Jaypee Business School

A constituent of Jaypee Institute of Information Technology (Deemed University)

A-10, Sector 62, Noida (UP) India 201301 www.jbs.ac.in

DETAILED STUDY OF PROCUREMENT, WORKS POLICY AND AWARD OF CONTRACT IN NTPC

Corporate Internship Report

Internship Report submitted as a partial requirement for the award of the two year Master of Business Administration Program MBA 2012-2014

Name: Anurag mani

NTPC, Noida

Corporate Internship Supervisor Name: Mr. V.V Subramaniam

JBS - Faculty Supervisor Name: M.A Sanjeev

Start Date for Internship: 10 june 2013 End Date for Internship: 15 July 2013 Report Date: 01 July 2013

SELF CERTIFICATE
This is to certify that the summer training report submitted by me to Jaypee

Business School for the completion of corporate internship 2013 is a bonafide record of work carried out by me under the supervision of Mr.V.V SUBRAMANIAM, Finance concurrence Manager, NTPC Ltd. The contents of this report, in full or in parts, have not been submitted to any other Institute or University.

Name: BHAVYA MITTAL (12609216) Signature: Date:

ACKNOWLEDGEMENT
I would like to express my deepest appreciation to all those who provided me the possibility to complete this report. A special gratitude I give to our final year project manager M.A SANJEEV, whose contribution in stimulating suggestions and encouragement, helped me to coordinate my project especially in writing this report. Furthermore I would also like to acknowledge with much appreciation the crucial role of the staff of NTPC, who gave the permission to use all required equipment and the necessary material to complete the task VIJETA SAINI. Special thanks go to my team mates, who help me to assemble the parts and gave suggestion about the task. Last but not least, many thanks go to the head of the project, V.V SUBRAMANIAM whose have invested his full effort in guiding the team in achieving the goal. I have to appreciate the guidance given by other supervisor as well as the panels especially in our project presentation that has improved our presentation skills thanks to their comment and advices.

TABLE OF CONTENT
S. No.
1 2 3 4

DESCRIPTION
Executive Summary Introduction & Objectives NTPC Ltd. Profile Industry Analysis Indian Economy At a Glance Power Sector Of India Structure Market Size Growth Trends Performance Legal Regulatory Issues Technology Competition Analysis Financial Analysis Financial Ratios Financial Highlights Profitability Ratios Liquidity Ratios Activity Ratios Leverage Ratios Other Ratios SWOT Analysis Other Information Study of The Department Introduction Role of the Department Functions My Contribution Key Learnings Annexure Annexure I (MPP) Annexure II (Allocation of Power) Glossary of Terms List Of Acronyms List of Figures, Graphs, Tables References

PAGE NUMBER

7 8

EXECUTIVE SUMMARY
The report entitled is about the purchase practices followed at NTPC. These practices are followed during all procurements by NTPC. The purchase procedure starts at Indenting by the department that requires the material and goes to the cost department and finance department for required approval. In between various activities like Liquidated Damages calculation, Spare Parts procurement terms, etc. are undertaken. Once all the terms and conditions are formulated and approved, the tender document preparation starts. The tender documents are issued to the prospective bidder for a cost that starts from Rs 450 -Rs 22500($10-$500). The content of the tender document is prepared in such a manner that the prospective bidder comes to know about all the important details about the contract. The receipt of Bids follows the issuance of tender document from various vendors in the specified format. Once all the bids are received, they are opened in presence of some nominated officials from Finance, Contracts and Materials department. The representatives 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 documented in the General Condition of Contract, which is issued to the bidder with the tender documents. Apart from payments, there are various other issues like Arbitration, 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 contractor in case he fails to complete the project in the stipulated time. In case 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 performance and the purchase performance. The Vendor evaluation comes in handy for placing future orders whereas the Purchase Performance evaluation provides detailed insight into the procedures being followed to procure the required material. The area of work undertaken in Finance-Concurrence division, at NTPC.

Arithmetic Error Location Financial Analysis Bid Evaluation Report Vetting of bidding documents Letter of Awards

1. INTRODUCTION
Power development is one of the key infrastructural elements for the economic growth of the country. National Thermal Power Corporation Ltd. an Indian public sector company was set up in 7 November, 1975 with the objective of planning, promoting and organizing integrated development of thermal power in the country. Since, then, NTPC has been a key player in the power sector of the country and has emerged as a major power company of international standard and repute. Presently, the total installed capacity of NTPC stands at 36514 MW (including JV's), which includes 14 coal and 7 gas based power stations. It is listed in Forbes Global 2000 for 2012 ranked at 337th in the world. NTPC's core business is engineering, construction and operation of power generating plants and providing consultancy to power utilities in India and abroad. VISION:To be the worlds largest and best power producer, powering Indias growth. MISSION:Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco-friendly technologies and contribute to society.

OBJECTIVES
To realise the vision and mission, eight key objectives have been identified by the company.

Business Portfolio Growth

To consolidate NTPCs position as the leading thermal power generation company and establish a presence in hydro power segment.

Customer Focus
To expand the relationship with existing customers by offering a bouquet of services in addition to supply of power.

Agile Corporation
To ensure effectiveness in business decisions and responsiveness to change in the business environment.

Performance Leadership
To run and maintain NTPC station at par with the best-run utilities in the world.

 Human Resource Development

To enhance organizational performance by institutionalizing an objective and open performance management system. Financial Soundness To continuously strive to reduce the cost of capital through prudent management of deployed funds. Sustainable Power Development To lead the sector in the areas of resettlement and rehabilitation and environment protection including effective ash-utilization, peripheral development and energy conservation practice.

Research and Development

To pioneer the adoption of reliable, efficient and cost-effective technologies by carrying out fundamental and applied research in alternate fuels and technologies.

2. COMPANYS PROFILE
NTPC Limited (NTPC) is an India-based company engaged in the generation and sale of bulk power to state power. The Companys other business includes providing consultancy, project management and supervision, oil and gas exploration, and coal mining. As of march 31, 2012, the Company was engaged in executing two projects: Lata Tapovan hydro electric project (171 mega-watts (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. As of March 31, 2012, the Company had installed capacity in India was 199877.03 mega-watts. During the fiscal year ended March 31, 2012, the Company added 2,820 mega-watts of installed capacity. As of March 31, 2012, the Company had five subsidiaries: NTPC Electric Supply Company Limited, NTPC Vidyut Vyapar Nigam Limited, NTPC Hydro Limited, Kanti Bijlee Utpadan Nigam Limited and Bhartiya Rail Bijlee Company Limited. NTPC, India's largest power company, was set up in 1975 to accelerate power development in India. It is emerging as an Integrated Power Major, with a significant presence in the entire value chain of power generation business. NTPC ranked 337th in the 2012, Forbes Global 2000 ranking of the Worlds biggest companies. With a current generating capacity of 39,174 MW, NTPC plans to become a 128,000 MW company by 2032. SUBSIDIARIES Company NTPC Electric Supply Company Ltd. NTPC Vidyut Vyapar Nigam Ltd. NTPC Hydro Ltd. Bhartiya Rail Bijlee Company Ltd. Kanti Bijlee Utpadan Nigam Ltd. JOINT VENTURES Company Utility Powertech Ltd. NTPC-SAIL Power Company Pvt. Ltd. NTPC-Alston Power Service Pvt. Ltd. NTPC- Tamilnadu Energy Company Ltd. Aravali Power Company Pvt. Ltd. NTPC- SCCL Global Venture Pvt. Ltd. Holding % 50 50 50 50 50 50 Holding % 100 100 100 74 64.57

Meja Urja Nigam Pvt. Ltd. NTPC- BHEL Power Projct Pvt. Ltd. Nabhinagar Power Generating Co. Pvt. Ltd. CIL NTPC UrjaPvt. Ltd. BF-NTPC Energy Systems Ltd. Anushakti Vidhyut Nigam Ltd. Transformer & Electricals Kerla Ltd. Ratnagiri Gas & Power Pvt. Ltd. National High Power Test Laboratory Pvt. Ltd. International Coal Ventures Pvt. Ltd. Energy Efficiency Services Pvt. Ltd. National Power Exchange Ltd. Trincomalee Power Comapny Ltd.

50 50 50 50 49 49 44.6 30.17 25 14.28 25 16.67 50

The total installed capacity of the company is 38,674 MW (including JVs) with 16 coal based and 7 gas based stations, located across the country. In addition under JVs, 7 stations are coal based & another station uses naptha/LNG as fuel. Owned by NTPC Coal based projects Gas based projects Sub-Total (a) Joint Ventures & Subsidiaries Coal based projects Gas based projects Sub-Total (b) Total (a+b)
Capacity of NTPC

Capacity (MW) 26,875 3,955 30,830

1,424 1,940 3,364 34,194

2.1 SHAREHOLDING PATTERN OF NTPC

Presently, NTPC generates power from Coal and Gas. It has also diversified into hydro power,

coal mining, power equipment manufacturing, oil & gas exploration, power trading &

distribution. With an increasing presence in the power value chain, NTPC is well on its way to becoming an Integrated Power Major. It is an Indian public sector company listed on the Bombay Stock Exchange in which at present the Government of India holds 84.5% (after divestment of the stake by Indian government on 19 October 2009) of its equity. With an electric power generating capacity of 41,184 MW, NTPC has embarked on plans to become a 128,000 MW company by 2032.

2.2 DIVERSIFIED GROWTH

As per new corporate plan, NTPC envisages to have an installed capacity of 128 GW by the year 2032 with a well diversified fuel mix comprising 56% coal, 16% gas, 11% nuclear energy, 9% renewable energy and 8% hydro power based capacity. As such, by the year 2032, 28% of NTPCs installed generating capacity will be based on carbon free energy sources. Further, the coal based capacity will increasingly be based on high-efficient-low-emission technologies such as Super-critical and Ultra-Super-critical. Along with this growth, NTPC will utilize a strategic mix of options to ensure fuel security for its fleet of power stations. Looking at the opportunities coming its way, due to changes in the business environment, NTPC made changes in its strategy and diversified in the business adjacencies along the energy value chain. In its pursuit of diversification NTPC has developed strategic alliances and joint ventures with leading national and international companies. NTPC has also made long strides in developing its Ash Utilization business. Hydro Power: In order to give impetus to hydro power growth in the country and to have a balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW Koldam hydro project in Himachal Pradesh. Two more projects have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW. Renewable Energy: In order to broad base its fuel mix NTPC has plan of capacity addition of about 1,000 MW through renewable resources by 2017. Nuclear Power: A Joint Venture Company "Anushakti Vidhyut Nigam Ltd." has been formed (with 51% stake of NPCIL and 49% stake of NTPC) for development of nuclear power projects in the country. Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was created for trading power leading to optimal utilization of NTPCs assets. It is the second largest power trading company in the country. In order to facilitate power trading in the
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country, National Power Exchange Ltd., a JV of NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange. Ash Business: NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material input by cement companies and brick manufacturers. NVVN is engaged in the business of Fly Ash export and sale to domestic customers. Joint ventures with cement companies are being planned to set up cement grinding units in the vicinity of NTPC stations. Power Distribution: NTPC Electric Supply Company Ltd. (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in Rajiv Gandhi Gramin Vidyutikaran Yojanaprogramme for rural electrification. Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of power equipment manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC has also acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers.

2.3 BUSINESS DEVELOPMENT

NTPC, with a rich experience of engineering, construction and operation of around 35,000 MW of thermal generating capacity, is the largest and one of the most efficient power companies in India, having operations that match the global standards. Commensurate with our countrys growth challenges, NTPC has embarked upon an ambitious plan to attain a total installed capacity of 128,000 MW by 2032. Towards this end, NTPC has adopted a multi-pronged strategy such as Greenfield Projects, Brownfield Projects, Joint Venture and Acquisition route. Apart from this, NTPC has also adopted the Diversification Strategy in related business areas, such as, Services, Coal Mining, Power Trading, Power Exchange, Manufacturing to ensure robustness and growth of the company.

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3. INDUSTRY ANALYSIS
3.1 INDIAN ECONOMY IN POWER SECTOR
India currently has a power generation capacity of 169,748MW. By the end of the 12th plan i.e. by the year 2017, the country is expected to add generating capacity of 100,000 MW. The development of Ultra Mega Power Projects, a series of ambitious projects each with a capacity of 4000 MW and above, planned by the government; announcement of the National Solar Mission that aims to create 20000 MW of solar power generating capacity by 2022 and reforms encouraging increasing private sector participation are all indicators of the immense potential of the Indian power sector.

3.2 POWER: ELECTRIC THERMAL AND NUCLEAR

Indias power sector has witnessed drastic changes in the past decade. The Electricity Act, 2003 (henceforth referred to as The Act) paved way for the advent of reforms and competition in the power sector. A slew of policies and regulations followed, to facilitate an accelerated growth in the sector. The process started with the restructuring of power distribution utilities, with some states corporatizing the functional entities for power generation, transmission and distribution. The states of Orissa and Delhi went a step further by privatising the distribution function. While Delhi came to be recognised as a successful model, Orissa could not keep up to expectations.

3.3 GLOBAL POWER SECTOR (THERMAL POWER SECTOR)

Thermal power generation worldwide is poised for a staggering growth in the medium-tolong term, with demand likely to expand a whopping 62% by 2030 from the present level. Several countries across the world have already liberalized or are in the process of liberalizing their electric power markets through opening up of wholesale markets and also to some extent in retail markets. Effective mobilization of resources from private sector for the development and expansion of power sector drive the liberalization process in developing countries, while consistent pressures to reduce costs and prices of electricity force developed countries to deregulate their electricity markets. Coal continues its dominance as a major fuel source in the worldwide electricity generation and hence in thermal power generation. However, natural gas is slowly making inroads at the cost of coal.

3.4 FUTURISTIC SCENARIO OF THE INDUSTRY

Thermal generation, comprising coal, gas and oil, is expected to grow by 5.6% per annum during the period to 2015, but growth looks set to accelerate later in the decade.-Expect gasfired power generation to climb 16.7% perannum between 2011 and 2015, with an average annual growth rate of 16.1% forecast to 2020.
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3.5 CHALLENGES OF INDIAN POWER SECTOR

Indian Power Sector has some of the major strengths such as abundant coal reserves to support thermal power generation, huge potential for hydro-electricity generation and abundant engineering skills to commission and run large-scale projects and a large consumer base. But at the same time Indian Power Sector has number of weaknesses/problems such as, Inadequate domestic supply of quality fuel viz coal and gas result in high cost of generation,high price of imported coal,volatilty in exchange rate and lack of demand for such expensive power.the imported coal prices have been vastly affected due to change in quality and regulations in coal exporting countries. Inadequate power generation capacity SEBs weak financial health Lack of optimum utilization of existing generation capacity Inadequate inter regional transmission links Alarming level of Transmission and Distribution Losses Abysmally low level of collection efficiency Inadequate metering of consumers Large-scale theft Cross subsidization of Power and Skewed tariff structure Energy shortage of about 7.3% and peaking demand shortage of 12.5% Low PLF of Generating stations

3.6 ECONOMIC AND MONETARY INDICATORS

Unemployment or human resources requirements

The Power sector is a capital and technology intensive sector requiring large number of engineers, technicians and other skilled workers. Power projects require specialised technical manpower during the project construction phase as well as the Operation and Maintenance (O&M) phase. Due to the technology intensive nature of the business, technical and managerial competency is critical in ensuring timely implementation of projects and optimum performance upon commissioning.

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The country is poised to build more power generation capacity as well as supporting power systems in the next 10 years as compared to the previous 60 years. This necessitates induction of significant manpower in to the sector. Even though the country produces a large number of new engineers every year, it is not possible to directly deploy them in to the work force without proper training due to the technology intensive nature of the industry. The induction programs currently specified by the CEA range in duration between six to twelve months for engineers, operators, supervisors and technicians based on the technology area. Further, experienced professionals are required for critical activities and it is difficult to augment the number of such professionals in a short period of time. Hence adequate capacity building measures need to be undertaken to ensure the ready availability of manpower required for achieving the plan targets. Further, continuous training should be provided to the current manpower to ensure up-to-date technical skills, higher motivation and productivity. The total manpower in the power sector at the end of 10th plan was approximately 9.5 lakhs as per the Planning Commissions Working Group on Power for 11th Plan. The following are the requirements for additional manpower for the 11th plan assuming addition of 68,869 MW of generation capacity, 100,00014 ckt.Kms of HV, EHV and UHV transmission lines and 16 crore distribution consumers. It should be noted that the generation capacity addition target was revised to 78,700 MW which further increases the manpower requirement.

3.7 INDUSTRIAL PRODUCTION

The current installed generation capacity of the country is 206,456 MW as of 31st July 2012. In spite of significant augmentation in generation, transmission and distribution capacity, the growth in demand has always outstripped the capacity additions. While Indias per capita electricity consumption as of 819 kWh (as per provisional 2010 -11 data) is still a fair distance away from the National Electricity Policy target of 1000 kWh per capita by 2012, it is undeniable that huge strides have been made in the power sector during the 11th Plan period. A record generation capacity of 54,964 MW was added during the 11th Plan, which is almost equal to the capacity addition during the 8th, 9th and 10th Plan periods put together. The private sector played a very important role in this feat with over 42% of the capacity being commissioned by private power developers. In fact, the private achieved more than double of its 11th Plan target while both the Centre and State power generation utilities were unable to meet their planned targets. The boost in the private sector participation in the generation segment was brought about by the Electricity Act 2003. It consolidated all the previous policies, thereby streamlining the power sector and improving efficiency. The foundation for large scale private investments in power generation was laid out with the de-licensing of generation. Tariff determination was made a transparent process and competition was encouraged through the concept of Open Access and competitive bidding for procurement of power. The figure below traces the rise in importance of the private sector with respect to generation capacity addition. The private sector is expected to play an even more important role in the 12th Plan. Out of the planned generation capacity addition of 78,000 MW, the private sector is expected to
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contribute around 56%. However, there are several viability issues plaguing the private investments already made in the sector and which threaten to leave precious power generation capacity stranded. Unless these issues are resolved, the power developers and the banking community are likely to remain wary of further investments in the sector, thereby affecting the power needs of the nation in the years to come.

3.8 CORPORATE PROFITS

A sharp rise in crude oil prices, depreciation in rupee and a rise in power cost have impacted the performance of companies in the first quarter ended June 30, 2012. Besides power and fuel cost, manufacturing companies have also seen a sharp rise depreciation and interest outgo, resulting in a decline in net profits. A study carried out by the Centre for Monitoring Indian Economy (CMIE) on the financial performance of the corporate sector for the first quarter ended June 30, 2012, reveals that the net profits of 1,478 companies rose by a mere 2.7 per cent compared to the same period in the previous year. However, CMIE believes that the growth in corporate profits would improve to 10.2 per cent once the remaining 3,000 plus companies listed on the stock exchanges come out with their financial results for the June 2012 quarter. This growth, however, will be much slower sequentially than the 22.1 per cent growth in net profits clocked by corporates in the previous quarter ended March 31, 2012.

PROFIT MARGIN
CMIE estimates the net profit margin of corporate India to have contracted to 5.4 per cent in the June quarter after jumping to 8.3 per cent in the March quarter. This would be the second lowest quarterly margin witnessed by corporate India in the last 10 years, CMIE said in its study. CMIE estimates corporate sales to have grown by 15.2 per cent in the June quarter. Although healthy, the growth will be the slowest recorded by the corporate India in the last 10 quarters. CMIE, however, expects the profitability of companies to improve from now onwards. The profit after tax margin is expected to expand from 5.4 per cent in the June quarter to 6.4 per cent in the September quarter. It is expected to expand further to 7.4 per cent in December quarter and 7.8 in the March 2013 quarter. The growth in profits too is expected to accelerate from 10.2 per cent in June 2012 quarter to 23.6 per cent in December 2012 quarter. In spite of a healthy profit performance, the year-on-year growth in March 2013 quarter is expected to be weak at 3.2 per cent because of the high base, the CMIE report says. For the financial year 2012-13, corporate profits are expected to rise by 17.7 per cent, after contracting 0.5 per cent in 2011-12. The softening input costs, lower forex losses and slower increase in interest outgo of the manufacturing sector due to the expected softening of interest rates would result in the improvement in profits in 2012-13.

NTPC CORPORATE PROFIT

India's largest power generator National Thermal Power Corporation (NTPC) Monday reported a 21.89 percent rise in net profit at Rs.25.97 billion in the third quarter ended December 2012 as against Rs.21.30 billion in the same period last year
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3.9 STRUCTURE
In December 1950 about 63% of the installed capacity in the Utilities was in the private sector and about 37% was in the public sector. The Industrial Policy Resolution of 1956 envisaged the generation, transmission and distribution of power almost exclusively in the public sector. The Electricity (Supply) Act, 1948, envisaged creation of State Electricity Boards (SEBs) for planning and implementing the power development programs in their respective States. The Act also provided for creation of central generation companies for setting up and operating generating facilities in the Central Sector. The Central Electricity Authority constituted under the Act is responsible for power planning at the national level.GOI promulgated Electricity Regulatory Commission Act, 1998 for setting up of Independent Regulatory bodies both at the Central level and at the State level viz. The Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commission (SERC's) at the central and state levels respectively.

3.10 COMPANIES IN THE INDUSTRY

Private Companies

Tata Power

Jaiprakash Power Ventures

Suzlon Energy

Reliance Infrastructure

Central Government Companies National HydroElectric Power Corporation Ltd. Power Grid Corporation of India Ltd. National Thermal Power Corporation Ltd.

Power Finance Corporation Ltd.

Damodar Valley Corporation

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State Electricity Boards (SEB)

Assam State Electricity Board

Kerala State Electricity Board

Jharkhand State Electricity Board

Bihar State Electricity Board

Maharashtra State Electricity Board

West Bengal State Electricity Board

3.11 MARKET SIZE

Current Status of Indian Power Sector

3.12 GROWTH TRENDS

Power generation increased by 3 per cent, from 699.1 billion kWh in 2007-08 to 723.5 billion kWh in2008-09. Between 1998-99 and 2008-09, it increased at a CAGR of 4.9 per cent, from 448 billion kWhto 724 billion kWh.The PLF of thermal power plants rose from 64.6 per cent in 1998-99 to 77.19 in 2008-09. The PLF of Indian plants is lower than that of their international counterparts on account of old plants, inadequate maintenance, poor quality, unsatisfactory transmission infrastructure and no means of assured fuel supply.

3.11 PERFORMANCE
Being one of the fastest growing economies and the second largest populated country, India represents an attractive destination for the power industry. The working age population is increasing at a rapid pace, thereby creating a strong demand for electricity. The rising consumption of energy validates the fact. In the past few years, there has been a splendid
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growth in the power generation and capacity and with the proper enactment of several policies; the trend is likely to continue in the coming future. Reforms such as, the Electricity Act and National Electricity Policy will provide the necessary impetus to the Indian power sector. State governments in co-operation with central and private players is devising strategies to ensure that the power deficits can be reduced and large number of villages can be electrified. The states are focusing on those aspects of energy, in which they have an edge, such as solar power, wind power, or hydro power. To tap the underlying potential, the states are making targets for capacity additions and funds availability. In other words, the states are complementing the efforts made by the government at the central level with respect to the power sector. In order to properly address the demand-supply gap, one effective solution lies in the efficient use of renewable energy sources. Renewable energy is the buzz word in Indian power sector and most of the public and private players are coming up with plans to tap the potential market.

3.12 LEGAL AND REGULATORY ISSUES

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3.13 STANDARDS TECHNOLOGY

Indias Integrated Energy Policy (IEP, see section above) examines several scenarios for future development of the Indian energy sector. It does not however present scenarios aiming for deepCO2 reductions. The policy envisages CO2 emissions for India in 2031/32 to be between 5.5Gt CO2 and 3.9Gt CO2, compared to 1.34Gt in 2007, while the BLUE Map Scenario in ETP 2010 (IEA, 2010a) limits the CO2 emission increase to 2.2Gt in 2030. Based on an average annual GDP growth report of 8% to 9% between 2006/07 and 2031/32, electricity generation in2031/32 is estimated at between 3 628 TWh and 4 493 TWh. These figures correspond to installed capacities of 778GW and 960GW. Super Critical Technology in Power Generation The Ministry of Power has launched supercritical power programme on the lines of the US, Japan, Germany, Korea and Russia. Currently in India 69% of the gross generation of electricity is coal based and only 1.2% is based on renewable energy sources. The Central Electricity Authority (CEA) has estimated that meeting electricity demand over the next ten years will require more than doubling the existing capacity, from about 132 GW in 2007 to about 280 GW by 2017, of which at least 80 GW of new capacity is expected to be based on coal. Moreover, the maximum contribution of renewable energy would be around 5.6% of Indias total energy by 2031-32.Even though a large part of the power generation will be coal dependent, it is important that India moves away from sub-critical pulverised coal or dirty coal. There are no clear technology choices but their analysis suggests that commercial supercritical combustion technology is the best option for India in the short-tomedium term. The supercritical coal based units have faster starting time and load changes and are more suitable for daily start up/shut down operation and have better efficiency at part load operation. The task of induction of supercritical technology through bulk ordering of generating units for PSUs is under active consideration of the Government. Discussions are on for the procurement of 7 units of 600 MW and 6 units of 800 MW through bulk tendering, through International Competitive Bidding (ICB). The selected bidders will have to set up manufacturing facilities in India with a Phased Manufacturing Program.

3.14 OTHER ENVIRONMENTAL FACTORS

Water usage The amount of water usage is often of great concern for electricity generating systems as populations increase and droughts become a concern. Still, according to the U.S. Geological Survey, thermoelectric power generation accounts for only 3.3 percent of net freshwater consumption with over 80 percent going to irrigation. Steam-cycle plants (nuclear, coal, NG, solar thermal) require a great deal of water for cooling, to remove the heat at the steam condensers. The amount of water needed relative to
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plant output will be reduced with increasing boiler temperatures. Coal- and gas-fired boilers can produce high steam temperatures and so are more efficient, and require less cooling water relative to output. Nuclear boilers are limited in steam temperature by material constraints, and solar is limited by concentration of the energy source. Thermal cycle plants near the ocean have the option of using seawater. Such a site will not have cooling towers and will be much less limited by environmental concerns of the discharge temperature since dumping heat will have very little effect on water temperatures. This will also not deplete the water available for other uses. Nuclear power in Japan for instance, uses no cooling towers at all because all plants are located on the coast. If dry cooling systems are used, significant water from the water table will not be used. Fossil fuels Most electricity today is generated by burning fossil fuels and producing steam which is then used to drive a steam turbine that, in turn, drives an electrical generator. Such systems allow electricity to be generated where it is needed, since fossil fuels can readily be transported. They also take advantage of a large infrastructure designed to support consumer automobiles. The world's supply of fossil fuels is large, but finite. Exhaustion of low-cost fossil fuels will have significant consequences for energy sources as well as for the manufacture of plastics and many other things. Various estimates have been calculated for exactly when it will be exhausted (see Peak oil). New sources of fossil fuels keep being discovered, although the rate of discovery is slowing while the difficulty of extraction simultaneously increases. More serious are concerns about the emissions that result from fossil fuel burning. Fossil fuels constitute a significant repository of carbon buried deep underground. Burning them results in the conversion of this carbon to carbon dioxide, which is then released into the atmosphere. The estimated CO2 emission from the world's electrical power industry is 10 billion tonnes yearly.[16] This results in an increase in the Earth's levels of atmospheric carbon dioxide, which enhances the greenhouse effect and contributes to global warming.

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4. COMPETITION ANALYSIS
Competition in the electricity industry in India is primarily intended to enhance operational efficiency. With the enactment of Electricity Act 2003, competition got a new nomenclature and thrust. Due to the gap between demand and supply in the Indian power sector, there has generally been a stable market for power generation companies. NTPC Company is the largest power generating Company in the country having a market share of approximately 16.34% in terms of installed capacity and 25.32% in terms of national generation. The Maharashtra State Power Generation Company Ltd. with an installed capacity of 9996 MW with market share of about 5% is the next largest entity. The share of private sector capacity has increased to 54276 MW as of March 31, 2012 from 36761 MW as on March 31, 2011 and going forward, the same is expected to increase even faster as is evident from capacity added during XI plan so far. As far as generation is concerned, private sector has contributed to around 16% of total electricity generation in the year 2011-12 as compared to 14% in the previous year . Government of India has taken several policy measures which have provided an enabling environment for private investors to participate in power sector. With the entry of private players in power sector, the competition is expected to intensify.

4.1 PRODUCT DIFFERENTIATION

Access to affordable and reliable electricity is critical to a countrys growth and prosperity. The country has made significant progress towards the augmentation of its power infrastructure. In absolute terms, the installed power capacity has increased from only 1713 MW (megawatts) as on 31 December 1950 to 118 419 MW as on March 2005 (CEA 2005). The all India gross electricity generation, excluding that from the captive generating plants, was 5107 GWh (gigawatt-hours) in 1950 and increased to 565 102 GWh in 2003/04 (CEA 2005). Energy requirement increased from 390 BkWh (billion kilowatt-hours) during 1995/96 to 591 BkWh (energy) by the year 2004/05, and peak demand increased from 61 GW (gigawatts) to 88 GW over the same time period. The country experienced energy shortage of 7.3% and peak shortage of 11.7% during 2003/04. Though, the growth in electricity consumption over the past decade has been slower than the GDPs growth, this increase could be due to high growth of the service sector and efficient use of electricity. Per capita electricity consumption rose from merely 15.6 kWh (kilowatt-hours) in 1950 to 592 kWh in 2003/04 (CEA 2005). However, it is a matter of concern that per capita consumption of electricity is among the lowest in the world. Moreover, poor quality of power supply and frequent power cuts and shortages impose a heavy burden on Indias fast-growing trade and industry.

21

Oil and natural gas The latest estimates indicate that India has around 0.4% of the worlds proven reserves of crude oil. The production of crude oil in the country has increased from 6.82 MT in 1970/71 to 33.38 MT in 2003/04 (MoPNG 2004b). The production of natural gas increased from 1.4 BCM (billion cubic metres) to 31.96 BCM during the same period. The quantity of crude oil imported increased from 11.66 MT during 1970/71 to 81 MT by 2003/04. Besides, imports of other petroleum products increased from 1 MT to 7.3 MT during the same period. The exports of petroleum products went up from around 0.5 MT during 1970/71 to 14 MT by 2003/04. The refining capacity, as on 1 April 2004, was 125.97 MTPA (million tonnes per annum). The production of petroleum products increased from 5.7 MT during 1970/71 to 110 MT in 2003/04. Indias consumption of natural gas has risen faster than any other fuel in the recent years. Natural gas demand has been growing at the rate of about 6.5% during the last 10 years. Industries such as power generation, fertilizer, and petrochemical production are shifting towards natural gas. Indias natural gas consumption has been met entirely through domestic production in the past. However, in the last 4/5 years, there has been a huge unmet demand of natural gas in the country, mainly required for the core sectors of the economy. To bridge this gap, apart from encouraging domestic production, the import of LNG (liquefied natural gas) is being considered as one of the possible solutions for Indias expected gas shortages. Several LNG terminals have been planned in the country. Two LNG terminals have already been commissioned: (1) Petronet LNG Terminal of 5 MTPA (million tonnes per annum) at Dahej, and (2) LNG import terminal at Hazira. In addition, an in-principle agreement has been reached with Iran for import of 5 MTPA of LNG. Renewable energy sources Renewable energy sources offer viable option to address the energy security concerns of a country. Today, India has one of the highest potentials for the effective use of renewable energy. India is the worlds fifth largest producer of wind power after Denmark, Germany, Spain, and the USA. There is a significant potential in India for generation of power from renewable energy sources, small hydro, biomass, and solar energy. The country has an estimated SHP (small-hydro power) potential of about 15 000 MW. Installed combined electricity generation capacity of hydro and wind has increased from 19 194 MW in 1991/92 to 31 995 MW in 2003/04, with a compound growth rate of 4.35% during this period (MoF 2005). Other renewable energy technologies, including solar photovoltaic, solar thermal, small hydro, and biomass power are also spreading. Greater reliance on renewable energy sources offers enormous economic, social, and environmental benefits. The potential for power production from captive and field-based biomass resources, using technologies for distributed power generation, is currently assessed at 19 500 MW including 3500 MW of exportable surplus power from bagasse-based cogeneration in sugar mills (MNES 2005).

22

4.2 MONOPOLY
Power trading inherently means a transaction where the price of power is negotiable and options exist about whom to trade with and for what quantum.In India, power trading is in an evolving stage and the volumes of exchange are not huge. All ultimate consumers of electricity are largely served by their respective State Electricity Boards or their successor entities, Power Departments, private licenses etc. and their relationship is primarily that of captive customers versus monopoly suppliers. In India, the generators of electricity like Central Generating Stations (CGSs), Independent Power Producers (IPPs) and State Electricity Boards (SEBs) have all their capacities tied up. Each SEB has an allocated share in central sector/ jointly owned projects and is expected to draw its share without much say about the price. In other words, the suppliers of electricity have little choice about whom to sell the power and the buyers have no choice about whom to purchase their power from.

4.3 FOREIGN TRADE POLICY

Subject: Policy on foreign investment in Power Exchanges

Present Position
As per extant policy, FDI, up to 100%, under the automatic route, is permitted in the power sector (except atomic energy). This includes generation, transmission and distribution of electricity, as well as power trading, subject to the provisions of the Electricity Act, 2003. Extant policy, however, does not provide any specific dispensation for foreign investment in power exchanges. Revised Position The Government of India has reviewed the position in this regard and decided to permit foreign investment, up to 49%, in Power Exchanges, registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010, as below i. Such foreign investment would be subject to an FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital. ii. FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route. iii. FII purchases shall be restricted to secondary market only iv. No non-resident investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies; and v. The foreign investment would be in compliance with SEBI Regulations; other applicable laws/ regulations; security and other conditionalities. Accordingly, a new paragraph 6.2.26 is inserted under 'Circular 1 of 20 12Consolidated FDI Policy', effective from April 10, 2012, as below i. 6.2.26 Power Exchanges

Insertion of new paragraph 6.2.26

23

ii. iii.

6.2.26.1 Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations,2010 6.2.26.2 Other conditions a. Such foreign investment would be subject to an FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital;-49% (FDI &FII) Government(for FDI) b. FIr investments would be permitted under the automatic route and FDI would be permitted under the government approval route c. FIr purchases shall be restricted to secondary market only d. No non-resident investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these comp:Uies; and e. The foreign investment would be in compliance with SEBI Regulations; other applicable laws/ regulations; security and other conditionalitys.

4.4 TECHNOLOGY UPGRADATION

The power sector is opening up and use of information technology and automation systems can play a major role in bringing about standardization, transparency, revenue realization and reduction in transmission and distribution losses in the sector. Technology innovation can only benefit the sector and IT has a major role to play in empowering the power supply utilities. There is a huge need for specialized, customized and upgraded software systems for the power sector. The restructured Rs 500 billion APDRP initiative gives high priority for implementation of IT enabled solutions to reduce AT&C losses. The recently updated report of IT Task Force in October 2008 also observes that technology will enable the transformation of power sector in India. The size and the scope of the software order are significant. Indias state-owned power utilities are expected to place significant orders of software that can help them in project monitoring and in managing their networks better..

4.5 BARRIERS TO ENTRY

Buyer Power Based on the following parameters it can be said that Overall the buyer has weak power. Low Switching Cost switching cost for the buyers is low as of now but is supposed to increase when new players come in the market as the product in not differentiable i.e. electricity. Buyer size Very small.
24

Oligopoly Threat Very Low. Undifferentiated product As the product i.e. electricity is undifferentiated product, so this increases buyer power. Tendency to switch Buyers will switch to the supplier who is efficient and cost effective. Price sensitivity Not much price sensitive Financial muscle Nothing as compared to PSEs. Buyer independence Low as of now but if more suppliers come into picture as Govt. has sought competition in this market, the buyer power will increase. Product dispensability Very Low. Supplier Power Based on the following parameters it can be assessed that the supplier Power in High. Supplier size Very Large as the suppliers are Large PSEs. Oligopoly threat Small number of suppliers enjoy monopoly, thereby contributing to the supplier power. Switching costs Very high, as only large govt. companies are the suppliers. Player independence Low Substitute inputs As no substitute inputs, so the firms have no choice. Player dispensability - High Differentiated input- Inputs are same i.e. electricity in case of company buying electricity from wholesale market and selling to the end-users, and coal or gas in case the company is in power generation field. Threat of New Entrants The Threat of new entrants is moderate based on the following parameters. Low Switching Cost Switching cost for the enduser is low, so it increases opportunity for the new entrants. Undifferentiated product Product is not differentiable i.e. electricity, so the users have the incentive to switch to the low cost supplier. This increases the opportunity for the new efficient entrants. Fixed costs High fixed cost acts as a barrier to entry for new entrants.
25

Little regulation Delicensed generation and multiple licenses in the distribution in the same area of supply acts as an opportunity for the new entrants. Distribution accessible Increasing the threat of new entrants. Suppliers accessible Increasing the threat of new entrants. Market growth High, leading to great opportunities for new entrants. Threat of Substitutes The Threat of substitutes is Weak as per the following parameters. Low Switching Cost The cost of switching to substitutes like gas, solar penal, etc. is high. Rivalry among existing firms The rivalry among existing firms is low as per the following parameters. Competitor size Very Few companies very large in size like NTPC, NLC, NHPC, NPCIL, PGCIL etc. Number of players Very few. Hard to exit Ease of expansion Difficult because of lack of investment and resources.

4.6 SCOPE
The World Bank has stated in its latest report that India can generate 68,000 MW of power, costing less than Rs.6 a unit from renewable energy sources, a step that can address the country's energy security concerns. The report released here by the multilateral funding agency on Friday said the 68,000 MW of wind, hydro and biomass energy can be harnessed at less than Rs.6 a unit. Developing indigenous renewable energy sources, which have low marginal costs of generation, are more economically viable in the long run,'' the study Potential of renewable energy in India has stated. India's electricity demand is expected to grow at an average annual rate of 7.4 per cent in the next 25 years. The generation capacity will have to increase five-fold to keep pace with the growth of demand. At present, the installed capacity of the country stands at about 1.70 lakh MW from all sources of energy, as per official data. The report also suggested that renewable energy development can be an important tool for regional economic development within the country. Himachal Pradesh, Jammu and Kashmir and Uttarakhand have 65 per cent of India's small

26

hydro power resources. Much of the economically attractive wind potential in Orissa or the biomass potential in Madhya Pradesh lies largely undeveloped, the report adds. The report emphasises that coal, gas and oil have witnessed considerable price volatility in recent years, renewables are the only free hedging mechanism against price volatility of fossil fuels. The risk-adjusted cost of renewable energy is lower than that of fossil-based fuels, and their use enhances the price certainty of the portfolio and increases energy security, the report says. The entire renewable potential, including solar, is less expensive than diesel, where the existing 20,000 MW of diesel based installed capacity points to innovative possibilities of scaling up renewable in a big way, according to N. Roberto Zagha, World Bank Country Director in India. The government has set an ambitious target of installing at least 44,000 MW of additional capacity of renewables in the next 10 years.

4.7 COMPARATIVE VALUATION

(Major Players in the Energy Sector in India) Electricity: The National Thermal Power Corporation (NTPC), National Hydro Electric Power Corporation and the Power Grid Corporation of India are the major public sector players. The main private sector players include Tata Power, Calcutta Electricity Supply Corporation Limited, Reliance Infrastructure and Adani Enterprises. Oil and gas: Oil production in India is dominated by the Oil and Natural Gas Corporation (ONGC) and Oil India, which control up to 85 percent of Indias total oil production. Other players include Bharat petroleum Corporation Limited (BPCL) and Hindustan Petroleum (HP). ONGC is also major player on the natural gas production front, while the Gas Authority of India Limited (GAIL) is the major player in the transmission and distribution of natural gas. Except for Reliance Industries Limited (RIL) and Cairn India Limited, no private players have carved out a key role in this sector. Coal: Indias coal production is dominated by Coal India Limited and Singereni Collieries Company. Renewable: The sectors dominated by private players like Suzlon Energy Limited, Tata BP Solar and Moser Baer Private Limited.

PRICE
The pricing has primarily been fixed/controlled by the Central and State Governments. However, this is now being done by the Regulatory Commissions at the Centre and also in the States wherever they are already functional. Power generation/ transmission is highly
27

capital intensive and the Fixed Charge component makes up a major part of tariff. India being a predominantly agrarian economy, power demand is seasonal, weather sensitive and there exists substantial difference in demand of power during different hours of the day with variations during peak hours and off peak hours. Further, the geographical spread of India is very large and different parts of the country face different types of climate and different types of loads.

PLACE
India is one of the largest in the terms of population. Thus, the demand for power is extremely high. This factor has triggered the rise of several types of power agencies to fulfill the requirement. In general, the power department of the country falls directly under the Ministry of Power India. The name of the ministry was Ministry of Energy in earlier times. Ministry of Power covers the entire sector of power. The huge variety of the climatic conditions of the country has forced the country to depend on various sources of power. All these types fall directly under the power department. The sub divisions are organized in such a manner, that they are able to interchange among themselves to be able to meet the exact requirement. The power plant like hydro, solar, thermal requires huge investment and are undertaken both by public sector and private sector enterprises at various locations within India. Its worthwhile to mention that these power plant set ups are located in remote areas away from the main cities owing to the fact of causing pollution and environmental disturbance. Eastern region, western region, southern and northern region many plants are been set up.

All India / NTPC Installed Capacity

Fuel MW (All India) 151530.49 130220.89 20109.85 1199.75 39491.40 4780.00 27541.71 223343.6 10 41184 MW (NTPC) 41184 35279 5895 All India VS NTPC ( %age) 27.18 27.09 29.31 0 0 0 0.04 18.44

Total Thermal Coal Gas OIL Hydro Nuclear RES Grand Total

28

PRODUCTS
ElectricityOil and gasCoal-India now ranks third amongst the coal producing countries in the world. Being the most abundant fossil fuel in India till date, it continues to be one of the most important sources for meeting the domestic energy needs and accounts for 55% of the countrys total energy supplies. The development of core infrastructure sectors like power,steel, and cement are dependent on coal.Coal has been recognized as the most important source of energy for electricity generation in India. About 75% of the coal in India is consumed in the power sector. Renewables-They are imperishable and we can have unlimited amounts without distressing over their exhaustion. They have the ability of being replaced by natural and biological processes. There are several types of renewable resources. The abundant availability of renewable resources in India keeps it at an advantageous position vis--vis other countries and it can use the resources for its own betterment and can also cater to the energy security concerns at the same time. Government of India is performing quite well in initiating programmes and implementing projects in this regard. The availability, installed capacity and achievement of the programmes in promoting the use of renewable resources, is what follows now.

29

5. FINANCIAL ANALYSIS
5.1 FINANCIAL RATIOS Financial highlights of NTPC Ltd. VS TATA POWER (standalone) for last three years
units (Rs. Crores) As on March 31 Turnover (net) Operating Profit Profit before Tax after Interest Profit after Tax (PAT) Net Block Total Assets Share Capital Reserves & Surplus Net Worth Current Assets Current Liabilities Net Current Assets Capital Employed Total No. of Shares Issued 12619.39 100045.50 161116.50 8245.46 72142.05 80387.51 41167.08 22610.03 18557.05 133641.17 9223.730 87084.22 140830.70 8245.46 65045.71 73291.17 37396.37 17231.58 20164.79 119199.44 9102.59 39064.75 111572.40 8245.46 60138.66 68384.12 35396.79 13675.86 21720.93 97896.50 1024.69 8489.32 28092.86 237.33 10803.48 11040.81 3795.13 4560.95 -765.82 23531.91 1169.73 7783.07 24981.3 237.33 10388.82 10626.15 5026.59 3792 1234.59 21189.3 941.49 5782.93 21205.3 237.33 9801.41 10038.74 2767.6 3105.33 -337.73 18099.97 2013 65673.93 13717.30 16578.63

NTPC LTD.
2012 62052.23 11248.15 12337.58 2011 55062.65 12705.91 10713.99 2013 9567.28 1687.58 1703.38

TATA POWER
2012 8495.84 1214.28 1682.87 2011 6918.48 1078.28 1111.82

units (in lakhs) 82454.6 2373.3

Financial highlights of NTPC Ltd. VS RELIANCE POWER (standalone) for last three years Profitability Ratios These ratios measure the efficiency of a firm. Profitability ensures optimum performance and continued existence of a business unit. Profitability can be measured by expressing profits in relation to (a) Investments and (b) Sales.

30

1. Net Profit Ratio 2013 NTPC TATA POWER JSW 2012 2011 % CHANGE FROM YEAR 2012 30% -22% 22.4%

19.21% 14.76% 16.53% 10.71% 13.76% 13.60% 15% 5% 22%

NTPC

TATA

JSW 22

19.21 16.53 15 10.71 14.76 13.76 13.6

2013

2012

2011

2. Return on Capital Employed (ROCE)

2013 NTPC TATA POWER JSW 10.26% 8.65% 17% 2012 9.43% 6.93% 9% 2011 12.97% 6.68% 13% % CHANGE FROM YEAR 2012 9% 25% 10%

31

NTPC 17

TATA

JSW

12.97 10.26 8.65

13

9.43 6.93

9 6.68

2013

2012

2011

3. Return on Total Assets (ROTA) 2013 NTPC TATA POWER JSW 10.28% 6.06% 8% 2012 08.76% 6.73 2% 2011 09.60% 5.24% 8% % CHANGE FROM YEAR 2012 17% -10% 30%

NTPC

TATA

JSW

10.28 9.6 8.76 8 6.73 6.06 5.24

2 1

2013

2012

2011

32

4. Return on Net Worth (RONW) 2013 NTPC TATA POWER JSW 2012 2011 % CHANGE FROM YEAR 2012 25% -16% 29%

15.69% 12.58% 13.31% 09.28% 11% 09.37% 15% 4% 15%

NTPC 15.69

TATA

JSW

15 12.58 11 9.28 9.37 13.31

15

2013

2012

2011

5. Return on Equity (ROE) 2013 NTPC TATA POWER JSW 2012 2011 % CHANGE FROM YEAR 2012 25% -16% 28%

15.69% 12.58% 13.31% 09.28% 11% 09.37% 15% 4% 15%

33

NTPC 15.69

TATA

JSW

15 12.58 11 9.28 9.37 13.31

15

2013

2012

2011

Liquidity Ratios Liquidity is the pre-requisite for the very survival of a firm. The liquidity ratios reflect the short-term solvency of the firm. It helps to analyze the short term position of the company to understand whether they can meet their short term commitments towards their suppliers, subcontractors, creditors, interest payments, etc. since this may affect the performance of the company. 1. Current Ratio 2013 NTPC TATA POWER JSW 1.82 0.83 93 2012 2.17 1.32 10.8 2011 2.58 0.89 17.4 % CHANGE FROM YEAR 2012 -16% -37% -14%

34

NTPC 93

TATA

JSW

17.4 10.8 1.82 0.83 2013 2.17 1.32 2012 2.58 0.89 2011

2. Liquidity Ratio 2013 NTPC TATA POWER JSW 1.91 0.13 0.81 2012 2.04 1.10 0.86 2011 2.32 0.68 1.45 % CHANGE FROM YEAR 2012 -6% -88% -5%

NTPC

TATA

JSW 2.32

1.91

2.04

1.45 1.1 0.81 0.86 0.68

0.13 2.13 2012 2011

35

3. Cash Ratio 2013 0.74 0.09 0.09 2012 0.93 0.28 0.20 2011 1.18 0.26 0.48 % CHANGE FROM YEAR 2012 -20% -68% -54%

NTPC TATA POWER JSW

NTPC

TATA

JSW

1.18 0.93 0.74

0.48 0.28 0.2 0.09 0.09 0.26

2013

2012

2011

Leverage Ratios These ratios throw light on the long-term solvency of a firm. For stakeholders it is desirable to ensure the long-term solvency of the company, as it may have implication on performance of company. 1. Total Debt to Asset 2013 NTPC TATA POWER JSW 0.33 0.30 636. 00 2012 0.32 0.27 0.34 2011 0.35 0.28 0.40 % CHANGE FROM YEAR 2012 1% 9% 1850%

36

NTPC 636

TATA

JSW

0.33

0.3 2013

0.32

0.27 2012

0.34

0.35

0.28 2011

0.4

2. Capitalization Ratio 2013 NTPC TATA POWER JSW 0.39 0.43 0.74 2012 0.38 0.39 0.75 2011 0.36 0.37 0.76 % CHANGE FROM YEAR 2012 3% 10% -1.2%

NTPC 0.74

TATA

JSW 0.75 0.76

0.39

0.43 0.38

0.39

0.36

0.37

2013

2012

2011

37

3. Debt to Equity 2013 NTPC TATA POWER JSW 0.66 0.76 2.88 2012 0.62 0.64 3.02 2011 0.58 0.60 00 % CHANGE FROM YEAR 2012 6% 18% 5%

NTPC

TATA

JSW

2.88

3.02

0.66

0.76

0.62

0.64

0.58

0.6 0

2013

2012

2011

Activity Ratio Activity ratio indicates the efficiency of the company with which it employs its resources to earn the revenues. (Cost of Goods Sold is generally taken for the calculation but due to unavailability I have taken Net Sales) 1. Inventory Turnover Ratio 2013 NTPC TATA POWER JSW 16.92 11.84 12.01 2012 17.02 11.48 8.65 2011 15.76 11.39 10.80 % CHANGE YEAR 2012 FROM -1% 3% 3.8%

38

NTPC 16.93 17.02

TATA

JSW 15.76

11.84

12.01

11.48 8.65

11.39

10.8

2013

2012

2011

2. Fixed Asset Turnover Ratio 2013 NTPC TATA POWER JSW 0.57 1.12 0.97 2012 1.38 1.09 0.88 2011 1.41 1.19 1.13 % CHANGE FROM YEAR 2012 -59% 3% 10.22%

NTPC

TATA

JSW

1.38 1.12 0.97 0.88 1.19 1.09 1.13

0.57

0.14

2013

2012

2011

39

3. Total Asset Turnover Ratio % CHANGE FROM YEAR 2012 -7% -28% 38%

NTPC TATA POWER JSW

2013 0.43 0.14 0.45

2012 0.46 0.20 0.37

2011 0.48 0.36 0.37

NTPC

TATA

JSW

0.43

0.45

0.46 0.37

0.48

0.36

0.37

0.2 0.14

2013

2012

2011

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6. PROCUREMENT PROCESS
Once the Feasibility report is prepared, then it is thoroughly scrutinized and evaluated to ascertain whether the project is fruitful for NTPC Ltd. or not, if any anomalies are found then a panel of experts decide on a solution or a way to counter it. The experts may be internally sourced or NTPC Ltd has various third party consultants employed for this purpose. After the project feasibility report is given a green signal by the top level management then the contract and materials department start writing the requirements mentioned in the Bill of Quantities and they are revised to accommodate change in prices/demand. The Bidding documents are prepared by the contract department at NTPC Ltd. which is then distributed to the interested bidders at a nominal price. A Bid document is a comprehensive document consisting of various set of books; it contains the entire technical, legal and financial requirement to be submitted by a bidder. An example of how a bid is analyzed by the Finance-Concurrence department is given as follows: All the technical requirements, bidding procedures, and contractual obligations are mentioned in the document. The bidding documents include the following sections: Section I Section II Section III Section IV Section V Section VI Section VII - Invitation for Bids (IFB) - Instructions to Bidders (ITB) - Bid Data Sheet (BDS) - General Conditions of Contract (GCC) - Special Conditions of Contract (SCC) - Technical Specifications (TS) - Forms and Procedures (FP) 1. Bid Form and Price Schedules 2. Bid Security Form Bank Guarantee 2a. Bid Security Form - Bank Guarantee (in case of Bid from Joint Venture) 2b. Bid Security Form - Letter of Credit 3. a) Form of Notification by the Employer to the Bidder b) Form by Sight Draft 4. Form of Notification of Award

41

5. Form of Contract Agreement 6. Performance Security Form 6a. Performance Security Form in case of Contract awarded to Joint Venture (if applicable) 7. (i) Bank Guarantee Form for Advance Payment (For supply CIF / Ex-works) (ii) Bank Guarantee Form for Advance Payment (For Installation Services) 7a. Bank Guarantee Form for Advance Payment in case of Contract awarded to Joint Venture 8. Form of Completion Certificate 9. Form of Operational Acceptance Certificate 10. Form of Trust Receipt 11. Forms of Indemnity Bond (3 Nos.) 12. Form of Authorization Letter 13. Forms of Joint Deed of Undertaking 14. Form of Bank Guarantee by Associate / Collaborator 15. Form of Joint Venture Agreement (if applicable) 16. Form of Bank Guarantee Verification Check List 17. Form of Extension of Bank Guarantee

NTPC Ltd
SUB: Evaluation report for outdoor transformers package for NSTPP {660X3 MW} BRIEF SCOPE OF WORK Outdoor Transformers Package covers design, engineering, manufacture,testing at works, short circuit testing on one transformer of each rating, transportation to NABINAGAR Super Thermal Power Project (3x660 MW) site including Customs clearance & port clearance, port charges (if any), receipt, Inplant transportation, handling and storage at site, insurance, erection and commissioning of various Transformers along with neutral grounding resistors
42

and inclusive of necessary tools and tackles and supply of mandatory spares & maintenance equipment.

FINANCING NTPC Ltd.intends to finance the project through External Commercial Borrowings (ECB) and internal resources.

6.1 QUALIFYING REQUIREMENTS& ITS ANALYSIS

The Qualifying Requirements are the pre requisites which all the bidders must satisfy in order to successfully bid for the contract. I, with my fellow trainee was assigned mainly this task of scrutinizing the Qualifying Requirements and checking them with the documents submitted by the bidders in support of their claims. QR is basically of 2 types namely Technical QR and Financial QR. Technical Criteria: (a) The bidder should have manufactured & supplied at least two numbers(one each at two different installations) of 16 MVA, 11KV or higher rating oil filled transformers which should have been in successful operation for a period of at least two (2) years prior to the date of Techno-Commercial bid opening. (b) Bidder should have his own facilities for conducting all routine and type tests as per IS: 2026 (except short circuit test). (c) 16 MVA, 11KV or higher rated oil filled transformer manufactured by bidder should have been successfully short circuit tested. The Technical QR basically deals with the checking of the prior experience of the bidder in the same field, verifying the previous work done and checking the acknowledgement for the same through the completion certificates. Financial Criteria: The average annual turnover of the Bidder, in the preceding three (3) financial years as on the date of Techno-Commercial bid opening, should not be less than Rs. 76 million (Indian Rupees Seventy Six millions only) or in equivalent foreign currency. The Net Worth of the Bidder as on the last day of the preceding financial year should not be less than 25% of its paid-up share capital. In case the bidder is not able to furnish its audited financial statements on standalone entity basis, the unaudited unconsolidated financial statements of the bidder can be considered acceptable provided the Bidder further furnishes the following documents for substantiation of its qualification: (i) Copies of the unaudited unconsolidated financial statements of the Bidder along with copies of the audited consolidated financial statements of the Holding Company.

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(ii) A Certificate from the CEO/CFO of the Holding Company, as per the format enclosed with the bidding documents, stating that the unaudited unconsolidated financial statements form part of the consolidated financial Statements of the company. In case where audited results for the preceding financial year are not available, certification of financial statements from a practicing Chartered Accountant shall also be considered acceptable. In case a bidder does not satisfy the financial criteria mentioned above its Holding company would be required to meet the stipulated turnover requirements , provided that the net worth of such Holding Company as on the last day of the preceding financial year is atleast equal to or more than the paid-up share capital of the Holdingcompany. In such an event, the bidder would be required to furnish along with its Techno-Commercial bid, a Letter of Undertaking from its Holding Company, supported by Board Resolution of the Holding Company, as per the format enclosed in the bidding documents, pledging unconditional and irrevocable financial support for the execution of the Contract by the bidder in case of award. The unutilized line of credit for fund based and non-fund based limits with cash and bank balances including fixed deposits of the Bidder as on a date not earlier than 15 days prior to the date of Techno-Commercial bid opening, duly certified by its Bankers should not be less than 88 million (Indian Rupees Eighty Eight million only) or in equivalent foreign currency. In case certificates from more than one bank are submitted, the certified unutilized limits shall be of the same date from all such banks. Where another Company of the group acting as the Treasury Centre is responsible for Treasury Management of the Bidder having combined credit/guarantee limit for the whole group, the Bidder would be required to provide a Banker's certificate regarding the unutilized line of credit for fund based and non-fund based limits together with cash and bank balances including fixed deposits available to such Treasury Centre. Further, Treasury Centre shall certify that out of the aforesaid limits certified by its bankers, the Bidder shall have access to the line of credit of a level not less than the specified amount. In proof of this, the Bidder would be0 required to furnish along with its Techno-Commercial bid, a Letter of Undertaking from the Treasury Centre, supported by a Resolution passed by the Board of Directors of the Holding Company, as per the format enclosed with the bidding documents, pledging unconditional and irrevocable financial support for the execution of the Contract by the bidder in case of award. In case the Bidder's unutilized line of credit for fund based and non-fund based limits specified above is not sufficient, a comfort letter from one of the bankers specified in the bidding documents unequivocally stating that in case the bidder is awarded the contract, the Bank would enhance line of credit for fund based and non-fund based limits to a level not less than the specified amount to the Bidder or to the Treasury Centre as the case may be, shall be acceptable. NOTES FOR ABOVE CLAUSES: (i) Net worth means the sum total of the paid up share capital and free reserves. Free reserve means all reserves credited out of the profits and share premium account but does not include reserves credited out of the revaluation of the assets, write back of depreciation provision and amalgamation. Further any debit balance of Profit and Loss account and miscellaneous
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expenses to the extent not adjusted or written off, if any, shall be reduced from reserves and surplus. (ii) Other income shall not be considered for arriving at annual turnover. (iii) For unutilized line of credit for fund based and non-fund based limits and Turnover indicated in foreign currency, the exchange rate as on seven (7) days prior to the date of Techno-commercial bid opening shall be used. (iv) Two different installations imply two different project sites or two different contracts. Notwithstanding anything stated above, the Employer reserves the right to assess the capabilities and capacity of the Bidder/his collaborators/associates/subsidiaries/group companies to perform the contract, should the circumstances warrant such assessment in the overall interest of the Employer.

6.2 FINANCIAL ANALYSIS OF BIDS

The evaluation of the Financial QR is the most important task in the Finance-Concurrence Department at NTPC Ltd. I and my fellow trainee have worked on such comprehensive reports throughout our tenure of our training. The First and the foremost thing to be checked is the average turnover of the past 3 years and the amount so calculated should suffice the amount mentioned in the Financial QR. We used to find out the gross turnover from the financial statements submitted by the bidder. Then the Net Worth was also checked to match with the QR requirement. If a bidder company had submitted their bids as a Joint Venture, Holding company or any other strategic alliance then we also have to check the documents submitted for the same and whether their agreement adheres to the Qualifying Requirements of NTPC Ltd.

Calculation of Financial QR: 1. Average Annual turnover: For Electrical and Mechanical packages = Total Cost including Taxes & Duties X 12 Working period in months For Civil packages = Total Cost excluding free issue X 2 X 1.5 Working period in months 2. Bank Guarantee Limits: Usually, NTPC asks for around 2% of the estimated cost for the package as a Bank Guarantee amount. The secondary reason behind asking such bank guarantee is to avoid bids from the players which doesnt qualify the requirements and which are less interested. The primary
45

reason is that if in case of award of contract to a bidder and then the bidder doesnt agree to the contract, then the amount of bank guarantee can be forfeited by NTPC under few circumstances to cover up the costs incurred during the entire process. 3. Unutilized Line of Credit: Total Cost including Taxes & Duties X 3 Working period in months This project not only involved the financial tasks, it also gave me an opportunity to look into the legal perspective of how a contract is awarded at NTPC Ltd. The Qualifying Requirement also required us to check the original documents submitted by the bidder like Joint Deed of Undertaking, Board Resolution for approving the bid, Performance Certificates, Bank Guarantee certificates, Integrity pact etc. We had to carefully scrutinize each and every document and check whether it was in the prescribed format as per NTPCs guidelines or not. We also worked closely with the contracts and materials department who used to guide us and explain to us the technical aspects involving Joint Ventures, Consortium Agreements etc. Once we were satisfied with the bidder meeting the Qualifying Requirements then we used to prepare a comprehensive summary of all the participating bidders wherein we used to specify that a bidder is qualified in all aspects and then the next step was to open the price bids of those successfully qualified bidders. The Price bid opening is done in a meeting where the sealed envelopes are opened in front of the bidding companys executive (Who is authorized under the power of attorney). The Price bid contains the prices quoted by the bidder for the pre-specified amount of items given by NTPC in various price schedules. We in a team had to perform an arithmetic check on the price schedules and ascertain whether the figures quoted/submitted are accurate or not. In case where the financial statements of the bidder were not in the departments archived files then I had to prepare a consolidated Financial Statement using the Balance Sheets, Income Statement, schedules to these financial statements. A sample of such a statement is given below.

46

TURNOVER:

SHARE CAPITAL:

47

RESERVES AND SURPLUS

48

CAPITAL EMPLOYED

PAT & EBIT

49

INTEREST

6.3 DEFINITIONS OF PROCUREMENT

Procurement is the acquisition of goods and services in the right quantity, quality, at the right time, in the right place, and the right price for the direct benefits or use of government, corporation or individual. It may also be defined as the process of identifying and obtaining goods and services. It includes sourcing, purchasing and covers all activities from identifying potential suppliers through to delivery from supplier to the users. Procurement in NTPC is effected through the Procurement and works policy as laid down in the Delegation of Power (DoP) of the company. This policy lays down the broad guidelines to be followed in the acquisition of equipment, materials and services for the organization. This policy permits centralized policy making and decentralized execution and administration with a view of achieving the organizational goals in the most efficient and effective manner. Objective: The objective of this policy is to make available, the needed equipment, material, works and services in the right quality and quantity, at the right time and at the right price after giving fair and equal chance to tendered, subject to the policy guidelines laid herein, so as to obtain the optimum value for each unit of expenditure. Purchasing at NTPC is not a very simple process. The purchasing process is not same for all kind of materials and equipment. The urgently required materials are procured through cash purchase and single tendering, the routine purchase are routed through Material Management Services and are procured by bidding. The materials department or the HR Services department usually initiates the tender process. In case of construction and civil works; the tender is initiated by Contracts Services. Tendering process is the most important activity during the entire acquisition process and hence this is the main focus during the project.

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Tender Notification

Issuance of Tender Document

Receipt of Quotation

NO
Has Tender Evoked Response?

YES
Award of contract

6.4 PROCUREMENT POLICY

CONTRACT SERVICES AND MATERIALS MANAGEMENT SERVICES Procurement activities to be undertaken by NTPC are to satisfy varying project requirement of equipment, materials and services. Any procurement-requiring adherence to IDA procurement procedures, long equipment delivery period, intense engineering coordination or specialized engineering knowledge during procurement etc. would be classified as category A contracts. All other procurement contracts pertaining to a project will be classified as category B contracts. The responsibility of category A contracts for all the projects and related to pre-tender planning, registration of contractors, award of contracts, monitoring and post contract follow up till the delivery of equipment from the suppliers work will be that of the central contracts services in the technical services division. The receipt and erection of plant and machinery including storage of category A related goods whenever to be done by NTPC and

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coordination in all commercial and other matters thereafter, procurement of construction equipment and execution of civil works will be the responsibility of project management. The entire responsibility of category B items is that of materials management services under the general managers of projects. For this purpose, the contracts falling under category A will be identified and listed in respect of each project and all other contracts will be deemed to fall under category B. Procurement action will be initiated on the basis of approved indents/requisitions indicating budget and project estimate provisions. The contract services / materials management services will receive the requisition / indents for the procurement of materials/ Equipment / services duly approved by the competent authority, they shall also keep them informed concerning sources of supply, prices/rates, freight, taxes, lead time, etc. and plan and organize procurement action, maintain a keen follow up and organize quality control till the order is executed and also arrange systematic coordination by means of proper contract administration. Timely execution of the projects will be the overall responsibility of GMs of the projects. For monitoring of schedules of construction/ erection, the project management would develop their own systems and procedures for setting and reviewing short time monthly, weekly and daily physical target jointly with the construction/ erection agency. The CCS will have a quality assurance (Q.A.) group to ensure that proper quality is built into the materials, machinery and services made available to the site. This group will be constantly working on the development of specification steps to be followed during all phases of the procurement activities. This Q.A. group will also technically guide and control the specialized field Q.A. activities under the project Management. Inspection at manufacturers work for all categoryA contracts will also form an integral part of the responsibilities of CCS without which no quality standard can be enforced. It is however envisaged that inspection at the site for all contracts and at manufacturers works for category B contracts will remain responsibility of GM of the projects. In respect of contracts where installation and erection is vital for the total completion of the job and problems of coordination arise; it shall be the general policy to award supply- cum erection contracts so that single source responsibility is defined clearly and project schedules are adhered to. All the known, reliable and proven sources of supply of particular equipment/material/ services will be drawn to the requirements of NTPC and allowed to quote. For the above purpose, advertisements in two or more leading newspapers of all India repute in addition to

52

one or two local newspapers of the area, where the work is to be executed or supplies made may be issued. In the case of equipment/material/services which are of major value (of Rs.1 lakh and above per item) and are important on account of critical nature, engineering expertise and require long delivery time etc. a pre-qualification procedure can be adopted for selecting the reliable parties to whom the tender enquiries may be floated. This will be done once in about three years by advertisement in two or more leading newspapers of national repute. The criteria for pre-qualification will consist of past performance, financial soundness, technical competence, organizational capability etc. commensurate with the requirements.

A screening committee specially constituted for this purpose will analyze and evaluate the responses to these advertisements and prepare a category list of the qualified contractors based on the qualification criteria, which stays valid for about three years from the date of its preparation. For other items with value less than Rs. 1 lakh each, lists of approved vendors shall be maintained on the basis of data available in Trade journals, Manufacturers directories or approved vendors list of State Government/Central Government/DGS & D and vendors to whom enquiries were floated in the past. QR (Qualifying Requirements) could also be specified in the tender advertisement where necessary, so that only reliable parties are invited to participate. In such cases, the tender evaluation will take in to consideration that QR specified has been fulfilled by tenderers.

6.5 TYPES OF TENDERS:

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TENDERS

OPEN TENDER

LIMITED TENDER

SINGLE TENDER

LIMITED TENDER
Limited tender may be invited, only for items with estimated values not exceeding ceiling limit as mentioned in DOP from not less than four parties from among the list of approved venders. The case of acceptance of single response to the limited tender will be treated as single tender for the purpose of DOP. If for the reasons of urgency limited tender is to be resorted to in preference to open tender system, for package value exceeding ceiling limit for LTE as mentioned in DOP the reason will be recorded in writing and approval of competent authority obtained.

SINGLE TENDERS Where procurement is made by contacting only single source on grounds that the item to be procured is of a proprietary nature or on account of standardization or on grounds of urgency of requirement, it will be treated as a single tender. In case of proprietary items, certificate to that effect will have to be issued by the indenter at the appropriate laid down levels in each case. Source standardization will normally be for limited periods not exceeding three years and will be approved by a committee consisting of representatives of Technical Contract Services/Material Management Services and Finance Departments. Order on the basis of single tender will be issued with the approval of General Manager or any competent authority to which powers are delegated.

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Purchase of canalised items made from Public Sector Undertakings as per Government directives, will not be treated as a single tender.

6.6 OTHER PROCUREMENT POLICIES

Period allowed for quotation Adequate notice will be given to the possible tenderers, which will not be less than 15 days. The notice period could be reduced on grounds of urgency. Further, for limited tender confined to local suppliers, or single tender, the period could be reduced but so fixed as to be consistent with the Suppliers ability to quote. Earnest Money Deposit The EMD as may be decided may be paid in any of the following forms, to ensure that the tenderer enters into a contract after the same has been awarded to him. Call deposit receipt duly pledged in favor of NTPC or pay order or DD. Post office / National Savings / National Defense Deposit Certificate duly endorsed in favor of NTPC. Bank guarantee from a nationalized bank irrevocable and operative till validity of the offer. Fixed Deposit Receipt issued by Nationalized Banks endorsed in favor of NTPC. Cheque in favor of NTPC duly certified by the bank on whom it is drawn. The suppliers may also avail of the scheme of lump sum deposit which will be treated as a standing deposit or Earnest Money Deposit for participation in bidding. Such deposit will not entitle the supplier to any interest thereon. The EMD will be liable to be forfeited on revocation of tender before validity of quotation expires or on refusal to enter in to contract after award is made to the tenderer. EMD given by unsuccessful tenderers will be refunded after the award of contracts. Running and rate contracts Where it is advantageous to have the supply of goods at a steady pace or at a fixed rate over a period of time, time bound running or rate contract may be enter into, after following the procedure of Invitation of tenders either on Open or Limited tender basis. There is no bar to placing of order outside the rate/ running contract on the basis of Open/Limited tender if it proves to be advantageous. Sundry requirements
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In case of necessity, when procurement action has to be made for small items urgently, procurement may be made by the respective departments themselves for estimated value up to a ceiling limit of Rs. 10000/- (Rs. 25000/- in case of purchases from public sector/ NTPCoperatives). For items exceeding values of Rs 10000/- but up to Rs 25000/- (in case of public sector/ NTPC cooperatives items value exceeding Rs 25000 but up to Rs 50000) procurement may be made by a team consisting of indenting and materials representatives. However, beyond Rs 25000/- (beyond Rs 50000 in case of public sector or NTPC cooperatives) procurement shall be made by a purchase committee consisting of representatives from contracts/materials, finance and indenting department. Repeat orders Repeat orders are normally to be avoided. However, repeat orders may be placed against previous orders placed on open or limited tender basis, without further going through the normal procedures, subject to the following: (a) The date of repeat order will not be more than 3 months after the completion of earlier order. (b) Value of repeat order should not be more than the percentage limit and value as mentioned in DOP. (c) A reasonable assessment by the contract services/ materials management that there had been no downward trend in prices. (d) The prices against earlier order were not escalated to compensate for earlier deliveries. Tender committee In order to obviate delays in inter-departmental noting and cross references, a Tender Committee of officers representing indenting, CCS/ MMS and finance departments will be constituted at a level appropriate to the value of each procurement, as may be determined for this purpose. The committee will record in writing its recommendations in the matter. If the recommendation of the Tender Committee are not acceptable to the competent authority, the reasons for non- acceptance shall be fully recorded. Negotiations, if necessary, may be recommended by the Tender Committee and conducted with the approval of the competent authority. Retendering

56

If there has not been adequate response to an open tender or if the prices quoted are substantially higher than the estimated prices and negotiation with the tenderers has not met with any positive response, a decision may be taken either to accept the tender or re- Tender. In case of a single response against limited tender, or in case a ring is suspected retendering will normally be resorted to. In exceptional circumstances, may be accepted or negotiated, but the reasons therefore will be recorded in writing and submitted to competent authority. Emergent procurement In a planned procurement system, there is normally no occasion to take recourse to emergency purchases except in urgent and unforeseen circumstances. Since such procurement is normally made on single tender basis, it will be done only with the approval of competent authority. A monthly report of such cases will be submitted to the chairman & managing director through Director (finance). If such purchases exceed a value of Rs.500000 in each case, Board of Directors will be apprised of the same.

Tender opening and late tenders Tenders will be opened at the time indicated in the Invitation to Bids in the presence of the representatives of the tenderers; they present themselves and a representative of Finance. When the tenders are opened, the names of all present tenderers would be read out for the benefit of the tenderers present and where feasible the rates tendered will also be read out. Any omission or irregularity such as absence of signature of a tenderer, absence of EMD, references etc. may be pointed out on the spot for the information of representatives of the tenderers. All officials will initial alterations and erasures, if any at the time of opening. The quotations of each page of each tender should be encircled and also attested by the officials in token of authenticity. Normally delayed/late tenders will be rejected outright. However, late tenders may also be considered with specific approval of the competent authority in specific circumstances indicated below: (a) Scarcity conditions as reflected by lack of adequate response; (b) Lowest acceptable tender is unreasonably high when compared with the last procurement rate; (c) Artificial manipulation of rates by formation of a ring; (d) Offer by all tenderers of the products of only one manufacturer; and

57

(e) Where substantial saving in foreign exchange is possible in each case. Purchase preference for public sector Preference to Public Sector will be as directed by Government from time to time. In the field of construction and design works, greater use should be made of the facilities and capacities developed by Public Sector Organizations. Price escalation Procurement will normally be based on firm prices, excepting where material costs are likely to be dependent upon statutory variations or are liable to wide fluctuations as in the case of non-ferrous metals. Where escalations are accepted, the base price levels, variation factors to be applied and induces or documents to be produced to substantiate and determine such escalation, should be precisely stipulated in Purchase Order. Penalty/Liquidated Damages and Arbitration The order placed may provide for a penalty/ liquidated damages clause and also clause for arbitration governed by Arbitration and Conciliation Act, 1996. The order may also provide, as may be necessary for performance guarantee, etc.

6.7 WORKS POLICY

Works Contract: Works such as acquisition of land/buildings, construction of buildings, their maintenance & repairs, development of land, structural and mechanical, fabrication, electrical installation, plant and equipment completely installed (composite contracts) and all such works which are other than supply contracts may be regarded as works contracts. The commencement of a work: The incurrence of any liability there on shall be authorized by the competent authority. Ordinarily, no works may be commenced and no expenditure incurred on work until an estimate for it has been approved. This provision shall not, however, apply to minor works estimated to cost less than Rs. 5000/- each. Works can however be stated on an Urgency Certificate when such works are urgently necessary to safeguard safety of plant and machinery or other assets or in an emergency arising out of unforeseen conditions. The Urgency Certificate shall be approved by General Manager. In such cases also, estimates should be prepared thereafter as early as practicable to regularize the expenditure.

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Contracts for works Works can be carried out departmentally or by contract as may be considered advantageous. Most of the civil engineering contracts shall be awarded by the General Manager (projects) except those, which are classified as category A contracts for the particular project which will be processed by Central Contract Services of Technical Services Division. The efficient execution of these contracts shall, however, be the responsibility of GM (projects). In awarding theworks contract the general policy applicable to supply contracts vide procurement policy will be followed and the paras under Works Policy will be supplemental to those. Earnest money Earnest Money at the rate of 2% of the estimate cost subject to maximum of Rs.50000 should be paid by each tenderer to ensure that the tenderer executes the works after the same has been awarded to him. Earnest money may not be insisted upon in case of PSUs. The earnest money shall be forfeited under the following circumstances: (a) On revocation of the tender, or increase in rates after opening of the tender but before the validity of the quotation expires. (b) On refusal to enter into a contract after the award of contract. (c) If the work is not commenced after the work is awarded to a contractor. Earnest money given by unsuccessful tenderers will be refunded expeditiously after the award of contract. Security deposit Security deposit will be collected from the successful tenderer at the rates mentioned below. This may be recovered by deduction through running bills of the contractors and also by treating the earnest money paid at the time of tender as part of the security deposit. Deposits shall not be refunded exception accordance with the terms of security bond or agreement. 1 2 Works costing up to Rs. 1 lakh 10% of the total cost

Works costing over Rs 1 lakh but not 10% on the first 1 lakh and 7.5% on the exceeding Rs 2 lakh balance Works costing over Rs 2 lakh but not 10% on first Rs 1 lakh 7.5% on next Rs exceeding Rs 20 lakh 1 lakh and 5% on the bal.

59

Works costing over Rs 20 lakh but exceeding Rs 50 lakh

not 5% of the total cost subjectto a minimum of Rs1,07,500

Works costing over Rs 50 lakh but not 4% of the total cost subjectto a exceeding Rs 100 lakh. minimum of Rs.2,50,000 Works costing over Rs 100 lakh but not 3% of the total cost subject to a exceeding Rs 250 lakh minimum of Rs 4lakh Work costing over Rs 250 lakh but not 2% of the total cost subject to a exceeding Rs 500 lakh minimum of Rs 7.5lakh Works costing over Rs 500 lakh 1% of the total cost subject to a minimum of Rs 10 lakh/

6.8 DELEGATION OF POWERS

To facilitate the implementation of the Procurement and Works Policy, as outlined in the paper, the Chairman and Managing Director is delegating powers to General Manager and other level of executives. The exercise of the powers delegated will be subject to availability of provision in the approved budget, policy laid down and the management reports prescribed, from time to time.

AWARD OF CONTRACT
Award Recommendations: A qualified bidders quotation after which the lowest one is evaluated technically and commercially responsive is recommended for award, if the bidder meets the necessary standards of capacity and capability. The Award Recommendation has to be approved by NTPC competent authority, as per DOP, as well as the external funding agency (in case involved). Pre-Award Discussions/ Negotiations if any and Finalizations of Contract After necessary approvals, pre-award discussions with the recommended bidder are conducted with the participation of Tender Committee members, Corporate Quality Assurance and Corporate Monitoring group (for finalizing work schedule). Following issues are tied up with the party in course of discussion: Technical Deviations Commercial Deviations
60

 Quality Assurance Aspects/Plan Detailed Schedule Engineering information flow schedule Site mobilization plan. After having determined to its satisfaction whether the bidder with the lowest evaluated responsive bid is qualified enough to perform the contract satisfactorily as per the Bid Data Sheet, NTPC Tender Committee for the concerned package takes the final call. The determination takes into account their financial as well as the technical capabilities, particular to the contract at hand. In some case, the price of L1 (Lowest Bidder) has been observed to be marginally higher than the Cost estimate. In such a case, the concerned party is invited for negotiation. The motive of such negotiation is to make a request to refer back to the quoted prices in order to find any scope for further reduction. Based upon the vigilant examination of the documentary evidences of the qualifications submitted by the bidder in Attachment-3 to the bid, as well as any other information/detail/negotiation as NTPC would deem necessary and appropriate, a Letter of Award (LoA) for the Contract is finally placed.

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CONCLUSION & RECOMMENDATION

62

KEY LEARNINGS
I learned about the functioning of the Finance Concurrence Department of the countrys largest power generating company NTPC Ltd. I got to experience firsthand how a company and a department in particular function. I went through some of the very important process of the company like bid opening and bid evaluation. I also learned the importance of the financial analysis and why a company does this tedious task. I got exposure to what is a tender. How it is prepared. The various rules and regulations of the company as well as the legal obligations the Company as well as the bidder have to oblige. The bid opening process is extremely critical process, as the contracts can worth up to hundreds of Crores and any mistake, or overlooking of the rules can land you up in legal trouble. The Company painstakingly does this job in presence of three different department members and records the happening of the process. As any bidder can accuse the Company for any foul play thus, all rules and regulations are made to follow very strictly. Bid evaluation is another very important task of the department. I learned how some little mistakes can cost the contract. The Department has to do arithmetic checks because bidders sometime do mistakes in calculations. The Company has many checks and measures in to handle any discrepancy and to avoid any legal problems later on due to these discrepancies. Apart from these, while doing my training I got to do lot of financial analysis, which helped me a lot in preparing this report. I learned what all is to be analyzed, how to find why a particular ratio is going up or down and most importantly is that good or bad for the company. I also realized that it is very important the bidder is financially sound to undertake the contract if given to him, so that the Company does not have to suffer later on. I learnt about a new software OPENOFFICE.ORG which is an open-source office productivity software suite. OpenOffice.org Portable is a full-featured office suite that's compatible with Microsoft Office, Word Perfect, Lotus and other office applications. It's easy-to-use and feature-rich, performing nearly all of the functions you'd expect in an office suite.I worked on Microsoft office application , it was a new learning experience for me.

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ANNEXURE
Some important formulas used in the excel sheet are: (All Figures in Rs. crores) 1. Average Turnover for the last 3 financial years (Sum of the turnovers of the last 3 years)/3 2. Net Worth as a % of share capital (Net Worth/Share Capital) X 100 3. Net Worth Share Capital+ Reserves and Surplus 4. Total Capital Employed Net Worth + Long Term Borrowings 5. EBIT Profit After Tax + Provision For Taxation + Interest 6. Net Profit Ratio (Profit After Tax/Turnover) x 100 {Rounded Off to the nearest 2 decimal places} 7. Return on Net worth (%) (Profit After Tax/ Net Worth) x 100 {Rounded Off to the nearest 2 decimal places} 8. Return on Capital Employed (EBIT/ Capital Employed) x 100 {Rounded Off to the nearest 2 decimal places}

Turnover (net) Operating profit Profit before tax after interest Profit after Tax (PAT) Net Block Total Assets Share Capital Reserves & Surplus Net Worth Current Assets Current liabilities Net Current Assets Capital Employed

2013 65,673.93 13,717.30 16,578.63 12619.39

NTPC 2012 62,480.88 11,248.15 12,337.58 9,223.73

2011 55,216.69 12,705.91 10,713.99 9,102.59

TATA POWER 2013 2012 2011 9,567.28 8,495.84 6,918.48 1,687.58 1,214.28 1,078.28 1,703.38 1,682.87 1,111.82 1,024.69 1169.73 941.49 5,782.93 21,205.30 237.33 9,801.41 10,038.74 2,767.60 3,105.33 -337.73 16,119.99

100,045.52 87084.22 39,064.75 8,489.32 7,783.07 161116.46 140,830.74 111,572.36 28092.86 24,981.30 8,245.46 8,245.46 8,245.46 237.33 237.33 72142.05 65045.71 60,138.66 10,803.48 10,388.82 80,387.51 41,167.08 22610.03 18,557.05 73,291.17 37,396.37 17,231.58 20,164.79 68,384.12 11,040.81 10,626.15 35,396.79 3,795.13 5,026.59 13,675.86 4560.95 3,792.00 21,720.93 -765.82 1,234.59

161,373.46 119,199.44

108,119.8 19,493.38 17,501.20

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Dividend Proposed Total No. of Shares Issued

in lakhs 82454.6 82454.6 82454.6 2373.3

in lakhs 2373.3 2373.3

Turnover (net) Operating Profit Finance Cost Profit before Tax after Interest Profit after Tax (PAT) Total Assets Share Capital Reserves & Surplus Net Worth Current Assets Current Liabilities Net Current Assets Capital Employed

NTPC LTD. 2013 2012 64316.38 61,144.89 13717.3 1924.36 16,578.63 11248.15 1711.64 12,326.16

2011 55,216.69 12,705.91 2,027.21 10,713.99

2013 6701.23 1979.24

JSW 2012 2011 5130.44 3981.15 951.3 1430.37

1243.83

291.25

1089.37

12,619.39 161,116.46 8,245.46 72142.05 80,387.51 41167.08 22610.03 18557.05 133,641.17

9,223.73 140,830.74 8,245.46 65,045.71 73,291.17 37,396.37 17,231.58 20,164.79 119,199.44

9,102.59 111,572.36 8,245.46 60,138.66 68,384.12 35,396.79 13,675.86 21,720.93 97,896.50

993.03 15113.81 1640.05 5,133.19 6,773.24 3220.44 3461.88 -241.44 11,490.54

234.64 14442.71 1,640.05 4,518.67 6,158.72 3,442.21 3181.3 260.91 11,119.71

885.61 13,036.39 1,640.05 4,385.34 6,025.39 2,973.01 1710.07 1262.94 11,183.41

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REFERENCES
Handbook, no author [1] Delegation of Powers. Delhi, India: NTPC Ltd., 2003. [2] Bidding Documents for International Bids: NTPC Ltd., 2013 World Wide Web Industry www.ntpceoc.com E-Mail E-Mail from Vijeta Saini, Finance Officer, NTPC Ltd., Noida, India, June 06, 2013 WEB page links (http://www.prweb.com/releases/2011/1/prweb8040067.htm)

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