ntpc hydro ltd Management discussions

NTPC HYDRO LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS I. INDUSTRY STRUCTURE AND DEVELOPMENT Energy is the life line of modern economies. It constitutes a part of basic infrastructure. The power sector provides one of the most important inputs for the development of a country and availability of reliable and affordable power is critical for its sustainable economic development. As on 31st March, 2011, the total installed capacity in India was 173626.40 MW out of which, share of Thermal, Hydro, Nuclear and Renewable energy sources were as follows: Installed Capacity (MW) Thermal 112824.48 Nuclear 4780.00 Hydro 37567.40 Renewable Energy 18454.52 Total 173626.40 (Source: Central Electdcity Authority) Hydro power is a renewable, economic, non polluting and environmentally benign source of energy. Hydro power stations have the inherent ability for instantaneous starting, stopping, load variations etc. and help in improving reliability of power system. In addition to above, in hydro projects the generation cost reduces over time and also have long useful life. Hydro projects help in conserving scarce fossil fuel and also reduce emission of green house gases. Moreover, as hydro projects are mostly located in remote and backward areas, construction of hydro projects and infrastructure associated with the hydro projects help in opening avenues of development of remote and backward areas. The benefits of hydro power as a clean, environment friendly and economically attractive source of energy have now been sufficiently recognised. Our Country has been endowed with enormous hydro power potential, last assessed to be 84000 MW at 60% load factor which assessed to be about 150000 MW in terms of installed Capacity. However, installed capacity of hydro electric projects was only 37,567 MW as on 31 11 March 2011. In addition to above, 6782 MW of installed capacity has been accessed from small, mini and micro hydel schemes. II. STRENGTHS Your company is presently executing two projects namely, Lata Tapovan Hydro Electric Project (171 MW), located in Chamoli District of Uttarakhand and Rammam Hydro Electric Project, Stage - III (120 MW) located in Darjeeling District of West Bengal and West Sikkim District of Sikkim. Your Company has received all statutory clearances for both projects and infrastructure development activities are presently being carried out. Both the projects are to be executed on EPC package basis, which are under various stages of bidding. Strong design and engineering support Your Company is a wholly owned subsidiary of NTPC Limited. NTPC has installed capacity of morethan 34000 MW. Currently, NTPC is developing three hydro projects namely Tapovan Visnugad Hydro Electric Project (520 MW), Koldam Hydro Electric Project (800 MW) and Singrauli CW discharge small hydro project (BMW). With a view to take advantage of expertise of NTPC in engineering, design, contractual and other technical issues, your company has entered into working arrangement with NTPC Limited under which all pre and post award engineering as well as processing and award of EPC packages in respect of Lata Tapovan Hydro Electric Project and Rammam Hydro Electric Project (Stage-III) will be done by NTPC. Power Purchase Agreements with customers Your company has entered in to Power Purchase Agreements, for Lata Tapovan Hydro Electric Project, with North Delhi Power Ltd., BSES Yamuna Power Ltd., BSES Rajdhani Power Ltd., Dakshin Haryana Bijlee Vitran Nigam Ltd., Uttar Haryana Bijlee Vitran Ltd, Jaipur Vidyut Vitran Ltd., Ajmer Vidyut Vitran Nigam Ltd. and Jodhpur Vidyut Vitran Nigam Ltd., Himachal Pradesh State Electricity Board, Uttar Pradesh Power Corporation Ltd., Uttarakhand Power Corporation, Govt. of Jammu and Kashmir, Punjab State Power Corporation Ltd. and Electricity wing of Engineering Dept: of Union Territory of Chandigarh. The Power Purchase Agreements provide for opening of Letter of Credit, Default Escrow Arrangement and first charge on the Incremental receivables with a view to secure realization of payment. Power Purchase Agreement for Rammam Hydro Electric Project is under discussion with concerned beneficiary. III. OPPORTUNITIES Hydro power projects not only generate clean energy but also provide drinking water supply, irrigation, increased employment opportunities, industrial development etc. to the region. The Government of India has accorded a high priority to the development of Hydro Potential in the country and in recent years Government has taken a number of policy initiatives to address the issues impending the development of Hydro Power. Various reforms and initiatives like enactment of Electricity Act, 2003, ranking study of potential hydro sites by CEA in 2001, 50000 MW Hydro Electric initiative, National Water Policy-2005 etc. have been taken bythe Government of India to accelerate development of Hydro Power in the Country. Further, the cabinet in January 2008 had approved a New Hydro Policy-2008 with a view to address various problems which have impeded the development of Hydro Power from time to time. Under 50000 MW Hydro Electric initiatives, CEA has prepared Pre-feasibility Report for 162 hydro projects in 16 states across India. Both projects of your company are slated for commissioning during the 121 Plan period. IV. OUTLOOK As per the assessment of CEA, the country is endowed with hydro potential of approx. 150000 MW. Further, Hydro power potential at 60% load factor, had been estimated at 84,000 MW. At present, installed Hydro Power Capacity of the Country is 37,567.40 MW only. Therefore, there is huge potential in the areas of Hydro Power which are yet to be harnessed. V. RISK & CONCERNS/WEAKNESS/ THREATS Environmental & Forest Clearance, lack of infrastructure facilities like roads & construction power, issues relating to land acquisition and R&R, apportionment of catchment area treatment among various beneficiaries, net present value and its up-front payment for assessing the cost of forest diversion etc. are some of the areas of concern which has marred development of Hydro Power in the Country. Hydro Projects are highly capital intensive and have long gestation periods. VI. INTERNAL CONTROL SYSTEM Your Company has adequate Internal Control system at its projects and administrative offices. Your Company is following defined Scheme of Delegation of Power for its employees. In order to ensure that all checks and balances and internal controls are in order, internal audit of all projects and administrative offices are carried out by independent firms of Chartered Accountants and findings of Internal Auditors are placed before the Audit Committee of the Board. Further, being a wholly owned subsidiary of NTPC, the internal control mechanism of the Company is also subject to review periodically by the Internal Audit Department of the NTPC. VII. FINANCIAL PERFORMANCE During the financial year Paid-up share Capital of the Company has increased from Rs. 100.80 Crore to Rs. 113.96 crore. The Capital work in progress has increased by Rs. 10.75 Crore. The projects undertaken by the Company are in construction stage, therefore all the administrative expenditures of the Company are transferred to Capital work-in-progress. VIII. HUMAN RESOURCE At present, 22 executives are posted in the Company and all employees are on secondment basis from NTPC Limited. Development of Human resource by imparting Training is a continuous process. In your Company, there is a policy of imparting minimum 7 days training in a year. Training programs are generally conducted in association with Power Management Institute, one of the leading training institute in Power Sector. IX. ENVIRONMENT PROTECTION As a responsible corporate citizen, your Company is committed for protection of environment and ecological balance in areas around the project. Both projects undertaken by the Company have received environment clearances from the Ministry of Environment & Forests. The Company has made al I payments, which were required to be made for compensatory afforestation to the State Governments. X. 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 mayvary 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 (Arup Roy Choudhury) Dated: July 06, 2011 Chairman