PROJECT REPORT ON PROCUREMENT OF EQUIPMENTS AND SERVICES AND FINANCIAL ANALYSIS IN NTPC LTD.

UNDER THE GUIDANCE OF MR.Y.R.DHINGRA ( Sr. MANAGER ) FINANACE DEPARTMENT NTPC

Submitted by : LEENA SETHI MBA A SEMESTER II NIEC, DELHI TABLE OF CONTENTS SR. NO. CONTENTS PAGE NO. 1 ACKNOWLEDGEMENT 3 2 EXECUTIVE SUMMARY 3 NTPC PROFILE 5 4 ABSTRACT 15 5 TENDERING PROCEDURE 6 7 8 9

4 18 47 48

EXPERIENCE OF ATTENDING BID OPENING FINANCIAL ANALYSIS STATEMENTS CONCLUSION 70 BIBLIOGRAPHY 72

ACKNOWLEDGEMENT This summer training project was undertaken by me in Finance Concurrence Depart ment of NTPC LTD at Engineering Complex Office Noida, Sector 24. During the training the various aspects of optimum procurement of Plant and Equi pments for a power plant and various financial checks and analysis have been tau ght. For the implementation of power project consisting of Tendering and Bid Evaluati

on involving analysis of various aspects were done by me under the active guidan ce of Shri Y.R. DHINGRA, Sr.Manager (Finance) I sincerely thank all the Senior Officers in NTPC for providing help and resourc es and for sparing valuable time for me. This helped me in completion of this pr oject. EXECUTIVE SUMMARY The report entitled PROCUREMENT AND FINANCIAL ANALYSIS OF N.T.P.C is about the pur chase practices followed at NTPC. These practices are followed during all procur ement by NTPC. The purchase procedure starts at Indenting by the department that requires the material and goes to the cost department and finance department fo r required approval. In between various activities like Liquidated Damages calcu lation, Spare Parts procurement terms, Guarantee in Liability Defect period etc are undertaken. Once all the terms and conditions are formulated and approved, t he tender document preparation starts. The tender documents are issued to the pr ospective bidder for a cost that starts from Rs 200 to Rs 3000. The content of t he tender document is prepared in such a manner that the prospective bidder come s to know about all the important details about the contract. The issuance of te nder document is followed by the receipt of Bids from various vendors in the spe cified format. Once all the bids are received, they are opened in presence of so me nominated officials from Finance, Contracts and Materials department. The rep resentatives from the bidders may also be present. Then a comparative statement of the quoted bids is prepared and the contract is awarded to the lowest quoting bidder. During the document preparation phase, payments terms are also decided and docum ented in the General Condition of Contract, which is issued to the bidder with t he tender documents. Apart from payments, there are various other issues like Ar bitration, which are dealt in the tender documents. Liquidated Damages is one of the very important clauses. Liquidated damage is a payment to be made by the co ntractor in case he fails to complete the project in the stipulated time. In cas e of equipment, it is related to the performance of the equipment. The purchase is followed by the evaluation, which is done for two things, the vendors performa nce and the purchase performance. The Vendor evaluation comes in handy for placi ng future orders where as the Purchase Performance evaluation provides detailed insight into the procedures being followed to procure the required material.

NATIONAL THERMAL POWER CORPORATION

NTPC is the largest power generating company of INDIA and contributes one-fourth of the thermal energy generated in the country. A public sector company, it was incorporated in the year 1975 to accelerate power development in the country as wholly owned company of the Government of INDIA. It has 463 rank in the World T op Class 2000 Companies which is improve from the last year rank i.e. 486. At pr esent, Government of INDIA holds 89.5% of the company and the balance 10.5% is h eld by FIIS, Domestic Banks, Public and others. Within a span of 32 years, NTPC has emerged as a truly national power company, with Power Company, with power ge nerating in all major regions of the country

NTPCs core business is Engineering, Construction, and Operation of power generati ng plants. It also provides consultancy in the area of power plant constructions and power generation to companies in INDIA and abroad. As on date the installed capacity of NTPC is 29,144MW through its 15 COAL based (23,395),7 gas based (39 55MW) and 4 Joint Ventures (1794MW).NTPC acquired 50% equity of the SAIL Power Supply Corporation Ltd.(SPCL).This JV Company operates the captive power plants of Durgapur (120 MW ) and Rourkel and Power Private Limited (RGPPL) a joint venture company between and Power Private Limited (RGPPL) a joint venture company between NTPC, GAIL, In dian Financial Institutions and Maharashtra SEB Holding Co. Ltd. The present cap acity of RGPPL is 1480 MW.

NTPCs share on 31 March 2008 in the total installed capacity of the country wa s 19.1% and it contributed 28.5% of total power generation of the country duri ng 2007-2008 NTPC has set new benchmarks for the power industry both in the area of power pla nt construction and operations .Its providing power at the cheapest average tarif f in the country .With its experience and expertise in the power sector, NTPC is extending consultancy services to various organizations in the Power Business NTPC is committed to the environment, generating power at minimal environment co st and preserving the ecology in the vicinity of the plants .Plantations ha ve increased forest area and reduced barren land. The massive afforestation by t he NTPC in and around its Ramagundam Power station (2600 MW) have contributed re ducing the temperature in the areas the by about 3*C. NTPC has also taken proact ive steps for ash utilization In 1991, it set up Ash Utilization Division to manag e efficient use of the ash produced at its coal stations .This quality of ash pr oduced is ideal for use in CEMENT, CONCRETE, CELLULAR.CONCRETE, CELLULAR CONCRET E, BUILDING MATERIAL. A Centre for Power Efficiency and Environment Protection (CENPEEP) has been estab lished in NTPC with the assistance of United States Agency for International Dev elopment. (USAID). CENPEEP is an efficiency oriented, eco-friendly and eco-nurtu ring initiative a symbol of NTPCs concern towards environmental protection and con tinued commitment to sustainable power development in INDIA.

As a responsible corporate citizen, NTPC is making constant efforts to improve t he socio-economic status of the people affected by its projects .Through its REH ABILITATION and RESETTLEMENT programmes, the company endeavors to improve the ov erall socio-economic status of Project affected persons. NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding in 1987-1988.NTPC has been placed under the Excellent Category ever y year since the MOU system became operative. Recognizing its excellent performance and vast potential, Government of India ha s identified NTPC as one of the JEWELS of Public Sector NAVRATNAS a potential global giant

NTPC is committed to the environment, generating power at minimal environment co st and preserving the ecology in the vicinity of the plants .Plantations have in creased forest area and reduced barren land. The massive afforestation by the NT PC in and around its Ramagundam Power station (2600 MW) have contributed reducin g the temperature in the areas the by about 3*C .NTPC has also taken proactive s teps for ash utilization In 1991, it set up Ash Utilization Division to manage eff icient use of the ash produced at its coal stations .This quality of ash produce d is ideal for use in CEMENT, CONCRETE, CELLULAR.CONCRETE, CELLULAR CONCRETE, BU ILDING MATERIAL. A Centre for Power Efficiency and Environment Protection (CENPEEP) has been estab lished in NTPC with the assistance of United States Agency for International Dev elopment. (USAID) . CENPEEP is an efficiency oriented, eco-friendly and eco-nurt uring initiative a symbol of NTPCs concern towards environmental protection and co ntinued commitment to sustainable power development in INDIA. As a responsible corporate citizen, NTPC is making constant efforts to improve t he socio-economic status of the people affected by its projects .Through its REH ABILITATION and RESETTLEMENT programmes, the company endeavors to improve the ov erall socio-economic status of Project affected persons. NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding in 1987-1988.NTPC has been placed under the Excellent Category every year since the MOU system became operative. Recognizing its excellent performance and vast potential, Government of India ha s identified NTPC as one of the JEWELS of Public Sector NAVRATNAS a potential global giant

NTPC Vision

A world class integrated power major, powering India s growth with increasing gl obal presence. NTPC Mission Develop and provide reliable power related products and services at competitive prices, integrating multiple energy resources with innovative & Eco-friendly tec hnologies and contribution to the society Core Values - BCOMIT Business ethics Customer Focus Organizational & Professional Pride Mutual Respect & Trust Innovation & Speed Total Quality for Excellence

POWER STATIONS OF NTPC IN INDIA [ Singrauli | Korba | Ramagundam | Farakka | Vindhyachal | Rihand ] [ Kahalgaon | NCTPP | Talcher Kaniha | Unchahar | Talcher Thermal | Simhadri | T anda] [ Anta | Auraiya | Kawas | Dadri Gas | Jhanor-Gandhar | Kayamkulam | Faridabad] PERFORMANCE OF NTPCs COAL/GAS BASED POWER STATION REGION WISE AND STATION WISE PERFORMANCE 2002-2003 STATION CAPACITY GENERATION North region 4280 31810 Singroli 2000 15474 Rihand 1000 7674 Unchahar 840 6561 Tanda 440 21 01 National Capital Region 3152 23008 Dadri coal 840 6673 Anta 413 3 060 Auraiya 652 468 4 Dadri gas 817 5730 Faridabad 430 2861 Western Region 5653 39562 Korba 2100 16605 Vindhyachal 2260 15590 Kawas 645 3745 Jhanor-gandhar 648 3615 Eastern Region 3900 21634 Farakka 1600 8418 Kahalgaon 840 4514 Talcher kaniba 1000 6236 Talcher thermal 460 2466 Southern Region 2950 17178 Ramagundam 2100 15846 Kayamkulam 350 1316

Simhadri 15 JOINT VENTURES

500

D) E) F)

A) Utility Powertech Limited (UPL) B) NTPC-ALSTOM Power Services Private Limited C) Power Trading Corporation of India Limited NTPC-SAIL Power Corporation Private Limited Bhilai Electric Supply Company Limited Ratnagiri Gas and Power Private Limited

Utility Powertech Limited (UPL) Utility Powertech Limited (UPL), a Joint Venture Company (JVC) of NTPC and BSES has been taking up construction, erection and project management works in power and other sectors. UPL is now a 50:50 JVC between NTPC and BSES. NTPC-ALSTOM Power Services Private Limited NTPC and ALSTOM Power Generation AG, Germany had formed a 50:50 Joint Venture co mpany namely NTPC-ALSTOM Power Services Private Ltd. (NASL), with an Authorized Capital of Rs.50 Crore, to undertake the work of Renovation and Modernization of under performing power stations in India and SAARC countries. Power Trading Corporation of India Limited Then main objective of the company is to purchase power from identified private mega power projects and sell it to identified SEBs. NTPC has so far invested RS. 6 Crore in PTCs equity capital.

NTPC-SAIL Power Corporation Private Limited NTPC-SAIL Power Company Private Ltd., a Joint Venture Company of NTPC and SAIL, its plant at Durgapur (120MW) and Rourkela (120MW) Steel Plants of SAIL. Both NT PC and SAIL have subscribed an amount of Rs.58.65 Crore each towards the paid-up capital of the joint venture company. Bhilai Electric Supply Company Limited Bhilai Electric Supply Company Ltd., a company formed by SAIL, to own and manage the captive power plant at Bhilai Steel Plant (74 MW) of SAIL, become a Joint V enture Company of NTPC and SAIL during the year. Ratnagiri Gas and Power Private Limited Ratnagiri Gas Power Private Limited (RGPL) - a 50:50 joint venture company (JVC) between NTPC and GAIL (India) Limited. GAIL India Limited to take over the asse ts of Dabhol Power Project through Debt Recovery Tribunal. SUBSIDIARY COMPANIES A) B) C) D) Pipavav Power Development Company Limited (PPDCL) NTPC-Electric Supply Company Limited (NESCL) National Hydro Limited (NHL) NTPC-Vidhyut vypar Nigam Limited (NVVNL)

Pipavav Power Development Company Limited (PPDCL) Pipavav Power Development Company Limited organized on 20th dec.2001 that is pro duce electicity per day 2000 MW. That is stablished in the amreally of Gujarat. The NTPC is invested in 60.50 million. NTPC-Electric Supply Company Limited (NESCL) NTPC-Electric Supply Company Limited (NESCL) organized on 21st Aug. 2002 that is organized for completion for electricity in Kanpur. There capital of the compan y 100 million. The company gets loss during the 2002-2003 of rupees 29,493/-. National Hydro Limited (NHL) National Hydro Limited is organized for developed short and medium hydro planed that NTPC give the 100 million rupees to National Hydro Limited. This company is organized in 31st March 2003. The company paid up capital of the company is 0.5 0 million rupees. NTPC-Vidhyut vypar Nigam Limited (NVVNL) The company organized in 1st Nov. 2002. The paid up capital of this company is 0 .50 million rupees. The company distributed 0.32 million share in 31st March 200 3 in favour of NTPC. The company gets loss ES.131, 785 in the year 2002-2003.

ABSTRACT The report entitled Procurement Management of Power plants at NTPC is about the pu rchase practices followed at NTPC. These practices are followed during all procu rement by NTPC. Procurement Management is one of the major departments at NTPC as for every purc hase at the NTPC proper procurement management procedures are being followed whi ch help to analyse the working and even results in efficient working of the proc ess. The objective of the contracts/ procurement function in N TPC is to make available the required equipment / materials /works /services of the right quality at the right time of right quantity and at right price so as t o reach the specified place at the right time after giving equal and fair opport unity of bidding to all competent tenderers

PROCUREMENT STEPS: Procurement life cycle in modern businesses usually consists of seven steps: Information Gathering: If the potential customer does not already have an establ ished relationship with sales/ marketing functions of suppliers of needed produc ts and services (P/S), it is necessary to search for suppliers who can satisfy t he requirements. Supplier Contact: When one or more suitable suppliers have been identified, Requ ests for Quotation (RFQ), Requests for Proposals (RFP), Requests for Information (RFI) or Requests for Tender (RFT) may be advertised, or direct contact may be made with the suppliers. Background Review: References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and wa rranty are investigated. Samples of the P/S being considered may be examined, or trials undertaken. Negotiation: Negotiations are undertaken, and price, availability, and customiza tion possibilities are established. Delivery schedules are negotiated, and a con tract to acquire the P/S is completed. Fulfillment: Supplier preparation, shipment, delivery, and payment for the P/S a re completed, based on contract terms. Installation and training may also be inc luded. Consumption, Maintenance and Disposal: During this phase the company evaluates t he performance of the P/S and any accompanying service support, as they are cons umed. Renewal: When the P/S has been consumed and/or disposed of, the contract expires , or the product or service is to be re-ordered, company experience with the P/S is reviewed. If the P/S is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier

TENDERING PROCEDURE FOLLOWED AT NATIONAL THERMAL POWER CORPORATION LTD. (NTPC) Procedure: DOP (DELEGATION OF POWER) All the activities undertaken at NTPC are regulated by a guideline called DELEGAT ION OF POWERS or DOP in short. The guideline lays down the responsibility and autho

rity of various level executives in the PSE (Public Sector Enterprises). Based o n this guideline the following major procedures have been identified. However, procurement of any material for any plant or the office of NTPC is done by two processes. These processes are: Procurement through tenders. Emergent Procurement Though in case of urgency the respective department is allowed to m ake procurement through cash up to the limit of Rs. 10,000 only. But in case of the normal procurement that is done by tendering, a standard procedure is follow ed where the intender sends the procurement list to the finance department for t he goods valued over Rs. 10,000 for vetting. Once the finance department clears the cost aspect of the tender i t is send for the required approval from the competent authority as described in the DOP. After getting the required authorization the indent is forwarded to ma terials, contracts or HR services as is suitable. From there a tender notice is issued and the procurement process starts.

The following are the steps involved: 1. Indent by the engineering department who coordinates the equipment requi rement. 2. Preparation of cost estimate in association with cost engineering depart ment and seeking approval thereof. 3. Preparation of the bid documents for issue of NIT. The documents include INB, General Condition of Contract, and special conditions of contract. Once al l the terms and conditions are formulated and approved, the tender document prep aration. The content of the tender document is prepared in such a manner that t he prospective bidder comes to know about all the important details about the co ntract 4. Issue of NIT-usually the publication in the newspaper or trade journal. The tender documents are issued to the prospective bidder for a cost that starts from Rs 200 to Rs 3000. Promotion of competition, efficiency and economy in electricity industry can be conveniently achieved through the process of competitive bidding. The Central Go vernment issued detailed guidelines for competitive bidding of power projects in January 1995 whereby the competitive procurement of power sector projects was m ade mandatory. These guidelines laid emphasis on project identification, justifi cation and development before taking up competitive bidding. 5. Receipt of bids and bid opening. The issuance of tender document is foll owed by the receipt of Bids from various vendors in the specified format. Once a ll the bids are received, they are opened in presence of some nominated official s from Finance, Contracts and Materials department. The representatives from the bidders may also be present. 6. Bid evaluation- a comparative statement of the quoted bids is prepared a nd the contract is awarded to the lowest quoting bidder. The process involves Ve ndor evaluation and assessment that includes the physical verification of assets and manufacturing facilities as well as the financial capacity of the bidder.

7.

Contract of award is given to the lowest bidder.

Through these working only, company is efficiently able to cut down at its cost.

All these steps are discussed here in detail: 1. Intending for Procurement: Procedure for intending is as follow: For the purpose of indenting, material planning is required. It is nothing but c lassifying the materials into various categories to facilitate a speedy and effi cient procurement. In this process all the materials which may be required at an y of the NTPC projects or offices are classified in to five major categories and their procurement is to be done on the basis predefined for them. 1. Stock item (Automatic Recoupement items/AR) 2. Insurance Items (I) 3. Unit Replacement item (UR) 4. Capital Item (P) 5. Other non-stock items (Not falling under any of the above category) But since this classification is very vague and unspecific, a further classifica tion is done to exercise selective control over all Material Management activiti es. This classification is known as the ABC analysis. 2. Cost Estimation: Cost estimation process is the most important financial acti vity in the process of budgeting and procurement. Whenever NTPC procures some ma terial, it is either financed from the budget allocated to the particular depart ment requesting for the material or it will be financed from the central fund. T he procurement of the second kind requires financial clearance from the Finance Concurrence department. For the purpose, cost estimate is made before forwarding the indent document to the Finance department. There are various methods of cos t estimation, which are used at NTPC. Some of the methods use very technical det ails and procedures whereas others are simple to implement and uses market rate to prepare a cost estimate. a) Historical Cost Method: In this method of cost estimation. The cost engi neering department at NTPC uses the latest cost incurred for a similar kind of p roject. For example, if a cost estimate has to be prepared for a new Thermal Powe r Plant, the latest executed Thermal Power Plant rates will be used not any othe r. Hence the rates thus obtained are very near to the actual that might be preva lent in the market at present. But to smoothen the effect of inflation and vario us other financial components in the price at the time of the execution of that project, an escalation factor is used. All the prices of previous projects are m ultiplied by this factor and a very close estimation of market rate is thus obta ined. The escalation factor calculation is discussed separately in the report. b) Market Rate Method: Market rate method is used for the procurements that are not in very large numbers and value. In this method once an indent is prepa red, some of the vendors registered at NTPC or listed in trade journals are sent a request for quoting the prices of a particular good. This enquiry is not a te nder and the rates provided by the vendors are not part of the bid. After the in formation is received, the rates quoted by various vendors are compared and the lowest quoted price is taken as base rate for calculation. However if the differ ence in the price quoted by two vendors are reasonably high an average of the tw o may be taken as the base. However for civil works component of the contract, t he wages rates are taken from the government gazettes and similarly for some hom ogeneous products like cement, steel etc a standard market prevailing rate is us

ed 3. Tendering and Bidding Documents: Normally an open tendering system for procurement is adopt ed during construction stage of a project. However depending on the circumstance s and the requirements, limited tendering or single tendering system is also ado pted in specific cases. Following are three types of tenders: TYPE OF TENDERS: Based on the materials classification and DOP, there are three types of tenders 1. Open Tender: Procurements or value Rs 1 lakh and above must be done through o pen tendering. All the plant packages are procured through Open Tender. Open ten der is accessible to all known, reliable and proven sources of particular equipm ent/material. For the purpose, a notice inviting tenders must appear in two or m ore newspapers of all India repute in addition to one or more local newspaper wh ere the material/equipment is to be delivered. However to avoid frivolous tender s, a pre-qualification procedure may be adopted. This process will take place on ce in every three years by advertising in two or more newspapers of all India re pute in addition to one or more local newspaper where the material/equipment is to be delivered. The criteria for pre-qualification will inter-alia consist of p ast performance, financial soundness, technical competence, organizational capab ility etc. But for the items valued less than Rs 1 lakh the pre-qualification ca n be done on the basis of data available in Trade Journals, Manufacturer s Direc tory, or approved vendors list of State Government/Central Government/DGS&D vend ors to whom enquiries were floated in past. 2. Limited Tender: Limited tender is a type of tender where instead of sending b id enquiry to all the possible vendors through newspapers, a limited number of v endors arc intimated through post or fax. But a Limited Tender may be invited on ly for the procurements worth less than Rs. 50000/-. In limited tender, a minimu m of four bidders are invited to quote the prices for the required equipment/mat erial /services and these four bidders must be from the approved list of vendors mentioned in the open tender. However a Limited Tender is a special case and ca nnot be issued without proper explanation and requirement. In case of urgency, i tems worth more than Rs. 50000/- may also be procured with authorization of comp etent authority and the reason must be recorded in the indent documents. However the next higher authority of the procurement department will decide the number and names of supplier. 3. Single Tender: This type of tendering is the easiest and fastest to acquire a good but requires lot of paper work and authorization before the acquisition ca n be initiated. These acquisitions take place on the ground of proprietary items or standardization. To initiate a single tender, a Proprietary Article Certific ate must be issued by a competent authority and the purchase will not be made wi thout authorization of a Genial Manager or to whom the power is delegated. This type of tendering is monopolistic in nature and is avoided to the extent possibl e. However Single Tendering is done in many other cases which are not mentioned anywhere in the DOP. The Invitation for Bids (IFB)/ Notice Inviting Tender (NIT) are published in lea ding national newspaper as per guidelines and procedures. Copies of IFB/NIT are also sent to the bidders who have evinced interest in supplying similar equipmen t/services in the past. An the case of procurements funded by external funding a gencies following International Competitive Bidding procedures, the IFB us also published in the Indian Trade Journal and a copy of IFB sent to each of the emba ssies/ High commissions of member countries of the funding agency. In case of pr ocurements under the World Bank funding, the IFB is also published in the Develop

ment Business of United Nations when required. CONTENTS OF BIDDING DOCUMENTS: Every time when an open tender is invited, the bidders are provided with a set of documents, which provides various required information and terms and condition of the contract The documents also contains the various contract forms which the bidder is expected to sign and return to NTPC to ackno wledge the acceptance of the terms and condition of the contract. The document a lso contains the guidelines for bidders for bank guarantee. Earnest money and th e like, this document is issued for a cost that is decided on the basis of the t otal estimated value of the indent. Every time a new tender is notified, a set of tender documents is issued against a payment of stipulated fee according to the price list given above. This set o f tender document consists of many different documents meant for different purpo ses. The documents may vary from project to project. Here we will see what the d ocuments that are generally issued to bidders are. (A) Instruction to Bidder (1TB): This document is meant to provide the bidd ers the vital information required to understand and evaluate the tender offer. The document contains the general instructions like the Terms of Payment, Bid Se curity, Contract Performance Security, Liquidated Damages, Currencies conversion , Defects Liability and Work Schedule. The document also specifics the Qualifyin g/Eligibility requirements of the bidder and the goods/services supplied. The IT B also contains information for the foreign bidders. Additionally the ITB contai ns various references to clauses of GCC (General Condition of Contract) and SCC (Special Condition of Contract). Finally the document specify about the language and interpretation and implied terms and condition of all the documents provide d with the bid. ITB also contains information about how to modify and withdraw t he bids already submitted to NTPC. Hence in short we can identify this document as the guidelines and information brochure to bidders before they submit their q uotation for the notified work. (B) Bid Proposal Sheet or Bid Data Sheet : Bid proposal sheet is a set of d ocuments which contains the formats for bidding, Summary price proposal, Break u p of Bid price, Equipment wise price break-up, civil works price break-up, comme rcial deviation, Technical deviations, Guarantee declaration, Price Adjustment d ata, Price break up of recommended spares, Construction Equipments, Special Main tenance Tools, QR Data and capacity data, Work completion Schedule, Declaration of Import content, Check list, Information regarding value addition and Type tes t charges. This document is nothing but a standard format providing the bidder t o -Furnish the details required by the NTPC in a standard format used at NTPC. (C) General condition of Contract: The document titled General Condition of Cont ract of GCC is a document that takes care of the legal aspect of the contract be tween the bidder and NTPC. This document also is an integral part of all the bid documents with some minor changes or no changes at all. The document starts wit h the definition for The terms used in various tender documents. This is worth n oting that all the terms used in the bid document are predefined and have one an d only meaning which is defined in the GCC. The document also contains different formulae that are to be used on some future dates to calculate the LD or the Pr ice Escalation. Finally the document also refers to the unforeseen events like O ut Break of a War, Bankruptcy of the contractor or any other Force Majeure. The GCC also has a clause called RESOLUTION OF DISPUTES that specifies the procedure s to be followed if any dispute occurs, arising out of or in connection with the Contract. (D) Special Conditions of Contract: Special Condition of Contract or SCC is

not a standard document that is issued with all the tender documents. The docum ent takes care of the special issues that have come up or may come up in the cou rse of the execution of that particular contract and has not been covered in the General Condition of Contract. The very first clause of the document is TIME-TH E ESSENCE OF CONTRACT. The document also talks about the detailed Manufacturing plan and Master Schedule of the execution of the contract. It is the SCC where w e mention the issues related to Liquidated Damage Clause. This is mentioned in t he document itself that "The following Special Condition (if Contract shall supp lement the General Condition of Contract. Wherever there is a conflict. The prov isions herein shall prevail over those in the General Conditions of contract. He nce the document may also be considered as the amendments to the GCC. (E) Erection Condition of Contract: This document again is specific documen t which may not be issued with all the tenders. As the name itself suggests. The document deals with the erection component of the contract (if any). In the doc ument some particular issues pertaining to the erection component of the contrac t is dealt with. Typically, an Erection Condition of Contract deals with the civ il construction works undertaken at the site where the equipment is to be instal led and commissioned. This also takes into consideration the statutory and local authority who may be in charge of monitoring the work in progress and whose per mission may be required. Hence this document is a must for all the work where th ere is an erection component. (F) Technical Specification: The document is the thickest document or any b id document. This document contains all the specification required for that part icular project. The document is prepared by the Project Engineering department a nd contains the technical specifications of the equipments and spares to be proc ured. It may also contain the drawings of the equipment or layout of the project . Similarly the document will also enlist all other possible alternatives to the already mentioned specifications (if any). Since there are no financial aspects associated with this document, a detailed study of this document is out of the scope of this report. TENDER COMMITTEE: As we have mentioned earlier, Delegation of Power has a very i mportant role to play in purchasing process At NTPC. For every purchase value of exceeding Rs 50000/-. The committee consists of three members, one representative each from the Indenting department, Materials Department and Finance (Concurrence). The representatives are nominated by competent authority varying from Senior Ma nager to DGM depending upon the value of the contract. This committee will take into consideration every possible aspect of the terms and conditions, prices, in spection procedures, phasing delivery if required etc. This committee also formu lates the QR (Qualifying Requirements) for the bidders of that particular tender . TENDER OPENING: Tender opening is the penultimate step in the purchasing process . Tenders are opened on the due date and time mentioned in the tender notificati on without fail. If the data mentioned is declared holiday, the next working day will be considered as the opening date but the time will remain the same. The s ealed envelopes containing the bid will be opened by the purchase and finance ex ecutives nominated by their Head of the Department. The representatives of the b idders may also present themselves if they wish so however their absence will no t hinder the process. The name and rates quoted by all the present bidders will be read out and any omission or irregularity will be pointed out on the spot. Alterations or erasures (if any) will be initiated by the office rs present at the time or the opening of the tenders. All the quoted figures sho uld also be encircled and will be written in words if the bidder have not done s o already and will be attested. Total number of erasures and correction will als o be written and attested. These all activities are done to ensure proper and tr

ansparent procurement process. SECURITY DEPOSITS: A refundable security deposit may be asked at the time of sub mission of the bid. This deposit is taken to ensure that the vendor who is award ed the contract will not refuse to undertake the contract. If the bidder after s uccessful bid refuses to undertake the contract, the earnest money deposited by him will be forfeited. However there arc various instances where this deposit ma y be waived off. For example for all the purchases valued less than Rs. 50000/the EMD may be waived off. Similarly for the PSUs, NSICs and SSI parties, the EM D can be waived also. On successful completion of bidding the earnest money may either be returned to the bidder or may be adjusted towards the security deposit to be provided by the bidder. Another major deposit is in form of performance g uarantee or Liquidity damage (LD) the equipments provided by the vendor fail to perform as per the specification, the cost for this shortfall may be recovered f rom the vendor. This guarantee is generally 10% of the awarded value and is gene rally in form of bank guarantee. However in cases of procurement from OEM/OES or proprietary vendor the same may be waived depending upon the merit of case. However in case of procurement of equipment/material/services th ere is a contract for providing spares for the next three years. In case the pri ces of these spare parts goes up in the future and the vendor refuses to supply the spares at the same rate this guarantee deposit will be forfeited. As a matte r of fact, this guarantee is taken just to make sure that the contractor does no t refuse to honor the contract in future after he realizes that the prices have gone up or for some similar reasons.

4. Cost of Bidding Documents: S.N. 1 2 3 4 5 6 ESTIMATED VALUE OF INDENT COST OF TENDER DOCUMENT Up to Rs. 10 lakhs 200 Above Rs 10 lakhs and up to 25 lakhs 300 Above Rs 25 lakhs and up to Rs 50 lakhs 500 Above Rs 50 lakhs and up to Rs 100 lakhs 750 Above Rs 100 lakhs and up to Rs 500 lakhs 1500 Above Rs 500 lakhs 3000

5: Submission, Receipt and Opening of Bids: The time allowed for preparation and submission of bids by the bidders is decide d taking Into consideration the particular circumstances and complexity of work involved. Generally, a period of not less than 6 weeks from the date of Invitation Of Bid s is Considered for preparation and submission of bids. For large and complex package s this Period is extended to 10 12 weeks.

Document comprising the bid The bid submitted by the bidder shall comprise of the following documents: 1. 2. 3. ares to Bid form duly completed and signed by the bidder. All price schedule duly completed in all respect by the bidder. The bid shall contain necessary detail of the equipment and mandatory sp be imported from associated /collaborator by manufacture or bidder.

Each bidder shall submit with its bid the following attachments:1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Attachment 1: Bid Security Attachment 2: Power of Attorney Attachment3: Bidder Qualification Attachment4: Eligibility and Conformity of the Facilities Attachment5: Subcontractors Proposed by Bidder Attachment6: Deviations Attachment7: Alternative Bids Attachment8: Local Representation Attachment9: Deemed Export Benefits Attachment10: Functional Guarantees Attachment11: Erection Tools and Tackles Attachment12: Technical Data Sheet Attachment13: Bought Out Items Attachment14: Quality Assurance Program Attachment15: Additional Information Attachment16: Milestone Schedule Attachment17: Price Adjustment Data Attachment18: Equipment and Mandatory Spares to be imported from Associated Collaborator. Bid Form and Price Schedules The bidder shall complete the form and appropriate price schedules furnished in the bidding documents as indicated therein. Bid Prices Bidders shall quote for the entire facilities on a single responsibility basis s uch that the total bid price covers all the contractors obligations mentioned in or to be responsibly inferred from the bidding documents in respect of the desi gn manufacture, including procurement and sub contracting, delivery, constructio ns installation commissioning, completion of the facilities and conduct of guara ntee test for the facilities including supply of mandatory spares. This includes all requirement under the contractors responsibilities for testing, pre-commiss ioning and commissioning of the facilities conducting guarantee test and where so requi red by the bidding documents the acquisition of all permits approvals and licens es etc. the operation maintenance and training services and such other items and services as may be specified in the bidding documents all in agree accordance w ith the requirement of the general conditions of contract and technical specific ations. Bidders shall give a breakdown prices in the manner and detail called fo r in the price schedule. The bidder shall their prices in the following manner:Schedule No.1 Plant and Equipment including Type test charges and Mandatory Spar es to be supplied from Abroad. Schedule No.2 Plant and Equipment including Type test charges and Mandatory Spar es to be manufacture with in the employers country.

Schedule No.3 Local transportation including port handling, port clearance, por t charges inland transit insurance and other local costs incidental to delivery of plant & equipment and Mandatory Spares. Schedule No. 4 installation services including erection works civil structural s teel and allied works insurance covers other then inland transit insurance and o ther services as specified in the bidding documents. Schedule No 5 Schedule No 6 Schedule No 7 Schedule No 8a Schedule No 8b Schedule No 9 Grand Summary (Schedule No 1 to 4) Recommended Spares Parts Taxes and duties not included in bid price Break up of type test charges quoted in schedule-1 Break up of type test charges quoted in schedule-2 Unit rate Schedule

Benefits/Exemption to supply for Mega Power Projects Inviting Bids for the package name in the bid data sheet on International Compet itive Bidding (ICB) basis has been approved by Ministry of Power, Govt. of India . Govt. of India is advised to Indian State Govt. to exempt supplies made to Meg a Power Project from sales tax and local levies. In case the state govt. do not provide the exemption than the employer shall bear and pay applicable sales tax and local levies as per provision of GCC. Price Basis Price quoted by bidders shall be subject to adjustment during performance of the contract to reflect charges in the cost of labor, material etc. a bid submitted with a fixed price quotation will not be rejected but the price adjustment will be treated as zero. The price adjustment provision will not be taken into consi deration in bid evaluation. Bidder must include the name, source, and origin of labor and material indices along with there base values and corresponding coeffi cients. Bid currencies The EXW (EXCLUDING WORDING)/CIF (COST INSURANCE AND FRIGHT) recommended spare pa rts covered under ITB. Domestic bidders while quoting in foreign currency must c omply with the requirement as laid down by govt. of India from time to time. Local transport, inland transit insurance and other local costs incidental to de livery of the plant and equipment. And installation services charges include in them this shall be quoted in local currency. Local transport, inland transit insurance and other local costs incidental to de livery of recommended spares. If the bidder wishes to be paid in a combination of amounts in different currenc ies, it may quoted its price accordingly, but use not more than three foreign cu rrencies. Bid security The bidder shall furnish, as part of its bid security in a separate sealed envel ope in the amount and currency as stipulated in the Bid Data Sheet.

The bid security shall, at the bidders option be in a form of a bankers cheque ir revocable letter of credit or a bank guarantee. But the banks should be specifie d in the companys list that is given the instruction to fill up the contract. In the case of foreign bidders, the foreign bidder shall be fill up the contract and security for the contract he must look the bank name that is specified in t he companys procedure. That is helped to the contractor and trust to the company. That is also helped in increase the goodwill in the market. The bid security sh all remain valid for 45 days. The format of guarantee letter shall be accordance with the form of bid security include in the bidding document. The bid security may be forfeited a) If the bidder withdraws its bid during the period of validity specified by th e bidder in the bid form b) The bidder does not accept the correction of its bid price. c) If the bidder does not withdraw any deviation listed the cost of withdrawal i dicated by him. d) If the bidder refuses to withdraw, without any cost to the employer, any devi ation not listed but found else where in the bid. e) In the case of a successful bidder, if the bidder fails with in the specified time limit there as follows:(I) To sign the contract agreement, in accordance with ITB. (II) To furnish the required performance securities.

Period of Validity of Bid Bids shall be remain valid for a period of 180 days from the closing date prescr ibed by the Employer for the receipt of the bid. A bid is valid for a shorter pe riod shall be rejected by the Employer as being non-responsive. The bidder is required to keep the prices of recommended spares covered the vali dity of the bid security shall be 6th month after notification of award for main equipment and mandatory spares. In exceptional circumstances the employer may solicit the bidders consent to an e xtension of the bid validity period. The request and responses there to shall be made in writing by post or by telefax followed by confirmation. If a bidder acc ept to extend the period of validity, the validity of bid security shall also be suitable extended. A bidder may refuse the request will not be required nor per mitted to modify its bid. Format and Signing of Bid

The bidder shall prepare an original and five(5) copies/sets of the bid clearly making each one as Original Bid ,Copy No.1,Copy No.2 ETC., as appropriate. In the ev of any discrepancy between them, the original shall govern. The original and all copies of the bid, each consisting of the documents shall b e all typed or written in indelible ink and shall be signed by the bidder or a p

erson or person dully authorized to bind the bidder to the contract. All the pag es of the bid, except for unamended printed literature, shall be initialed by th e person or person singing the bid. The bidder shall furnish information as described in the relevant paragraph of t he bid form on commission or gratuities, if any execution if the bidder is award ed the contract. Submission of Bids Sealing and Making of Bids The bidder shall seal the original and each copy of the bid in separate envelope s, duly marking the envelops as ORIGINAL BID and COPY NUMBER. The bid security furni shed be sealed in a separate envelope, duly marking the envelope as ATTACHMENT-1,BI D SECURITY. The certificate regarding acceptance of importance conditions. The bi dder also is sealed in a separate enveloped entitled CERTIFICATE REGARDING ACCEPT ANCE OF IMPORTANT CONDITIONS. The envelops shall then be sealed in an outer envel ope. The inner and outer envelopes shall:a) Be addressed to the employer at the address given in the bid data sheet. b) Bear the package name indicated in the Bid Data Sheet, the invitation fo r bid number indicated in the bid data sheet and statement DO NOT OPEN BEFORE [DA TE]. TO BE COMPELETE IN THE TIME AND SPECIFIED IN THE BID DATA SHEET The inner envelops shall also indicated the name and address of the bidder so th at the bid can be return unopened in case it is declared Late or is received witho ut any requisite. The outer envelop is not sealed and marked that is employers responsibility for the bid misplacement.

Deadline for submission of Bids Bid must be received by the purchaser at the address specified under ITB later t han the time and date specified in the Bids date sheet. The all rights and oblig ation of the Purchaser and Bidders previously subject to the deadline will there after be subject to the deadline as extended.

Late Bids If any bid received by the purchaser after the deadline of submission of bids pr escribed by the purchaser pursuant to ITB, will be rejected and returned unopene d to the bidder. Modification and Withdrawal of Bids The may modify or withdraw its bid after the bids submission, provided that writt en notice of the modification, including substitution or withdrawal of the bids, is received by the Purchaser prior to the deadline prescribed for submission of bids. The bidders modification or withdrawal notice shall be prepared, selecte d, marked and dispatched in accordance with the provision of ITB .No bid may mod ified after the deadline for submission of bids.

Receipt of Bids Bids are received in a sealed condition at the place, date and time identified i n the Invitation for Bids/ Bidding Documents. A receipt is issued to the bidders for the bids delivered by hand indicating the date and time of delivery. Opening of Bids The bids received are opened by a team comprising representatives from E ngineering, Contracts and Finance functions in the presence of bidders representa tives who chose to attend the bid opening. The details such as name of the bidde r, bid price, availability of bid security, guaranteed parameter, discounts if a ny, are read aloud during the opening. All the participants in the bid opening are required to sign a register as a proof of attendance maintained for the pur pose.

6. Evaluation of Bids: The bids are received, opened and evaluated by a dul y constituted Tender Committee comprising members from Contracts, Engineering an d Finance functions in accordance with the Delegation of Powers. The committee det ermines the lowest evaluated bid for award of contract in terms of criteria for evaluation of bids stipulated in the bidding documents and puts up its recommend ation for the approval of competent authority in accordance with the Delegation o f Powers. The process of evaluation of bids begins with an exa mination of the bids to determine: i. Bidders eligibility. ii. Acceptability of bid security furnished by the bidder. iii. Completeness of bid and correctness of signatures. iv. Acceptability of Joint Deed of Undertakings (if envisaged in the bidding documents). v. Computational errors in the bid price. vi. Stated deviations from the bidding conditions, which might reflect on th e substantial responsiveness of the bid and justify its rejection. Though generally and to the extent possible avoided, clarificati ons may be sought from the bidders, if considered necessary by the tender commit tee, with the approval of competent authority. Due care is taken of the fact tha t such clarifications would not call for any material alterations in the bidders bid. The detailed evaluation is carried out only for bids, which are substantially responsive. Bid evaluation considers price and other factors in a transparent manner and in accordance with the stipulated evaluation criteria sta ted in the Bidding Documents such as cost compensations for the deviations from the bidding conditions taken by the bidders, differential price factors for guar anteed parameters etc. In case of procurements under International Competitive Bidding procedures, the

bid prices are converted into a single currency i.e. in the Indian rupees based on the exchange rate prevailing as on the date of bid and comparison of bids. Ot her factors such as a domestic price preference (applicable in case of WB/ADB fu nded procurements) and purchase preference to Public Sector Undertakings applica ble as per the extant guidelines are also considered for the purpose of evaluati on of bids. Once the lowest evaluated bidder is selected as above, the next step is to determine whether the Qualification Requirements (QR) as stipulated in the bidd ing documents is met and whether the bidder in question is capable to successfully e xecuting the contract. An affirmative determination of the above is a prerequisite for aw ard of contract to the bidder. In case the lowest evaluated bidder does not meet the ab ove requirement, the similar determination is done for the next lowest bidder. If th e bidder also fails, the process is continued until the lowest evaluated and qualified bi dder is chosen.

POST QUALIFICATION The determination will take into account the Bidders financial, technical, and pr oduction capabilities. It will be based upon an examination of the documentary e vidence of the Bidders qualifications submitted by the Bidder which is mentioned in invitation of bidding (ITB). Judging the strength or ability of the bidder - Assessment of the bidder Technical and financial strength

Knowledge gained on financial concept and analysis of balance sheet and profit a nd loss a/c etc The documentary evidence of the Bidders qualifications to perform the contract sh all establish to the Employers satisfaction that the Bidder has the financial, te chnical, production, procurement, shipping, installation and other capacities an d capabilities necessary to perform the contract and meets the experience and ot her criteria outlined below: (i) Is a manufacturer, who regularly manufactures equipment of the type pecified s

(ii) Does not anticipate any change in ownership during the proposed period of execution of work (iii) Has adequate financial stability and capability to meet the financial ob ligations pursuant to the Works covered in the Bidding Documents. (iv) Has adequate design, manufacturing and/or fabrication capability and has an established project management organization covering the areas related to engineering of equipment/systems, (v) Has established quality assurance systems and organization designed to a chieve high levels of equipment/system reliability,

QUALIFYING REQUIREMENT FOR BIDDERS: The following are the specific requirements. 1 The bidder should have engineered, fabricated/supplied, erected and test ed at least one (1) piping system, of minimum MT, consisting of steel pipes of s ize NB or above, complete with valves and fittings, etc. 1.2 The average annual turnover of the Bidder, in the preceding three (3) financ ial years as on the date of bid opening, shall not be less than Rs million or in equivalent foreign currency. 1.3 The Net Worth of the Bidder as on the last day of the preceding financia l year shall not be less than 25% of the paid-up share capital. 1.4 The unutilized Bank Guarantee limits of the Bidder as on seven (7) days prio r to the date of bid opening, duly certified by the Bankers shall not be less th an Rs Million or in equivalent foreign currency. 1.5 The Bidder shall have unutilized cash credit limits together with cash a nd bank balances including fixed deposits, as on seven (7) days prior to the dat e of bid opening of not less than Rs million or in equivalent foreign currency. Notes: a) Net Worth means the sum total of the paid up share capital and free rese rves. Free reserves means all reserves credited out of the profits and share pre mium account but does not include reserves credited out of the re-valuation of a ssets, write back of depreciation provisions and amalgamation. Further any debit balance of Profit & Loss account and miscellaneous expenses to the extent not a djusted or written off, if any, shall be reduced from Reserves & Surplus. b) Other income shall not be considered for arriving at annual turnover. c) For unutilized BG limits, Cash Credit Limits and Turnov er in foreign currency, the exchange rate as on 7 days prior to the date of Bid opening shall be used.

NEGOTIATION: When adequate competition exists, the negotiation should and must b e avoided. This competition may be in form of many manufacturers making the same good or a single manufacturer providing the goods through many retailers/suppli ers and all the retailers/suppliers are free to quote individually. However if i t s found that the price quoted by all individual bidders are unreasonably high in comparison to the last purchase price/estimate or in case of some ambiguous t echnical/commercial terms and conditions, negotiations can be done with the appr oval of competent authority as per DOP. In normal circumstances, the negotiation should take place with the technically and commercially evaluated lowest (Lt) v endor only. However, depending upon the situation the negotiation may be carried out with more than one party at a time. Normally the negotiation is carried out by the TC (Tender Committee). But in case a tender committee is absent i.e. no committee was formed to monitor the procurement, representatives from finance an d purchase may complete the task of negotiation. However, negotiation process is not always for negotiating the prices of equipment/material/services supplied b ut it may also involve terms and conditions of supply, future commitments for su pply of spare parts and consumables and many other aspect of the contract. For e xample a lowest price bidder may not get the contract if its found that another b idder who is quoting higher than him but is offering lower priced spares. Hence

in this case a negotiation may be conducted with the L 1 to make him offer the s pares at the same rate as being offered by his competitor. Once the negotiation process is finished and the two parties involved in the negotiation reach a cons ensus, the committee s purchase proposal/recommendation will be put up to the co mpetent authority for approval and subsequently the letter of intent may be faxe d to the party.

7. Award of Contract:

All the activities related to evaluation of bids and approval of evaluation report/ award recommendations by the competent authority, concurrenc e of the funding agency (wherever applicable) and post-bid discussions with the successful bidder to resolve ambiguities/ nonconformity to the bidding provision s observed during the bid evaluation, are required within the bid validity perio d. The contract is thus awarded to the bidder whose bid has been fo und as the lowest evaluated techno-commercially-responsive bid and meets the spe cified Qualifying Requirements. My experience of attending one of the bid openings in NTPC: Package name: Instrumentation cables package Bid opening date: 21st July, 2008 (Monday) Mode of financing: External commercial borrowings (ECB)/ own resources Mode of tendering: Open tender enquiry (OTE) Bidders: Delton Poly cab Manoj Cables Cords Cables Specifications of bid opening: Only two members are allowed from each party. Bid security should be valid for 225 days or 7 and half months. Guarantee has to be furnished from the list of banks. Both, bid guarantee and attachment 6A of all the bidders should be word by word. If there is any deviation in the required documents then the bid of the concern ed party will not be opened. The discount letter should be submitted along with the bid security otherwise it will not be relevant.

FINANCIAL STATEMENT ANALYSIS OF NTPC

FINANCIAL STATEMENTS Financial statements are the end products of the financial accounting process. F inancial statements are the tools of presenting financial information about the company in concise and capsule form. Financial information is the information wh ich is related to the financial position at the moment in time and the results o f series of activities over a period of time. Financial statements include Balance Sheet and Profit & Loss or income statement & cash flow statement of the company.

BALANCE SHEET: Balance Sheet is one of the most significant financial statements of companies. The Balance Sheet is a statement which reports the values of prop erties owned by the enterprise and the claims of the creditors and owners agains t these properties. It is the screen picture of the financial position of the co mpany. PROFIT & LOSS A/C: It is a statement which reveals result of operations for a pe riod of time. It is condensed and classified record of the gains and losses caus ing change in the owners interest for a period of time. CASH FLOW STATEMENT: It is a statement which shows the cash requirement of the c ompany or the way through which company can meet its day to day obligations. It is one of the most important components as it shows day to day requirement of th e company.

RATIO ANALYSIS Ratio analysis is the principle tool of financial analysis. In financial analysi s, ratio is used as a benchmark for evaluating the financial position and perfor mance of a firm. Ratio analysis involving comparison for a useful interpretation of the financial statement. Ratio analysis is the process of determining and interpreting numerical relation ship between figures of the financial statements. An absolute figure often does not convey much meaning. Generally it is only in light of other the significance of a figure is realized.

Ratio analysis helps to know the operational efficiency, profitability and liqui dity of the company which is important for the external users as well as insider users of the company. Advantages and uses: Useful Useful Useful Useful Useful in in in in in analysis of financial statements. simplifying accounting figure. forecasting purposes. locating the weak spots of business. comparison of performance.

Several ratios which are calculated from accounting data can be grouped into var ious classes according to financial activity. In view of the requirements of the various uses of the various ratios, we classify them into following categories: Liquidity Ratio Activity or Efficiency Ratio Profitability Ratio Capital Structure of leverage ratio Investment Analysis ratio

NTPC YEAR 2007 2006 1. Liquidity Ratio 1.1 Current Ratio Current Assets 181351 Current liabilities current ratio 3.35 1.2 Quick Ratio Quick Assets 156249 Current Liabilities Quick Ratio 2.89 1.3 Cash Ratio Cash & Bank Balance 133146 84714 60783 Current Liabilities Cash Ratio 2.46

2005

2004

2003

2002

126958 102113 108193 172657 153063 54221 49102 52306 65244 34202 31881 2.59 1.95 1.66 5.05 4.80 103553 84336 54221 49102 2.11 1.61 90813 52306 1.39 154945 132887 65244 34202 31881 4.53 4.17

6091 54221 1.73

5447 49102 1.16

5511 52306 0.09

65244 0.16

34202 0.17

31881

1.

LIQUIDITY RATIO

Liquidity ratio measures the ability of a firm to meet its short term obligation

and reflect the short term financial strength or solvency of a firm. Liquidity ratio includes current ratio, quick ratio and inventory turnover ratio.

Current ratio

Current ratio is the ratio of total current assets by total current liabilities . Current ratio of the firm measures its short-term solvency i.e. its ability to meets short term obligation. The higher the current ratio the larger the amount of rupees available per rupee of current liability CR= Current asset Current liability

Ideally a company should have 2:1 current ratio its shows that company has enoug h funds to meet its short term obligations. Higher the current ratio better it i s for company as it enhances the liquidity position of the company and builds cr editors and investors trust.

FOR NTPC: Current Ratio has been very good over the years. Though it has fallen from 4.80 times in the year 2002 to 2.59 times in the year 2006 and it again increase to 3 .35 times in 2007.It shows that the Companys current assets are 3.35 times more t han current liabilities. The current ratio of company shows fluctuating trend but has always been good as current assets have always been more than current liabilities which shows that firm has always enough funds to meet its day to day obligations.

Quick Ratio:

It measures the instant debt paying capability or companys ability to pay unexpec ted demand for working capital. This ratio establishes the relationship between quick or liquid current assets and current liabilities

QR = Current assets (Inventories + prepaid expenses) Current Liabilities Ideally it should be 1:1 but if the liquid ratio or quick ratio is more than 1: 1 than company seems to be sound and good. On the other hand if it is less than 1:1 the company is said to be unsound. For NTPC Quick Ratio was 4.17 in the year 2002 which came to 2.89 in the year 2007, this was better than the previous year ratio ,indicating that the company is having quick assets to pay its current liabilities. It was best in year 2003 of 4.53 an d average in rest of the years. This shows that company keeps enough liquid fund s to meet its unexpected cash requirements or obligations. For NTPC it shows tha

t it can meet unexpected need for funds easily. Cash Ratio: It measures the absolute liquidity of the company. It is a relationship between absolute quick assets and quick liabilities. Quick Assets include cash, bank and marketable securities and Quick Liabilities includes all current liabilities except bank over draft. CR = Absolute Liquid Assets Quick Liabilities Ideally it should be 0.5:1 For NTPC Cash Ratio has increased from 0.17 times in year 2002 to 2.46 times in year 2007 showing the firms ability to quickly pay its debt, and more cash in its current assets. This means over the years company has increased its cash balances with it self and made itself more liquid in terms of the liquidity maintenance.

2. Activity or Efficiency Ratio 2.1 Receivables Turnover Ratio Net Sales 325952 261153 225402 188519 190475 178153 Receivables at the end 12532 8678 13747 4699 124349 115328 Receivables Turnover Ratio 26.00 30.09 16.40 40.12 1.53 1.54 2.2 Total Assets Turnover Ratio net sales 325952 261153 225402 188519 190475 178153 Total assets 807643 717371 659483 596346 493319 450411 Total assets turnover ratio 0.41 0.36 0.34 0.32 0.39 2.3 Fixed Assets Turnover Ratio Net Sales 325952 261153 225402 188519 190475 178153 Fixed Assets 507273 460396 431062 400281 366106 328912 Fixed Assets Turnover Ratio 0.65 0.57 0.52 0.47 0.52 2.4 C/A Turnover Ratio Net Sales 325952 261153 225402 188519 190475 178153 Current Assets 181351 126958 102113 108193 172657 153063 Current Assets Turnover Ratio 1.80 2.06 2.21 1.74 1.10 2.5 Net Net W C Working Capital Turnover Ratio Sales 325952 261153 225402 188519 190475 178153 Current Assets 151564 95843 61606 54527 148282 119653 Turnover Ratio 2.15 2.72 3.66 3.46 1.28 1.49

0.40

0.54

1.16

2. ACTIVITY RATIO

An activity ratio is the relationship between sales or cost of goods sold and in vestment in various assets of the company. It is always expressed as turnover. T hey are intended to describe how efficiently or intensively a firm uses its asse ts to generate sales. Some of the important activity or efficiency ratios are as follow: Receivable Turnover Ratio: How far the company is efficient or successful enough in realizing its credit de btors turnover ratio is being calculated. It establishes relationship between net credit sales and average receivables of the year. RT = Net Credit Sales Average Receivables

Credit sales means all credit sales minus the sales returns. Or else a total sal e is considered as credit sales. Average Receivables are computed as:

AR =

Opening Debtors and B/R + closing Debtors and B/R 2

For NTPC Receivables Turnover has also rose from 1.54 times in the year 2002 to 30.09 tim es in the year 2006 but it reduced to 26 times in 2007 indicating NTPC collecte d its outstanding credit account & its collection of the fund has reduced as com pare to last year . Total Asset Turnover Ratio: This ratio expresses relationship between costs of goods sold or net sales and t otal assets or investments of a firm. TAT = Net Sales or Cost of Goods Sold Total Assets Total Assets means all fixed and current assets but the provision for depreciati on is adjusted in it. This ratio indicates the number of times the assets are turned over in a year in relation to sales. A higher total assets turnover ratio is the indicator of eff ective utilization of investment in assets where as lower assets turnover ratio indicates that assets are not properly utilized in comparison to sales. Thus, th ere is an over investment in assets. Extremely high ratio means over trading in the business. For NTPC Total Assets Turnover Ratio indicates that NTPC in the year 2007, for every 1 ru pees in total assets generate 41 paisa in sales. This shows that company still need to concentrate more on this ratio for its eff ective utilization of the funds as it can even go much higher . Fixed Assets Turnover Ratio:

This ratio expresses the relationship between fixed assets (less depreciation) a nd net sales or cost of goods sold. This ratio measures the efficiency and profi t earning capacity of the firm. FAT = Sales or Cost of Goods sold Fixed Assets less depreciation

The higher the ratio the greater is the intensive utilization of fixed assets. L ower ratio means under utilization of fixed assets and excessive investment in t hese assets.

For NTPC Fixed Assets Turnover indicates that NTPC in the year 2007, for every 1 rupees i n fixed assets generate 0.65 in sales. It shows intensive utilization of fixed a ssets. Indicates the profit earning capacity of the company is high. Current Assets Turnover Ratio: This ratio expresses the relationship between current assets and net sales or co st of goods sold. This ratio reflects the efficiency and capacity of working cap ital. On the basis of this ratio efficiency of current assets and over and under investment in the company can be examined. CAT = Sales or Cost of Goods Sold Current Assets

For NTPC Current Assets Turnover Ratio: indicates that NTPC in year 2007 for every 1 rupe es in current assets generate Rs.0.80 in sales. This shows that companys current assets are effectively utilized but more efforts should be made to increase this ratio further. Working Capital Turnover Ratio:

This ratio establishes relationship between net working capital and net sales or cost of good sold. This ratio is used to assess the efficiency with which the w orking capital is being used in the business. WCT = Sales or Cost of Goods Sold Net Working Capital

A high working capital ratio indicates efficient management of working capital o r over trading i.e. low investment in working capital and more profits. Low work ing capital turnover ratio implies under trading i.e. funds are not being utiliz ed efficiently. For NTPC Working Capital Turnover Ratio: indicates the proper management of the working c apital in the firm which is required for the day to day operations of the firm. It shows that in year 2007 for every rupee in working capital generates 0.215 in sales. It has decreased by 0.59 times as compare to year 3. Profitability Ratio (based on sales) 3.1 Gross Profit Margin

Gross Profit (PBIT) 107668 77856 77737 92594 47456 46201 Net Sales 325952 261153 225402 188519 190475 178153 Gross Profit Margin 33.03% 29.81% 34.49% 49.12% 24.91% 25.93% 3.2 Operating profit Ratio Operating Profit 112265 72467 77180 61483 48950 58206 Net sales 325952 269581 234913 188519 190475 178153 Operating Profit Ratio 34.44% 26.88% 32.85% 32.61% 25.70% 32.67% 3.3 Net Net net Net Profit Ratio Profit 68647 58202 58070 52608 36075 35396 Sales 325952 261153 225402 188519 190475 178153 profit Ratio 21% 22.29% 25.76% 27.91% 18.94% 19.87%

3. PROFITABILITY RATIO The management of the firm is naturally eager to measure its operating efficienc y. Similarly the owners invest their funds in the expectation of reasonable retu rn. The operating efficiency of a firm and its ability to ensure adequate return s to its shareholders depends ultimately on the profit earned by it. Therefore p rofitability is measure of efficiency .it also indicate public acceptance of the product and show that firm ca produce competitively. When profitability ratio is computed by relating profit of a firm to its investm ents that ratio are termed as return on investments (i) Profitability based on sales

Gross profit Ratio: This ratio expresses the relationship of gross profit on sales to net sales in terms of percentage. Gross Profit X 100 Net Sales Gross profit can be computed as Net Sales Cost of Goods Sold. The ratio measures the trading effectiveness and basic profit e arning potentiality of a company. The higher the ratio the greater will be the m argin. FOR NTPC: Gross Profit Margin: has reduced from 49.12% in the year 2004 to 33.03% in the y ear 2007. This tells that NTPC generate 33 paisa from every 1 rupee sales. Altho ugh it was good in year 2004 which could due to the large sales in that particul ar year or may be due to market favoring the environment of the sales. Still it is good for year 2007 i.e. for every one rupee sale company can generate 33 pais a as profit after meetings it expenses of generation. Operating profit Ratio: This ratio establishes the relationship between operating profit and net sales.

It is also defined as the ratio of profit before depreciation, interest and tax to total turnover. Operating profit means the net profit arising from the normal operations and activities of the business without taking account of extraneous transactions and expenses purely financial nature. Operating Profit X100 Net Sales This ratio indicates the net profitability of the main business i.e. operating e fficiency of a firm. The higher the operating ratio the better would be the oper ational efficiency of the firm. A higher operating profit ratio means that a fir m has been able not only to increase its sales but also been able to cut down it s operating expenses Operating Profit Margin: has increased from 32.85% in the year 2005 to 34.44% in the year 2007. It is very fluctuating.

Net Profit Margin: This ratio measures the relationship between net profit and sales of a firm. Net Profit is the excess of revenue over expenses during a particular accounting pe riod. The net profit ratio is determined by dividing the net profit by sales and expressed as percentage. NP = Net Sales Net Profit (after tax) X100

This ratio is the indication of over all profitability and efficiency of the bus iness. A high net profit ratio would only mean adequate returns to the owners. I t also enables a firm to withstand in cut throat competition when the selling pr ice is declining or cost of production is rising. A low net profit ratio on the other hand, would only indicate inadequate return to the owners. For NTPC Net Profit Margin: has reduced to 21% in year 2007 from 22.29% in year 2006 bu t it has reduced in comparison to year 2004 as it was 27.91% in year 2004. This shows that company is running efficiently and it can pay more to its investors a s it generates 21 paisa in the profit for every single rupee of sale. Though it is less than year 2004 but yet it is not bad it still displays the profit earnin g efficiency of the company as good. 4. Profitability Ratio (based on capital) 4.1 Return of Capital Employed Net Profit (PBIT) 107668 77856 77737 92594 47456 46201 Capital Employed 564331 523572 500540 458267 386343 356526 Return of Capital Employed 19.07% 14.87% 15.53% 20.21% 12.28% 12.96% 4.2 Return On Equity (ROE) Net Profit (PAIT) 68647 58202 58070 52608 36075 35396 Shareholder s Fund 485968 449587 417763 355501 315040 286453 return on equity 15% 12.95% 13.90% 14.80% 11.45% 12.36% 4.3 return on total assets net profit after tax 68647 58202 58070 52608 36075 35396 total assets 807643 717371 659483 596346 493319 450411

return on total assets 8.50%

8.11%

8.81%

8.82%

7.31%

7.86%

(ii) Profitability based on capital Return on Capital Employed: This ratio expresses the relationship between profit and capital employed and is calculated in percentage by dividing the net profit by capital employed.

ROCE =

Net Profit (PBIT) X100 Capital Employed

The return on capital employed provides a test of profitability related to long term funds. The higher the ratio, the more effective and efficient would be util ization of capital or vice- versa. For NTPC Return on Capital employed: it has increased from 12.98% in year 2002 to 19.07% in year 2007 though it was maximum in year 2004 of 27.91%. all though years it is showing the almost regular trend but it was higher in year 2004 because that was the year in which company got its maximum funds back. This shows that company was making most effective utilization of its capital in year 2004 but it is still operating efficiently. Return on proprietors funds or equity: This ratio expresses the percentage relationship between the net profit (after i nterest and tax) and proprietors funds or shareholders investment. Net Profit (after interest and tax) X100 Shareholders funds Shareholders funds include preference share capital as well as equity shareholder s funds which in turn comprises of equity share capital, share premium and reser ves & surplus. For NTPC Return on Equity (ROE): It is also consistent over the years reflecting not much variation till 2006. It is 12.95% for the year 2005 indicating that NTPC genera te 13 paisa in profit per 1Rs invested in Equity. Maximum was for year 2004 but this ratio has increased drastically to 15% in 2007 showing maximum increase as compare to past four years Return on Total Assets: Profitability of the company can also be measured by establishing relationship b etween net profit and total assets. Total assets mean all net fixed assets, curr ent assets and non trading investments.

ROTA = Net Profit after Tax X 100 Total assets This ratio measures the profitability of investments which reflects managerial e fficiency. The higher the ratio the better is the profit earning capacity of the firm or vice versa. For NTPC Return on Assets (ROA): It has been consistent over the years; it is 8.50% for t he year 2007 indicating that NTPC generates 8.50 paisa of profit per one rupee i nvested in assets. 5. Leverage or Capital Structure Ratio 5.1 Debt - Equity Ratio Total Debt 242984 201973 170878 Net Worth 485968 449587 417763 Debt - Equity Ratio 0.50 0.45 5.2 Debt to Total Assets ratio Total Liabilities 315107 263375 Total Assets 807643 717371 659483 Debt to Total Assets Ratio 0.39 5.3 Dividend Coverage Ratio Net profit after interest and tax 35396 Dividend 26385 23087 19790 Dividend Coverage Ratio 2.61 2.52

154528 132157 115812 355501 315040 286453 0.41 0.43 0.42 0.40 238345 235469 178007 163958 596346 493319 450411 0.37 0.36 0.39 0.36 0.36

68647 10823 2.93

58202 7080 4.86

58070 7079 5.10

52608 5.00

36075

4. LEVERAGE OR CAPITAL STRUCTURE RATIO Leverage or capital structure ratios are calculated to judge the long term solve ncy or financial position of the company. Some of the important capital structure ratios are as follow: Debt Equity Ratio: This ratio indicates the relative proportion of debt and equity in financing the assets of a firm. It reveals the relationship between internal and external sou rces of funds of a company. D-E = Total Debts Net Worth

Total debts refer to the total outside liabilities i.e. short term and long term loans. Net worth mean total paid up amount of equity and preference share capit al plus the total or accumulated amount of reserves and surplus.

This ratio plays important role in analyzing the long term solvency of a company . It indicates the firms capacity to pay long term debts and procure additional l oans and informs whether the firm is following the policy of trading on equity. For NTPC Debt Equity Ratio: are also consistent and there has been not much variation in this ratio over the years it was 0.40 in year 2002 and 0.50 times in year2007.It has increased from .45 in 2006 to 0.50 in 2007 But, it is slowly and steadily rising each financial year. This ratio shows that the long term solvency of the firm is sound enough it has good capacity to pay its long term debts which make it easy for it to procure funds from the market easily due to its long term sol vency ratio. Debt to Total Assets Ratio: This ratio measures the long term solvency of the business. It reveals relations hip between total assets and total external liabilities. External liabilities me an all long term and short term liabilities. DTA = Total Liabilities Total Assets

This ratio measures the proportion of total assets provided by creditors (long t erm as well as short term) of the company i.e. what part of assets is being fina nced from loans. If total assets are more than external liabilities the firm is treated as solvent. So, higher the ratio the greater is the amount of creditors that is being used to generate profits for the owners of the firm. FOR NTPC: Total debt ratio is consistent over the year; it was 0.36 times in 2002, 0.36 ti mes in 2003 and 0.39 times in 2004, 0.36 times in 2005 and 0.37 times in 2006 And 0.39 times in 2007 indicating that NTPC use 39% Debt and 61% Equity Capital structure in the year 2007. This shows that company is solvent enough as its tot al assets are more than its total debt. It uses less funds from outside to finan ce its working or for generating profits. Dividend Coverage Ratio: This ratio measures the ability of a firm to pay dividend on preference shares w hich carry a fixed rate of dividend. This ratio is expressed in number of times of net profits after taxes. DC = Net profit after tax and interest Dividend This ratio indicates the safety margin available to preference shareholders. The higher the dividend coverage ratio the better it is from the preference shareho lders point of view. FOR NTPC: Dividend Coverage Ratio: this ratio has increased to 2.61 times in 2007 but thi s ratio has fallen from 5 times in year 2002 to 2.61 times in year 2007. this is bad indicator has it shows that company is not able to meet its dividend obliga tions of the shareholder as the investors who are investing in firm requires mor e returns so this should be analyzed properly and accordingly actions should be taken as it is hampering interest of shareholders. Possible reason for it could be increase in the dividend rate which made the dividend to fall and in case of NTPC there is no preference dividend its only dividend paid to the equity shareholders is considered 6.Investment Analysis Ratio

6.1 earning per share profit after tax no of equity share 00 7812549400 earning per share dividend pay out ratio dividend per share dividend 26385 outstanding shares 00 7812549400 dividend per share earning per share dividend pay out ratio 12.8

68647 58202 8245464400 7812549400 8.33 7.05

58070 52608 8245464400 7.06 7.06

36075 35396 8245464400 7.06 7.06

78125494

23087 19790 8245464400 7812549400 3.20 2.8 8.33 7.05 (DPS/EPS)

10823 7080 8245464400 2.4 7.06 38.41 1.38 7.06 39.7

7079 8245464400 0.906 7.06 34.0 0.906 7.06 19.5

78125494

12.8

5. LEVERAGE OR CAPITAL STRUCTURE RATIO Earning Per Share EPS The rate of dividend on shares depends upon the amount of profits earned by the firm. Whatever profits remains, after meeting all expenses and paying preference share dividend, belongs to equity shareholders. EPS = Profit after tax Preference Dividend No. of equity shares

This is a popular ratio as it measures the profitability of a firm from owners st andpoint. The higher the ratio the greater would be the market price of a compan ys shares or vice versa. FOR NTPC: EPS has been consistent over year it was 7.06 in year 2002 and is 7.05 in year 2 006. Dividend Yield Ratio: It expresses relationship between the dividend per share and market value per sh are. DY = Dividend per Share Market Price per Share X 100

This ratio shows the rate of return to shareholders in form of dividend based on the market price of the share i.e. actual rate of dividend on his investment.

FOR NTPC: Dividend yield ratio increased from 12.8 in year 2002 to 39.7 in year 2006 which shows that the company will be paying higher dividend per share now its retenti on ratio has fallen.

Purchase management activities at NTPC are one of the most vital activities unde rtaken by the Rs.18000 Cr power giant of India. The process followed by NTPC is very objective in nature and employs a very short term relationship with its sup plier. The system tries to take advantage of the competition in the field of hea vy engineering where foreign manufacturers like MHI, GE etc. are competing with Indian manufacturers like BHEL and L&T. NTPC being a public sector company, to b e free from nepotism and favouritism has adopted a system where transparency and automation is at its utmost level. Transparency was achieved by a multi member team and sealed tenders where no one knows in advance the quotation offered by a particular bidder. Automation here signifies that almost all the contracts are awarded following the same procedures, by awarding the contract to the lowest bi dder that is L1 without much consideration. Together they constitute a very reliable and corruption free system. At times it seems that the system is capable of saving lots of money of NTPC but in most of the cases the cost of maintaining the system itself combined with the poor resp onsiveness amounts to a lower level of efficiency. In todays world of cutthroat c ompetition only those firm are going to survive who are committed to efficiency, as it were their core competency. Cost must be reduced by means of optimum util isation of resources and channelled into more profitable segments. It is an esta blished fact that on operational level NTPC is one of the worlds most efficiently run organisation. Benefits can not be evaluated in isolation as there are certain features very un ique to the kind of domain NTPC is into. As we have discussed earlier that most of the item except coal and gas have a very infrequent and unpredictable demand. This means that NTPC can not anticipate its demand in advance and hence going i nto a long term supply contract is very difficult. For some procurement which ac tually constitutes more than 70% of non fuel procurement, the items are manufact ured to order. In these cases even the manufacturer is not sure of the future pr ice and availability of the equipment and hence going into a long-term contract based on current prices may do more harm than benefits. Another factor which mus t be understood is that there are very few companies which are into manufacturin g of the kind of equipments or material required by NTPC. And since the fixed ca pital employed by these firms are huge, many a times they offer huge discounts j ust to acquire a particular order so that they can fulfil some of their targets. NTPC has witnessed one such offer in past where a substantial discount was offe red by a vendor on the condition that the contract should be awarded to him in a specific time period mentioned by the manufacturer. These benefits could not ha ve been availed by NTPC had it been in a long-term relationship with a particula r manufacturer. BIBLOGRAPHY o o Books Khan & Jain- Financial Management I.M PANDEY - Financial Management

 o o o o o o o o o o

Manuals Delegation of Powers Manual of NTPC Bidding Documents Sec.-I,II,III,IV,V Annual Report of NTPC Purchase Management Manual of NTPC Websites Referred www.ntpc.co.in www.powermin.nic.in www.ntpctender.com www.pfc.com www.teriin.org www.ntpceoc.com