MANAGEMENT DISCUSSION AND ANALYSIS REPORT 1. Economic Outlook a. Global Economy The global economic recovery is expected to strengthen in 2016 and 2017, driven primarily by emerging market and developing economies, as conditions in stressed economies start gradually to normalize. While growth in emerging market and developing economies still accounts for the lion's share of projected world growth of 3.2% in 2016, prospects across countries remain uneven and anticipated to pickup in 2017 at 3.5% as per IMF. b. Indian Economy India continues to remain a bright spot in the otherwise bleak global economic forecast of the International Monetary Fund. The macro environment of India has been on a steady improvement in the last one year. There are economic constraints related to the prolonged weakness in external demand and the weak trend in private corporate capital spending. The growth trend has been supported by a pickup in public capex and acceleration in foreign investment flows. Trend in private capex has remained weak, and recovery in consumption has not been broad-based. However, going forward the Investment is expected to pick up gradually as excess capacity fades, deleveraging continues for corporations and banks, and infrastructure projects mature. The Indian economy has continued to consolidate the gains achieved in restoring macroeconomic stability. According to advance estimates of the Central Statistics Office (CSO), the growth rate of GDP at constant market prices is projected to increase to 7.6% in 2015-16 from 7.2% in 2014-15, mainly because private final consumption expenditure has accelerated. Inflation remains under control due to large falls in international commodity prices, especially oil. Similarly, the external position appears robust. The current account deficit has declined and is at comfortable levels. 2. Sector Overview Power Sector outlook The Twelfth Five Year Plan lays special emphasis on development of the infrastructure sector including energy as an imperative for sustaining high growth. According to the Twelfth Plan projections, during the Plan period, i.e. 2012-17, an investment of US$ 1 trillion is required in the infrastructure sector in India. During the Twelfth Plan period, the power generation capacity addition is estimated at 88,537 MW. Summary of Capacity Addition Program during Twelfth Plan is as under*: Against aforesaid target of 88,537 MW, 84,990.72 MW capacity has been added till March, 2016, which constitutes 95.99 per cent of the target envisaged in the Twelfth Plan. The individual targets achieved by the center, states, and private sector during this period are 61.65 per cent, 124.22 per cent, and 105.84 per cent, respectively. Achievement up to March, 2016 during the Twelfth Plan is as under: Transmission Sector: The Government of India (GoI) is now increasing its focus more on transmission sector. The GoI has taken number of steps such as expediting forest clearances and intensive monitoring of critical transmission lines. 28,114 circuit kilometers (ckt kms) of transmission lines have been commissioned during the year 2015-16 against the target of 23,712 circuit kilometers (ckt kms) (118%). An extensive network of Transmission lines has been developed over the years for evacuating power produced by different electricity generating stations and distributing the same to the consumers. Depending upon the quantum of power and the distance involved, lines of appropriate voltages are laid. The capacity of transmission system of 220 kV and above voltage levels, in the country as on date was 3,43,033 ckt km of transmission lines and 6,66,884 MVA of transformation capacity of Substations. Going forward, the following imperatives will facilitate in creating the huge opportunities for private players in transmission business: Investment spending in 13th Five-Year Plan: According to the Working Group on Power for 12th Plan, the Plan capital expenditure on transmission is expected to be Rs.1.8 trillion, and brliminary estimate for 13th Plan projects a capital expenditure of Rs.2.3 trillion on transmission. Around 109,440 ckms (circuit kilometers) of transmission lines and 270,000MVA of capacity are to be added in the 12th Plan. Amendments in Tariff Policy: The amended "Power Tariff Policy" facilitates competition in the intet-state as well as intra-state transmission projects. The policy highlights that the Intra-State Transmission projects shall be developed by State Government through competitive bidding process for projects costing above a threshold limit, which shall be decided by the State Regulator. Inter-State transmission projects to be developed through competitive bidding with flexibility to meet exigencies. Integration with renewable energy: Integration of Renewable Energy Resources with conventional sources is a top priority worldwide and special attention is being given in our country to harness the Green Energy. CERC has provided a framework for trading in Green Certificates (Renewable Energy Certificates or RECs) and National Load Despatch Centre (NLDC) of POSOCO has been designated as the Central agency for this purpose. The integration of renewable energy will offer many opportunities for the transmission business. Business Highlights Adani Transmission Ltd. ("ATL" or "the Company") is the largest power transmission company operating in the private sector in India and owns, operate and maintain around 5050 ckt kms of transmission lines ranging from 400 KV to 765 KV, with a total transformation capacity of more than 12,000 MVA. ATL has four fully operational Transmission Systems that primarily serve the Northern and Western regions of India and are constructing additional projects of approx. 1700 ckms in Rajasthan, Chhattisgarh, Madhya Pradesh and Maharashtra, which were awarded through Tariff based Competitive Bidding process. ATL has successfully executed many EHV Sub Stations (HVDC, 765kV & 400kV sub stations) along with transmission lines in India. Key Achievements of the Company: • ATL is the First Private Sector Company in India to execute 765 KV Transmission lines & Substations in the State of Maharashtra. • ATL has established India's only Private HVDC transmission system (more than 1,000 km) for efficient transmission of power to the State of Haryana with maximum evacuation capacity of 2500 MW. • ATL has obtained approval for the Transmission line methodology under CDM (Clean Development Mechanism) from United Nations Framework Convention on Climate Change (UNFCCC). Particulars of Projects under execution Additional System Strengthening of Sipat STPS • The project is awarded on Build, Own, Operate & Maintain (BOOM) basis, involves two Transmission Lines of length 344 Ckt Kms, and Bay at Sipat. The project will provide transmission system strengthening benefits to 7 beneficiaries viz Gujarat Urja Vikas Nigam Ltd (GUVNL), Maharashtra State Electricity Distribution Co Ltd (MSEDCL), MP Power Management Company Ltd (MPPMCL), Chhattisgarh State Power Distribution Co Ltd (CSPDCL), Electricity Department, Govt of Goa, Electricity Department, Daman and Diu, Electricity Department, DNH Power Distribution Corp. Ltd., Administration of Dadra and Nagar Haveli. • Transmission License has already been granted by CERC for 25 years. • Approval under Section 68 of Electricity Act 2003 obtained from MoP and other clearances are under process. • Transmission Service Agreement has been signed with all the beneficiaries. • The project progress is satisfactory. Additional System Strengthening Scheme for Chhattisgarh IPPS (Part-B) • The project is awarded on Build, Own, Operate & Maintain (BOOM) basis, involves two Transmission Lines of length 612 Ckt Kms, and Switching Station at Rajnandgaon. The project will provide transmission system strengthening benefits to 7 beneficiaries viz Gujarat Urja Vikas Nigam Ltd (GUVNL), Maharashtra State Electricity Distribution Co Ltd (MSEDCL), MP Power Management Company Ltd (MPPMCL), Chhattisgarh State Power Distribution Co Ltd (CSPDCL), Electricity Department, Govt of Goa, Electricity Department, Daman and Diu, Electricity Department, DNH Power Distribution Corp. Ltd., Administration of Dadra and Nagar Haveli. • Transmission License has already been granted by CERC for 25 years. • Transmission Service Agreement has been signed with all the beneficiaries. • Approval under Section 68 of Electricity Act 2003 obtained from MoP and other clearances are under process. • The project progress is satisfactory. System Strengthening for IPPS in Chhattisgarh and other Generation Projects in Western Region • The project is awarded on Build, Own, Operate & Maintain (BOOM) basis involves six Transmission Lines of length 427 Ckt Kms, Sub-Station at Morena and Bays at two locations. The project will provide transmission system strengthening benefits to 7 beneficiaries viz Gujarat Urja Vikas Nigam Ltd (GUVNL), Maharashtra State Electricity Distribution Co Ltd (MSEDCL), MP Power Management Company Ltd (MPPMCL), Chhattisgarh State Power Distribution Co Ltd (CSPDCL), Electricity Department, Govt of Goa, Electricity Department, Daman and Diu, Electricity Department, DNH Power Distribution Corp. Ltd., Administration of Dadra and Nagar Haveli. • Transmission License has already been granted by CERC for 25 years. • Approval under Section 68 of Electricity Act 2003 obtained from MoP and other clearances are under process. • Transmission Service Agreement has been signed with all the beneficiaries. • The project progress is satisfactory. Development of 400 KV D/C Suratgarh to Bikaner Transmission Line • The Project is awarded on Design, Build, Finance, Construction, Maintenance and Operation (DBFOT) basis, involves 400 KV Transmission Lines of length appx. 284 Ckt Kms. The project will provide transmission system strengthening benefits to Rajasthan Rajya Vidhyut Nigam Ltd. 3. Conservation of Energy Energy conservation measures taken and on hand: We continue to strengthen our energy conservation efforts right from the planning to the execution stage and subsequently throughout the O&M period. While finalizing transmission elements/equipment, low loss elements/system are given top priority. We have adopted higher voltage levels like 765kV AC, +500kV HVDC, in its transmission development which result in lower losses in the system. At design stage, optimization of various equipment parameters is done so that losses in the transmission system are optimized. During evaluation of transformer & shunt reactor packages, equipment with minimum losses are given weightage. Further, to minimize the auxiliary power consumption the company is monitoring the auxiliary power consumption pattern month to month basis and taking steps to reduce the auxiliary power consumption. 4. Technology Absorption: • New type of monitoring and surveillance system is being evaluated to brvent theft and vandalism on earth electrode line. • Use of Unmanned aerial vehicles (UAVs) is being explored on pilot basis for the maintenance work. • Employed the modern survey tools & techniques for the route selection, length optimization and estimation of BOQ for the transmission lines. • Fixed Series Compensators (FSC) were used in Mundra-Dehgam Transmission line to enhance the power evacuation capacity. • Special insulators like polymer composite insulators have been adopted in transmission lines in the polluted areas to brvent failures. • GIS technology at 400kV and 765kV level has been adopted in substations where space constraints exist. • On line transformer monitoring techniques are being used for monitoring of critical parameters of power transformers. • The feasibility of remote operations of substation is being explored & evaluated. Capacity Addition planned during the year The Company has also been successful in winning various Projects on Build, Own, Operate and Maintain ("BOOM") basis under Tariff Based Competitive Bidding (TBCB) route. 5. Human Resources In just over a year, we at ATL have grown exponentially and have seen a drastic change in the way our people are performing. We firmly believe that people are the biggest strength and that is how we differ from other companies. It is the display of our Values of Courage, Trust and Commitment by our employees that provides us the ability to expand our horizons at this pace. We are keenly focused on the overall development of our people with the same level of excellence and with huge business opportunities. With increasing complexity of doing business globally as well as in India, we have recognized the need to further strengthen HR systems by Recruiting best talent from the Industry, Motivating and retaining the best talent by providing Challenging opportunities. Developing our Human Resource for a strong business organization: • Learning and Development gains brcedence, while we are looking at development of our people for future. • We identify and develop Hi-potential people as they are critical while building the future. • Succession Planning for leadership positions and for all critical positions has been on our priority. • Standardized HR SOP's across the business enables us to provide a seamless experience of HR services to all the employees with speed and quality. • To motivate exceptional performers as well as encourage the right behaviour among employees, we have established formal systems of Reward and Recognition. Significant efforts have gone into developing a strong leadership potential across organization by imparting leadership capability in employees through highly focused leadership development programs. A lot of focus is being given to enhance people capability through learning management system. 6. Risks Management Plan The Company is exposed to various risks such as Indian Economy risk, Legislative and regulatory risk, currency risk, etc. It is important to have a risk management system to mitigate the risk. The Company's risk management system enables it to recognize and analyze risks early and to take the appropriate action. Indian Economy Risk - We derive, and expect to continue to derive in the foreseeable future, most of our revenues and operating profits from India. Changes in macroeconomic conditions generally impact the power industry and could negatively impact our power transmission business. Accordingly, our business is highly dependent on the state of development of the Indian economy and the macroeconomic environment brvailing in India. Legislative and Regulatory Risks - Changes to the regulatory environment and the laws, rules and directives of the Government of India, including as they impact statutory payment pooling bodies and dispatch bodies, may negatively impact the management of our operations and our ability to secure required approvals, permits or licenses. We have a team which continuously monitor the changes in regulatory and statutory environment and take corrective steps as and when required. Currency Risk - The Company maintains its accounts and reports its financial results in rupees. However, the Company is exposed to risks relating to exchange rate fluctuations. For mitigation of the risk company have in place the foreign exchange hedging strategy wherever required. Technological risk - Changes in technology may render our current technologies obsolete or require us to make substantial capital investments. We strive to keep our technology up to date with the latest international technological standards. Our success will depend in part on our ability to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. 7. Internal Control System The Company has put in place strong internal control systems and best in class processes commensurate with its size and scale of operations. A well-established multidisciplinary Management Audit & Assurance Services consists of professionally qualified accountants, engineers and SAP experienced executives which carries out extensive audit throughout the year, across all functional areas and submits its reports to Management and Audit Committee about the compliance with internal controls and efficiency and effectiveness of operation and key processes and risks. Some Key Features of the Company's internal controls system are: • Adequate documentation of Policies & Guidelines. • Preparation & monitoring of Annual Budgets through monthly review for all operating & service functions. • Management Audit department brpares Risk Based Internal (RBIA) Scope with the frequency of audit being decided by risk ratings of areas / functions. Risk based scope is mutually accepted by various functional heads / process owners / CEO & CFO. • The entire internal audit processes are web enabled and managed on-line by Audit Management System (AMS). • The Company has a strong Compliance Management System which runs on an online monitoring system. • Company has a well-defined Delegation of Power with authority limits for approving revenue & capex expenditure. • Company uses ERP system to record data for accounting, consolidation and management information purposes and connects to different locations for efficient exchange of information. • Internal Audit is carried out in accordance with auditing standards to review design effectiveness of internal control system & procedures to manage risks, operation of monitoring control, compliance with relevant policies & procedure and recommend improvement in processes and procedure. The audit committee of the Board of directors regularly reviews the adequacy & effectiveness of internal audit environment and monitor implementation of internal audit recommendations including those relating to strengthening of the Company's risk management policies & systems. 8. Cautionary Note Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations and others may constitute "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results may differ from those exbrssed or implied. Several factors that could significantly impact the Company's operations include economic conditions affecting demand, supply and price conditions in the markets, changes in technology, changes in the Government regulations, tax laws and other statutes, climatic conditions and such incidental factors over which the Company does not have any direct control. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. |