Aditi Project

ACKNOWLEDGEMENT

I am thankful to Mr. Richard.S.V.Muthumani, DGM (finance) for giving me an opportunity to undergo two months summer training in the Finance Department of NTPC Limited and for providing me support in the project

“PERFORMANCE BUDGET IN NTPC”

I was able to learn the intricacies involved in the preparation of the budgets for the various projects and also to have first hand experience of working for the Finance Department of this esteemed organization.

Being assigned to the budget section of the finance department, I was supervised by Mr. Sunil Gulati, Deputy Manager (Finance) who provided me with very valuable insights into the working of the budget section. As I was assigned a project concerning the budgeting of the projects, his exposure in this field and his in depth knowledge proved to be very enriching for me. I am very thankful to him for his sparing valuable time from his busy schedule to guide me and clear my doubts and problems. I thank him for assisting and guiding me throughout the working of the project and provided valuable assistance in completing the project.

I am also deeply indebted to the other officials of the finance department Mr. P.K Jha, Mr. P.P Gandhi, Mr. Kapil Singla, Mr. V.K Gupta, Mr. R Gobi, Mr. A.K Pandey, and Mrs. Sunita Kwatra for their kind and appreciative gestures that helped me complete my assignment on time.

Last but not the least; I thank all our faculty members for their valuable support for this project.

Performance Budgeting 1

CONTENTS

INDUSTRY OVERVIEW

COMPANY ANLYSIS

1. BACKGROUND2. CORPORATE VISION3. CORPORATE MISSION4. CORPORATE OBJECTIVES5. CORPORATE CORE VALUES6. PROJECTS OF NTPC7. SERVICES OF NTPC8. GROUP COMPANIES9. FINANCIAL PERFORMANCE 10. OPERATIONAL PERFORMANCE11. STRATEGIES ADOPTED BY NTPC

PROJECT

1. CONCEPT2. OBJECTIVES3. SCOPE OF CAPITAL BUGETING4. FORMULATION AND APPROVAL5. REVIEW AND MONITORING6. COMPILATION OF ANNUAL PLAN7. FINANCIAL ANLYSIS OF SELECTED PROJECTS8. ANNUAL PLAN ANALYSIS


Industry overview

The Indian electricity sector has grown manifold over last 50 years and India is the third largest producer of power in Asia today.

Initially the growth in the power sector was achieved through state electricity board, which was constituted by the state government. About 58% of the generation capacity and the bulk of the distribution take place through various SEB system. The efforts of the SEBs were further supplemented by the advent of central sector power generating companies (viz. NTPC Limited and National Hydroelectric power corporation Limited) in the public sector. Contribution of central sector has been growing steadily since MID 70s. Despite the massive growth in power generation, India is still facing an acute power shortage.

Hitherto, development of the Electricity sector has been primarily the responsibility of the state and central government, with relatively small contribution from the private sector. As on March 2006, India’s power system had an installed generation capacity of 124,287 MW. During the year 2005-06 the total power generated in the country in the country was 617.38 billion. As far as the ownership of the power generating capacities are concerned, the state government owned generating utilities accounted for 55% of the capacities, while the central government owned power utilities accounted of approximately 32% and private players accounted for approximately 13%. The strategies adopted in the short term to meet the demand of electricity include acquiring capability to achieve inter regional exchange of electricity, minimizing transmission and other distribution losses and improving the capacity utilization of existing operating plants. In this background, GOI has resolved to mobilize additional resources to help bridge the gap in supply by encouraging greater participation by the private sector in electricity generation and distribution field. To give further encouragement to attracting investment in the power sector, the electricity act 2003 has been enacted by Govt. in India.


NTPC LTD

BACKGOUND

NTPC limited was incorporated on 7th November 1975 in the central sector as a thermal power generating company, with the objective of planning, promoting and organizing an integrated development of thermal power in the country. NTPC has since diversified its activities and is now going for hydropower, coal mining, nuclear power, oil exploration, wind power and other non-conventional sources of energy. Within the span of 28 years, NTPC has emerged as a leading national power generating facilities in all the major regions of the country.

NTPC’s core business is-

1. Engineering, construction and operation of power generating plants2. Provides consultancy to power utilities in India and abroad.

With a total installed capacity of 227404 MW, NTPC during the year 2006-2007 generated 188.67 Bus of electricity resulting in an increase of 10.46% over the previous year’s generation. With 20.18% of total installed capacity in the country NTPC has contributed 28.50% of all India thermal Generation. During the year 2006-2007 NTPC coal station achieved a PLF of 89.43%.

NTPC was among the first public sector enterprises to enter into memorandum of understanding (MOU) with the government in 1987-88. NTPC has been placed under the ‘EXCELLENT CATEGORY’ every year since the MOU system became operative. In recognition of its excellent performance and vast potential, Government of India has identified NTPC as one of the jewels of Public sector ‘Navratnas’- a potential global giant.

NTPC Ltd is marching ahead from strength to strength. During the year 2005-06, its stations performed at the highest ever plant load factor of 87.54% and generated 170.88 billion units of electricity which was 7.40% higher than the previous year’s generation of 159.11 billion units and accounted for almost 28% of power generated units in India.


VISION

“A WORLD CLASS INTEGRATED POWER MAJOR,POWERING INDIA’S GROWTH,

WITH INCREASING GLOBAL PRESENCE”

CORE VALUES(B-COMIT)

BUSINESS ETHICSCUSTOMER FOCUS

ORGANISATIONAL & PROFESSIONAL PRIDEMUTUAL RESPECT & TRUST

INNOVATION & SPEEDTOTAL QUALITY FOR EXCELLENCE

CORPORATE MISSION

“ DEVELOP AND PROVISE RELIABLE POWER, RELATED PRODUCTSAND SERVICES AT COMPETITIVE PRICES, INTEGRATING MULTIPLE

ENERGY SOURCES WITH INNOVATIVE AND ECO-FRIENDLYTECHNOLOGIES AND CONTRIBUTE TO SOCIETY ”


CORPORATE OBJECTIVES

To realize the vision and mission, different key corporate objectives have been identified. These objectives would provide the link between the defined mission and the functional strategies:

Business portfolio growth

To further consolidate NTPC’s position as the leading thermal power Generation Company in India and establish a presence in hydropower segment.

To broad base the generation mix by evaluating conventional and non-conventional sources if energy to ensure long run competitiveness and mitigate fuel risks.

To develop a portfolio of generation assets in international markets. To establish a strong service brand in the domestic and international markets.

Customer focus

To foster a collaborative style of working with customers. Growing to be a preferred brand for supply if quality power.

To expand relationship with existing customers by offering a bouquet of services in addition to supply of power e.g., trading, energy consulting, distribution, consulting, management practices.

To ensure the future customer portfolio through profitable diversification into downstream businesses, inter alia retail distribution and direct supply.

To ensure rapid commercial decision making, using customer specific information, with adequate concern for the interests of the customer.

Agile Corporation

To ensure effectiveness in business decisions and responsiveness to changes in the business environment by:

-Adopting a portfolio approach to new business development.-Continuous and coordinated assessment of the business environment to identify and respond to opportunities and threats.

To develop a learning organization having knowledge based competitive edge in current and future businesses.

To effectively leverage information technology to ensure speedy decision-making across the organization.


Performance leadership

To continuously improve on project execution time and cost in order to sustain long run competitiveness in generation.

To operate & maintain NTPC stations at par with the best-run utilities in the world with respect to availability, reliability, efficiency, productivity and costs.

To effectively leverage information technology to drive process efficiencies. To aim for performance excellence in the diversification businesses. To embed quality in all systems and processes.


Completed projects

S.No Name of the project Capacity (MW)

Location (State)

Primary fuel

1 Singrauli 2000 Uttar Pradesh Coal

2 Korba 2100 Chhattisgarh Coal

3 Ramagundam 2100 Andhra Pradesh Coal

4 Farakka 1600 West Bengal Coal

5 Vindhyanchal-I 1260 Madhya Pradesh Coal

6 Rihand 1000 Uttar pradesh Coal

7 Talcher-I 1000 Orissa Coal

8 Kahalgaon 840 Bihar Coal

9 NCTPP, Dadri 840 Uttar pradesh Coal

10 Talcher (TRS) 460 Orissa Coal

11 Unchahar-I 420 Uttar pradesh Coal

12 Dadri Gas 817 Uttar pradesh Gas

13 Auriya 652 Uttar pradesh Gas

14 Jhanor-Gandhar 648 Gujarat Gas

15 Kawas 645 Gujarat Gas

16 Anta 413 Rajasthan Gas

17 Kayamkulam 350 Kerala Naphtha

18 Tanda 440 Uttar pradesh Coal

19 Vindhyanchal-II 1000 Madhya pradesh Coal

20 Unchahar-II 420 Uttar pradesh Coal

21 Faridabad 430 Haryana Gas

22 Simhadri - I 1000 Andhra pradesh Coal

23 Talcher-II 2000 Orissa Coal

24 Vindhyanchal III 1000 Madhya Pradesh Coal

25 Unchahar III 210 Uttar Pradesh coal


ONGOING PROJECTS

S.NO Name of projects Capacity By march 20007

2007-12

1 Kahalgaon-II,Phase-I & II

1500 500

2 Sipat-II 1000

3 Sipat-I 1980 1980

4 Barh 1980 1980

5 Korba-III 500 500

6 Bhilai Power Expansion (JV)

500 500

7 Koldam HEPP 800 800

8 Loharinag Pala HEPP 600 600

9 Farakka-III 500 500

10 NCTPP-II, Dadri 980 980

11 Simhadri 1000 1000

12 Tapovan Vishnugarh 520

Sub-total 11860 500 11360


NTPC offer consultancy services related to infrastructure sector business

1. Fossil fuel based thermal power generation2. Combined cycle power generation3. Cogeneration4. Non-conventional energy5. Water supply and treatment6. Environment engineering and management 7. Surface transport (roads, bridges, and fuel transportation)8. Town planning and development

An entire Gamut of services is offered, they are in various areas:

1. Owner’s Engineer services2. Lender’s Engineer services3. Environment Engineering and Management4. Procurement services5. Project services6. Quality assurance and Inspection services7. Materials Management 8. Construction Management, Erection and Commissioning9. Financial systems and modeling10. Operation and Maintenance11. Restoration, efficiency Improvement and Renovation and modernization12. HRD and Training 13. Research and development 14. Information Technology15. Management consultancy


FINANCIAL PERFORMANCE

The net worth of the company at the end of fiscal year 2006 was Rs. 449,587 million an increase of Rs. 31,824 million over the previous year mainly due to retained earnings. The gross revenue for the year 2005-06 were Rs. 287 billion and grew by more than 15% over the previous year. The reported profit after tax for the year was almost the same as in the previous year at Rs. 58 billion. However, on an adjusted basis the profits grew by almost 18%.

OPERATIONAL PERFORMANCE

With a total installed capacity of 24249 MW, NTPC during the year 2005-06 generated 170.88 Bus of electricity resulting in an increase pf 7.40% over the previous year’s generation. With 19.51% of total installed capacity in the country NTPC has contributed 27.68% of all India Thermal Generation.

STRATEGIES

While maintaining its thrust on getting maximum out of the existing capacities NTPC is also giving utmost priority to its future. The strategy is to increase its already substantial (nearly 20%) market share in the Indian power sector through rapid capacity expansion. NTPC is planning to be a 51 GW company by the year 2012 and 70 GW plus company by 2017. Currently NTPC LTD is a 26 GW company.

MULTI PRONGED GROWTH APPROACH

NTPC is adopting a multipronged strategy for capacity addition through green fields projects, expansion of existing stations, acquitions and takeover and joint ventures and subsidiary to accomplish its growth plans.

GROUP COMPANIES


SUBSIDIARIES

Name of the company Proportion of ownership interest (%)

NTPC Electric supply Ltd 100NTPC vidyut vyapar nigam Ltd 100Pipavav power development company Ltd 100NTPC Hydro Ltd 100Vaishali power Generating Company LTD 51% to 74%

JOINT VENTURE

NTPC has envisaged joint venture as growth engines for future, which will help NTPC in its foray into setting up of power plants and related areas like consulting, power trading etc. the short descriptions of existing JVs are as follows:

PTC India Ltd (8% share) The main objective of this JV formed by NTPC, power Grid corporation

of India ltd,.power finance ltd and NHPC includes trading of power, import/export of power and purchase of power from identified private power projects and sell it to SEBs/others

NTPC Tamil Nadu Energy Company Ltd- A 50:50 JV between Tamil Nadu Electricity board and NTPC was formed

to establish and operate a 1000 MW thermal power project in Tamil Nadu

Utility Powertech Ltd (UPL)- This 50:50 JV of NTPC and of NTPC and Reliance Energy takes up

projects in construction, erection and supervision of power sector and other sector in India and abroad.

NTPC-AISTOM power services private ltd (NASL)(50%)This JV between Alstom power generation AG, Germany and NTPC

undertakes project renovations and modernization of under performing power stations in India and abroad.

NTPC SAIL Power Co. Private Ltd (50% share)- This JV owns and operates the captive power plants of Durgapur and

Rourkela and Bhilai steel plants of SAIL.


Ratnagiri Gas and Power Private ltd(50%)- Ratnagiri Gas and Power Ltd has been formed as joint venture between

NTPC, GAIL, MSEB holding company Ltd. And Indian Financial Institutions with NTPC having a stake of 28.33% for taking over and operating erstwhile Dabhol Power Project. The company has invested Rs. 5000 million as equity.

PERFORMANCE BUDGETING

Performance budgeting presents the budget in terms of functions programme and co-relation the physical and financial aspects of the individual schemes in order to facilitate a better understanding and fuller review of the budgetary allocations and the department working. It provides a review of the relationship between the estimated input and expected output acts as a tool for management and serves as an instrument for evaluation of performance.

The success of budgeting process depends on the following essential elements:

Accurate forecasting of budgeting activities:Forecasting future activities is a pre-requisite for the success of a budget.

Co-ordinating business activities and communicating the budgeted plans to concerned parties:

There must be good coordination among various departments’ budgets. As a part of the co-ordination, proper communication of the individual budgets must be done. Managers responsible for the department’s functioning must be well aware of the budgeted activities.

Acceptance and cooperation:All concerned to ensure its proper implementation and success must

accept a budget.

Reasonable flexibility:The budget must have a certain degree of flexibility in order to adapt to

varying situations. It must be neither too rigid nor too flexible, as too much flexibility will weaken the cost control and he budget will become inoperative. Similarly too much rigidity in not permitting reasonable deviations will create problems and restrictions in the implementation of the budget.

OBJECTIVES OF PERFORMANCE BUDGETING


To prepare annual budget in such manner so as to facilitate managers of planning and target across each the hierarchy the periodical exercises for identification of physical targets in each respect of each contract or responsibility centers and matching the resources broken up accordingly into monthly targets or programme and cash flows.

To introduce and operate responsibility accounting by which managers are aware and the responsible for achievement of specified targets with the resources allocated for the purpose.

To co-ordinate all activities of the organization and gear up service deviations to meet effectively the requirement of the projects.

To bring about cost control mechanisms whereby the cost overruns and other contributory factors for deviations and cost escalations are contained and checked.

To bring coherence between physical progress and monetary outlay and to inculcate the culture of planning and target setting and phasing at the grass-root level.

To provide the basis for central plan allocation and budgetary support by GOI.

To provide a basis for assessing international assistance by international financing bodies, for financing of capital outlays.

To assess long-term requirement of funds and plan for application of the international resources and debt servicing.

SOURCE DOCUMENTS

The corporate plan and master network (L-1) schedules for the projects, which are finalized in conjunction with national plan, are the key factors for formulation of the budget and annual plan.

The L-2 network indicates the major areas constituting each work, the physical target and monthly phasing of schedules. The first step in the preparation of budgets is drawing up of L-2 networks or updating of L-2 networks for works within the timeframe of the master network schedules and should be drawn up by the field managers with due regard to firm contract schedules. The field managers are also responsible for drawing up the detailed budgets, indicting physical progress and monetary outlay, in the following manner:


A. ONGOING/ CONTINUING SCHEMES:

- Where contracts for worked have been awarded, the provision is to be based on L-2 networks or contracts schedules, the contracts value and terms of payment with due provision for known deviations and escalations.- Where contracts remain to be awarded, the provision is to be calculated from project schedules and latest available estimates of the contract value from the following documents whichever is latest:

1. Project estimates as sanctioned2. Tender estimates3. Bids received4. Evaluation report and pre-awarded negotiations.

B. NEW SCHEMES

In the case of the new schemes, yet to be approved by the Board, budget provision should be based on project estimates in the feasibility report. Schedules and payments terms for similar contracts for continuing schemes should also be taken in account.

SCOPE OF CAPITAL BUDGETING


Performance budget in NTPC covers a wide gamut of capital outlays, they as given below:

1.A Approved and on-going projectIt covers number of schemes incl. Green Fields for which Board has

extended the approval before the start of current five years plan (XIIth Plan)

Out of approved project, on same schemes the construction activities have been started after the earmark of fund for them.

1.B New but approved projectThese comprise the schemes, which are approved by Board during the

course of current financial year whose construction has also been started.

1.C New yet to approvedThese include projects for which the feasibility reports are under

preparation or prepared and yet to submitted to Board for their approval. These also include the projects for which BOD has given GO-GO sign u/Navaratna power to incur the fund required to carry out the survey and investigation, pending the preparation of the feasibility report.

2. Commissioned power scheme

All capital schemes for commissioned and existing power stations like construction, raising of ash dyke, installation of additional plant and systems, adding facilities township,, administrative office, environmental action plan schemes, and energy conservation schemes, ash utilization, balancing equipments etc.

3. Other capital addition works

These include the left out works though approved in FR/ subsequent approval stages but the execution of which may continue even after the commissioning of the units. They may be Ash Dyke raising, Ash handling plant, EAP or administrative building, part of township etc.

4. Power stations renovations and modernizations

Schemes for renovation and modernization undertaken for NTPC’s own stations as well as stations taken over by NTPC


5. MBOA

These include the assets, which are out of mainstream core activities power plant and most of them generally meant for the well being of employees, their comfortable working conditions and services to the society. These include a wide array of equipment such as office equipment, EDP equipments etc.

6. R & D budgets

Capital expenditure for establishments or construction of R&D laboratories and facilities thereto are normally financed from the plan outlay from S&I budget.

TYPES OF A BUDGET UNDER PERFORMANCE BUDGET IN NTPC

a. MBOA BUDGET

The following items are included in MBOA budget:1. All items of furniture, office equipments, hospital equipments, misc capital assets

of the township.2. Employees advances (net)

The MBOA budget also includes the provision for advance to employee. The details of employee advances budget and number of employees is to be given under actual and proposed RE and BE should be arrived after adjusting for recoveries proposed to be made i.e., the net outflow of the funds should actually be taken in the proposed RE and BE.Heads of department of Medical and EDP in corporate are requested to ensure approval of the site proposal in a time abound manner so that sites MBOA proposal will get approved as per schedule given above.It may be mentioned that in view of restrictions being imposed by CERC for return on the expenditure incurred under MBOA in the form if inclusion in tariff, all items of MBOA should be reviewed in detail at station and regional office before forwarding the same to corporate office. An MBOA budget proposal so sent by the station with all details as prescribed to ED of the region will be reviewed him. After that, the same will forwarded to the D(F), before availing the approval to the CMD.

b. OTHER CAPITAL ADDITION WORKS

The policy and procedures proposed for consideration, processing and approval of OCAW proposals is as follows:

DEFINITION:


The work under the above head shall include:

I. Works not covered in approved FR/RCE but arising due to policy decisions and site-specific requirements.

II. Left out works though approved as FR/ subsequent approval stages such as administrative building, part of township works etc. execution of which may continue after commissioning if units.

III. EAP and other related packages.

This is in addition to the packages budget to be submitted by those projects in the prescribed formats. Adequate care must be taken that no new items are included in the budget proposal except for:

i. New ash dyke & raising of ash dyke.ii. Payment of liabilities for remaining works.

iii. Provision for EAP schemes.iv. Capital addition v. Ash utilization

vi. Energy conservation

The provision in the budget proposal for items except (i & ii) should made only after technical/administrative approval of the items. And the status of remarks column if the proposal wherever proposals are not approved at the time of preparation of budget proposals but are likely to be approved in due course. Copies of the competent should be enclosed.

The expenditure on other capital addition works should be incurred within one years of the start of commercial operation of the last unit, to get back those costs in the form of tariff. Accordingly, after the commercial start of the project, shall have to be completed within the stipulated time period of One year. However, for expenditure related to construction of ash dyke works, a separate proposal is under approval.

c. R&M BUDGET

R&M scheme comprises of various works of renovation and modernization, up gradation of the plant/equipment in main plants and auxiliaries that have been rendered obsolete, unusable or are not as productive is as to sustain the expected production level. Additions to update those systems in which rate if obsolescence is fast, shall also be covered under R&M schemes.

Implementation of R&M schemes should result in any one or more of the followings:

i. Achievement of the targeted availability of units/stations.ii. Sustenance and improvements in generation.

iii. Saving the plant/equipment from obsolescence.


iv. Increased plant efficiency of land capacity up gradation if possible.v. Improvement in operational flexibility.

vi. Life extension of the equipment or plant.

These covers most of the power plants which are of more than 10 years old and have clocked 70000 operating hours, needs to be renovated and modernized so as to set aside the obsolescence and achieve more efficiency and life of the plant.

Schemes covered under this, should also be included in the capital budgets both in the annual plan as well as in the long term capital budget and they should be submitted to the board for their approval to the outlay as a part of annual plan.

d. R&D EXPENDITURE BUDGET

R&D capital expenditure may be of the following nature:i. Procurement of equipment/ laboratory instrument.

ii. Purchase/construction of land/building.iii. Procurement of furniture, fixtures and other office equipments for R&D wing

e. LONG TERM CAPITAL BUDGET

Long-term budget foundation lies with the approved project schedule by govt. of India. Long-term capital budget should be prepared with annual phasing in form No. IV by planning and systems as far as On-going projects are concerned.

In case of new projects, phasing should be done in form No. IV in concurrence with the phasing in feasibility report by the cost cell in the system engineering. The annual phasing for the budget period should correspond with RE and BE and projections for remaining years should be done keeping in view the project schedule and payment terms stipulated in con tracts.

Corporate budget should fill in forms indicating scheme wise requirements of fund and net internal generation or additional resources requirement of budgetary support based on data from O&M budget. The above exercise is done in the month of October every year at the time of compilation of annual plan.

BUDGET PERIOD AND QUARTERLY/MONTHLY PHASING OF BE AND RE


The budget period for annual budgets corresponds with the financial year. In the month of September/October every year, the budget is to be drawn up/compiled for the ensuing financial year in the form of budget estimates. At the same, the budget estimates earlier framed for the current year are reviewed thoroughly and updated in the form of revised estimates.

In addition, budget is to be reviewed on monthly and quarterly basis by PERTs in the light of actual expenditure and projections in the budget period. Budget estimates also indicate monthly phasing of expenditure and targets for the first half of the year and quarterly phasing for the second half of the year. At the time of review of BE to frame RE, the funds requirement for the balance period is broken up into monthly phasing.

While drawing up the annual budget in October every year, long-term capital budget for ongoing and new schemes is to be formulated as part of the exercises for the preparation of annual plan. The long-term capital budgets indicates annual phasing of capital expenditure and physical schedules, resources based network, internal generation and physical schedules, support required till the completion of each project.

UNITS OF MEASUREMENT

BUDGET –PHYSICAL PROGRESS MEASUREMENTITEMS PARTICULARS UNITS OF MEASUREMENTMechanical Items-TG-SG-ESP-CHP-Ash handling plant

CIVIL WORKS-Brick works-RCC-Plastering-Site leveling-Foundation-Painting-Door/window-Finishing work

------ON TONNAGE BASIS------

-Cum-Cum-Sq. Mt-Cum-Cum-Sq. Mt-Lump sum contract-% Of completion


MAIN HEADS OF PERFORMANCE BUDGET

Plan schemes of Govt of India- Direct capital outlay- Commissioning expenses- Construction materials- Technical consultancy- Training and recruitment cost- IEDC

Employee costOther establishments

- MBOA - Interest during construction- Working capital margin

1. DIRECT CAPITAL OUTLAY

It represents all cost directly identifiable with capital works and incl. the following:

- Cost of land- Infrastructure facilities- Civil/mechanical/electrical works- Township- MGR and constructional facilities.

2. COMMISSIONING EXPENSES

All direct expenses for running of individual units up to the date of commercial operation since the date of synchronization of units incl. Fuel cost, start up power, chemical and lubricants, consumption and anticipated sale of energy during the trial run are to be indicated.

3. CONSTRUCTION MATERIALS

Provision to be made for accretion/decretion of stock, construction materials such as structural steel,, reinforcement cement and other materials.

Escalation in respect of construction material is to be indicated in the DCO.

Consumption of materials cost be valued at budgeted cost for calculating accretion/ decretion of consumption stores.


4. TECHNICAL CONSULTANCY

Payment t technical identifiable with systems such as MGR, coal handling, C&I, prime consultants, retainer consultant are to be incl.under this head.

5. TRAINING AND RECRUITEMENT COST

Expenses for training of executive and non-executive and trainees incl. Stipends, faculty fees, course materials, TA for trainees rent for training hall and expenses on management development courses.

6. IEDC (incidental expenditure during construction)

-Employee’s cost: c.7.1

These comprise of salaries, DA incentives, wages, allowances, contribution to Pf and other welfare and expense such as LTC, medical reimbursement, canteen subsidy etc. the provision for arrears of salary should be shown separately.

-Other establishment expenses: c.8

Expenses incidental to construction and capital works not traceable directly to any capital activity are chargeable to incidental expenses during construction, RM for building, construction equipment, vehicle running expenses, office rent, LC charges, cost of drawing, traveling expenses, printing & stationary, communication expenses, advertisement for tenders are major items falling in this category.

All miscellaneous expenses remaining are to be shown under this head

7. MBOA (Misc. Bought Put Assets)

It covers expenses on – vehicles, furniture and fixtures, office/ other equipment, hospital and other medical equipment, cable T.V. equipment, canteen eqpt, township eqpt, fire fighting eqpt, EDP-PC/printer/LAN, communication eqpt, safety eqpt, substation eqpt, DG set, conference hall and project system.

8. Borrowings Cost


Interest on loans and bonds, upfront fee, agency commission, guarantee commission, commitment charges and any other charges and expenses payable towards raising of loans which are accrued and to be capitalized during the construction period has to be estimated and included in this budget.

9. WORKING CAPITAL MARGIN: C.11

Increase in working capital forms the base for calculating working capital margin component.

10. CAPITAL EXPENDTURE NOT REPRESENTED BY ASSETS:

It includes of construction of approach roads, canal lining, property belonging to the local community/ SEBs. These items should icl. U/ this budget heads in DCO and these should also be presented separately in the format for capital expenses not represented by assets.

The budget proposal for these be supported by specific approval from competent authority and write-up giving detailed justification.

BUDGET FORMATS

Standard budget formats are systematic preparation of budget and its meaningful analysis. It brings correlation between budgets prepared by different projects/ entities making its final consolidation a lot easier. Without the standard formats, uniformity in the presentation of the budget cannot be ensured and thereby causing distortions in consolidations of budgets at CC level. They are in different series:

S.NO FORMATSSERIES

DESCRIPTION OF FORMATS MEANT FOR:

1 A-series Budget summary of approved/new schemes & its financing pattern.

2 B-series Physical progress of main equipment and project milestone.3 C-series Yearly targets and cost estimates-system wise, budget head wise

and package wise.

4 D-series Monthly phasing of revised estimates(RE). 5 E-series Monthly and quarterly phasing of budget estimates (BE) targets

6 F-series Reconciliation of actual CAPEX with balance sheet.

S.NO FORMAT NO. DESCRIPTION


1 A-2 PROJECT BUDGET SUMMARY2 B-1 MILESTONE CHART3 B-4 PHYSICAL PROGRESS4 C-1.1 STAGE BUDGET SUMMARY5 C-1.2 SYSTEM WISE SUMMARY6 C-2.1 DCO-BUDGET HEAD SUMMARY7 C-2.2 PACKAGE SUMMARY SHEET-CIVIL WORKS8 C-2.3 PACKAGE SUMMARY SHEET-MECH AND ELEC9 C-3 PRE-COMMISSIONING EXPENSES10 C-4.1 CONSTRUCTION MATERIALS11 C-4.2 CONSTRUCTION MATERIAL–BUDGET HEAD WISE12 C-5 TECHNICAL CONSULTANCY13 C-6 TRAINING AND RECRUITEMENT 14 C-7.1 IEDC-EMPLOYEE COST15 C-7.2 MANPOWER BUDGET16 C-8 IEDC-OTHER ESTT COST17 C-9 MBOA18 C-11 WCM19 D-2 MONTHLY PHASING RE 20 E-2 MONTHLY PHASING RE

The above budget formats are most commonly used forms and are generally used by the almost every project/budget center without default.

RESPONSIBILITY CENTRES

The responsibility for utilization of budgets of respective rest with the head of divisions/ budget centers. In case of generation project budgets- even though contracts and expediting in the task force and corporate contracts are responsible for supply of equipment, GM’s of the project and ED of the region are equally responsible for the utilization pf their respect budgets. However, for monitoring purposes, responsibility is to be identifies for anticipated payments relating corporate center, task force and site separately.

In performance budget of various New and approved/ongoing/completed schemes, for each CAPEX the outlay, the allocation is done between the CC/projects based on payments made by contract awarding authorities.

FORMULATION AND APPROVAL OF CAPEX BUDGET


BUDGET COMMITTEE

The CAPEX budget of any project/ budget center runs through a series of meticulous analysis and consideration by different department before its finalization, of which the budget committee is the Apex decision-making authority. The budget committee of the project and corporate consist of various experts of different department who are responsible as per DOP of NTPC to finalize and adopt the budget proposals. Through this a transparency is bought in the budget making exercise.

PROJECT BUDGET COMMITTEE

The project budget committee consisting of finalizes budget proposals of the generation projects:

GM (project) chairmanManager (P&S) memberCEM member CMM memberCCM memberCFM/DGM memberIn charge budget secretary

Budget proposals of regional divisions are finalized by the chief (F&A) of the region in consultation with HODs.

CORPORATE BUDGET COMMITTEE

After finalization of budget proposals of generation projects and subsequently discussed in full strength by the ED of the Region, the same shall be sent to corporate division’s corporate contracts who will in turn will forward the same to after their remarks to corporate budget committee by latest 15th August of each year for final approval.

Budget proposals of regional divisions are finalized by the chief (F&A) of the region in consultation with HODs.

BUDGET CIRCULARS


Corporate budget issues budget circulars indicating the compliance aspects of methodology of preparation, formulation and approval of budget. The budget circulars are issued in line with the notification issued by the planning commission –in consultation with the department of expenditure and department of programme implementation. So in a way they are the month of management as well as government of India.

The budget circulars issued in month of May each year indicating an array of compliance aspects to be adhered by the budget centers/ project. Some of such list is given below:

- The time limit of submission of RE of the current year and BE for the next year and a mandating for strict adherences to budget formats.

- Reporting of shortfall and surplus in budget provisions.- Reporting of spill over/ variation/ actual expenditures- Reconciliation aspects.- Any revised budget formats.- Budget time schedules for completing the major activity.- Guidelines for overall budget formulation, etc.

APPROACH TO TARGET SETTINGSBASIS OF ESTIMATION

FORMULATION AND APPROVAL OF CAPEX BUDGET

One of the objectives of this system is to involve managers at various levels in the process of developing performance budget to introduce the concept of responsibility

accounting and participative management. Accordingly, the grass root approach has been adopted for formulation of performance CAPEX budget.

The scheme for formulation of budget by responsibility center for project budget is illustrated in the flow chart no.1 and for establishment expenses budget in flow chart no. 2. the time table for submission of budget data/ final budget proposal for each responsibility center/ department, formats to be adopted and flow of data are illustrated in annexure-IV. The salient features of the budget exercise are as under:

INITIAL EXERCISE


1. Site finance of all the projects will furnish budget head wise actual expenditure up to the end of previous year reconciled with the balance sheet in format No. F-6 and actual expenditure up to the end of June of the current year in Format No. F-1 to the concerned agencies responsible for formulation of budgets.

2. This being the starting point for formulation of budget, site finance of all projects office, regional finance and the corporate budget should ensure that above information reaches concerned agencies by 15th July.

3. DGM (CS), corporate center and CTFs will furnish data regarding initial/ mobilization advances, equipment supply and other payment against “A” contracts and payments against technical consultancy format No. C-2 & 5, D-2& 5 and E-2& 5 to regional finance and account by 10 th August. Regional finance and accounts in consolidation with regional P&S will review and consolidate the above information and forward the same to GMs of the projects by 15th August.

4. The training and recruitment budgets are to be drawn by HR and Admin. Departments.

5. Head of Department are responsible for control and co-ordination of Capex budget of contact coordinators within the department and also for preparation of budget establishment’s expenses within their control.

6. All department budgets should be forwarded to budget coordinators identifies by GMs/ HODs for each division by 15th August- mostly the finance and accounts acts as budget coordinator.

7. The budget coordinator of each division should prepare the total divisional budget and forward the same with the approval of GM/ HOD to the secretary of the concerned budget committee- project budget in case of project, regional finance in the case of regional HQ and corporate budget in the cases of corporate divisions.

BUDGET MEETING

After receipt of approved project budgets by the corporate budget, the same is scrutinized to check every possibility of its veracity. After the same, the budget meeting is organized with the participation of project budget representatives, corporate monitoring group and corporate planning department. Corporate budget group supervises the budget meeting and the head of corporate budget is secretary of the meeting.

In the meeting every outlay proposal is discussed in its length and breadth. How much BE is to kept for the Next ear and RE estimation and physical progress etc, are discussed to sort out the proposed outlay wherever possible. The business of this meeting is recorded on the minute book and signed by all the members of


meeting. The outcome of the meeting is finally incorporated in the BE/RE provision.

ANNUAL EXPENDITURE REPORT

In addition to the monthly expenditure report furnished by finance to concerned agencies, cumulative expenditure up to 31st March of every year based on audited balance sheet also needs to be compiled for all divisions/ projects for which the budgets are formulated.

In case the audited balance sheet is not available the information may be compiled based on the provisional balance sheet. In such cases, changes, if any should be communicated subsequently based on audited balance sheet. The budgets head given in Annexure-I for DCO. And for other expenditure, the report is to be prepared for each of the items mentioned in respective budgets. F&A department at project/ regional/ CC will prepare the report.

This report so compiled will be sent to the followings:

General manager (project)All HODs at projectRegional financeRegional P&S department CTFCorporate contractsCost Engg. Cell in CC

For regional establishments expenses, the report will be compiled by regional finance and forwarded to all divisional heads in the region and corporate budgets.

Similarly, in case of CC expenses, the actual expenditure report will be compiled by corporate accounts and forwarded the same to all divisional/ project head in addition to corporate budget.

Since the actual expenditure up to the end of previous year is the starting point for formulation of revised estimates and budget estimates, it must be ensured that this report (i.e. actual expenditure) reaches the concerned departments latest by 15 th

July in form No. F-6

REVIEW AND MONITORING OF PERFORMANCE BUDGETS

For success of any task, the role of review and monitoring is quite vital. The same can be equally being applied to the performance budget of NTPC. NTPC has evolved a comprehensive model to review the performance if project


budget. The budget is reviewed inline with its BE outlay and RE as compared to the actual expenditure on quarterly and monthly basis.

A. MONTHLY AND QUARTERLY REVIEW OF CAPITAL BUDGET

a. Monthly review of project budgets

Project budget report the actual expenditure against budgets heads on form No. F-1.1 to 1.4 every month to the following:

I. In case of Generation of project- GM (project)- Project planning and systems- Regional finance- CTF- Corporate budget - Corporate contracts

The respective project review teams examine the monthly budget review. The reasons for major variations (in case of each budget head exceeding 10% of BE/RE or Rs. 10 lacs, which ever is lower) are analyzed indicating the responsibility for corporate center, task force and site and recorded in the minutes of respective review team meeting. The scheme for monthly review of projects budgets is given in flow chart No.3.

In addition to the budget review, the project finance also furnish actual purchase of construction materials vi., steel, cement and other stores in form No. F-1.9 as compared to the budget for year. The status of purchase as well as outstanding advances against procurement of materials will also be reviewed as part of the monthly review of project budget in respective PRT meetings.

The procedures for monthly review is illustrated in flow-chart No. III.

B. QUARTERLY REVIEW OF PROJECT BUDGETS:

The budget should a be reviewed quarterly with a view to projecting anticipated expenditure during the year against approved BE/RE. As time is essence of such review. Only a quick estimate of anticipated expenditure for individual projects heads involving provisions exceeding Rs. 50 lacs in each case should be made. For this purpose the contract coordinators in the task force and project level will estimate anticipated expenditure up to end of the previous quarter reported by the project budget, based on the information furnished by concerned contract coordinators, project budget will compile predicted budget


utilization in form No. F-2.2. This report should be sent by 20 th of April, July, and January.

The predicted budget utilization should also be discussed in the respective PRT meetings and final assessment indicating broad reasons for variations since the previous review should be recorded in the minutes. The method for quarterly review of project budget is indicated in flow chart No. 4 and establishments budget in flow chart No.5.

JOINT VENTURE AND BUDGET PROVISION FOR JV

Till the date NTPC has successfully entered with many companies in both private sector and government sectors, to bring synergy in many areas such as business of construction, erection and supervision of power projects, business of R & M works, for managing the captive power plants.

As such till date we have yet to finalize areas where NTPC can JV to bring synergy in its deficient areas such distribution, transmission, bulk consumers, fuel suppliers. In the absence, a clear-cur guidelines for JV modalities and objectives we may not realize the true gain of JV synergy.

Now Capex funding for JV projects are well guided by the JV’s agreement criteria. Each area where NTPC has to invest is clearly demarcated in JV agreement and accordingly the same where are properly shared and NTPC’s share is accordingly identified and funded through annual budget outlay. Such funds are slowing from the internal resources o9f the company.

Annual budget provision for the JV follows the following steps:


1. First, the JV Company as distinct entity identifies the areas where the constructional activities are required.

2. Secondly, reporting such expenditure to parent companies.

3. Thirdly, the parent companies assess the veracity of such requirement, check the justification of such expenditure, and need to incur them.

4. Fourthly, the conditionality(s) of JV is corroborated to with the actual requirement to find out how such requirement can be met.

5. Then proper sharing formula put into to find out NTPC’s share and accordingly the same is funded through annual budget provision.

OVERVIEW OF ANNUAL PLAN OF NTPC

The Ministry of power to the planning commission every year along with its own recommendation and that of CEA submit the annual plan of the central projects for the sector. In light of these recommendations, the planning commission conducts a detailed examination of proposals of respective projects and thereby allocates funds for the ensuing financial year.

Annual plan compiled by the corporate budget is put in IEBR statement that is submitted to planning commission government of India every year.

In accordance with the guidelines issued by planning commission, the annual plan for ensuing year is to be prepared in the prescribed formats and submitted by 15 th October every year. Sets of specimen forms are provided for this purpose. The programme for compilation pf annual plan is given below. The programme also indicates the departments responsible for compilation of annual as well as target dates for submission of the relevant information to corporate budgets who will consolidate the same and forward it to various Govt. agencies.

The annual plan of the company is divided into four volume are given below:Volume I - overall proposals of annual plan NTPC as wholeVolume II - consolidated budget proposals project/sch wiseVolume III - physical progress tracking data of project activityVolume IV - financial outlay in VII and VIII plan

Volume I

A. CONSTRUCTION ACTIVITITIES


It contains the overall proposal of financial outlay for NTPC as whole. The overall proposal covers the followings:

1. Brief write up about NTPC.

2. Power programme- outlay and expenditure and expenditure (form-PR I)PR-I contains the followings:- Annexure I – commissioning schedule of generation projects- Annexure II – IXth plan programme outlay summary

-Annexure III -- state wise central sector outlay

3. Phasing of benefits from the Generation projects in terms of MW –PTII

4. External assistance for aided projects – PR IXIt provides the external assistance component and its magnitude in the form of external assistance route through budget, flow of ECBs-indicating its deployment for various projects and the ECBs stage of funding – committed or uncommitted. Details given in the statement – PR IX gives the detail of an agreement – organization name, amount of aid, credit no, terminal date of assistance etc.

5. Financing of the projects- central sector plan expenditure – PR X- Through internal resources (retained earning plus dep)- Loan from Govt. of India.- Domestic borrowing in the form of loans from Fis and Bond- External commercial borrowing- Syndicated loan – ECA and Euro bonds- Budgetary support from Govt. of India

B. FINANCIAL AND INTERNAL RESOURCES DATA

- Estimation of internal and external budgetary resources IEBR for annual plan- IEBR statement- II

IEBR statement projects the funding capability of the company taking into account the retained surplus of the company, net inflow of loans/ IAC, budgetary support from Government for plan schemes.

- IR financing of plan outlay (Annexure-II)

it basically, gives the financial statistics of last 5 years indicating the movement of Gross Internal resources Generation, accretion to working capital, net internal resources and extra budgetary support for all those five financial years. The purpose of this statement is to calculate the proposed budgetary support to fill up the gap found in the above resources to go ahead with the construction activities.


- Contribution of NTPC- profoma I

in this Performa, the details regarding receipts and expenditure and revenue and capital account.

- Cost of Generation projects- Proforma II

it shows actual expenditures, BE, RE, BE(next year) for installed capacity (MW terms), energy generation (MU), PLF, expenditure on employee and the cost of Generation.

- Details of energy sales/ revenue in Proforma III, indicating the category of users/ customers in actual, BE, RE, BE (NY) budget estimates.

- Rate of return –Proforma IV

it is a statement showing the rate of return on net fixed assets employed at the beginning of the year as required under the latest section 59 if electricity (supply) Act 1948.

- Revenue arrears- Proforma V

It shows the SEB wise revenue arrears-O/S including its surcharge for the late payments.

C. PHYSICAL ASPECTS

Under this the physical progress of various construction activities is shown indicating the major Milestone achieved and also the time schedule of construction activities to undertake in the future.

VOLUME II

In the volume II the BE estimates of the current year along with its corresponding RE figure and the actual expenditure for each project wise-whether it is on-going schemes or R & M or new project or other capital Misc. schemes.

VOLUME III

It is specifically meant for the physical schedule of different construction activities and other project activities. It details up the activities in month wise manner. The information given under this volume is quite helpful to now the status quo of different activities very minutely. It is as per scheduling of Master Network diagram along with its comparison with actual position.


VOLUME IV

This volume shows the budget outlay for the completed schemes, which were completed in seventh and eighth plan period but on which still some expenditure, are incurred as capital outlay.

ANNUAL BUDGET OF GOVT. OF INDIA

The Indian constitution requires the govt to present the parliament a statement that shows separately the expected revenues and expenditure, both current and capital by heads of account.

Budget making motion start by third quarter.

On the expenditure side initial estimates are provided various ministries. There are two component of expenditure-plan and non-plan expenditure. Each ministry concerned submits their finance ministry who in turn refer to the high level authority- the planning commission.

The consolidated budget of NTPC is summarized in the form of annual plan is submitted to power Ministry for its approval. The government support for each year to the power sector is provisioned in the annual budget for all central sectors PSU and state Govt. control utilities in the form of grants. The Govt. therein allocates the resources either in the form of planned and non-planned expenditure to each ministry after proper justification of asked capital expenditure.46 p

CONSOLIDATION OF PROJECT BUDGETS

In accordance with the guidelines issued by planning commission, the annual plan for October 15 every year. A set of specimen forms is provided for this purpose. The programme for compilation of annual plan is given below. The programme also indicates the departments responsible for compilation of annual as well as targets dates for submission of the relevant information to corporate budgets who will consolidate the same and forward it to various Govt.agencies.

Formats Description Responsibility

Annexure I Physical achievements Corporate planning

Annexure II Corporate budget Corporate budget

Annexure III Financial outlays Corporate budget

Annexure IV Scheme-wise outlays Corporate budget


Annexure VI Employment directly generated or expected

Corp. personnel and admin.

Annexure VI S&T component R&D /CC

Form PR-I Outlays and expenditure abstracts Corporate budget

Form PR-II Phasing of benefits from generation projects

Corporate planning and monitoring

Form PR-III Master Control Network Corporate planning and monitoring

Form PR-IV Bar/ Mile stone chart (complete details)

Regional P&S

Form PR-XII Investigation and surveys of New project sites

Corporate budget

Form PR-XIII Manpower planning and requirement

Corporate P&A

Annexure VIII and IX

20 points programme Regional finance

The following points may be kept in view while filling in data for annual plan:

1 The programme and targets are to be based on completion dates indicated by the Govt. Of India in the administrative sanction for on-going projects and target dates indicated in the feasibility reports for new schemes. The network, the resources based network and the approved project schedules or schedule indicated in the feasibility reports. Unit-wise data of physical targets and milestones are to be furnished in the case of boiler and turbo-generator both in the master network and resources based network.

2 The annual plan proposal is to be based on the budget estimates, which are finalized during the last week of September. As soon as the budgets are finalized, regional finance will provide copies of budgets as approved by corporate budget committee to regional planning and systems to enable the later to complete the fund requirement and activity chart for the remaining period of the project in statement PR-IV.

3. The master control network is to be prepared by corporate planning and monitoring department and forward the same to regional finance, regional P&S and corporate budgets. The master control; network is to be prepared for each of the units for generation projects.

4. In the forms PR-IV and PR-V, the current estimates to be indicated for the project will be as per performance budget (form No. C-2.1). in cases where this information is not, available (new approved scheme) estimates form the latest available feasibility report/ detailed report/ revised cost estimates should be adopted which will be forwarded by cost engineering cell in the corporate center to regional finance. The information


should also include reasons for variations between the current estimates as adopted in the annual plan and latest approved cost estimates under the following heads.

a. Domestic price inflationb. Inflation for the items imported c. Exchange rate variation of supply of capital goodsd. ERV of the loan from international agenciese. Change in the scope of workf. Other reasons

5. The work head to be indicated in the PERT networks, resources based network and cost estimates should coincide with the budget heads so that a comparison could be effected between the project outlay, actual expenditure, budget provision and phasing of funds against each work head. This requirement may be considered very important as the planning commission every year is insisting this upon.

METHODOLOGY

“This project has been prepared to with limited access to records and related documents relating to the performance Budget of NTPC. The contents of this report are fully pf academic pursuits. With limited access to Annual plan, project budget proposal and budget Manual of NTPC. Certain financial analysis has been done which should not be construed as nay-authentic fact.


The budget annual has been referred in most of the cases. The annual report of 2006-2007 has been taken into consideration. Certain soft copy of budget database has been somewhere in this project report with the prior permission of concerned authority.”


Aditi Project

Documents

Transcript of Aditi Project