NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31st MARCH, 2015 1 CORPORATE INFORMATION Gujarat State Petronet Limited (GSPL) is a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956. GSPL is a Government Company u/s 2(45) of Companies Act 2013. Its shares are listed on Bombay Stock Exchange and National Stock Exchange in India. The Company is primarily engaged in transmission of natural gas through pipeline on an open access basis from supply points to demand centres. The Company also sells electricity generated through Windmills. 2 BASIS OF brPARATION (i) The financial statements are brpared on accrual basis of accounting under historical cost convention in accordance with generally accepted accounting principles in India and the relevant provisions of the Companies Act, 2013 including accounting standards notified there under. (ii) The brparation of financial statements requires management to make certain judgments, estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Management believes these assumptions are reasonable and prudent. 2.1 Significant Accounting Policies (a) Fixed Assets and Capital Work in Progress Fixed Assets are stated at cost net of recoverable taxes, less accumulated debrciation and impairment loss, if any. The Company capitalises all directly attributable cost including borrowing cost of bringing the asset to its working condition for the intended use. Capital Work-in-progress includes expenditure incurred on assets, which are yet to be commissioned and project inventory. All the direct expenditure related to implementation including incidental expenditure incurred during the period of implementation of a project, till it is commissioned, is kept as Capital work in progress (CWIP) and after commissioning the same is transferred / allocated to the respective fixed assets. (b) Intangible Assets Intangible Assets are stated at cost of acquisition net of recoverable taxes less accumulated amortisation, if any. Intangible assets like software, licenses, Right-of-Use of land (ROU) and Right of Way (ROW) permissions which are expected to provide future enduring economic benefits are capitalized as Intangible Assets. (c) Debrciation and Amortisation Debrciation on gas transmission pipeline(s) is provided on straight line method (SLM) and on other tangible assets is provided on written down value method (WDV) based on the useful life brscribed in schedule II to the Companies Act 2013 except, for mobile phones which are debrciated over useful life of two years based on technical opinion. Debrciation on assets acquired / disposed off during the year is provided on pro-rata basis with reference to the date of addition / disposal. Assets costing up to Rs. 5,000/- are debrciated fully in the year of purchase / capitalization. Cost of lease-hold land is amortized equally over the period of lease. In case of Intangible Assets, software is amortized at 40% on written down value method. Right of Use is perpetual in nature. However, as required by AS-26, Right of Use (ROU) is amortised over 99 years on straight line method. Moreover, Right of Way (ROW) is amortised over 30 years on straight line method (d) Investment Long Term Investments are stated at cost. Provision for diminution in the value of Long-Term Investments is made only if such a decline is other than temporary. Current Investments are carried at lower of cost and quoted/fair value. Any reduction in carrying amount and any reversals of such reductions are charged or credited to the Statement of Profit & Loss. (e) Inventory Inventories including project inventory, stock of stores, spares, consumables and line pack gas not meant for sale in ordinary course of business are valued at weighted moving average cost. (f) Employee Benefits Employees Benefits are provided as per Accounting Standard -15 "Employee Benefits" (revised 2005) as under: The Company has participated in- Group Gratuity scheme of Life Insurance Corporation of India. The liability in respect of gratuity benefits being defined benefit schemes, payable in future, are determined by actuarial valuation carried out using projected unit credit method as on the balance sheet date and actuarial gains/(losses) after adjustment of planned assets are charged to the statement of Profit and Loss for the year. Moreover, the liability in respect of leave encashment being defined benefit schemes, payable in future, are also determined by actuarial valuation carried out using projected unit credit method as on the balance sheet date and actuarial gains/(losses) are charged to the Statement of Profit and Loss for the year. Retirement benefits in the form of provident fund and defined superannuation fund which are defined contribution schemes are accrued in accordance with statutes and deposited with respective authority/agency and charged to the Statement of Profit and Loss account for the year, in which the contributions to the respective funds accrue. Short-term employee benefits are recognized as an expense in the Statement of Profit and Loss for the year in which related services are rendered. In respect of employees stock options, in accordance with SEBI (Share based employee benefits) Regulations, 2014, the difference between market price as on the date of grant of option and the exercise price of total no. of options granted is recognized as an asset called 'Deferred ESOP Compensation' and as a liability called 'ESOP Outstanding Account'. The asset called 'Deferred ESOP Compensation' is amortized over the vesting period on straight line basis and considered as a part of 'Employee Benefit Expenses' in the Statement of Profit & Loss Account, whereas the liability called 'ESOP Outstanding Account' is derecognized at the time of exercise of options by the employees. (g) Borrowing Cost The Company is capitalising borrowing costs that are directly attributable to the acquisition or construction of qualifying fixed assets. For interest capitalisation, the capital cost of a particular project is identified against a borrowing in terms of period of construction and the interest for the relevant period is added to the capital cost till the particular project is capitalised and thereafter the interest is charged to the Statement of Profit and Loss. All other borrowing costs are recognized as expense in the period in which they are incurred and charged to the Statement of Profit and Loss. (h) Foreign Currency Transactions Transactions denominated in foreign currencies are normally recorded at the exchange rates brvailing at the time of the transaction. Monetary items (assets and liabilities) denominated in foreign currencies at the year end are reported at the exchange rate brvailing on the Balance Sheet date. Non-monetary foreign currency items are carried at cost using the exchange rates on the date of transaction. Any income or expense on account of foreign exchange difference either on settlement or on translation is recognized in the Statement of Profit & Loss in line with the provisions of Accounting Standard -11 "The Effects of Changes in Foreign Exchange Rates". (i) Revenue Recognition Revenue from transmission of gas through pipeline is recognized net of Service Tax on fortnight basis when it can be reliably measured and it is reasonable to expect ultimate collection. Revenue from sale of electricity is recognized on last day of respective month when it can be reliably measured and it is reasonable to expect the ultimate collection. All other revenues are recognised when it can be reliably measured and it is reasonable to expect ultimate collection. Interest income is recognized on time proportion basis. Dividend income is recognized when right to receive is established. Prepaid expenses and prior period expenses/income up to Rs. 50,000/- in each case are charged to relevant heads of account of the current year. (j) Taxation Provision for current tax is made as per the provisions of the Income-tax Act, 1961. Deferred Tax resulting from "timing difference" between taxable and accounting income is accounted for using the Tax rates and laws that are enacted or substantively enacted as on the Balance Sheet date. Deferred Tax Asset is recognised and carried forward only to the extent that there is a virtual certainty that the asset will be realised in future. Minimum Alternate Tax (MAT) credit is recognised as an asset only to the extent when there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which MAT credit becomes eligible to be recognised as an asset in accordance with the recommendations contained in Guidance Note issued by ICAI, the said asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT credit entitlement. The Company reviews the same at each balance sheet date and write down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal income tax during the specified period. Provision for Wealth Tax is made in accordance with the provisions of the Wealth Tax Act, 1957 and is included in other expenses under the head of rates and taxes. (k) Impairment of Assets At each Balance Sheet date, the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets suffered any impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. Recoverable amount is the higher of an asset's net selling price and value in use. In assessing value in use, the estimated future cash-flow expected from the continuing use of the assets and from its disposal is discounted to their brsent value using a Pre-Tax discount rate that reflects the current market assessments of time value of money and the risk specific of the assets. An asset is treated as impaired when the carrying cost of asset exceeds its recoverable value. An impairment loss is charged to the Statement of Profit & Loss in the year in which an asset is identified as impaired. The impairment loss recognised in prior accounting period is reversed if there has been a change in the estimate of recoverable amount and is recognized immediately as income in the Statement of Profit & Loss. (l) Earnings Per Share The Company reports Earnings Per Share (EPS) in accordance with Accounting Standard-20 "Earnings Per Share". Basic EPS is computed by dividing Net Profit After Taxes for the year by weighted average number of Equity Shares outstanding during the year. Diluted EPS is computed by dividing Net Profit After Taxes for the year by the weighted average number of Equity Shares outstanding during the year including weighted average number of Shares that could have been issued on conversion of all dilutive potential Equity Shares. (m) Provisions, Contingent Liabilities and Contingent Assets Provisions involving substantial degree of estimation in measurement are recognised when there is brsent obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent Liabilities are not provided for & if material, are disclosed by way of notes to accounts. Contingent Assets are neither recognized nor disclosed in Financial Statements. (n) Cash and cash Equivalents Cash and cash equivalents comprise cash and deposits with banks and corporations. The Company considers all highly liquid investments with a remaining maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents. (o) Cash Flow Statement Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated. (p) Prior Period Adjustments Any prior period expenditure / (income) exceeding Rs. 50,000/- per transaction is shown under the head "Prior Period Adjustments Account" in the Statement of Profit and Loss for the year in line with Accounting Standard 5 "Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Polices". (q) Proposed Dividend The Dividend as proposed by the Board including tax thereon is provided in financial statements pending approval at the Annual General Meeting. (r) Event Occurring after Balance Sheet Date Material adjusting events (that provides evidence of condition that existed at the balance sheet date) occurring after the balance sheet date are recognized in the financial statements. Non adjusting events (that are inductive of conditions that arose subsequent to the balance sheet date) occurring after the balance sheet date that rebrsents material change and commitment affecting the financial position are disclosed in the Directors' Report. 3 Previous year figures have been re-classified or regrouped wherever necessary. 4 CONTINGENT LIABILITIES AS ON 31st MARCH, 2015: a) Claims against Company not acknowledged as debt: • By land owners seeking enhancement of compensation in respect of RoU acquired by the Company is Rs. 2,124.57 Lacs (Previous Year: Rs. 2,128.53 Lacs) and by other parties are Rs. 39.86 Lacs (Previous Year: Rs. 39.86 Lacs) ) • As regards Central Excise and Service Tax matters, the matters lying before Hon'ble Subrme Court- Rs. 735.04 Lacs (Previous Year: Rs. Nil), Hon'ble Gujarat High Court - Rs. 19,100.28 Lacs (Previous Year: Rs. 19,100.28 Lacs), before CESTAT - Rs.10,111.30 Lacs (Previous Year: Rs. 9,018.14 Lacs), before Commissioner/ Asst. Commissioner - Rs. 1525.45 Lacs (Previous Year: Rs. 2,671.78 Lacs). Further, the company is in process of filing appeal before CESTAT for Rs. 1,665.86 Lacs (Previous Year: Rs. 91.01 Lacs). (Applicable interest & penalty has also been demanded by Department). • Income Tax assessments up to Assessment Year 2012-13 have been completed and Company had filed various appeals against orders passed by Income Tax Department for various Assessment years. The tax impact/demand of appeals lying before Hon'ble Gujarat High Court for Assessment Year 2005-06 & 2009-10 is Rs. 19.69 Lacs (Previous Year : Rs. 26.77 Lacs), lying before the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2008-09 & 2009-10 is Rs. 370.41 Lacs (Previous Year : Rs. 370.41 Lacs), lying before CIT(Appeals) for Assessment Year 2008-09, 2010-11, 2011-12 & 2012-13 is Rs. 767.08 Lacs (Previous Year : Rs. 657.48 Lacs) and matters restored back to Assessing Officer for Assessment Year 2004-05 & 2006-07 is Rs. 38.77 Lacs. (Previous Year : Rs. 38.77 Lacs) Based on interbrtation of the Acts & various judicial pronouncements in relation to similar matters, Company is of the view that these demands are likely to be deleted or may be substantially reduced. b) Guarantees : • Outstanding Bank Guarantees / Letter of Credits are Rs. 68,983.64 Lacs (Previous year Rs. 9,813.12 Lacs) • Corporate Guarantee executed jointly & severally along with associate is Rs. 56,500.00 Lacs (Previous year 50,000.00 Lacs). c) Other : Imbalance and overrun charges as per the 'Modalities of maintaining & operation of Escrow Account under the PNGRB (Access Code for Common or Contract Carrier Natural Gas Pipeline) Regulations, 2008' issued by PNGRB on 7th March, 2011, collected for the period prior to 1st April, 2011 amounting to Rs. 226.02 Lacs (net of taxes) has been deposited in Escrow Account under protest. However, the same is not recognised as liability as these guidelines are applicable w.e.f. 1st April, 2011. 5 CAPITAL & OTHER COMMITMENT Capital Commitment: Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs. 25,686.84 Lacs (Previous year Rs. 40,086.24 Lacs). Other Commitment: As on 31st March, 2015, the Company has following other commitments: a) Rs. 1,96,594.99 Lacs (approx.) towards further investments in subsidiaries & associates (Previous year Rs. 2,00,494.99 Lacs) b) Advance of Rs. 5,000.00 Lacs adjustable against re-gasification services (Previous year Rs. 15,000.00 Lacs) 27 As per Accounting Standard - 16 “Borrowing Cost” issued by ICAI, the Company has capitalised the borrowing cost amounting to Rs. 2,333.72 Lacs for the current year. (Previous year Rs. 1,879.50 Lacs). 5 There are no whole time / executive directors on the Board except Managing Director. Managing director is not drawing any remuneration from the Company. 7 The balances of sundry debtors, creditors, loans & advances and deposits are subject to confirmation. Provision for all liabilities is adequate in opinion of the Company. 8. The Company has maintained a separate escrow account as per PNGRB guidelines for modalities of maintaining and operation of escrow account for charges towards system indiscipline in terms of positive or negative imbalance or overruns. In this regard, since financial year 2011-12, amount recovered from customers is deposited in the said bank account and the amount invoiced (net of taxes) is recognized as liability. 9. As at the balance sheet date, Company has reviewed the carrying amounts of its assets and found that there is no indication that those assets have suffered any impairment loss. Hence, no such impairment loss has been provided. 10. Amount due for credit to Investor Education and Protection Fund is NIL (Previous year NIL). 11. In the matter of appeal filed by few customers with The Appellate Tribunal for Electricity (APTEL) against the stipulation in the PNGRB Tariff order No. TO/09/2012 dated 11th September, 2012 requiring GSPL to implement the order with retrospective effect from 20th November, 2008, being the date on which Petroleum and Natural Gas Regulatory Board (Determination of Tariff for Natural Gas Pipelines) Regulations, 2008 were notified, APTEL passed judgment on 6th January, 2014 a gainst such retrospective application of tariff. Accordingly, PNGRB has vide Letter Ref: PNGR/M/(C)/43/Tariff GSPL Vol III dated 19th February, 2014 read with PNGRB Order Ref.No: TO/04/2014 dated 11th July, 2014 issued revised Provisional Initial Unit Natural Gas Pipeline tariff Order and zonal apportionment Order thereof for GSPL's High Pressure Pipeline Network. The same has been implemented during the year w.e. f. 27th July, 2012 being the authorization date for GSPL's High Pressure Pipeline Network. 12. Further APTEL in the matter of the appeals filed by GSPL against the various provisions of the order No. TO/09/2012 dated 11th September, 2012 has in judgment dated 25th November, 2014 and 28th November, 2014 allowed the appeals asking PNGRB to reconsider the tariff proposal to be submitted by GSPL based on relevant data and other submissions made by the appellant in this regard. GSPL has submitted the revised tariff proposals for consideration of PNGRB. 13. During the current year, the company has adopted useful lives of fixed assets as per Schedule II of Companies Act, 2013. Accordingly, the carrying value of fixed assets as on 1st April, 2014, net of residual value, has been debrciated over remaining useful lives. Further, an amount of Rs. 2.24 crores rebrsenting the carrying value of assets, whose remaining useful life as at 1st April, 2014 as per schedule II has already elapsed, has been charged to the opening balance of retained earnings in accordance with Companies Act, 2013. 14. In compliance of opinion of Expert Advisory Committee (EAC) of ICAI and Accounting Standard 26 - Intangible Assets, during the year, estimated useful life of ROU and ROW has been changed to 99 years and 30 years respectively. As a result, debrciation and amortization expenses increased by Rs. 1,391.99 lacs (out of which Rs. 1,210.36 lacs pertains up to financial year 2013-14) and accordingly, profit for the year reduced by corresponding amount. 15. The figures appearing in financial statements are rounded off to the nearest rupees in lacs. For RMA & Associates, Chartered Accountants Firm Regn. No. 000978N Rajiv Bajpai Partner Membership No.405219 Place : Ahmedabad Date : 22nd May, 2015 For and on behalf of the Board of Directors Manish Seth Chief Financial Officer Reena Desai Company Secretary M M Srivastava, IAS (Retd.) Chairman DIN : 02190050 Atanu Chakraborty, IAS Managing Director DIN : 01469375 Place : Gandhinagar Date : 22nd May, 2015 |