National Hydro Power

Corporation Ltd.
Section -2
Group 22
Varuna Mittal DM15263
Vidhit Bhatia DM15264
Vivek VY DM15266
Keerthi Purushothaman DM15267
Lakshmikshatriya DM15268




21/09/2013

NATIONAL HYDRO POWER CORPORATION LTD.
2



Accounting Principles Analysis
COMPARATIVE ANALYSIS OF ACCOUNTING POLICIES 2012-2013
ACCOUNTING
POLICY
NHPC NTPC TATA POWER ANALYSIS
DEPRECIATION Depreciation on
tangible assets is
charged on straight-line
method following the
rates and methodology
as notified by the
Central Electricity
Regulatory Commission
(CERC) for the fixation
of tariff
Depreciation on the assets
of the generation of
electricity business is
charged on straight line
method following the rates
and methodology notified
by the CERC Tariff
Regulations, 2009 in
accordance with Section
616(c) of the Companies
Act, 1956.
Depreciation in respect of its
electricity business is
provided at the rates as well
as methodology notified by
the Central Electricity
Regulatory Commission
(Terms and Conditions of
Tariff) Regulations, 2009
(CERC) w.e.f. 1st April, 2009
and at the rates as per the
Power Purchase Agreements
(PPA) for capacities covered
under PPAs, wherever higher
than those notified by CERC
Advantages of following straight line
depreciation method is that the
depreciation cost is distributed over
the useful life of the asset uniformly.
Since under this method same
amount is charged as depreciation, it
makes the comparison of profits for
several years easy.
INTANGIBLE
ASSETS
AMMORTISATION
Cost of software is
recognized as
''Intangible Assets'' and
is amortized on straight
line method over a
period of legal right to
use or three financial
years, whichever is
earlier. Other intangible
assets are amortized on
straight line method
over the period of legal
right to use.
Cost of software recognized
as intangible asset, is
amortised on straight line
method over a period of
legal right to use or 3 years,
whichever is less. Other
intangible assets are
amortized on straight line
method over the period of
legal right to use or life of
the related plant,
whichever is less.
Intangible assets are
amortised over the useful
economic life of the assets or
5 years, whichever is lower
The companies follow different
policies for ammortization - NHPC
and NTPC considers useful life or 3
years whereas, Tata Power takes it
till 5 years
INVENTORY Stores & Spares are
valued at cost,
determined on
weighted average basis,
or net realizable value
whichever is lower.
Inventories are valued at
the lower of, cost
determined on weighted
average basis, and net
realizable value.
Inventories of stores, spare
parts, fuel and loose tools are
valued at lower of cost (on
weighted average basis) and
net realisable value. Work-in-
progress and property under
development are valued at
lower of cost and net
realisable value.
All 3 companies follow the same
policies
BORROWING
COST
Borrowing costs
attributable to the
qualifying tangible
assets during
construction/renovatio
n & modernisation are
capitalised. Other
borrowing costs are
recognised as an
expense in the period in
which they are
incurred.
Borrowing costs
attributable to the fixed
assets during
construction/exploration,
renovation and
modernisation are
capitalised. Other
borrowing costs are
recognised as an expense in
the period in which they
are incurred.
Borrowing costs include
interest, amortisation of
ancillary costs incurred. Costs
in connection with the
borrowing of funds to the
extent not directly related to
the acquisition of qualifying
assets are charged to the
Statement of Profit and Loss
over the tenure of the loan.
The accounting policy for borrowing
costs is the same across competitors.
Borrowing costs that are directly
attributable to the acquisition,
construction or production of a
qualifying asset form part of the cost
of that asset. Other borrowing costs
are recognised as an expense.
NATIONAL HYDRO POWER CORPORATION LTD.
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IMPAIRMENT OF
ASSETS
An impairment loss is
recognized in the
statement of profit and
loss where the carrying
amount exceeds the
recoverable amount of
the cash generating
units. An impairment
loss is reversed if there
is a change in the
recoverable amount
and such loss either no
longer exists or has
decreased.
An impairment loss is
recognised in the
statement of profit and loss
where the carrying amount
exceeds the recoverable
amount ofthe cash
generating units. An
impairment loss is reversed
if there is change in the
recoverable amount and
such loss either no longer
exists or has decreased.
The carrying values of
assets/cash generating units
at each Balance Sheet date
are reviewed for impairment.
If any indication of
impairment exists, the
recoverable amount of such
assets is estimated and
impairment is recognised, if
the carrying amount of these
assets exceeds their
recoverable amount.
The policy is the same across
competitors. The power industry is
distinguished by the significant
capital investment required,
exposure to commodity prices and
heavy regulation. The required
investment in fixed assets leaves the
industry exposed to adverse
economic conditions and therefore
impairment charges. Assets should
be tested for impairment whenever
indicators of impairment exist.
FIXED ASSETS Fixed assets are stated
at cost of
acquisition/constructio
n. In cases where final
settlement of bills with
contractors is pending,
but the asset is
complete and ready for
use, capitalisation is
done on estimated
basis subject to
necessary adjustment
Tangible assets are carried
at historical cost less
accumulated
depreciation/amortisation.
Fixed assets are carried at
cost less accumulated
depreciation/amortisation
and impairment losses, if any.
The cost of fixed assets
comprises its purchase price
net of any trade discounts
and rebates, any import
duties and other taxes
The main advantage of using
historical cost method is that it can
be verified and used to determine
the amount of depreciation expense
reported on the income statement.




NATIONAL HYDRO POWER CORPORATION LTD.
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Major Developments that will boost cash flow:
Power Generation:
Chutak power station and Chamera-III Power station were declared open during the year 2012-13. Three units
of TLDP-III each 33 MW have been commissioned during the year. Further two units of Nimma Bazgo HE project
have been commissioned at partial load. Being a hydro player, NHPC is protected from the demand-supply risk
of fuels such as coal or gas. The biggest concern in the hydropower business is the risk involved in execution of
projects. However, once operational, these projects have the lowest risks such as fuel availability. Also, the
life of hydropower plants is 35 years, more than that of thermal plants, which have the life of around 25 years,
thus its annual depreciation charge is less. Also, the fuel cost for a hydropower is almost zero. Both these
factors make it one of the lowest-cost producers of power in the country. These new projects will generate
cashflows in the future
NHPC are currently implementing a growth plan to enhance its power generation capacity and a lot of projects
are in the clearance/ approval stage.

Rural Electrification:
NHPC is implementing rural electrification projects under the Rajiv Gandhi Gramin Vidyutikaran Yojana
(RGGVY) in twenty-seven districts of five states. Under this scheme, NHPC will undertake electrification of
9,310 Un-electrified and De-electrified (UE/DE) villages, 19,939 Partially Electrified (PE) villages along with
providing service connections to 20.74 lac Below Poverty Line (BPL) households. These projects result in
increase in revenue and thereby boost cashflows. In the year 2013, there was actually a fall in revenue from
such projects due to less number of assignments.

Financing of new projects:
As per the Central Electricity Regulatory Commission''s guidelines, for the purposes of tariff fixation, the
financing of the project is to be considered of in 70:30 Debt Equity Ratio. In the opinion of the Directors,
available internal accruals will be sufficient to finance the equity component for new projects. The Company is
well positioned to raise the required borrowings with its low gearing and strong credit ratings, which are at par
with sovereign ratings. The Company is exploring domestic as well as international borrowing options including
overseas development assistance provided by bilateral agencies to mobilize the debt required for the planned
capacity expansion programme. These borrowings for new projects will result in cash inflows.

Power purchase agreements with customers:
Earlier, there was always an uncertainty in receiving payments from state electricity boards. Now with the
tripartite agreement, not only the payment is secured with the letter of credit, the dates of payments are also
fixed. This will ensure proper planning in the cash flow.

Revenue from contracts and project managements:
This revenue will increase significantly. Pradan Mantri Gram Sadak Yojna and RGGVY schemes turnovers were
poor last year. But due to the elections, the governments focus will be on the rural areas and the revenue
from these schemes will improve.