To the Members,
The Directors are pleased to present to you the Ninety-Eighth Annual Report on the business and operations of your Company and the Statements of Account for the year ended 31st March 2017.
1. FINANCIAL RESULTS
Figures in Rs. crore (Table 1)
Net Sales / Income from Other Operations*
(Less) Operating Expenditure
(Less) Add: Forex (Loss) Gain
Add: Other Income
(Less): Finance Cost
Profit before Depreciation and Tax
(Less): Depreciation / Amortisation / Impairment
Profit Before Exceptional Item
(Less): Exceptional Item
Profit (Loss) before Tax
(Less) Add: Tax Expenses or Credit
Net Profit (Loss) after Tax
Add: Share of Profit of Associates and Joint Ventures
Net Profit for the year
Attributable to -
- Owners of the Company
- Non-controlling interests
Other Comprehensive income (Net of Tax)
Total Comprehensive Income
Attributable to -
- Owners of the Company
- Non-controlling interests
*Including rate regulatory income (expense)
Details regarding the changes due to the transition to Ind AS are listed in Section 13 of this Board’s Report.
2. FINANCIAL PERFORMANCE AND THE STATE OF THE COMPANY’S AFFAIRS
On a Consolidated basis, the Operating Revenue was at Rs. 27,288 crore in FY17, compared to Rs. 28,526 crore in FY16. The decrease was mainly due to lower fuel cost and power purchase cost being passed through for the regulated business.
The Consolidated Profit after Tax in FY17 was at Rs. 746 crore compared to Rs. 662 crore in the previous year mainly due to higher contribution by the coal mines, renewables business and associates and lower foreign exchange losses, offset by loss towards contractual obligation on account of purchase of shares in Tata Teleservices Limited (TTSL) from NTT DoCoMo Inc., Japan (Docomo).
(Refer Section 11 - Management Discussion and Analysis (MD&A) of this report for details)
On a Standalone basis, the Operating Revenue stood at Rs. 7,282 crore in FY17 compared to Rs. 8,316 crore in FY16. The decrease was mainly due to lower fuel cost and power purchase cost being passed through for the regulated business.
The Profit after Tax in FY17 was at Rs. 283 crore as compared to Rs. 1,355 crore last year. This was mainly due to loss toward contractual obligation on account of purchase of shares in TTSL form Docomo along with the increase in finance cost softened by the impact of favourable regulatory orders in the previous year.
The Earnings per Share (Basic and Diluted) in FY17 stood at Rs. 0.63.
(Refer Section 10 - MD&A of this report for details)
2.3. EXCEPTIONAL ITEM
In 2008-09, Docomo acquired shares of TTSL from Tata Sons Limited (TSL) and other group companies including your Company. In terms of the Agreements with Docomo, TSL, inter alia, agreed to provide various indemnities and a sale option entitling Docomo to sell its entire shareholding at a minimum predetermined price per share if certain performance parameters were not met by TTSL. Under the provisions of these agreements, your Company was obligated to purchase from Docomo, its holding in TTSL in the proportion of shares sold by the Company to the total secondary sale by the group companies, as a part of the process. The minimum pre-determined price represented 50% of the acquisition price of 2008-09.
Docomo exercised its sale option in July 2014 to sell its entire shareholding at the predetermined price. As the sum payable amounted to a capital account transaction, under the Foreign Exchange Management Act (FEMA), permission of the Reserve Bank of India (RBI) was required. RBI did not permit the acquisition of the shares at the predetermined price as the price was higher than fair market value of the shares. The matter was taken up for arbitration at U.K. by Docomo and it received a favourable award. The arbitration award had to be petitioned by TSL with Delhi High Court for implementation, due to RBI’s objection.
On 28th April 2017, the Delhi High Court, while deciding on the matter, allowed TSL to pay the amounts to Docomo as per arbitration award for acquisition of the shares. This obligated your Company to purchase 11,82,22,767 shares. Consequently, during the year your Company has deposited Rs.790 crore with Delhi High Court through TSL towards its share of the award. Based on the latest available valuation of TTSL shares, the Company has accounted for the loss of Rs.651 crore towards contractual obligation on account of purchase of shares in TTSL in the standalone and consolidated financial statements as an Exceptional Item. Further, since your Company holds 17% stake in Tata Communications Limited, proportionate impact of its share in the loss towards the said contractual obligation has been accounted in the share of profit/(loss) of associates and joint ventures amounting to Rs.146 crore.
2.4 ANNUAL PERFORMANCE
Details of the Company’s annual financial performance as published on the Company’s website and presented during the Analyst Meet, after declaration of annual results can be accessed using the following link: https://www.tatapower.com/pdf/investor-relations/analyst-presentation-may-17.pdf (scan the adjacent QR code on any mobile device smart phone/ tablet to read the policy on the Company website. QR code scanner app can be downloaded free of cost for Android/iOS/Windows devices from respective app stores)
The Directors of your Company recommend a dividend of 130% (Rs.1.30 per share of Rs.1 each), subject to the approval of the Members.
According to Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the top 500 listed entities based on market capitalization (calculated as on 31st March of every financial year) are required to formulate a dividend distribution policy which shall be disclosed in their annual reports and on their websites. Accordingly, the Dividend Policy of the Company is provided in Annexure-I.
The Dividend Policy of the Company has been provided in the following link: https://www.tatapower.com/ aboutus/dividend-policy.pdf (a\temate\y, scan the adjacent QR code using a mobile device to read the policy on the Company website).
4. CURRENT BUSINESS
Your Company is present across the value chain of power business viz. Generation, Transmission, Distribution, Power Trading, Power Services, Coal Mines and Logistics, Solar Photovoltaic (PV) manufacturing and associated Engineering, Procurement, Construction (EPC) services. Apart from the above, your Company is present in defence electronics and applications.
As on date of the report, the Tata Power group of companies had an operational generation capacity of 10,463 MW based on various fuel sources - thermal (coal, gas and oil), hydroelectric power, renewable energy (wind and solar PV) and waste heat recovery.
The Company (including its subsidiaries) has nearly 30% of its capacity (in MW terms) in clean and green generation sources (hydro, wind, solar and waste heat recovery), while the target is to maintain 30-40% of its total generation capacity to be from non-fossil fuel based generation sources by 2025.
Details of generation businesses in operations (Table 2)
Normative capacity under management (MW)
Returns/ Earnings Model
Category Total (MW)
Thermal -Coal / Oil / Gas
Long term PPA based on UMPP Bid
Long term PPA - regulated Return on Equity
Long term PPA - regulated Return on Equity
Long term PPA - regulated Return on Equity and negotiated PPA
Industrial Energy Limited (IEL) -Jojobera
Bilaterally negotiated long term PPA
PT Citra Kusuma Perdana
TPDDL Rithala (Gas Based)
PPA is being pursued
Thermal -Waste Heat Recovery
IEL - Jamshedpur
Bilaterally negotiated long term PPA
IEL - Kalinganagar
Bilaterally negotiated long term PPA
Merchant sale (100 MW) and bilateral sale to West Bengal (20 MW)
Long term PPA - regulated Return on Equity
PPA with Tata Power Trading Company Limited (TPTCL)
Long term regulated return
Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Tamil Nadu, Rajasthan and South Africa
Long term PPA based on Feed-in-tariff REC Mechanism
(includes 30 MW assets of Indo Rama Renewables Jath Limited)
Solar Photovoltaic (PV)
Maharashtra, Gujarat, Tamil Nadu and Delhi
Long term PPA based on Feed-in tariff
NOTE: Trombay Unit 4 - 150 MW has been scrapped during the year and the same has been removed from the total installed capacity.
Details of other businesses (Table 3)
Returns/ Earnings Model
Tata Power (TPC - T)
25 year license w.e.f August 2015 - regulated Return on Equity
Over 1,200 CKms. of transmission lines, connecting generating stations to 21 receiving stations.
Powerlinks Transmission Limited (PTL)
Eastern/ Northern regions
Regulated Return on Equity
1166 Kms. of 400 kV transmission lines to evacuate power from Eastern/North Eastern region to Northern Region.
Tata Power (TPC - D)
25 year license w.e.f August 2015 - regulated Return on Equity
Over 4,300 Ckm of distribution network. Around 6.75 lakh consumers.
Tata Power Delhi Distribution Limited (TPDDL)
Regulated Return on Equity
Approximately 15,000 Ckm of distribution lines. Over 1.58 million consumers.
Coal and Infrastructure
Returns based on dynamics in international thermal coal market
Stake in Indonesian mines
Solar PV manufacturing, EPC
Tata Power Solar Systems Limited (TPSSL)
Returns based on sector dynamics and market competition
Manufacturing and sale of solar PV cells and modules and EPC services.
Tata Power Trading Company Limited
Returns based on market dynamics in short term and bilateral power market subject to cap prescribed by CERC
Category I power trading license, which permits the company to trade any amount of power.
Trust Energy Resources Pte. Limited
Returns based on long term charters
Operates long term charters to meet captive shipping requirements. Vessels operated are cape size.
Tata Power Strategic Engineering Division (SED)
Returns based on sector dynamics and market competition
Amongst the Indian private sector, SED is one of the leading suppliers of systems integration for defence equipment.
Returns based on sector dynamics and market competition
One of the leading service providers of project management, O&M and specialized services in the power sector.
Percentage contribution of different business models (Table 4)
% of overall capacity
Tata Power projects
Fixed return on equity
Mumbai Operations (Trombay & Hydro), Maithon, Jojobera Unit #2 and #3, TPDDL Rithala
Regulated tariff mechanism (Renewables)
Fixed tariff PLF driven
Captive power plant
PPA driven (14-19%)
IEL (Unit 5, PH6, KPO), CKP (Indonesia)
Haldia (100MW) Dagachhu (126MW)
PPA or Bid driven/ Fixed Tariff / Case II
Jojobera Unit#1 and #4, CGPL, ITPC (Zambia)
5. SUBSIDIARIES/JOINT VENTURES/ASSOCIATES
As on 31st March 2017, the Company had 49 subsidiaries (38 are wholly-owned subsidiaries), 37 Joint Ventures (JVs) and 8 Associates. Of the erstwhile subsidiaries, 3 companies have been classified as Joint Ventures under Indian Accounting Standards (Ind AS) and 1 of the investments has been classified as Associate.
During the year, the following changes occurred in your Company’s holding structure:
- Subsidiaries: The Company, through its subsidiaries, incorporated Nelco Network Products Limited, Vagarai Windfarm Limited and Chirasthayee Saurya Limited. Further, through its subsidiary Tata Power Renewable Energy Limited, it acquired Welspun Renewables Energy Private Limited and its 19 operating subsidiaries. It also acquired the wind assets of Indo Rama Renewables Jath Limited. Post acquisition of WREPL by TPREL, WREPL acquired one company (Welspun Urja India Limited) and merged one of the19 subsidiaries (Solarsys Energy Private Limited).
- Joint Ventures: The Company formed Resurgent Power Ventures Pte. Ltd. and LTH Milcom Private Limited as joint ventures and divested OTP Geothermal Pte. Ltd., PT Sorik Marapi Geothermal Power and PT OTP Geothermal Services Indonesia, during the year.
- Associates: The Group also divested its holding in ASL Advanced Systems Private Limited.
Report on the performance and financial position of each of the subsidiaries, JVs and Associates has been provided in Form AOC-1.
The policy for determining material subsidiaries of the Company has been provided in the following link: https://www.tatapower.com/aboutus/pdf/dms-policy-15.pdf (alternately, scan the adjacent QR code using a mobile device to read the policy on the Company website).
The net movement in the various reserves (Standalone Accounts) of the Company for FY17 and the previous year are as follows:
Figures in Rs. crore (Table 5)
Capital Redemption Reserve
Securities Premium Account
Debenture Redemption Reserve
Investment Revaluation Reserve
7. FOREIGN EXCHANGE - EARNINGS AND OUTGO
8. REGULATORY AND LEGAL MATTERS
The businesses of the Company are governed primarily by the Electricity Act, 2003 (EA, 2003) and associated regulations. Mentioned below are the critical regulatory orders pertaining to the Company that were issued during FY17, none of which impact the “going concern” status of your Company.
8.1. MUNDRA UMPP
8.1.1. COMPENSATORY TARIFF/ FORCE MAJEURE RELIEF
Coastal Gujarat Power Limited (CGPL) - Mundra UMPP had approached Central Electricity Regulatory Commission (CERC) for evolving a mechanism for compensating CGPL for the adverse impact of the uncontrollable and unprecedented escalation in the imported coal prices and the change in law in Indonesia. CERC had, after considering the recommendations of a Committee appointed for the aforesaid purpose, vide its order dated 21st February 2014, decided that CGPL was entitled to compensatory tariff from 151 April 2012 over and above the tariff agreed under the PPA with the Procurers, till the hardship on account of Indonesian regulations persisted.
The Procurers challenged the order and filed an appeal with Appellate Tribunal for Electricity (APTEL). APTEL passed an interim order dated 21st July 2014, directing the Procurers to pay a compensatory tariff from March 2014 onwards, although it stayed the compensation for the prior period, till disposal of the appeal filed before it. On appeal by the Procurers, the interim order of APTEL was set aside by the Supreme Court and APTEL was directed to hear and dispose off the appeals expeditiously.
On 7th April 2016, APTEL, while rejecting the grounds of change in law and use of regulatory powers, remanded the matter to CERC to assess the compensation on grounds of Force Majeure (FM) as permissible under the PPA.
The Procurers, including a consumer group, filed a Civil Appeal before the Supreme Court challenging the FM relief provided as per APTEL’s judgment. The Supreme Court directed that CERC may pass the Order on FM relief, but it was to be given effect only with the prior permission of the Supreme Court.
Based on the remand by APTEL, matter was heard by CERC and order passed on 6th December 2016, prescribing the FM relief mechanism.
Subsequently, the civil appeals filed by Procurers and consumer groups were heard before the Supreme Court. The Supreme Court vide judgement dated 11th April 2017, disposed off the appeal with regard to compensatory tariff, inter alia holding that:
a) CGPL’s case does not fall under the FM clause in the PPA
b) The Change in Law as defined under PPA contemplates only change in domestic (Indian) laws
The Supreme Court has, however, upheld that the CERC has powers under Section 79(1) (b) of EA, 2003 to regulate, which includes power to determine or adopt tariff even for tariff that is determined under competitive bidding route (Section 63). While the Supreme Court held that the Regulatory Commission has the powers under Section 79 of EA, 2003, the judgement did not specifically validate the applicability of said principle to the relief that had been granted by CERC to CGPL, earlier. Your Company, therefore, is in consultation with its legal counsels for advice on the possible legal options and way forward.
The Company remains committed to operating and maintaining the 4,000 MW Mundra Ultra Mega Power Station which is operating at benchmark operational parameters and is making a significant contribution in ensuring the energy security of the country. While the Company continues to make efforts to seek additional tariff, it is pursuing all alternative options at CGPL including sourcing of competitive coal from other relevant geographies as also use low grade and blended coal options to contain the under-recovery at Mundra UMPP. Efforts are also in progress to optimally refinance debt and minimize the total cost incurred on debt servicing. It may also be noted that the combined investments in the Indonesian coal mines along with investment in coal logistics and CGPL, when considered together, provide a natural hedge towards future fluctuations in coal prices. It may be noted that CGPL project cost does not include the investment made in the coal mines .
For the long-term sustainability of the power station, however, your Company is exploring all options to structure the investment in a manner that it earns a reasonable return.
8.1.2. CHANGE IN LAW
A) CHANGE IN LAW - OPERATIONS
CGPL filed a Petition for its claim under Change in Law relevant to Indian provisions for the period FY12, FY13 and FY14 in June 2015 and CERC passed the order on 17th March 2017, which is consistent with the orders passed by CERC for other generators seeking relief under change in law operations.
B) CHANGE IN LAW - CONSTRUCTION
Petition for claiming the impact of Change in Law - Construction has been filed before CERC in July 2016. The matter has been admitted and is yet to be heard.
8.1.3. PETITION SEEKING IN-PRINCIPLE APPROVAL FOR CAPEX AND OPEX TO COMPLY WITH NEW ENVIRONMENT NORMS
The Ministry of Environment, Forest and Climate Change (MoEF&CC), vide its notification dated 7th December 2015, has revised the environment emissions norms mandating all thermal power plants to comply with new/revised norms. Your Company had filed a petition with CERC seeking in-principle approval for the capital expenditure in order to secure finance from the financial institutions. Meanwhile, your Company is already in compliance with the new norms related to Suspended Particulate Matter (SPM) etc. Though your Company was all prepared to move ahead and complete requirements on time, but for regulatory delays, it is believed that implementations of the proposed regulations is likely to be postponed.
8.1.4. SUO-MOTU PETITION BY CERC ON DECLARATION OF COMMERCIAL OPERATION OF UNITS 20, 30, 40 & 50 OF MUNDRA UMPP
Based on representations made by an individual before Ministry of Corporate Affairs and Securities and Exchange Board of India (SEBI) on the issue of declaration of commercial operations dates for Units 20, 30, 40 and 50 of Mundra UMPP, the matter was referred to CERC and a suo-motu petition has been initiated in the matter. When the matter was listed and heard before CERC on maintainability on 24th May 2016, issues on locus standi of the individual and jurisdiction of CERC were raised by the Company. The matter has been heard by CERC and order reserved on the issue of maintainability of the proceedings. In December 2016, Energy Watchdog has filed an intervention application before CERC with a prayer to allow it to intervene/ participate in the above referred suo-motu petition. On this issue, CEA and WRLDC had earlier reviewed all inputs and given their acceptance on COD dates.
8.2. MUMBAI OPERATIONS
8.2.1. MULTI YEAR TARIFF ORDERS OF MERC
The Multi Year Tariff (MYT) petitions for Mumbai generation, transmission and distribution businesses of the Company were filed with MERC during the year, which included truing-up for FY15 and provisional truing-up for FY16, as also the Annual Revenue Requirement (ARR) for 3rd MYT Control Period from FY17 to FY20 was filed. MERC passed its MYT order for generation business on 8th August 2016; for transmission business on 30th June 2016 and for distribution business on 21st October 2016. Review petitions with MERC and appeals with APTEL have been filed challenging the disallowance by MERC in the tariff orders.
8.2.2. NETWORK ROLL-OUT PLAN
Post the judgement of APTEL in November 2014, your Company submitted its revised network rollout plan in Case No. 182 of 2014. MERC passed an interim order in the said petition on 9th November 2015, directing constitution of a committee to examine and finalize the operational specific matters/physical rollout of network for the consideration of MERC. On 28th March 2016, the committee provided its recommendation to MERC for its consideration and a public hearing was conducted on 21st June 2016. The network rollout plan of your Company is currently pending order of the Commission.
8.2.3. DISTRIBUTION LICENSES - APPEAL FILED BY R-INFRA AND BEST
Appeal filed by Reliance Infrastructure Limited (R-Infra) challenging the distribution license granted to Tata Power -Distribution in August 2014 is pending before APTEL. Further, appeals filed by R-Infra and Brihanmumbai Electric Supply & Transport Undertaking (BEST) against the interim order dated 9th November 2016, passed by MERC, are also pending before APTEL.
8.2.4. MID TERM REVIEW ORDERS - CIVIL APPEAL FILED WITH HON’BLE SUPREME COURT
A civil appeal has been filed by your Company before the Supreme Court challenging the judgement of APTEL in Review Petition No. 13 of 2016 and order dated 3rd June 2016 in appeal nos. 244 and 246 of 2015 dismissing the appeals and review petition filed by Tata Power-Generation and Transmission against the mid-term review orders issued by MERC. The civil appeal was heard on 30th January 2017 and is currently pending before the Supreme Court.
8.2.5. KEY JUDGEMENT - CHALLENGING EOI BY MERC FOR GRANT OF LICENSE
A critical judgement has been passed by APTEL on 4th November 2016, dismissing appeal no. 243 of 2016 filed by BEST against MERC, challenging the invitation for expression of interest issued by MERC for grant of licence to Tata Power - Distribution.
APTEL dismissed the appeal on the grounds that the points raised by BEST have been, inter alia, covered by the judgement of the Supreme Court that there can be a parallel licensee in the area where a local authority is licensed to supply electricity.
8.2.6. KEY JUDGEMENT - ALLOWING TATA POWER TO SUPPLY OUTSIDE THE LICENSE AREA
MERC passed an order dated 10th May 2016, in Case No. 43 of 2016 allowing Tata Power to continue to supply power to six consumers who fall outside the licence area of Tata Power. MERC also disallowed Maharashtra State Electricity Distribution Company Limited’s (MSEDCL) claim on seeking cross subsidy surcharge from the six consumers in its area of supply. MSEDCL’s revenue petition is pending for hearing.
8.2.7. STANDBY CHARGES
On an appeal filed by your Company, the Supreme Court had stayed the operation of the APTEL order in 2007, subject to the condition that your Company deposits an amount of Rs.227 crore and submits a bank guarantee for an equal amount. Your Company has complied with both the conditions. R-Infra has also subsequently filed an appeal before the Supreme Court challenging the APTEL order. Both the appeals have been admitted in 2007. The matter was part heard during the year and the hearings are yet to be completed.
8.2.8. ENERGY CHARGES AND ‘TAKE OR PAY’ OBLIGATION
MERC directed R-Infra to pay Rs.323.87 crore to Tata Power towards its ‘Take or Pay’ obligation for the years 1998-99 and 1999-2000. On an appeal filed by R-Infra, APTEL upheld Tata Power’s contention with regard to payment for energy charges but reduced the rate of interest. As regards the ‘Take or Pay’ obligation, APTEL has ordered that the issue should be examined afresh by MERC after the decision of the Supreme Court in the appeals relating to the distribution license and rebates given by R-Infra. Tata Power and R-Infra have filed appeals with Supreme Court. The Supreme Court, vide its order dated 14th December 2009, has granted stay against the APTEL order and has directed R-Infra to deposit with the Supreme Court a sum of Rs.25 crore and furnish a bank guarantee for the balance amount. No hearings were held during the year on this matter.
8.2.9. ENTRY TAX
Your Company had filed a writ in the High Court at Bombay (HC) challenging the constitutional validity of the Maharashtra Entry Tax Act. HC, vide its order dated 2nd August 2016, dismissed the writ petition. Aggrieved, your Company filed Special Leave Petition (SLP) in the Supreme Court. Vide its order dated 21st October 2016, the Supreme Court passed the order staying the demand of Entry tax, by extending the interim stay earlier granted by the High Court. There is no date fixed for further hearing of the matter and the same will come up in due course.
8.3. JOJOBERA OPERATIONS
8.3.1. APTEL JUDGEMENT FOR JOJOBERA UNIT 2 and UNIT 3
APTEL, in August 2016, passed a favourable order in an appeal filed by your Company challenging some of the findings of the Jharkhand State Electricity Regulatory Commission (JSERC) in the Annual Performance Review (APR) order for FY13 for Jojobera Unit 2 and Unit 3.
8.3.2. ANNUAL PERFORMANCE REVIEW (APR) ORDER FOR FY15-16 FOR JOJOBERA UNIT 2 AND UNIT 3
In January 2017, JSERC passed the APR order for FY16 including truing-up for FY14 and FY15 and revised true-up for FY13 in light of the judgement of APTEL. JSERC has also allowed claims of your Company while carrying out the true-up for FY14 and FY15.
8.3.3. APPROVAL OF THE REVISED PPA OF JOJOBERA UNIT 2 & UNIT 3
JSERC had earlier directed your Company to renegotiate the terms and conditions of the Power Purchase Agreement (PPA) with Tata Steel Distribution Licensee (TSDL) for Jojobera Unit 2 and Unit 3 subsequent to their transition to the regulatory regime. Accordingly, the PPA for the above Units was re-negotiated with TSDL and submitted before JSERC for its approval. JSERC has, in August 2016, accorded its approval on the Revised PPA for Jojobera Unit 2 and Unit 3, which has now been taken up for execution between your Company and TSDL.
8.4. MAITHON POWER LIMITED (MPL)
8.4.1. APPEAL FILED AGAINST DISALLOWANCES BY CERC IN MPL TARIFF ORDER
In May 2016, APTEL passed its judgement on the appeal filed by MPL against the partial disallowance by CERC in its order dated 19th November 2014 of the Interest during Construction (IDC) and cost of secondary fuel oil consumption. APTEL has upheld the findings of CERC and dismissed the plea of MPL. MPL thereafter, has filed a petition for review of the above judgement before APTEL and an appeal with the Supreme Court against APTEL’s judgment. Both the submissions are pending before the respective forums.
8.4.2. APPEAL FILED CHALLENGING DERC ORDER
MPL has challenged, before APTEL, the findings of Delhi Electricity Regulatory Commission (DERC) regarding the jurisdiction of the appropriate Commission pertaining to resolution of disputes arising out of the medium-term PPA between MPL and the Delhi discoms for the period October 2010 to March 2012. APTEL, in its judgement, has directed MPL to approach CERC for resolution of the disputes. Accordingly, MPL has approached CERC with a petition for resolution of the disputes.
8.4.3. TARIFF PETITION FOR FY14-19
MPL has filed a Petition for determination of the tariff for the period FY14-19 along with the truing-up for FY11-14 on 1st June 2015, before CERC. The proceedings in the above matter has been completed in December 2016 and the order is reserved.
8.4.4. PETITION SEEKING IN-PRINCIPLE APPROVAL FOR CAPEX SCHEMES FOR MEETING NEW ENVIRONMENT NORMS
MoEF&CC, vide its notification dated 7th December 2015, has revised the environment emissions norms, mandating all thermal power plants to comply with new/revised norms. Petition (72/MP/2016) filed by MPL seeking in-principle approval of abstract scheme of capex in compliance with new environmental norms has been disposed off by CERC directing MPL to approach CEA and MoEF&CC to decide the optimum technology and associated costs, for phasing of implementation of different environment measures and to then approach CERC based on the approval of CEA and direction of MoEF&CC. MPL has approached CEA and MoEF&CC as per directions of CERC.
8.4.5. PETITION SEEKING CLARIFICATION ON METHODOLOGY OF AVAILABILITY
MPL has filed a miscellaneous petition before CERC seeking clarification on the methodology of computation of availability for generating stations where PPA with the beneficiaries is based on contracted capacity and not on government allocated percentages as in the case of central generating stations. The proceedings in the above matter have been completed in October 2016 and the order is reserved.
8.4.6. GRADE SLIPPAGE
CERC, in 2014 Regulations, changed the methodology of measurement of Gross Calorific Value (GCV) from’as fired’to ‘as received’ basis. TPDDL had filed Petition before CERC against National Thermal Power Corporation (NTPC), Damodar Valley Corporation (DVC) and MPL for measurement of GCV in accordance with the 2014 Regulations. CERC passed directions laying down the procedure for measurement of GCV and CERC is examining the progress made by generating companies in compliance with its directions. MPL has filed affidavits listing out the existing procedure and seeking relaxation in the method prescribed by CERC. The matter is pending before CERC for orders.
8.5. POWERLINKS TRANSMISSION LIMITED (PTL)
8.5.1. TRUING-UP FOR FY10 TO FY13 FOR PTL
CERC, in May 2016, passed the true-up orders for FY10 to FY13 for transmission assets of PTL pertaining to eastern, northern and ER-NR inter-connector region. CERC, in the above order, had approved the annual transmission charges along with the transmission majoration factor for above period. However, CERC has directed its staff to examine the issue of transmission majoration factor and its impact to review the continuation of transmission majoration factor for subsequent years.
8.6. OTHER MATTERS
The Company has had a number of contracts with the M. Pallonji group of companies (MP) over last several years. These include contracts related to barging, dredging, shipping and contracts for painting of the Company’s power stations at Trombay, hydros and Jojobera.
Some of the contracts were awarded long-term as new capital equipment had to be deployed and significant cost and logistics benefits would be achieved vis-a-vis the then prevalent arrangement to get coal to Trombay station.
The Company had followed the requisite processes in award of the contracts and necessary approvals from the Board Committees / Management have been taken as required as per the Schedule of Authorities prevailing at various times.
9. RISKS AND CONCERNS
Your Company is faced with risks of different types, all of which need different approaches for mitigation. Details of various risks faced by the Company are provided in section 4 of MD&A of this Annual Report.
10. RISK MANAGEMENT FRAMEWORK AND INTERNAL FINANCIAL CONTROLS
Risk Management Framework:
Based on the Risk Management Policy (https://www.tatapower.com/aboutus/pdf/risk-management-policy. pdf)(alternately, scan the adjacent QR Code using a mobile device to read the policy on the Company website), a standardized Risk Management Process and System has been implemented across Tata Power Group. Risk plans have been framed for all identified risks and uploaded in the system with mitigation action, target dates and responsibility. This has enabled continuous tracking of status of mitigation action and monitoring of Risk Mitigation Completion Index (RMCI). The Risk Register contains the mitigation plans for eleven categories of risk. Eight Functional Risk Management Committees (FRMCs) closely monitor and review the risk plans. This year, standardisation of risks and mitigation measures was taken up as an exercise to ensure uniformity of risks across Tata Power Group and learning and sharing.
All risks have been classified into strategic, tactical and operational risks. Apex Risk Management Committee (ARMC) meets every quarter to review major strategic and tactical risks, identify new risks and assess the status of mitigation measures. As per the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), a Risk Management Committee (RMC) was constituted which currently comprises 3 Independent Directors, 1 Executive Director, the Chief Financial Officer and the Chief Risk Officer. The RMC meets regularly to review critical strategic risks and summary of top risks of each of the eleven categories and their status in terms of mitigation actions. To increase focus on critical risk groups, all risks have been grouped into 20 risk themes.
In FY15, British Standards Institution (BSI) conferred the ‘Statement of Compliance’ on Tata Power for ISO 31000:2009 - a recognition that implies that the Company has strong processes for risk identification, management and mitigation. Tata Power is the first power company in India to get this recognition. In FY16, BSI did the assessment of Tata Power and its eight major subsidiaries (viz. CGPL, MPL, TPDDL, TPTCL, TPSSL, TPREL, PTL and IEL) and conferred the ‘Statement of Compliance’ for Tata Power Group for ISO 31000:2009. This year, Tata Power Group has again been recommended for conferring the Statement of Compliance, basis BSI’s recent assessment in February 2017.
Internal financial controls and systems:
The Company has its internal audit function which endeavours to make meaningful contributions to the organisation’s overall governance, risk management and internal controls. The function reviews and ensures sustained effectiveness of Internal Financial Controls (IFC) by adopting a systematic approach to its work.
As per the provisions of Section 177 of the Companies Act, 2013 (the Act) and the Audit Committee Charter adopted by the Board of Directors, one of the roles and responsibilities of the Audit Committee, is to review the effectiveness of the Company’s internal control system, including financial controls, information technology security and its control.
Section 143(3) of the Act provides that the Statutory Auditor’s Report shall state whether the Company has an adequate IFC system in place and the operating effectiveness of such controls, for FY16 and beyond.
As per Section 134 of the Act, Directors of listed companies, based on the representations received from the management, are to confirm in the Directors Responsibility Statement that IFC are adequate, as also operating effectively.
With this objective in mind and to fulfil the requirements of the Act, in FY16, the in-house internal audit team, with the support of two expert audit firms, performed the test of design and test of effectiveness of IFC. Scoping was done based on major classes of transactions and account balances. Seven key business cycles, general IT controls and Entity Level controls were considered for review.
The Internal Audit and Risk Management (IARM) function has generally adopted Committee of Sponsoring Organizations (COSO) framework. COSO is a leading framework which provides guidance on the design and evaluation of internal controls. This has been done for 5 elements and 17 principles, which provides assurance of financial controls in place at the level of functional heads and at top management level. This has helped in assessing the effectiveness and efficiency of operational controls, enhanced governance and consideration of anti-fraud expectations, reliability of financial reporting and statutory compliances. Attributes with internal control deficiencies are identified with action plans to be pursued, responsibility centres and target dates for compliances.
For the Business Process level, controls are evaluated through internal audits and Control Self-Assessment (CSA). These CSAs have also been rolled out across other Tata Power group companies too. The effectiveness of the IFC was then tested by an external consultant who found no significant deficiencies. Further, the statutory auditor, through their independent testing of IFC, has also issued an unmodified opinion.
All processes of the Company have been classified under vital, essential and desirable, based on the analysis of process impact on Company’s Strategic Objectives. Post the audit, process is rated through the Risk Control Index and Process Robustness Index given by the Internal Auditors. Also, theme based audits are carried out for certain areas impacted by changing external environment. Significant observations, including recommendations for improvement of the business processes are reviewed by the Management before reporting to the Audit Committee. The Audit Committee then reviews the Internal Audit reports and the status of implementation of the agreed action plan. Post recognition of ‘General Conformance to International Audit Standards’ from Institute of Internal Auditors (IIA Global) in 2013, quality review of audit reports is carried out as per IIA global guidelines before the report is issued. Internal audit process has been standardized across the Tata Power group.
Internal audit plan is executed by an in-house audit team with support from expert Internal Audit firms. This risk based audit plan has been used for subsidiaries and other group companies as well. Your Company has also started its journey towards digitalization through enhanced data analysis on audits which will result in improved quality and focused audits.
Assessment mechanism for measuring the existence and effectiveness of controls are established by the fact that the Value Added Index, which is a measure of effectiveness and contribution of the internal audit to top management and Audit Committee, has improved over the years and so has the Risk Control Index (RCI), thereby giving assurance to management of efficiency and effectiveness of the IFC. The action taken statistics emerging out of internal audit reports for last three years reflect an increase in implementation percentage achieved through rigorous and systematic follow up. Further, the total number of action points has decreased over the last three years, thereby reflecting an improvement in the system and processes.
On review of the internal audit observations and action taken on audit observations, we can state that there are no adverse observations having material impact on financials or commercial implications or material non-compliances which have not been acted upon.
Control Self-Assessment: The Company continued the CSA process this year, whereby responses of all process owners are used to assess internal controls in each process. It was also extended to seven other Tata Power group companies. This helps the Company to identify focus audit areas, design the audit plan and support CEO/CFO certification for internal controls. The CSA questionnaire is designed to test effectiveness of deployment of existing controls for processes which are not to be audited as per the audit plan. The responses received from process owners on the questionnaire are analysed and validated through spot audits. This ensures optimum coverage of audit universe to provide assurance on the operating effectiveness based on results of evaluation across all processes.
Process Robustness Index (PRI): The processes are examined to assess their robustness, primarily from the perspective of system driven controls (SAP, CRM, Documentum etc.), which ensures that deviations from the defined process do not occur due to manual errors. In case controls have not been embedded in the system, other compensating controls such as maker-checker are exercised to assess the robustness of the process. This index is computed on the basis of existence of robust controls and not on the basis of extent of implementation of these controls. Your Company has obtained a copyright for this PRI scoring methodology.
The scores for RCI and PRI for the past 3 years are listed below:
Risk control index (RCI)
Process robustness index (PRI)
Safety is a core value of the Company. The Company has adopted a structured approach towards implementation of Safety Policies and Programs and integrating safety with critical business processes to continuously improve safety performance. Safety organisation has been established for developing and implementing Safety Management Systems and to facilitate a change in culture through leadership interventions to mitigate risks.
Safety Statistics FY17: (Table 8)
Safety Parameters in your Company’s work jurisdiction (Tata Power, CGPL, MPL, IEL, CTTL, PTL, TPDDL and TPSSL)
LTIFR (Lost Time Injuries Frequency Rate per million man hours)
Total Injury Frequency Rate (No of injuries per million man hours)
First Aid Cases (Number)
The Company is deeply aggrieved by the fatalities and accidents. It treats any fatality in any of its premises, of any of its employees, contractor/associate’s employees or any third party with equal gravitas and is committed to taking the entire working environment and behaviour to the highest safety standards.
Your Company has increased its efforts on safety during the year and has taken the following additional steps in FY17 to improve safety:
- Coaching to further improve Felt Leadership at all levels
- Implemented the contractors’ safety code of conduct to improve capability and capacity of contractors
- Structured Reward and Recognition Program which includes consequences and rewards in General Conditions of Contracts (GCC) for associates and contractors
- Enhanced Capability building through competency based training programs, at TPSDI’s state of the art skill building schools, for high risk activities across all levels
- Improvements in the mobile application ‘Suraksha’ on safety for incident reporting
- High visibility safety tours by leadership
- Risk Based Audit program to evaluate implementation of standards and effectiveness of management system
- Implementation of SAP EHSM to integrate safety with business process
Your Company successfully completed 100 years of operations and remains committed to the legacy of being a responsible corporate citizen. It has practised sustainability over these 100 years and thus, reinforced the core value of Leadership with Care. For your Company, sustainability is care for the environment, care for the customers and shareholders, care for the community and care for our people.
The Company’s efforts on sustainability were recognized at various platforms and a testimony of this was the various awards bestowed upon your Company. The Company has received a high rating of ‘A’ for its sustainability performance according to a new assessment done by Confederation of Indian Industry (CII). It is based on a comprehensive assessment of environmental, social and governance analysis of companies which helps them to measure performance as well as identify risks that challenge sustainability of their business.
The year also saw the launch of the Company’s 7th Sustainability Report for FY16, and the first one to be prepared in accordance with the latest G4 Guidelines of the Global Reporting Initiative (GRI).
12.1. CARE FOR OUR COMMUNITY/COMMUNITY RELATIONS
Your Company has actively worked on the key focus areas in Corporate Social Responsibility (CSR) of education, health, livelihood and employability, social capital and financial inclusivity, as well as rural energy.
Your Company has a unique governance system for Sustainability as a strategic theme. This is guided by the Sustainability Advisory Council (SAC) comprising eminent experts from various fields impacting sustainability.
Your Company’s standalone CSR spend for FY17 stood at Rs. 22.79 crore against the Companies Act requirement of Rs.21.84 crore. Additionally, as a part of disaster relief operations, the Company contributed towards relief efforts in Assam. Besides this, 5 employees were selected to be trained as project managers to be deployed as part of Tata Group relief efforts.
Independent monitoring, effectiveness of implementation and impact assessment were undertaken to provide feedback and to refine, realign the programs so that the extent and effectiveness of the initiatives could be improved in pursuance of Tata Power’s objective to improve the quality of life of the community and to get the community’s tacit or implied acceptance of the Company’s co-existence with them.
Details of the CSR activities of your Company and its key subsidiaries are listed in the MD&A section of this Annual Report. Annual report of CSR activities is provided in Annexure-II.
12.2. AFFIRMATIVE ACTION
Under its Affirmative Action (AA) program, your Company has implemented several initiatives for Employment, Entrepreneurship, Employability, Education and Essential Amenities for the communities around its operating sites.
The major programs carried out in the neighbourhood of the operating plants and projects are Skill Development Programs for youth (Industrial Training Institutes, Business Process Outsourcing training and Vocational Trainings), entrepreneurial programs like fly ash brick making/supporting Self Help Groups (SHG), and support for educational initiatives for school children like scholarships and coaching classes in the evenings along with assistance in the development of adequate infrastructure.
The Company continued its work in areas beyond its areas of operations, such as in Jawhar taluka, Palghar district of Maharashtra, which has a tribal population of over 90% of the total population with a vast majority of them below the poverty line. The activities here include initiatives like generating livelihood opportunities to improve sub-economic status, integrated watershed management program, capacity building through a participatory approach, women’s empowerment through SHGs and a Village Development Council (VDC) for sustainable development. The VDC has elected members from the village, as well as a Tata Power representative and are responsible for the sustainable development of the village.
12.3. CARE FOR OUR ENVIRONMENT
The Company, during the year, addressed various aspects of resource conservation, energy efficiency, carbon footprint, renewable power generation, biodiversity and green buildings. Details of initiatives undertaken are given in MD&A Section 9.1.3
12.4. CLUB ENERJI
Tata Power’s Club Enerji is focused on school students to champion the noble cause of conservation of resources and enhance moral and civic values. The Club has been ceaselessly working towards creating responsible citizens of tomorrow who focus not only on conserving energy and natural resources (like fossil fuel - coal, oil, gas, water; managing waste; afforestation), but also conserve civic, ethical and moral values in society at large.
Tata Power Club Enerji is a sustainability initiative aimed at creating awareness among school students, who in turn, sensitise their families and neighbourhood towards energy and resource conservation through dynamic and innovative measures. The current program is based on the four stage model of Educate (sensitise school children about energy conservation practices), Engage (empower energy champions to spread awareness amongst peers and the community), Enhance (enthuse schools to participate and contribute to Club Enerji initiatives) and Empower (create self-sustaining Mini Clubs that will lead the movement).
Recognizing the immense value that schools and school children can bring to the initiative and taking due consideration of the social need, Tata Power started “Tata Power Club Enerji” in 2007 to propagate efficient usage of energy and to educate the society on climate change issues. Club Enerji covers 500 schools across Mumbai, Delhi, Pune, Ahmedabad, Bengaluru, Kolkata, Belgaum, Jamshedpur, Lonavala and five more cities. It has reached out to more than 1.28 crore citizens, collectively saved 17.26 million units of electricity - equivalent to saving 17,000 tons of CO2. All over India, 1,337 Mini Clubs have also been formed under the Club Enerji initiative.
Tata Power Club Enerji also launched its comprehensive Online Module in November 2015 with an aim to reach out to a larger audience with a vision of transformation and adoption of a holistic and robust approach towards conservation. The module, since its launch, has also reached out to audiences in new international geographies like Philippines, UAE, USA, UK and South Africa and newer national geographies like Chandigarh, Hyderabad and Chennai.
Club Enerji & Greenolution was presented at IIM - Ahmedabad in Feb 2017 in a TEDx IIM Ahmedabad event held on the topic: “Driving Conservation by shaping the future generations”
12.5. DEMAND-SIDE MANAGEMENT
Your Company has been at the forefront of propagating energy conservation and efficiency.
Demand-side management (DSM) refers to cooperative activities between the utility and its customers to implement options for increasing the efficiency of energy utilization, with resulting benefits to the customer, utility and society as a whole.
Industrial, commercial and residential consumers in the city have unique usage patterns. Under “Be Green” initiative, your Company gives an opportunity to Mumbai consumers to exchange their old, inefficient electrical appliances for new, 5 star rated energy efficient appliances at a discounted price. The Company has partnered with leading consumer appliance manufacturers for energy efficient equipment. The consumers appreciate these initiatives as it helps to reduce their energy cost by 30% to 50% without compromising on their comfort and convenience.
During this financial year, these programs received a good response and more than 13,000 energy efficient appliances (LED tube lights, ceiling fans, refrigerators and split ACs) have been distributed in F