTPC’sdemat account on 19.06.2009. TELK is engaged in manufacturing and repair of heavy dutytransformers. During the year TELK produced 5,085 MVA transformers as against 4,566 MVA in2008-09, an increase of 11.37%.

As on 31.03.2010, the paid up capital of the Company is Rs. 430 million with Rs. 314million contributed by NTPC Ltd.

Consolidated Financial Statements of NTPC Ltd, its Subsidiaries and Joint VentureCompanies

The consolidated Financial statements have been prepared in accordance with AccountingStandards (AS)-21 - " Consolidated Financial Statements" and AccountingStandards(AS) 27 -"Financial reporting of Interests in Joint Ventures" and areincluded in this Annual report.

A brief summary of the results on a consolidated basis is given below: Rs. million

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis and in the Directors’ Report,describing the Company’s objectives, projections and estimates, contain words orphrases such as "will", "aim", "believe","expect", "intend", "estimate", "plan","objective", "contemplate", "project" and similarexpressions or variations of such expressions, are "forward-looking" andprogressive within the meaning of applicable laws and regulations. Actual results may varymaterially from those expressed or implied by the forward looking statements due to risksor uncertainties associated therewith depending upon economic conditions, governmentpolicies and other incidental factors. Readers are cautioned not to place undue relianceon these forward-looking statements.