Neyveli Lignite Corporation Ltd

Exploration

In the energy scenario, fossil fuel continues to play a dominant role in India as inany other parts of the world and the share of coal and lignite varies in this regardbetween 41% and 54%. Tamilnadu and Puducherry accounts for more than 80% of the totallignite resources in India. The other lignite bearing States are Rajasthan, Gujarat, Jammu& Kashmir, Kerala and West Bengal.

Integrated Lignite Resource Information System (ILRIS)

The lignite database project "Integrated Lignite Resource Information System(ILRIS)" is maintained by your Company on behalf of Ministry of Coal since 2004. Themain objective of the project is to create a comprehensive database of all availablelignite exploration data of lignite blocks in the country for the purpose of providingtechnical/managerial information to Govt./Policy planners and other entrepreneurs. Actionis being taken to place the structured information on website for providing basicinformation on lignite blocks in the country as per the advice of Ministry of Coal.

As a nodal agency for lignite exploration and exploitation schemes in the country, yourCompany is involved in technical supervision and monitoring of exploration works beingcarried out by MECL in lignite area under promotional lignite exploration scheme funded byMinistry of Coal, Govt, of India. Under this exploration scheme around 825 MT ofIndicated/Inferred geological resources have been established during 2009-10 in Tamilnaduand Rajasthan States through regional exploration.

Lignite Inventory as on 01.04.2010

Out of the total reserves available in Tamil Nadu/Puducherry, only around 12% is underproven category within 150 mts. depth and the balance are deep seated which may not beeconomically viable for extraction with the present open cast mining technology. In orderto tap deep seated as well as shallow lignite deposits, which are not amenable forconventional mining, Underground Coal Gasification (UCG) could be resorted to. However,such gasification may be possible only in geologically suitable blocks with optimum seamthickness. Controlled gasification of thick seams may not be possible as it could lead tosubsidence of land.

Demand and Production

The anticipated lignite demand and production per annum in the country at the end of XIand XII plan periods are as under:

In view of the rapidly increasing demand for energy, non availability of coal depositsfor exploitation in the states of Tamil Nadu, Rajasthan and Gujarat, it is considerednecessary that the lignite deposits available in these states are exploited to the maximumfor power generation which would be the best economic and viable option.

Power

Long term energy security is the prime requirement for any country for its economicgrowth. The objective of the National Electricity Policy is to accelerate the developmentof the power sector for providing adequate reliable power, at affordable cost to allcitizens, covering all villages and hamlets. Though our country is stated to be the one ofthe largest energy consumers in the world, the per capita consumption of energy is verylow compared to developed countries. The Government of India has an ambitious mission forproviding "power for all" by 2012. This mission would require the installedgeneration capacity to be atleast 2.0 lakh Mega Watt (MW) by 2012 from the present levelof around1.59 lakh MW as on 31^st March, 2010.

Demand

The growth of demand for electrical energy is exponential and the present capacityaddition does not match with the demand growth. To meet the present requirement the powersector is required to grow at least at a rate of 10%. The deficit with respect to peakdemand as on 31^st March, 2010 is in the order of 13.3% and in the years tocome, this is likely to go up further. According to 17^th Electric Power Survey(EPS) the demand projections on All India basis at the end of XII and XIII Plan periodswould be in the order of 1392 terra watt hour and 1915 terra watt hour respectively.

Production

With the thrust given by the Government in the last one decade for developing the powersector, the installed power generation capacity has grown considerably though not matchingto the actual requirement. The aggregate all-India installed capacity of electric powergenerating stations as on 31.03.2001 was 101630.08 MW and the all-India installed capacityas on 31.03.2010 is 159398.49 MW, registering a growth of more than 56%. The electricitygeneration from all sources increased from 499.5 BU in 2000-01 to 746.49 BU in the year2009-10. As per 17^th EPS 3.0 lakh MW of installed capacity would be required bythe end of XII Plan and 4.10 lakh MW at the end of XIII Plan.

Power Tariff

The Central Electricity Regulatory Commission (CERC) constituted under the ElectricityRegulatory Commission Act, 1998, inter-alia, determines the power tariff for generatingCompanies owned or controlled by Central Government and generators selling power to morethan one State.

The current tariff regulations for the period 2009-14 has been issued by CERC inJanuary 2009 for generation and transmission projects.

Opportunities and Threats Opportunities

The demand for power in our country always outstrips over the supply leading to powerdeficit. The demand forecast analysis of 17^th EPS provides ample opportunityfor all players in this sector. The Government of India has initiated several measures toaccelerate the power generation in order to achieve the envisaged economic growth rate.These include identifying Power Sector as the Infrastructure Sector by the Government.Further the Government of India has also chalked out plans for development of more numberof Ultra Mega Power Projects of capacity of 4000 MW each through tariff based competitivebidding route and such projects have been given various concessions in the form of reducedduties etc.

Power Exchanges have started operating which provides better distribution andavailability of power needy consumer. Open access is one of the key features of theElectricity Act, 2003 which facilitates inter-state transmission of power. Further theRegional Power Grids established also facilitate transfer of power from one region toanother.

The Government policy provides for development of coal blocks either individually orjointly with State Governments and/or Private Companies as a Public/Private Partnershipproject. The generators also have the option to acquire coal assets abroad to meet theircoal requirement.

State of the art technologies are available for high efficiency power plants whichensures lesser consumption of fuel and also maintains lesser emission levels.

In respect of lignite reserves which are not amenable for conventional miningpossibilities are being explored to exploit through Underground Coal Gasification (UCG)and extraction of Coal-bed Methane (CBM). If UCG and CBM methodologies are provedsuccessful and viable then it will open the door for exploring deep seated lignitereserves, in future.

Threats

For any mining project acquisition of land will be the major concern. Thesocio-economic issues related to land acquisition and the associated rehabilitation andresettlement issues have a major bearing on the successful acquisition of the land. Thereis a stiff resistance for land acquisition. Compulsion for employment and the higher costof rehabilitation and resettlement packages may render certain intended projects unviable.

Mining operations generally raise a lot of environmental concerns and variousoperational norms, specifically restrictions on drawal of ground water, have been laiddown by environmental authorities for maintaining ecological balance. Moreover for a Minelocated nearer to coastal area there is an added threat of sea-water intrusion into theaquifer.

As regards power industry, for central power generators, the tariff is fixed byregulatory authorities based on stringent operational norms which may affect the revenueearning capacity of the power generators.

Domestic manufacturing of power equipment and specialised mining equipment is limitedresulting in dependence on foreign supply. Further, delay on the part of domestic powerequipment manufacturer because of over-book order position and other constraints affectthe implementation of the projects on schedule.

Segment-Wise Performance

Covered in the main report.

Outlook Lignite Mining

With the commissioning of Mine-ll Expansion and Barsingsar Mine, the total lignitemining capacity of your Company has increased from 24.0 MTPA to 30.6 MTPA. As discussed inthe main report, your Company has already submitted project proposals to Government ofIndia for sanction of Mine project in Bithnok block and taking into account the Hadla andPalana block also, the lignite mining capacity during the XII Plan will increase to 35.35MTPA. With the other envisaged mining projects in the State of Tamil Nadu and Gujarat thetotal lignite mining capacity when commissioned during the XII Plan would further increaseto 64.85 MTPA. To expand its mining activity in Gujarat State, your Company has completeddetailed exploration in Valia lignite block located in Bharuch district.

Lignite based projects

Both Barsingsar Power Project in Rajasthan and Unit-I of TPS-II Expansion project inNeyveli are expected to be commissioned during theyear2010-11 and Unit-ll byJune-2011.Withthat, the total power generation capacity would increase to 3240 MW. The Thermal Powerproject proposals submitted to the Government viz., New Thermal Power Plant at Neyveli(1000 MW)and Bithnok Power Project (250 MW) would be commissioned during the XII Plan. Theproject proposals for the proposed power project of capacity of 250 MW, as extension ofBarsingsar Power Project, is under submission to the Government for sanction and thisproject would add another 250 MW during the XII Plan. Other lignite based power projectsproposed in the State of Tamil Nadu and Gujarat would add further capacity of 3600 MW andthus the total lignite based power generation capacity by the end of XII Plan would be7740 MW taking into account the phasing out of TPS-l of capacity of 600 MW.

Coal based projects

Your Company is implementing a 2x500 MW coal based Thermal Power Project at Tuticorinin Tamilnadu as a Joint Venture Project with TNEB and has also proposed to set up a coalbased Joint Venture Project in Uttar Pradesh (2000 MW). Your Company has also proposed toset up on its own a power project of capacity of 2000 MW in Orissa. Feasibility to bid forthe UMPP at Cheyyur in Tamilnadu as and when notified by the Government, is also beingexplored.

Wind & Solar

Your Company has taken a small step to harness the green energy. As stated earlier itis proposed to set up a wind farm of capacity of 50MW initially and increase further indue course. As regards solar energy, a 25 MW solar project is being planned forimplementation.

Coal Blocks

As stated in this report the lignite deposits are mainly available in the States ofTamil Nadu, Gujarat and Rajasthan. Your Company has plans to set up power projects inother States also for which proposals are under consideration for acquiring coal assetsabroad in arrangement with CIL and also to develop the domestic coal blocks allotted toState Government(s)/Private under Public/Private Partnership project.

Underground Coal Gasification

As a diversification initiative, your Company has proposed to venture into clean coaltechnologies and accordingly has identified some lignite blocks in the country forimplementing Underground Coal Gasification (UCG) Project. Initially UCG technology isproposed to be developed in Raneri lignite block in Rajasthan and in this regard CMPDI hasbeen engaged to finalise the developing agency.

On successful development of the UCG technology in Raneri block, other suitable ligniteblocks could be developed in future for exploitation.

Risks and Concerns

• Prevailing socio-economic conditions make acquisition of land very complex. Thisinvolves higher outgo towards cost of rehabilitation and resettlement packages, demand foremployment of land evictees, general resistance to land acquisition etc., which impedesthe implementation of the projects and advancement of existing Mines.

• The geological conditions of mines determine the Overburden (OB) to Ligniteratio. In case of adverse ratio, higher OB is required to be removed which in turnincreases the cost of production of lignite.

• Mines also face adverse hydrological conditions requiring continueddepressurising of confined aquifers subject to the conditions laid down by the CentralGround Water Board.

• Your Company is situated in a cyclone prone area and so mining operations tendto get disturbed during monsoon.

• The main feed stock for Thermal Stations of the Company is lignite. Lignite bynature is a low calorific value fuel and hence the consumption of feed stock is highercompared to other fuels. Unlike coal, lignite contains high moisture, which also affectsefficiency of steam generation.

• Stringent operational norms are being prescribed by the regulatory authoritiesfor the purpose of fixing the tariff. Any adverse changes on the tariff policy would havea material impact on the profitability of your Company.

• Stringent environmental protection norms lead to relatively higher input cost ofpower plant equipment for new projects, which in turn increases the cost of powergeneration.

• Possibility of increased power supply from hydel power stations during theperiod of continuous heavy rainfall leads to reduced off-take of power from ThermalStations as the cost of hydel power is comparatively lower than the thermal power.

• Escalating cost of new power plants.

Internal Control Systems and their adequacy

The Company has well-established internal control systems and procedures commensuratewith its size and nature of business with an approved and well laid out delegation ofauthority. Policy guidelines in the form of Purchase Manual and Contracts Manual are inplace. The internal audit is conducted by five external firms of Chartered Accountantscovering all the offices/ areas of operations and their reports are periodically reviewedby the Audit Committee.

Audit Committee supervises the financial reporting process through review of periodicalfinancial statements. Audit Committee also periodically interacts with Internal andStatutory Auditors to assess the adequacy of internal control systems. Further, theaccounts of the Company are subject to C&AG audit in addition to the propriety auditconducted by them.

Discussion on Financial performance with respect to Operational performance

Covered in the main report.

Material developments in Human Resources/Industrial Relations front, including numberof people employed

Covered in the main report.

Report on Corporate Governance Mandatory Requirements Company's Philosophy on Code ofGovernance

Transparency, accountability and integrity are the main ingredients of good CorporateGovernance. Your Company as a Corporate Citizen, believes in adhering to the higheststandards of Corporate Governance.

Composition

The composition of the Board of Directors of your Company headed by an ExecutiveChairman is comprised six Executive Directors and two Non-executive Directors and sevenIndependent Directors on 31^st March, 2010. One Independent Director who was onthe Board of the Company relinquished the position w.e.f. 31.10.2009 on completion ofthree year tenure as per the terms and conditions of appointment issued by Ministry ofCoal (MOC), Government of India.

As required under Clause-49 of the Listing Agreement, the particulars regardingcomposition of the Board of Directors as on 31^st March, 2010 and other detailsare furnished below:

Board Procedures

The Chairman-cum-Managing Director (CMD) has been delegated with certain administrativeand financial powers by the Board of Directors. Any proposals beyond the powers of CMD andparticularly major decisions involving large capital expenditure, annual plans, award ofmajor contracts, mobilisation of resources, loans and investments (other than short-terminvestments), borrowings and all policy decisions including policy relating to allpersonnel matters are decided only at the meetings of the Board. Sub-committees of theBoard of Directors as detailed in this report have been constituted by the Board and thesaid committees exercise the powers as per the delegation granted by the Board.

Dates of Board Meetings and Directors'Attendance

During the financial year 2009-10, 9 meetings of the Board of Directors were held onthe following dates: 20^th April, 2009, 20^th June, 2009, 28^thJuly,2009, 3^rd September, 2009, 26^th October, 2009, 22^ndDecember, 2009, 22^ndJanuary,2010, 4^th March, 2010 and 27^thMarch, 2010.

The maximum time gap between any two succesive Board meetings was not more than fourcalendar months.

The details of attendance of Directors at the Board Meetings held during the financialyear 2009-10, were as under:

General Meeting Attendance

Shri. A.R.Ansari CMD, Sarvashri. J.N.Prasanna Kumar, V.Sethuraman, P.Babu Rao,B.Surender Mohan, Y.N.Apparao, Ravindra Sharma, M.F.Farooqui and Dr.M.S.Ananth, Directorsattended the last Annual General Meeting held on 3^rd September, 2009.

Board Committees

The following Sub-committees have been constituted by the Board of Directors:

Empowered Committee

This Committee comprises Chairman-cum-Managing Director, Director (Finance), Director(Planning & Projects) and the Executive Director concerned, in whose operational area,the proposal belongs to, as its Members. This Committee accords approval for certainactivities relating to purchase/contracts, as delegated by the Board, prior to award oforder/contract.

Sub-Committee on Purchase/ Contracts

The Sub-committee on Purchase/Contracts accords approval for award of order/contract asper the delegation granted by the Board of Directors. Presently, this committee comprisesShri A.R.Ansari, as its Chairman and Sarvashri B.SurenderMohan, R.Kandasamy and K.Sekar,Directors as its Members.

Project Sub-Committee

Project Sub-committee has been constituted by the Board of Directors to examine theproposals including Feasibility Reports for investment in New/Expansion/Joint VentureProjects or any capital expenditure exceeding the value prescribed by the Board and tomake appropriate recommendations to the Board. Further this Committee has also beenmandated by the Board to review periodically the projects presently under implementationby the Company. As on 31^st March, 2010 this Committee comprised Shri A.R.Ansarias its Chairman and Sarvashri V. Sethuraman, B.Surender Mohan, R.Kandasamy, K.Sekar, Y.N.Apparao, Shashi Kumar and Krishna Kumar, Directors as its Members.

Audit Committee

Consequent to the relinquishment of office by Dr.M.S.Ananth, Director, during the year,the Audit Committee was reconstituted and as on 31^st March, 2010 this Committeecomprised Shri S.Rammohan, Director as its Chairman and Shri P.K.Choudhury,Prof.S.Sadagopan and Shri Shashi Kumar, Directors as its Members and all the Members ofthe Committee were Independent Directors. The terms of reference of Audit Committeeconformed to the requirements of Section 292A of the Companies Act, 1956 and Clause-49 ofthe Listing Agreement with the Stock Exchanges. The details of attendance of Members atthe Audit Committee Meetings of the Company held during the year 2009-10 were as under:

Note: CompanySecretaryis theSecretarytothe AuditCommittee.

Sub-Committee for Contribution/ Donation/ Sponsorship

This Sub-committee of Board of Directors accords approval for proposals forContribution/ Donation/ Sponsorship by the Company upto the value delegated by the Board.This Committee presently comprises Shri A.R.Ansari, as its Chairman and Sarvashri P.BabuRao, B.Surender Mohan and K.Sekar, Directors as its Members.

Sub-Committee for Resource Mobilisation

This Committee presently comprising Shri A.R.Ansari as its Chairman and SarvashriB.SurenderMohan and K.Sekar, Directors as its Members accords approval for carrying outcertain delegated functions in connection with the borrowing/debt raising proposals whichhave been approved by the Board.

Sub-Committee for Short-term Investment

Surplus money as may be available with the Company from time to time are placed asShort-term investments, as per DPE guidelines and the Board approved investment policy, bythis Committee comprising Shri A.R.Ansari, as its Chairman and Shri K.Sekar and any one ofthe other Executive Directors as its Members.

Sub-Committee for Investors Servicing

This Sub-committee presently consisting of Sarvashri K.Sekar and B.Surender Mohan,Directors as its Members, accords approval for Share Transfers/Transmission etc. and alsofor issue of Duplicate Share Certificates and for issue of Share Certificates againstRematerialisation requests.

Shareholders/Investor Grievance Committee

As on 31^st March, 2010 the Shareholders/Investor Grievance Committeecomprised Shri.Ravindra Sharma as its Chairman and Sarvashri K.Sekar and Y.N.Apparao,Directors, as its Members, and this committee was constituted by Board to look into theredressal of Shareholders/Investors grievances and reviewthe action taken by the Company.

Integrated Enterprises (India) Ltd, Chennai, is the Share Transfer Agent and theDepository Registrar (STA & DR) for the Company and they attend totransfers/transmission requests lodged with the Company by Investors and also co-ordinatewith the NSDL & CDSL, the Depositories and also attend to Investors' complaints.

The complaints received from shareholders are monitored regularly and redressal actionis taken immediately. During the year, 245 nos. of complaints were received fromshareholders/investors and out of which 232 nos. of complaints related to non-receipt ofdividend, 11 nos. to non-receipt of Annual Report and the balance 2 nos. to non-receipt ofshare certificate lodged for transfer. As per the report received from the Share TransferAgent, there were 2 nos. of complaints pending for redressal as on 31.03.2010 and the samewere redressed in the first week of April 2010.

As reported by the STA, as on 31^st March, 2010 all applications for sharetransfers lodged with the Company have been processed except eight applications which werereceived during the last fortnight of March,2010 and the same were processed in the monthof April 2010.

As per the Listing Agreement, the Company Secretary is the Compliance Officer and theactivities of the STA& DR are under the supervision of the Compliance Officer.

Sub-Committee for Pricing of Lignite and Power

This Committee presently comprising Shri A.R.Ansari as Chairman and Sarvashri K.Sekarand B.Surender Mohan, Directors as its Members has been constituted by the Board toapprove policies and issues relating to transfer price of lignite, lignite price andpolicy in respect of sales to outsiders and tariff for powersales, if any, made to directconsumers.

Remuneration Committee

The appointment of Executive Directors including Chairman-cum-Managing Director iscontractual in nature and the remuneration is paid to them as per the terms of theirappointment made by the Government of India. However, for finalising the PerformanceRelated Pay (PRP)for Executives and Supervisors, as required under the DPE guidelines, theBoard had constituted a Remuneration Committee comprising Shri Shashi Kumar as Chairmanand Sarvashri Y.N.Apparao, Ravindra Sharma and Prof. S. Sadagopan, Directors, as itsMembers and this Commitee met on 27.05.09, 08.07.09 and 26.05.10 to finalise the PRPfortheyears 2007-08 and 2008-09.

The details of remuneration paid to the Executive Directors during the year 2009-10 areas under:

* relating to the year2007-08

** including terminal benefits

For the above Executive Directors, no bonus/ Commission was paid and no Stock Optionswere issued during the year. The service contract/ notice period/ severance fee etc., forthe above Directors are as perthe terms of appointment issued by the Government of India.

No remuneration/sitting fee is being paid to Part-time official Directors nominated bythe Government. In respect of Independent Directors, no remuneration is being paidexcepting sitting fees @ Rs.10,000/- for attending each Board/Committee Meeting. Thedetails of sitting fees paid to Independent Directors during the year 2009-10 are asunder:

Code of Conduct

As required underthe Listing Agreement, the Board of Directors of the Company have laiddown a Code of Conduct applicable for all Board Members and Senior Management Personnel ofthe Company. In this regard a declaration signed by the Chairman-cum-Managing Director isreproduced below:

"I hereby confirm that all the Members of the Board and Senior ManagementPersonnel to whom the Code of Conduct was applicable have affirmed compliance of the abovecode for the year ended 31^st March, 2010".

General Body Meetings

The following are the details of General Meetings of the Company held in the last threeyears:

Special Resolutions

No special resolutions were passed in the previous three Annual General Meetings.

Postal Ballot

There was no requirement for seeking approval of the members by Postal Ballot and anydecision on matters requiring approval of shareholders through postal ballot system willbe obtained as prescribed in the Companies Act, 1956.

Disclosures

The Company, during the year, has not entered into any transactions of material naturewith the Directors of the Company that may have potential conflict with the interests ofthe Company at large. No penalties, strictures have been imposed on the Company by theStock Exchanges or SEBI on any matters relating to capital markets during the last 3years.

Means of Communication

No separate half-yearly report has been sent individually to shareholders. Thequarterly and yearly financial results are furnished immediately to the Stock Exchangeswhere the Company's equity shares are listed. The financial results are published inleading National news papers and also in a local vernacular daily and the said results arealso made available in the Company's website -www. nlcindia.com, in addition to uploadingof the same in the Corporate Filing and Dissemination System of the Stock Exchanges. TheCompany's official news releases are also made available in the Company's website.

General Shareholder Information

Financial Calendar for the year 2010-11 (tentative)

Date of Book Closure

The Register of Members and the Share Transfer Register of the Company would remainclosed from 21.08.2010 to 02.09.2010 (both days inclusive) for the purpose of ascertainingthe list of shareholders entitled for the dividend, if any, declared at the ensuing AnnualGeneral Meeting.

Dividend payment date

The Dividend, if declared at the AGM, would be paid to the shareholders within 30 daysfrom the date of AGM.

Listing on Stock Exchanges and payment of Listing fees

The equity shares of the Company and the Neyveli Bonds 2009 are presently listed withthe Bombay Stock Exchange Limited and National Stock Exchange of India Limited. Listingfees have been paid to both Stock Exchanges upto the year2010-11.

Stockcode

Stock Market Data

The monthly high and low market price of the Company's shares during each month in2009-10 as quoted at the Bombay Stock Exchange and its comparative performance with thebroad base BSE Sensex during the same period were as under:

Share Transfer System

The share transfer requests lodged with the Company are processed by the Company'sShare Transfer Agent and approved by the Sub-committee of Board of Directors for InvestorServicing which normally meets thrice or more in a month depending upon the requirement.

Shareholding Pattern

The Shareholding Pattern of the Equity Share Capital of the Company as on 31^stMarch, 2010 was as under:

Depository Registrar and Share Transfer Agent

M/s.lntegrated Enterprises (India) Ltd., is the Depository Registrar and Share TransferAgent for the Company. The details of their address, contact numbers are as under:

Distribution of Shareholding as on 31.03.2010

Details of Shares held by Non-executive Directors

As per the declaration received, no Non-executive Director is holding any equity sharesin the Company.

Outstanding GDRs/ADRs/Warrants or any convertible instruments conversion date andlikely impact on equity

No GDRs/ADRs/Warrants or any convertible instruments have been issued by the Companyand hence there would not be any impact on the equity.

Dematerialisation of shares and liquidity

The equity shares of the Company are compulsorily traded in dematerialised form as perthe notification issued by SEBI. As on 31^st March, 2010,10,54,22,493 equityshares have been dematerialised. The equity shares are actively traded on the Exchanges.

Plant locations

Three lignite mines and three thermal power stations are located in Neyveli, CuddaloreDistrict in Tamil Nadu and one lignite mine is located at Basingsar in Rajasthan. Inaddition, one Thermal Power Station each is under construction in Barsingsar and inNeyveli and through the subsidiary Company at Tuticorin.

Address for correspondence

Shareholders/Investors may send their correspondence to the Company Secretary to eitherthe Registered Office at 'Neyveli House', No.135, Periyar EVR High Road, Kilpauk,Chennai-600 010 (Tel. No.044 28364617) or the Corporate Office: Block-1, Neyveli-607 801,Cuddalore District, Tamil Nadu (Tel.No.04142-252205). Shareholders may also send theircommunication electronically to investors@nlcindia.com,the exclusive e-mail-id provided as required under the listing agreement. The investorsmay also communicate with Integrated Enterprises (India) Ltd., the Depository RegistrarsShare Transfer Agent for redressal of their grievance, if any.

Chairman of Board

The requirement of maintenance of an office for the Non-executive Chairman and thereimbursement of expenses to him are not applicable to the Company presently as theCompany has an Executive Chairman.

Remuneration Committee

As the Company is a Government Company in terms of Section 617 of the Companies Act,1956, the remuneration of Directors is fixed by the Government of India. However, asstated earlier, Remuneration Committee of Board of Directors has been constituted by theBoard, in terms of DPE guidelines, to finalise the Performance Related Pay for theExecutives and Supervisors.

Shareholder Rights

The Company's financial results are published in English National newspapers havingwide circulation all over India and also in a vernacular newspaper having a widecirculation in the State of Tamil Nadu and hence the financial results are not being sentindividually to the shareholders. Further, as required under the Listing Agreement, theresults of the Company are also furnished immediately to the Stock Exchanges. Further theresults are also made available in the Company's web site www.nlcindia.com in addition touploading the same in the Corporate Filing and Dissemination System of the Stock Exchangesfor information of the shareholders/investors.

Audit Qualifications

It is always the Company's endeavour to present unqualified financial statements. Replyto the Statutory Auditors' observation on the accounts of the Company for the year ended31^st March, 2010 is furnished as an Annexure to Directors' Report.

Training of Board Members

The Executive Directors are the functional heads for their respective functional areaand are aware of the business model of the Company as well as the risk profile of theCompany's business. The Non-executive Directors are fully aware of the Company's businessmodel. The risk profile of the Company's business has been well defined by the Board andthe Board Members are apprised periodically on the same. During the year 2009-10 threeIndependent Directors attended a conference organised by Department of PublicEnterprisess, Government of India.

Mechanism for evaluation of Non-executive Board Members

The Non-executive Directors (Part-time official Directors) are nominated by theMinistry of Coal and the Government of Tamil Nadu respectively and being the officialnominees, their performance is evaluated as per the rules of their respective departments.The Non-executive Independent Directors are selected by the Government of India forappointment as a Board Member through Ministry of Coal and Department of PublicEnterprises. Generally, the appointment is made for a tenure of three years. TheAdministrative Ministry and the Department of Public Enterprises do the review before theappointment/ extension of tenure.

Whistle Blower Policy

YourCompany has an independent Vigilance branch, headed by a Chief Vigilance Officer inthe rank of Additional Director General of Police. The Vigilance branch, functioning underthe overall guidance of the Central Vigilance Commission, mainly lays stress on preventivevigilance. 'Drop Boxes' have been kept at various places in the Company, wherein employeesand others could report to the Vigilance branch, concerns about unethical behaviour,actual or suspected fraud etc., and the complaints so lodged are reviewed by the Vigilancebranch and necessary action as deemed fit is taken, while protecting the identity of thecomplainants.

To

The Members,

M/s. Neyveli Lignite Corporation Limited,

1. We have examined the compliance of conditions of Corporate Governance by NeyveliLignite Corporation Limited, for the year ended 31^st March, 2010 as stipulatedin Clause-49 of the Listing Agreement of the said Company with the Stock Exchange(s).

2. The compliance of conditions of Corporate Governance is the responsibility of theManagement. Our examination was limited to procedures and implementation thereof, adoptedby the Company for ensuring the compliance of the conditions of Corporate Governance asstipulated in the said Clause. It is neither an audit nor an expression of opinion on thefinancial statements of the Company.

3. We draw attention to the following:

Clause-49 of the listing agreement stipulates that not less than fifty percent of theBoard of Directors shall be of independent directors when executive director is thechairman of the Board. Due to the relinquishment of office of one independent director oncompletion of tenure, independent directors constituted less than fifty percent of theBoard of Directors from 31^st October, 2009. The length of vacancy that existedas on 31^st March, 2010 was within the stipulation of Clause-49.

4. In our opinion and to the best of our information and according to the explanationsgiven to us and the representations made by the Directors and the Management, we certifythat the Company has complied with the conditions of Corporate Governance as stipulated inthe Clause-49 of the above mentioned Listing Agreement.

5. We further state that such compliance is neither an assurance as to the futureviability of the Company nor the efficiency or effectiveness with which the management hasconducted the affairs of the Company.

Place : Chennai

Date : 27.05.2010

Annexure-5

Reply to the Statutory Auditors' observation on the accounts for the year ended 31^stMarch, 2010.

Comments of the Comptroller and Auditor General of India under Section 619(4) of theCompanies Act, 1956 on the accounts of Neyveli Lignite Corporation Limited for the yearended 31^st March, 2010.

The preparation of financial statement of Neyveli Lignite Corporation Limited, Neyvelifor the year ended 31^st March, 2010 in accordance with the financial reportingframe work prescribed under the Companies Act, 1956 is the responsibility of themanagement of the Company. The Statutory Auditors appointed by the Comptroller and AuditorGeneral of India under Section 619(2) of the Companies Act, 1956 are responsible forexpressing opinion on these financial statements under Section 227 of the Companies Act,1956 based on independent audit in accordance with the auditing and assurance standardsprescribed by their professional body, the Institute of Chartered Accountants of India.This is stated to have been done by them vide their Audit Report dated 27^thMay, 2010.

I, on behalf of the Comptroller and Auditor General of India, have conducted asupplementary audit under Section 619(3) (b) of the Companies Act, 1956 of the financialstatements of Neyveli Lignite Corporation Limited, Neyveli for the year ended 31^stMarch, 2010. This supplementary audit has been carried out independently without access tothe working papers of the Statutory Auditors and is limited primarily to enquiries of theStatutory Auditors and Company personnel and a selective examination of some of theaccounting records. On the basis of my audit, nothing significant has come to my knowledgewhich would give rise to any comment upon or supplement to Statutory Auditors' reportunder Section 619(4) of the Companies Act, 1956.