bhartiya rail bijlee company ltd Management discussions

BHARTIYA RAIL BIJLEE COMPANY LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY SECTOR AND DEVELOPMENTS Overview of the power sector: Power is one of the prime movers of economic development. Power sector is at a crucial juncture of its evolution from a controlled environment to a competitive, market driven regime which endeavors to provide affordable, reliable and quality power at reasonable prices to all sectors of the economy. The liberalization and globalization of the economy is leading to an increased tempo in industrial and commercial activities and this, coupled with penetration of technology in the day-to-day life of the common man, is expected to result in a high growth in power demand. India has reached a level of about 813.3 kilowatt hour (kwh) per capita per year consumption. The comparable figures for Japan are about 7,800 kwh, for South Korea about 7,000 kwh, for China about 1,380 kwh, for USA about 13,000 kwh, for OECD countries about 8,050 kwh and world average is about 2,430 kwh. Thus, in terms of per capita electricity consumption, India is far behind many countries, and as a matter of fact, behind even the world average. India, the worlds second-fastest growing economy, desperately needs to improve its electricity infrastructure to reduce peak hour power shortages and provide electricity to millions of rural households, as well as keeping its resource-hungry industry on the move. It is accordingly essential that development of the Power Sector should be commensurate with the overall economic growth of the nation. The Twelfth Five Year Plan (2012-2017): The Working Group on Power constituted by the Planning Commission to formulate the 12th Five year plan for the Power sector has estimated the capacity addition requirement of about 75,785 MW on all India basis. It banks upon the private sector to contribute over 55% of this addition during the plan period. Fuel-wise, nearly 85% of this capacity is expected to be based on thermal generation while the expectation from nuclear generation is pegged at mere 2,800 MW (3.77%) only. Capacity addition in 12th five year plan Hydro Thermal Nuclear Total % share Central 5,632 11,426 2,800 19,858 26.20 State 1,456 12,340 - 13,796 18.20 Private 2,116 40,015 - 42,131 55.59 Total 9,204 63,781 2,800 75,785 100.00 % share 12.14 84.16 3.69 100.00 As per the 18th Electric Power Survey Report, peak demand of 199,540 MW and energy requirement of 1,354,874 BUs has been estimated by the end of 12th Five Year Plan (i.e. in the year 2016-17). At the end of 11th Five Year Plan (i.e. in the year 2011-12), the country was facing peak shortage of 13,815 MW (10.6%) and energy shortage of 79,313 MUs (8.5%). GENERATION Existing Installed Capacity: The total installed capacity in the country as on March 31, 2012 is 1,99,877.03 MW. The total thermal capacity, including coal, gas stations and diesel generation accounts for about 65.84% of installed capacity of the country followed by hydro capacity at 19.51%. Nuclear capacity accounts for 2.39% and the balance 12.26% is contributed by Renewable Energy Sources. Total Capacity MW % share Thermal 1,31,603.18 65.84 Nuclear 4,780.00 2.39 Hydro 38,990.40 19.51 R.E.S.* 24,503.45 12.26 Total 1,99,877.03 100.00 * Renewable Energy Sources Source: CEA Executive Summary Existing Generation: The sector-wise Electricity Generation Target and achievement during financial year 2011-12 were as under:- Total Generation Target Achievement % of achievement (Million Units) (Million Units) Thermal 712,234 708,805.94 99.52 Hydro 112,050 130,511.47 116.48 Nuclear 25,130 32,286.56 128.48 Bhutan (Import) 5,586 5,284.51 94.60 Total 855,000 876,888.48 102.56 Capacity Utilisation: Capacity utilisation in the Indian power sector is measured by Plant Load Factor (PLF). The all-India thermal PLF was 73.32% during 2011-12 as against 75.07% during financial year 2010-11. SWOT ANALYSIS Strength/Opportunity: The Company is backed by strong promoters i.e. Ministry of Railways and NTPC Limited. The Company is able to acquire major portion of land for establishing the project. NTPC is the consultant for the Company which is having wide experience in engineering and management expertise from planning to commissioning and operating power plants. Also, Bharat Heavy Electricals Limited is the main plant contractor. The Company has tied up loan with Power Finance Corporation Limited and with Rural Electrification Limited for meeting its debt portion. Weakness/Threats: The major threat the company is facing in acquiring parts of land. There has been increase in prices of coal. The site where the project is located is prone to huge rainfall. Security of the project has been a considerable concern for the company. At times the unsocial elements are causing bandhs and other nuisances at site. RISKS AND CONCERN The risk to which company is exposed and the initiatives taken by the company to mitigate such risks are given below: Hazard risks are related to natural hazards arising out of accidents and natural calamities like fire, earthquake or cyclone etc. Operational risks are associated with systems, processes & people and cover areas such as succession planning, attrition and retention of people, operational failure or interruption, disruption in supply chain, failure of research & development facilities and faulty application of information technology and non-compliance of regulatory provisions. As the company is in construction phase of project, it is not exposed to all such operational risks. The risks Company is facing is bandhs and agitation by land oustees. The Company has resolved the matter of agitation by land oustees by giving compensation based on the principle of One Rate One Project in one project and adopting Rehabilitation and Resettlement Scheme, 2010, as applicable in NTPC, for giving compensation to Project Affected People. For overcoming security threats, the Company has established police station at site and has deployed police. The Company has awarded all the packages for the project. However, for Induced Cooling Tower Package for which the contract was awarded to M/s Lanco Infrastructure Limited (Lanco), Paharpur Cooling Towers Limited, one of the participating bidder has filed the suit alleging non-fulfillment of qualifying requirements by Lanco. The matter is sub-judice in the Supreme Court. The Company is exploring the possibility of alternative arrangement for cooling tower because due to delay in execution of such package, the synchronization of the project might get delayed. INTERNAL CONTROL The Company has robust internal systems and processes for efficient conduct of business. It is following delegation of powers as is being followed in NTPC Limited. The accounts are being prepared in accordance with the Accounting Standards notified under Section 211(3C) of the Companies Act, 1956. The Company has implemented SAP in all of its modules like HR, Accounting, Engineering, etc. which helps in retrieving data and maintaining systematic backup. FINANCIAL DISCUSSION AND ANALYSIS For financial year 2011-12, the financial statements were drawn in accordance with the revised Schedule VI to the Companies Act, 1956. During the financial year 2011-12, your company had allotted 20,84,60,000 shares of Rs. 10/- each to NTPC Ltd. and Ministry of Railways in the ratio of 74:26. Share Capital pending allotment stood at Rs. 39,000 and Rs.83,00,00,000 received from NTPC Limited and Ministry of Railways respectively. The Company had withdrawn cumulative loan of Rs.5,60,65,04,666 upto the financial year 2011-12 from PFC and REC. The tangible assets after depreciation amounted to Rs. 1,82,35,84,339 as at 31.03.2012 as against Rs. 1,82,14,10,821 as at 31.03.2011. The intangible assets after depreciation amounted to Rs. 4,73,564 and Rs. 7,90,696 as at 31.03.2012 and 31.03.2011 respectively. The depreciation transferred to Expenditure During Construction (EDC) for the financial year 2011-12 was Rs. 1,22,96,347. The capital work-in-progress stood at Rs. 8,46,96,55,673 as at 31.03.2012. As the project is in construction stage, the income and expenses were transferred to EDC account. The expenses (net of income) transferred to EDC amounted to Rs. 50,70,41,667. The expenses incurred on training & recruitment was charged to statement of profit and loss. The total loss charged to statement of profit and loss was Rs. 1,43,178 which was transferred to reserves and surplus as against Rs. 2,31,384 for the financial year 2010-11. HUMAN RESOURCE Presently, the Company has total strength of 109 employees (including 14 Executive Trainees), out of which 108 employees have been deputed from the Holding Company i.e. NTPC Limited and 1 employee has been deputed from Ministry of Railways. As a socially responsible and socially conscious organisation the company has deployed 17 SC employees, 7 ST employees and 16 OBC employees out of the total strength of 109 employees. The company is paying Performance Related Pay to its employees in order to boost their morale and also extending the facility of retention of family anywhere in India. Quarters have been hired at Dalmianagar as a Temporary Township until Permanent Township at the site is constructed. The employee benefits expense (salaries & wages, contribution to provident & other funds and staff welfare expenses) was Rs. 14,46,13,098 for the financial year 2011-12. OUTLOOK The companys outlook appears to be very bright and will get breakeven very soon once the plant is commissioned and production is stabilized. It will generate sufficient revenue for the growth and development of the company and employment opportunities to the local inhabitants. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis, describing 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 condition, Government policies and other incidental/related factors. For and on behalf of the Board of Directors PLACE: New Delhi (B.P. Singh) DATE : 27 July 2012 Chairman