MANAGEMENT DISCUSSIONS AND ANALYSIS REPORT BUSINESS REVIEW General Economy The Indian economy after being not in good shape in the last 2 to 3 years have shown some signs of gradual improvement. There have been initiatives in the Union Budget 2015-16 to boost investment in infrastructure and to improve the business environment. These factors should provide confidence to private investment and, together with the conducive outlook on inflation, deliver real income gains to consumers and lower input cost advantages to corporates. GDP growth estimates of the CSO for 2014-15 already project a good pick-up. Uncertainty surrounding the arrival and distribution of the monsoon and unanticipated global developments are the two major risks to baseline growth projections. Assuming a normal monsoon, continuation of the cyclical upturn in a supportive policy environment, and no major structural change or supply shocks, output growth for 2015-16 is projected at 7.5% to 7.8%. Though ambitious targets and policies are being announced, the political tug of war between the ruling and the opposition is not auguring well for the country to reflect a quantum jump in the growth in all sectors of the economy. The electricity industry as per the Central Government is expected to add large quantum of capacity both in conventional and in non conventional sources. However, the policy announcements are not to be seen to percolate down the line to the state levels and hence the wind power generators in all potential states or renewable energy in the country continue to face one challenge or other from the state utilities and / or the State Electricity Regulatory Commission. Company Business The focus of the company is in the business areas of power generation from renewable energy sources primary wind and through subsidiary companies which are Special Purpose Companies (SPCs) in both wind and small hydro. The company invests in projects directly or invests in equities of SPCs who are in the business of development of renewable energy projects. The aggregate capacity of the installed wind farms is about 34.95 MW as at 31.03.2015. The Financial Year 2014-2015 recorded a total income of Rs.1665.21 lakh (P.Y. Rs.3136.36 Lakh); Cash profit of Rs.67.30 lakh (P.Y. Rs.1023.15 Lakh); Loss before Tax of Rs.422.70 lakh (P.Y. Profit of Rs.248.68 Lakh) ; and Loss after Tax of Rs.313.03 lakh (P.Y. Profit of Rs.152.77 Lakh). The 3.5 MW Small Hydro Project at Chamba, Himachal Pradesh of the subsidiary company Batot Hydro Power Limited which was re-commissioned on 16th June 2013 post repairs caused by unbrcedented floods in August 2012. The plant though has been generating power as per the estimates, is yet to achieve its annual generation expected as per the original project reports. OUTLOOK, OPPORTUNITIES AND THREATS Though the growth of renewable energy in India over the past decade has been quite significant, on account of number of Regulatory issues and time and again impediments created by state utilities is having its adverse effect on achievement of the potential by each of the states. The Central Government has been very confident and have been announcing number of proactive policies for power sector in general and renewable energy in particular and desire the country to have installed capacities in large gigawatt, unfortunately these are not getting translated into reality down the line at the state levels. Though infirm power like wind power and solar power are required to be treated differently the tendency of the state utilities as well as different agencies in the states is to equate them with conventional power and consequently many a times a deficit in the policy or directions at state level is quite apparent. As far as company's wind farm projects are concerned they are situated in state of Tamil Nadu, Andhra Pradesh and Maharashtra. In Tamil Nadu, the wind power from its 7.7 MW wind farm is being sold to the state utility TANGEDCO. However, payment for generation proceeds, though has improved considerably as compared to last year but still outstanding exceed six month's sale. Further, the grid shut down due to imbalance in the grid caused by mismatch of generation and consumption continues but at a lower scale as compared to the brvious year. As far as Andhra Pradesh is concerned, after a long period of litigation of 8 years from 2006, the State Electricity Regulatory Commission APERC issued the order sustaining the tariff at Rs.3.37 per unit. However, the bifurcation of the state in Andhra Pradesh and Telangana effective from 02.06.2014 has resulted in an imbroglio as to who should settle the payment dues from 7.5 MW wind farm to the company for the period January 2011 to May 2014 during which period the payments have been effected only at 50% of the final tariff rate sustained by APERC. Presently the matters have been discussed at the level of Chairman and Managing Director. As far as Maharashtra is concerned, for 2014-15 the state utility had not granted the open access approval for sale of wind power to Blue Chip private sector companies to whom such power were being sold for the past 3 to 4 years under open access. The Association of wind power generators were successful in obtaining order from State Electricity Regulatory Commission directing state utility to grant open access approval. However, due to inaction of state utility a Contempt Petition had to be filed by the Association on which judgement has been reserved in March 2015. Due to non receipt of orders till date, the company on a conservative basis has recorded the revenue from generation being fed into the grid of MSEDCL during financial Year 2014-15 at the tariff rate of Rs.2.52 per unit applicable for sale to Distribution Licensee including state utility. For F.Y. 2015-16 is concerned, the State Electricity Regulatory Commission themselves had issued a new Distribution Open Access Regulation having a number of restrictions on non discriminatory open access even though such restrictions were held by themselves as being contrary to the provisions of Electricity Act in their earlier order on open access for F.Y. 2014-15. The Association has filed a Writ Petition in the Hon'ble High Court of Bombay and therefore till the Hon'ble court disposes off the petition favourably, a period of uncertainty would continue. Alternatively, the company can also sell their wind power to the state utility who would merrily purchase the same but the tariff rate would be much less as compared to availing open access for sale to third parties in the state. Thus on one hand Central Government and to the limited extent the State Government are for faster development of renewable energy especially wind power and solar power but the regulatory issues and approach of state utilities has been a retarding force in not only development of new projects but has created a cloud over sustenance of existence projects. As far as new projects are concerned, with potential land becoming scarce, forest land need to be tapped and here too environmental issues and the long process of receiving approval for alienation of forest land for wind power generation is proving to be an impediment in setting up of new projects. Despite all the aforesaid obstacles, there is no alternative but to develop renewable energy as said energy is a must for energy security of our country. Therefore every effort by the company as well as the agencies are being channelized to create a friendly environment for developing more and more renewable energy projects especially wind, solar and small hydel. RISKS AND CONCERNS On Renewable Energy Sector, the lack of clear policies from the state, expeditious and unambiguous disposals of litigations by State Electricity Regulatory Commissions and many a state utilities demonstrating big brother attitude has been a matter of concern. Since wind power is of a negligible quantity vis-a-vis total power handled by state utilities in different states, all the wind power units are totally dependent on evacuation of the power by the state utilities. Therefore, impediments that are created from time to time by the state utilities coupled with adverse changes in the regulations by the State Electricity Regulatory Commissions is proving to be a high risk brposition in setting up of new wind power projects. With the potential land becoming scarce there is no alternative for the developers but to approach the forest authorities for alienation of the forest land. However, this too is a long process of 3 to 4 years and calls for a number of No Objection Certificates to be obtained from village levels and different departments. As far as company is concerned, the major concern for 2015-16 is the adverse Distribution Open Access Regulations issued by MERC which are under challenge in a writ petition by the association of wind power developers before Hon'ble High Court of Bombay. The new regulations substantially restricts the non discriminatory availability of open access hitherto available and critical restrictions include non permissibility of a consumer sourcing power from multiple generators, mandatory reduction of contract dement of the consumer to the extent of capacity utilization factor of the wind farm, restricting banking by appropriating generation in excess of consumption to oneself, etc. The Management Discussions and Analysis explaining the objectives of the company, the opportunities and threats, the outlook for the future, the risks and concerns have to be read with the meaning of relevant applicable laws and regulations. The actual physical performance may differ materially from those explained hereinabove. INTERNAL CONTROL SYSTEM The company has a system of internal controls to ensure that all its assets are properly safeguarded and protected against loss from unauthorized use or disposal. Further all the internal control system is practiced by the company to ensure that all transactions are authorized, recorded and reported correctly. The Company has an Audit Committee of Directors which reviews the adequacy of internal controls. MATERIAL DEVELOPMENT IN HUMAN RESOURCES The business in which the company is engaged does not call for large manpower resources. The company has a team of able and experienced professionals. The work culture and value system in the company is designed to provide each employee the adequate space, freedom and guidance to bring out their full potential and provide personal growth opportunities within the organization. |