MANAGEMENT DISCUSSION AND ANALYSIS
I. INDUSTRY STRUCTURE AND DEVELOPMENTS
I. I Power Sector in India
Enactment of the Electricity Act, 2003, has brought about various policy and regulatory
initiatives. The Government of India (Gol) has issued the Rural Electrification Policy
recently in addition to already announced National Electricity Policy and National Tariff
Policy with an objective to provide electricity to all households by2009. The Central and
the State regulatory institutions in the country are seen to be getting more forward
looking and have passed various regulatory orders on Annual Revenue Requirement (ARR),
Tariff formulation including Multi Year Tariff, Open Access, Intrastate Availability Based
Tariff, etc. The Appellate Tribunal for Electricity (ATE) has also become active and
functional as a body to address grievances against the orders of Central and State
Commissions. The Indian power sector appears to be progressing well on the policy
initiative and regulation front. The key to Indian reform is improving efficiencies in the
power distribution sector. While the Regulatory Commissions are pressing for faster
reduction of Aggregate Technical and Commercial (AT&C) losses, its implementation and
results are slow. As has been the experience, strong political support is needed to
achieve the desired results and ensure fiscal sustenance of the sector. In addition to the
above, the institutionalisation of the competitive bidding process for capacity addition
in generation as well as transmission projects, with the Centre / States offering
green-field ventures with key clearances in place would encourage investments, bring
competitive tariffs for the benefit of consumers and see quicker execution of projects.
This year marked the commencement of the 11 th Five Year Plan. About 21,200 MW of
capacity got added in the 10th Plan against a target of 41,100 MW. Focused efforts are,
therefore, required to implement the targeted 80,000 MW in the 11 th Five Year Plan by
Encouraged by the success of the UMPP route followed by the Gol, many states are
initiating the process of inviting bids for mini UMPPs (on the lines of the UMPP route).
In addition to this, states are also inviting competitive tariff based bids for sourcing
their short-term as well as long-term power requirements. This is an encouraging
development for the sector and besides bringing transparency would also make tariff
competitive. Fuels such as coal and gas would also need to be dovetailed in terms of
capacity allocations and linkages so that capacity addition programs can progress
1.1.2 Fuel for Power Generation
With the sharp increase in the Crude Oil prices and the gap between the demand and
supply of gas in the country, the fuel scenario has become highly volatile. Uncertainty
about the supply of gas and the price of gas has become a matter of serious concern. It is
expected that with the discovery of gas in Krishna-Godavari-Mahanadi Basin, the
availability of gas will ease over the next 3-5 years. Till this gas becomes available at
affordable price, the coal will remain the mainstay for the power generation.
On the coal front also, the rapid increase in the prices in the international market
has made the imported coal less attractive. The Government of India has initiated steps in
promoting coal based generation at pit head by identifying and offering Captive Coal
Blocks to the power sector. While this has received an overwhelming response, there is a
lack of clear policy and speed in Coal Block allocation which needs to be set right. The
private players in the sector have also shown great interest for acquiring coal mines both
in India and abroad to securitise the fuel supply over a long period. With the
acquisitions of such interest, the availability of coal may improve to some extent.
However, the sector has to recognize that the days of cheap fuel will not return.
Development of select transmission projects through private sector participation has
been initiated. Fourteen transmission projects have been identified for development
through tariff based competitive bidding. Power Grid Corporation of India Limited has also
been asked by the Gol to study and plan transmission lines for evacuation of power from
the proposed power projects to the beneficiary states. This is yet another initiative
which needs to be dovetailed with the capacity addition program of generation in diverse
geographical locations to the load-centers in other parts of the country.
1.1.4 Distribution and State Electricity Boards
Efficiency improvement in the power distribution sector is fundamental to power
reforms. The Gol's initiative of Accelerated Power Development & Reform Programme as a
vehicle to drive reforms in the distribution sector, has not yielded much needed impetus
to discipline and improve consumer services. This is now being reviewed in order to link
performance improvement incentives with investments, fiscal discipline and improved
services. Similarly, some states have taken the initiative of performance based franchise
model for management of areas burdened with dilapidated networks and extensive AT & C
losses. In the meanwhile, successful models like the privatisation in Bhiwandi
distribution at Maharashtra need to be replicated across more states, if sustainable and
impactful change needs to be achieved.
1.1.5 Renewable Energy
There has been an increased focus on renewable energy. Many utilities as well as
private developers are going ahead with plans to develop wind farms, bio fuel based
projects and solar projects. For renewable energy projects to be viable,
Government/Regulatory support would need to continue. Similarly, the Government could
enjoin land allocations to encourage large scale development of wind farms and solar
Given the growing demand-supply gap, the Indian Power Sector continues to be
fundamentally attractive. The additional capacity required to be built is huge. In this
context, we believe that the Generation sector would be of great interest to investors. A
lot will depend however upon the Central and State Governments' resolve to address issues
concerning Distribution sector reforms, expeditious clearances (land and environment in
particular) and allocation/ linkage of fuel. On the infrastructure side, with imported
coal expected to bridge the demand supply gap, adequate port capacity build-up will also
need to be in place. One more area needing immediate attention is creating necessary
infrastructure and addressing the issue of trained manpower necessary to implement large
Given India's requirement of capacity to be built up in the next 10-15 years, it is
important that the country recognizes to balance Carbon and Non-carbon based Generation.
Both Nuclear and Hydro Power have the potential to fulfill this need; however, this would
require the Government's support on policy, rehabilitation and resettlement (R&R) and
environmental issues. Renewables on the other hand can provide impetus to distributed
generation, thereby obviating the need to invest heavily into transmission and
3. OPPORTUNITIES ANDTHREATS
On the lines of the process followed for the 4000 MW UMPPs, the Gol has proposed that
the states identify opportunities for development of 1000+ MW power projects, under
competitive tariff based bidding. This would bring tremendous investment opportunities to
existing power sector players. The Gol has also been encouraging the concept of Merchant
Power Plant to meet the peak demand in the country. This would also provide support to
power trading markets. Policy guidelines in this respect are under finalisation and need
expeditious conclusion. The current pace of reform in the distribution and fuel sector
continues to be a concern and will be critical to attract large investments in generation
capacity. Integrated planning of railways, mines, ports, etc. and reforms to facilitate
acquisition of land for power projects are other areas that need Gol attention.
4. REVIEW OF THE COM PANTS BUSINESS
The Company is primarily engaged in the business of generation, transmission and
distribution of electricity with operations in the states of Gujarat and Maharashtra. The
Ahmedabad and Surat Licence Area operations in Gujarat contributed about 82.21 % of the
power business revenues and Bhiwandi Franchise in Maharashtra contributed about 17.79%.
The sales were higher at 9418.41 million units (MUs) as against 7199.72 MUs during the
previous year. Sales to various consumers of the Company during the year compared to the
previous year are as under:
Ahmedbad Sabarmati (SBI) Power Station of 400 MW generated 3425 MUs as against 3257 MUs
during previous year. Vatva Station of 100 MW generated 554 MUs as against 598 MUs during
previous year. The generation at gas based plant at Vatva was largely affected by poor
availability of gas.
4.4 Transmission and Distribution
The Company is constantly upgrading and augmenting its network to achieve the multi
pronged objectives viz. to meet the demand of its consumers, to reduce the T&D losses
and to improve reliability of the network to serve its consumers better. In this regard,
the Company has enhanced its network by capacity creation at receiving stations,
distribution sub-stations and laying of HT & LT network. The highlights of the system
network upgradation for Ahmedabad, Gandhinagarand Surat license area are as under:
Enhancement of power transformation capacity by about 371 MVA by commissioning
of two 220 kV sub-stations at Surat and one 33 kV sub-station at Ahmedabad taking the
total power transformation capacity including intermediate power transformation capacity
* Enhancement of distribution transformation capacity by about 113 MVA by addition of
321 new distribution transformers and replacement of existing transformers, taking the
total distribution transformation capacity to about 2959 MVA.
The efforts of the Company in strengthening and augmenting the system network have
helped in reducing the average number of interruptions per consumer to 12.24 for the year
as compared to 8 interruptions during the 6 months of 2006-07. Similarly, the average
consumer hours lost during the year were 11.08 as compared
The Company has made substantial investment for strengthening and augmenting the
existing network in Bhiwandi area to reduce the T&D losses and to cater to the
consumer demand with improved quality of supply. During the year under report, the Company
has added 51 distribution transformers, replaced 889 transformers and revamped 2200
distribution transformer centers in Bhiwandi area. Further, the Company added about 31
ckms. of overhead and 65 ckms. of underground network of 22 kVto augment its distribution
capacity and relieve the overloaded existing feeders in Bhiwandi area.
5. COMPANY'S GROWTH PLANS IN THE POWER SECTOR
5.1 1147.5 MW SUGEN Power Project
The Company will commission its most ambitious 1147.5 MW gas based power project at
SUGEN near Surat by end of FY2008-09.
5.2 New Projects
The Company has a long-term strategic growth plan, in order to enable it to capitalise
on opportunities. The Company is currently pursuing development of several projects to
achieve growth. These are:
The Company is planning to increase its project capacity by additional 3000 MW. SUGEN
II and SUGEN III both will add 1500 MW in each phase at SUGEN site. Land adjacent to SUGEN
project has been identified and acquisition process for the same has commenced.
The Company has been named as co-developer for Dahej SEZ near Bharuch in Gujarat state
and is authorised to put up generation project upto 1500 MW. The Company is planning to
set up approximately 400 MW gas based combined cycle power plant in the first phase
through a new Special Purpose Vehicle, Torrent Energy Limited. The Contour survey
&Geo-Technical investigation for the project has been completed. Further, bids have
been invited under international competitive bidding process for awarding EPC contract.
The Company is planning to set up a 2000+ MW coal based thermal power project in
Pipavav in Amreli District of Gujarat. Torrent Pipavav Generation Limited has been
incorporated as a subsidiary of the Company for development of the project. Land for the
project is under possession of Gujarat Power Corporation Limited which will be transferred
to the Company. Fuel will be supplied from Baitarni Coal Block in Talchar Coal Field,
The Company's bid to supply power to GMDC on the basis of coal to be supplied by GMDC
from Morga-11 Coal Block, Chhattisgarh has been accepted. The Company is planning to set
up 1,000+ MW coal based thermal power project in Chhattisgarh for this purpose. A
Memorandum of Understanding (MOU) has been signed with the Chhattisgarh government and
Chhattisgarh State Electricity Board for development of the project.
6. CLEAN DEVELOPMENT MECHANISM
The Company made an application for registration of its SUGUN project to UNFCCC. After
considerable efforts spread over more than three years, the project has been approved as
eligible for Clean Development Mechanism (CDM) benefits on Nth August, 2007. Methodology
proposed by Torrent Power Limited got approved and has been accepted for application to
similar projects anywhere in the world. Consequently, SUGEN plant will be eligible to earn
Carbon Credits (CER's) on the commencement of generation.
During the year, the Company raised long-term loans of Rs. 1100 Crores from various
financial institutions and banks. The term loans including working capital loans and
Accelerated Power Development and Reform Programme loans outstanding as at 31st March,
2008 were Rs. 2537 Crores (Previous Period Rs. 1627 Crores). During the year, an amount of
Rs. 499 Crores (Previous Period Rs. 817 Crores) has been drawn for the 1147.5 MW SUGEN
CCPP and Rs. 680 Crores for ongoing CAPEX (Previous Period Nil). The Company has repaid an
amount of Rs. 57.96 Crores (Previous Period Rs. 27.13 Crores) towards term loans including
loan under APDRP.
The Company's long-term debt is rated AA- by credit rating agency, while for working
capital loans; the Company is rated PI + by credit rating agency suggesting the highest
8. RISK AND CONCERNS
The Company has systems in place for identifying potential risks and taking measures to
mitigate those risks. The Risk Management Policy of the Company addresses all potential
risks including Fuel Risks (availability and pricing), Regulatory Risks (Tariff
Regulation, Environment Regulation, etc.), Consumer Risks (Revenue Realisation,
Transmission Risks), Asset Risks (Natural Calamity, etc.), Human Resource Risks and IT
The power generation plants use coal and gas as fuel. While domestic coal production
and price has remained stable during the period under consideration, the increased usage
of coal and capacity addition would increase the gap between demand and supply and in turn
necessitate use of imported coal. High dependence on domestic coal could, therefore,
expose the Company to potential availability risks. In respect of imported coal, the price
instability due to increased demand in the international market, increase in crude price
and transportation constraints alongwith foreign exchange variation would expose the
Company to the potential availability and price risk. The Company has taken necessary
steps to maintain continuous supply of fuel and in turn generation.
The Company's business growth is mainly driven by the industrial and commercial
activities which depend on economic growth. The Company's Ahmedabad, Gandhinagar and Surat
distribution areas have witnessed high growth on account of increase in commercial and
industrial activities in last few years and it is expected that growth in demand for
energy would continue to rise in line with economic growth. However, any reduction in
economic growth would expose the Company to potential business risk.
The Company procures substantial quantity of power for supply from GUVNL. The demand
supply gap in Gujarat may impact the availability of power from GUVNL. The upcoming 1147.5
MW SUGEN project shall help in bridging the demand supply gap in existing distribution
businesses, leaving potential of sale of power outside Gujarat.
The Electricity Act, 2003 provides for competition in supply of electricity through
second licensee in the Company's existing license area of operation. However, the
established distribution network and track record of supplying reliable and quality power
would give edge to the Company to meet with such competition.
The GERC has notified regulations, prescribing various norms and standards of
performance for the licensees and provided for penalties for deviating from the prescribed
standards of performance. The Company has been able to improve its performance vis-a-vis
GERC's prescribed standards of performance. The GERC has notified Multi Year Tariff (MYT)
regulations requiring determination of tariff under the new regime. However, the Company
has equipped itself to meet with the regulatory requirements.
All the significant parameters concerning the commissioning of SUGEN project have been
already tied up. The capacity utilisation during the commercial operations of the project
will require uninterrupted supply of fuel, i.e. Natural Gas (NG) / Regasified LNG (RLNG).
At present in the world and in the country, there is a mismatch of demand and supply of
NG/RLNG, resulting into higher cost of fuel. However, the project enjoys partial certainty
of availability of fuel at reasonable price and for the balance portion, if uninterrupted
supplies are not available, to that extent the commercial operations will suffer from the
utilisation of full capacity. At the same time, possibility of purchase of fuel on spot
basis exists which may partially mitigate the risk. The power generated from the plant is
proposed to be used mainly in the Company's distribution areas. The risk of unutilised
capacity can be mitigated by sale of surplus power at competitive rates on spot basis. The
activation of Indian Energy Exchange will help this process.
The Company has been able to reduce the T&D losses in its recently acquired
distribution franchise for Bhiwandi. However, it is required to make further investments
in network for reducing technical losses and to cater to the additional demand. The
further reduction of commercial losses necessitates improvements in metering and billing
processes. The Company can be subjected to the financial risk, if its efforts do not yield
the desired results.
The operations of the Company are subject to certain risks generally associated with
power generation, transmission and distribution businesses, and the related
transportation, receipt and storage of fuels and environmental issues.
9. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACIES
The Company has appointed a reputed firm of Chartered Accountants to carry out
Assurance audit. The audit process includes review and evaluation of effectiveness of the
existing processes, controls and compliance. It also ensures adherence to policies and
systems and mitigation of the operational risks perceived for each area under audit.
Significant observations including recommendations for improvement of the business
processes were reported to the Audit Committee of the Board which reviewed the audit
reports and the status of implementation of the agreed action plan.
10. FINANCIAL PERFORMANCE OF THE COMPANY
During the current year, the total income of Rs. 3722.00 Crores was higher by 28.67% as
compared to Rs. 1446.35 Crores in the previous period, as detailed below:
||Amount (Rs. crores)
||% of net Sales
|Cost of Electrical energy purchased
|Cost of Fuel
|Operating Profit (PBDIT) - including Other Income
|Interest & Finance Charges
|Profit before lax
|Provision for Taxes & Short Provision for earlier years
|Net Profit after Tax & Short Provision for earlier years
|Equity EPS (in Rupees)
|Equity Dividend (%)
|Debt - Equity Ratio
The revenue of the Company comprises primarily sale of electricity, which is sourced
from its own generation as well as purchase from Gujarat Urja Vikas Nigam Limited (GUVNL)
and Maharashtra State Electricity Distribution Company Limited (MSEDCL). The Company also
derives revenue from related services namely hire of meters, street light maintenance
contracts, contract / consultancy services, etc. and interest/dividend earned on
10.1.1 Sale of Electricity
The Company witnessed demand growth from all major categories of the consumers. The
charges for electricity are based on tariff and FPPPA approved by the Gujarat Electricity
Regulatory Commission (GERC) and Maharashtra Electricity Regulatory Commission (MERC).
Other major factors contributing to the sales were inclusion of Bhiwandi Circle and
reduction in T&D losses. The Company also exports power to GUVNL in case power
generated is more than system demand. The average revenue realisation per unit sold during
the financial year was Rs. 3.81 as compared to Rs. 3.79 of the previous year.
10.1.2 Other Income
Other Income of Rs. 88.21 Crores for the period under review comprises revenues from
related business activities like hire of meters - Rs. 34.01 Crores, Street Lighting
Maintenance contracts -Rs. 4.51 Crores besides other recurring items like interest and
dividend on investments and deposits, sale of scrap, bad debts recovery, etc.
The expenditure incurred is on purchase of power, fuels used for power generation and
other generation, distribution, administration & other expenses including employees'
costs, insurance, etc.
10.2.1 Power Purchase
The total power purchase cost accounts for about 53% (Previous Period 52%) of sales and
58% (Previous Period 55%) of the total expenditure. For power supplies in Ahmedabad and
Gandhinagar, demand of power is met through own generation capacity of 500 MW and purchase
of power from GUVNL. The higher efficiency maintained on generation front has provided a
cushion towards power purchase from GUVNL. For the supply of power to Surat, the entire
requirement is sourced from GUVNL. The rates for power purchase from GUVNL are approved by
GERC. In case of Bhiwandi, the Company is required to pay for power purchase cost as per
the Distribution Franchise Agreement to MSEDCL.
The other primary fuel used in power generation is coal and natural gas. Expenditure on
fuel constituted 22% (Previous Period 24%) of the total expenditure. The usage of fuel is
also linked with the higher generation achieved by the Company. The coal used by the
Company is procured both indigenously as well as imported. The Company makes conscious
efforts to monitor the availability as well as optimise the sources of different fuels.
10.2.3 Operating Costs
The other Operating Costs (generation, distribution, administration and other expenses)
consist primarily of repair and maintenance of buildings, plant and machinery, employees'
remuneration and benefit expenses, insurance, etc. These expenses represent 13.86%
(Previous Period 15.42%) of the total expenditure.
The depreciation charged to the profit and loss account during the year is Rs. 156
Crores (Previous Period Rs. 68 Crores). A proportionate amount of Service Line
Contribution and APDRP Grant attributable to depreciation on assets created against such
Service Line Contribution and APDRP Grant is adjusted against depreciation for the period.
The net depreciation after such transfer from Service Line Contribution and APDRP Grant is
Rs. 148 Crores (Previous Period Rs. 65 Crores). Depreciation on assets relating to 1147.5
MW SUGEN CCPP is treated as pre-operative expenses pending capitalisation.
10.2.5 Interest and Finance Charges
The interest charges consist primarily of interest expense on Term Loans, Working
Capital Loan and interest on security deposits placed with us by consumers of electricity.
Borrowing costs amounting to Rs. 223 Crores (Previous Period Rs. 52 Crores) are
capitalised during the year.
The Company has provided for Rs. 79.77 Crores (Previous Period Rs. 16.77 Crores) in
respect of current taxes, Rs. 1.06 Crores (Previous Period Rs. 0.54 Crore) in respect of
Fringe Benefit Tax and Rs. 61.22 Crores (Previous Period Rs. 40.60 Crores) towards
Deferred Tax Liability.
10.3 Net Profit after Tax
The net margin of the Company is 5.84% (Previous Period 5.17%) of the net sales for the
year under review.
10.4 Appropriation to Reserves & Surplus
Out of the profits forthe year, an amount of Rs. 140 Crores (Previous Period Rs. 5.07
Crores) has been transferred to the General Reserve.
10.5 Net Worth
The net worth of the Company at the end of the financial year was Rs. 2890 Crores
(Previous Period Rs. 2705 Crores).
10.6 Resource Allocation
a) Fixed Assets
The gross fixed assets as on 31st March, 2008 were Rs. 3689 Crores as compared to Rs.
2985 Crores in the previous year.
b) Working Capital
The net current assets as on 31st March, 2008 were Rs. (207) Crores as compared to Rs.
(330) Crores in the previous year.
11. HUMAN RESOURCE MANAGEMENT
Continuous efforts are made to redefine the business processes leading to increase in
productivity and overall improvement in the quality of work. Several training and
development initiatives including training and upgradation of technical skills, consumer
orientation, self and organisational development, team building, managerial effectiveness,
series of in-house presentations, etc. have been a constant feature during the year under
12.1 Torrent Power Grid Limited
Torrent Power Grid Limited, a public-private joint venture in power transmission in
India partnered by the Company with Power Grid Corporation of India Limited, has commenced
implementation of the project.
12.2 Torrent Pipavav Generation Limited
The Company is planning to set up 2000 + MW coal based thermal power project in
Pipavav. Torrent Pipavav Generation Limited has been incorporated as a subsidiary company
on 25th September, 2007, for development of the project.
13. SOCIAL CAPITAL
As a part of its commitment to the development of the society, the Torrent Group is
undertaking many projects which seek to touch thousands of lives in Ahmedabad, Surat and
Bhiwandi under the programme called "Sparsh" which was launched in January,
2005. "Sparsh" strives to make a positive difference in the quality of life in
the areas of health, education, public amenities and community development, involving the
individual and collective will and effort of about 10000 members of the Torrent Parivar.
Some of the activities undertaken in Ahmedabad, Surat and Bhiwandi include tree
plantation, health checkup camp, cleaning of water tanks, refurbishing of schools.
The Company has been a significant contributor to the social capital of the cities and
the state of power supply. A value added statement, particularly as regards society, is
summarised below which details the contribution made by the Company towards the state
exchequer, employment generation, creditors and lenders, and investors.
Value Added Statement
||(Rs. in Crores)
||Year ended on 31st March, 2008
|Less: Cost of fuel & Electrical Energy Purchased
|Distribution, Administration & Other Expenses
|Add: Net Income of Service and Fly-Ash Divisions
|Total Value Added
|Applied to Meet
|Other Rates & Taxes
|Income Taxes (including short provisions of earlier years)
|Provision for Deferred Taxation
|Dividend and Tax thereon
|Retained in Business
As seen from the above, your Company has added a value of Rs. 1242.36 Crores to the
social capital during the year 2007-08.
Statements in the Management Discussion and Analysis, describing the Company's
objectives, projections and estimates, are forward-looking statements and progressive
within the meaning of applicable security laws and regulations. Actual results may vary
from those expressed or implied, depending upon economic conditions, Government Policies
and other incidental/related factors.
||For and On behalf of the Board of Directors
|15th May, 2008