MANAGEMENT DISCUSSION AND ANALYSIS Industry Structure and Development Snap shot of Indian economy Energy, as a driver of development and economic growth, plays a vital role in both alleviating poverty and addressing climate change. Indian Economy, which is developing into open market economy, is the seventh-largest in the world with an estimated Gross Domestic Product growth rate of 5-6% in 2014 and the third-largest by purchasing power parity (Source: CIA - The World Fact-Book). India Budget 2015-16 envisaged a growth of 8-8.5% in the next financial year and expected to clock double-digit level in the subsequent years. However, India has many challenges that are yet to be fully addressed including development of an efficient power generation which provides adequate and reliable power and an efficient distribution system to provide energy access to all. Power Scenario India is the fastest growing economy in the world. Indian Power Sector is gearing up to meet the challenges of providing reliable and adequate power required to fuel the growing economy of the country. Economic growth and development of a country mainly rely on the availability of affordable and reliable power for the entire population. Thus, access to energy for India's entire population is the first foremost goal and has been a top priority by the Indian policy makers. Government is determined to expand access to electricity in rural villages through its ambitious rural electrification scheme, an important tool for socio-economic development. Rapid urbanisation, high standards of living and the Government's proposal for formation of smart cities coupled with higher economic growth paves way for growth in power consumption. The per capita consumption of electricity is in the order of 957 KwHr (source: CEA) and expected to grow further in the coming years. Coal and Lignite Scenario Coal will continue to remain the mainstay fuel in the global energy economy for decades to come. Coal currently provides 40% of the world's electricity needs and is the second source of primary energy in the world after oil, and first source of electricity generation. Half of the increase in global energy demand over the last decade has almost been met by coal. According to World Energy Outlook 2011, India is expected to become the second largest coal consumer by 2025 surpassing United States. Sources for power generation of Indian power sector, range from sources like coal, lignite, natural gas, oil, hydro, nuclear and other viable non-conventional sources like wind, solar and agriculture & domestic waste. The All India Installed Capacity as on 31st March 2015 is 267637 MW out of which thermal power plants account for 188898 MW, Nuclear 5780 MW, Hydro 41267MW and Renewable Energy Sources (RES) 31692 MW. Out of thermal based power plants, the coal (including lignite) accounts for 164636 MW. Demand and Supply Power The centre of gravity of energy demand is switching decisively to the emerging economies, particularly China, India and the Middle East. The electricity sector in India has an installed capacity of 274.818 GW as of end June 2015. During the period from April 2014 to March 2015 the power generation from thermal power plants stood at 878.321 BU, Hydro with 129.111 BU and Nuclear accounted for 35.973 BU. The average PLF for the Country as a whole during the year 2014-15 was 65.11%. Considering a GDP growth rate of 9%, the Working Group on Power for XII Plan has projected an energy demand of 1403 BU at the end of XII Plan (2016-17) and 1993 BU in the terminal year of XIII Plan (2021-22). XI Plan achieved a capacity addition of 62374 MW. The Working Group on Power for XII Plan, using Electric Generation Expansion Analysis System software, estimated a capacity addition requirement of 75715 MW during XII Plan period considering 9204 MW hydro capacity, 2800 MW nuclear capacity and 1086 MW gas based capacity addition. The balance capacity addition of 62,625 MW to meet the demand would be from coal based capacity. However based on status of projects under construction for likely benefits during XII Plan totalling to a capacity of 88537 MW has been identified which includes Thermal of 72340 MW, Hydro 10,897 and Nuclear 5300 MW. The working group has also estimated a capacity addition requirement of 93400 MW to meet the peak demand of 289667 MW and energy requirement of 1993 BU during the terminal year of XIII Plan. XII Plan achieved a capacity addition of 64294.12 MW till June 2015 against a target of 88537 MW. According to CEA, the power supply position in the country during 2014-15 indicates a peak met of 141160 MW against the demand of 148166 MW leaving a deficit of 7006 MW, which is 3.2%. Peak shortage of power supply in southern region was 5.2% for the above period while the Northern Region was 8.3%, the Western and Eastern Regions were 2.3% and 1.8% respectively. Government of India has announced ambitious plans to achieve a long term capacity addition of 175 GW of renewable energy by 2022. Coal and Lignite The fossil fuels coal and lignite are the fastest growing global energy sources since the beginning of 21st century. The coal and lignite use is driven by the economic growth of the developing economics like India. About 70% of the coal produced in the country is consumed for power generation. In spite of best efforts being made to augment power generation from renewable energy sources, Coal based electricity generation will continue to be the main stay of generation in XII and XIII Plan periods to support the GDP growth envisaged by Government of India. Working Group on Power for XII Plan assessed a coal requirement of 842 million tonnes during 2016-17 at a specific coal consumption of 0.73 Kg/KwHr. All India coal consumption for power generation has increased from 278 million tonnes to 531.48 million tonnes in 2014-15 (Source: CEA). The Government of India has ambitious plans to increase the coal production mainly to meet the requirement of power sector. Lignite Reserves Working Group on Coal and Lignite has projected a demand of 300.30 MT of lignite for XII Plan period and 71.96 MT at the terminal year of XII Plan and 108.62 MT at the end of XIII Plan. During XII Plan a total lignite production of 290.16 MT has been envisaged against the projected demand. During the year 2014-15 your Company contributed 26.543 MT of lignite production. Renewable Energy Renewable energy sources accounts for 11.84% (31692 MW) of India's total installed power capacity as on 31st March 2015. Development of wind power in India began in 1990s and has grown significantly in the last few years. XII Five Year Plan has set a target of adding 18.5 GW of renewable energy sources to the generation mix out of which 11 GW from Wind Energy. GOI has taken up ambitious plan to develop renewable energy, particularly solar energy and has a target to add 1,00,000 MW Capacity by the year 2022. Risks and Concerns • Resistance to acquisition of land for mining and power projects and demand for employment by project affected persons. • Stringent norms brscribed by regulatory authority affecting power tariff. • Non-approval of costs incurred during renovation and modernisation leading to non-recovery of the cost. • Low level of participation by the vendors in the bidding process. • Domestic fuel shortage. Coal constraint faced by power project developers is adding significantly to the woes of the power sector. Tariff and Regulatory issues Power The Power Tariff is determined by Central Electricity Regulatory Commission (CERC) for a block period of 5 years. CERC issued Regulations for fixation of power tariff for the period from 01.04.2014 to 31.03.2019. Based on the Regulations, tariff petitions have been filed and orders awaited. Apart from tightening of norms, the regulation stipulates sharing of savings between actual and normative due to efficient operation with the Beneficiaries. (EBs/ ESCOMS/ DISCOMS). The incentive for the power generated above normative Plant Load Factor (PLF) has been reduced to Re.0.50/kwhr against full fixed charges under brvious Regulations. Further the basis has been shifted from Normative Annual Plant Availability Factor (NPAF) to Normative Annual Plant Load Factor (NAPLF). For reckoning incentive, the norm for incentive realisation has been fixed higher than the norm for recovery of fixed charges. The changes will have substantial negative financial impact on the Company. Lignite The lignite transfer price is fixed based on the guidelines issued by Ministry of Coal (MoC), Government of India. MoC has issued guidelines for the period from 01.04.2014 to 31.03.2019. Based on the above guidelines, the Company is in the process of filing a petition with CERC for fixation of energy charges in the power tariff. Outlook Your Company is brsently operating three lignite mines at Neyveli, Tamilnadu and one lignite mine at Barsingsar, in the State of Rajasthan with a total mining capacity of 30.6 Million Tonnes per annum. Bithnok lignite Mine (2.25 MTPA), Hadla Mine (1.9 MTPA) and restructuring of Mine-I and Mine-IA (1.5 MTPA) are under implementation. Further your Company has also proposed to set up 9.0 MTPA Mine-III to exploit the available mineable reserves of 380 MT in the Neyveli Lignite fields for the proposed second expansion of TPS-II. With the commissioning of both Unit-I & II of the TPS-II Expansion during the current year, the total installed capacity of the Company has increased to 3253.50 MW which includes wind turbine generators so far installed. Your Company's share is 55% on the total lignite based power generation in the country. Replacement of the old TPS-I of 600 MW with Neyveli New Thermal Power Project of 1000 MW capacity is in progress. Your Company is also implementing Bithnok Power Project of 250 MW and Barsingsar Extn. Power Project of 250 MW. In terms of the commitment given to GOI for development of green energy, your Company is brsently implementing 51 MW Wind Power Project at Kazhuneerkulam in Tamil Nadu, 10 MW Solar Power Project in Neyveli (in the 2nd phase proposed to add another 15 MW) and 25 MW Solar Power Project in Barsingsar. Your Company also plans to add its power generation capacity by setting up a thermal power station of 1000 MW capacity as second expansion to the existing TPS-II at Neyveli. It is also envisaged to set up Sirkali Coastal Power Project 4000 MW (in two phases) during XII and XIII Plan periods. On completion of the projects under implementation and also projects under consideration, the power generation capacity of your Company would increase to 9241 MW and mining capacity to 45.25 MT by the end of XIII Plan. In addition your Company has plans to install Solar Power Projects in the State of Telangana, Tamilnadu and other States in India and also set up Solar Power Projects in the Solar Power parks developed by various States in India. JV Projects NTPL, the subsidiary Company, is implementing 1000 MW coal based Tuticorin Thermal Power Project. Unit-I of 500 MW has already been commissioned and Unit-II (500 MW) is also expected to be commissioned during the current year. The 1980 MW coal based Thermal Power Project proposed to be set up in Ghatampur in the State of Uttar Pradesh is pending for sanction of GOI for implementation by NUPPL, another subsidiary Company, Pachwara South Coal Block in the State of Jharkhand will cater to the fuel requirement of the above project. Earlier Ministry of Coal (MOC) had allocated Jilga-Barpali Coal block in the State of Chhattisgarh jointly to the Company to meet the coal requirement for the proposed 4000 MW Sirkali Thermal Power Project. For the reasons explained earlier, your Company has now requested MOC to consider allocation of the Talabira II & III coal blocks for the STPP and also to meet the additional coal requirements of NTPL, in lieu of Jilga-Barpali coal block. SWOT analysis Strength • Experience in Mechanised open-cast lignite mining with Specialised Mining Equipment technology and linked lignite fired pithead power stations. • Gaining experience in operation and maintenance of environment friendly Circulating Fluidised Bed Combustion based lignite fired boiler. • Experience and expertise in operation, maintenance, trouble shooting and project management in open-cast mining and power generation. • Experienced workforce and harmonious industrial relations. • Highest domestic credit rating. Weakness • Lignite seams becoming thinner or being washed out in operating mines leading to high overburden removal resulting in increase in cost of mining. • Concentration of proven lignite reserves and linked pithead power plants in specific geographic region. • Location of Neyveli in the monsoon belt and prone to cyclones. Opportunities • Government's endeavour to provide electricity access to the entire population, including rural, through rural electricity infrastructure and the electrification of households. • Demand for electricity in India is far higher than supply. • Government's proposal for development of smart cities which may further raise the demand for energy. • Thrust by GOI for development of renewable energy sources. Threats • Resistance to land acquisition, demand for enhanced compensation, demand for employment. • Higher cost for rehabilitation & resettlement measures for land evictees. • Extreme mining conditions resulting from hydro geological, geotechnical and other conditions. • Mining operations are subject to supply of required quantity of explosives and other consumables to meet the set production targets. • Delay in commissioning of new projects by package contractors. • Non-availability of proven technology to economically exploit deep seated lignite reserves. • Stringent regulatory cap on expenses resulting in under recovery of input cost. Segment-Wise Performance Covered in the main report. Internal control systems and their adequacy The Company has well-established internal control systems and procedures commensurate with its size and nature of business with an approved and well laid out delegation of authority, Purchase, Contracts and Personnel Manuals. Further, a Committee of Executives has been constituted to study the brsent Internal Financial Control systems existing in the Company and suggest improvements thereon. The internal audit is conducted by five external firms of Chartered Accountants covering all the offices/units and their reports are periodically reviewed by the Audit Committee. Audit Committee periodically interacts with Internal and Statutory Auditors to assess the adequacy of internal control systems and also supervises the financial reporting process through review of periodical financial statements. Further, the accounts of the Company are subject to C&AG audit in addition to the propriety audit conducted by them. Discussion on financial performance with respect to operational performance Covered in the main report. Material developments in Human Resources/Industrial Relations front, including number of people employed Covered in the main report. Cautionary Statement Statements in the Management Discussion and Analysis and Directors Report describing the Company's strengths, strategies, projections and estimates, are forward-looking statements and progressive within the meaning of applicable laws and regulations. Actual results may vary from those exbrssed or implied, depending upon economic conditions, Government Policies and other incidental factors. Readers are cautioned not to place undue reliance on the forward looking statements. for and on behalf of the Board of Directors B. SURENDER MOHAN CHAIRMAN-CUM-MANAGING DIRECTOR Place Chennai Date : 07.08.2015 |