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    • 1. FINANCIAL MANAGEMENT IN POWER PROJECTS OF KARNATAKA: A Case Study of KARNATAKA POWER CORPORATION LTD (KPCL) Dr. TANAJI G. RATHOD, M.Com, MBA-Finance, PhD., Manager (Finance & Accounts) KSIIDC, Bangalore Email : tanajirathod@gmail.com Dr R Hiremani Naik, M.Com, PhD., Reader & Chairman , MBA Dept, Institute of Management Studies, Kuvempu University, SHIMOGA
    • 2. FRAMEWORK FOR ANALYSIS
        • Overview of Power Sector,
        • Objectives,
        • Analysis of Case Study,
        • Summary of Findings and
        • Suggestions.
    • 3. RESEARCH OBJECTIVES
      • To Review the Power Generation Sector In Karnataka,
      • To analyze existing Financial Management in KPCL,
      • To Identify the Hurdles in Operational & Financial Performance of KPCL,
      • To Assess the efficiency of Financing & Investment Decisions in KPCL,
      • To Suggest the Ways and Means for improving the Operational and Financial performance of KPCL.
    • 4. RESEARCH GAP
        • The previous research study revealed that most of the power generation utilities in India are not practicing prudent Financing and Investment Decisions in convergent with Global Standards [ IFRS, GAAPs, ECBs, Derivatives, Access to Capital Market and New Technology etc., ]
        • No Such Study has been conducted in Karnataka on Financing and Investment Decisions of Power Generation Projects.
        • Therefore the present study entitled “ ANALYSIS OF FINANCING AND INVESTMENT PRACTICES IN KPCL ” is undertaken.
    • 5. RESEARCH FRAMEWORK
      • Annual Reports
      KPCL Interview Questionnaire Inter-Firm Comparisons
    • 6. RESEARCH METHODOLOGY
      • PRIMARY DATA
      • Structured Questionnaire (19)
      • Field Study at Power Plants in Karnataka
      • Interviews with Senior Officers of KPCL
      • Interview with Industry Experts
      • SECONDARY DATA
      • Annual Reports of KPCL
      • ( for 5 FY 2002-2007)
      • Inter-Firm Comparison Study (5)
      • PhD Thesis (14)
      • Reports and Proceedings of KERC, CERC,CEA, KPTCL, ESCOMs, MoP, GoI, Energy Dept of GoK, CMIE, (49)
      • Journals & Magazines (36)
      • Official websites (14),
      • Books (72),
      • Newspaper clippings (23).
    • 7. TOOLS FOR STATISTICAL ANALYSIS
      • Operational Parameters of Power Plants
      • Annual Reports for Five Years(2002-2007)
        • Balance Sheets,
        • Profit & Loss Accounts,
        • Cash Flow Statements,
      • Financial Ratios on,
        • Liquidity, Leverage, Profitability & EVA
      • Time Series Analysis
      • Trend Analysis
      • Results of Questionnaire
      • Field Survey & Interview with industry experts
    • 8. G D C G G T D C G D C G D C G G D T D C C BUSINESS MODELS IN POWER SECTOR Generator Wholesaler / Distri.Co / Customer Aggregator Retailer T Model - 4 Model - 1 Model - 2 Model - 3
    • 9. INDUSTRY STRUCTURE – MOVEMENT IN OWNERSHIP MATRIX 1991 1994 Ownership Model -1 Model -2 Model -3 Model -4 Government Ownership India NZ Public Corporation UK NZ Private Corporation USA 1978 1992 1990-98
    • 10. INSTALLED CAPACITY & GENERATION As on 31.3.2009 Source: CEA Annual Report- FY 2006-07 59% KPCL Share 56% KPCL Share REGION MW MU INDIA 1,47,965 7,17,657 KARNATAKA 9,346 45,000 KPCL 5,509 25,080
    • 11. INSTALLED CAPACITY OF KARNATAKA ( As on 31.03.2009) (IN MW) Source: Annual Reports of KPCL, KERC,CEA 5509 MW of KPCL @ 59% SECTOR TYPE HYDRO THERMAL NUCLR RES TOTAL % age State 3518 2098 0 452 6068 65.14 Private 0 586 0 1428 2014 21.55 Central 0 1073 191 0 1264 13.52 Total - 3518 3757 191 1880 9346 100.00 %age 37.64 40.20 2.04 20.12 100.00
    • 12. *Bidadi Power Project is yet to take-off
    • 13. PEAK DEMAND & SUPPLY GAP OF KARNATAKA Source: Load Dispatch Canter of Karnataka/www.cea.org -7 -442 5811 6253 2006-07 -15 -1016 5567 6583 2007-08 -5 -329 6548 6877 2008-09 F Y PEAK DEMAND (MW) PEAK MET(MW) DEFICIT (MW) (-) %AGE 2001-02 5587 5168 -419 -8 2002-03 5628 5219 -409 -7 2003-04 6213 5445 -768 -12 2004-05 5927 5612 -315 -5 2005-06 5949 5558 -391 -7
    • 14. ENERGY DEMAND & SUPPLY OF KARNATAKA Source: www.cea.org -2 -849 39948 40797 2006-07 -3 -1089 39282 40371 2007-08 -6 -2591 40700 43291 2008-09 F Y ENERGY DEMAND (MU) ENERGY MET(MU) DEFICIT (MU) (-) %AGE 2001-02 34385 28863 -5522 -16 2002-03 35129 29365 -5764 -16 2003-04 36153 31145 -5008 -14 2004-05 35156 33687 -1469 -4 2005-06 34601 34349 -252 -1
    • 15. PEAK & ENERGY SUPPLY OF KARNATAKA
    • 16. OPERATIONAL PERFORMANCE OF KPCL Source: Annual Reports of KPCL FY 2002-07 PARAMETERS 2002-03 2003-04 2004-05 2005-06 2006-07 Installed Capacity (MW) 4350 4351 4641 4641 4995 Electricity Gen (MU) 17138 18426 18993 19889 26635 (Thermal) 10292 11393 10730 9165 11483 (Hydel + Wind) 6835 7033 8260 10724 15152 Thermal Aux.Consump (%) 8.47 8.50 8.68 8.63 8.22 Plant Load Factor (%) 90.39 88.23 83.33 71.17 89.17 Ash Utilized (%) 35 35 60 65 80 Hydro. Aux..Consump (%) 1.28 1.68 1.54 1.56 1.62 Hydro. PLF(%) 85.80 90.05 94.79 95.60 94.43 Man / MW Ratio 1.62:1 1.59:1 1.39:1 1.39:1 1.35:1 Total Employees 7057 6961 6453 6437 6737
    • 17. FINANCIAL PERFORMANCE ( BALANCE SHEETS) OF KPCL Rs. in Cr. PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07 SOURCE OF FUNDS - (a) 4823.47 5429.80 6300.93 7255.39 7980.87 Paid-Up Capital 662.98 662.98 662.98 662.98 662.98 Reserves & Surplus 1315.22 1375.48 1599.81 1836.27 2262.37 Total Loan Funds 2845.27 3391.34 4038.14 4756.14 5055.52 APPLICATION OF FUNDS - (b) 4823.47 5429.80 6300.93 7255.39 7980.87 Gross Fixed Assets 4804.23 5488.93 5826.97 6053.60 6507.56 Less: Depreciation -1857.98 -2144.61 -2410.46 -2668.92 -3166.29 Net Fixed Assets 2946.25 3344.31 3416.51 3384.68 3338.49 Capital W-I-P 688.85 433.50 629.70 1098.88 2151.50 Total Fixed Assets 3635.10 3777.81 4046.21 4483.56 5489.99 Inventories 193.90 159.63 207.45 270.06 240.28 Sundry Debtors 1050.87 1557.38 2104.64 2534.24 2596.12 Cash & Bank balances 203.35 91.88 105.40 90.13 248.68 Less: Current Liab & Prov. -521.21 -444.69 -536.97 -373.97 -909.20 Net Current Assets 1146.07 1616.32 2199.01 2739.00 2472.70
    • 18. OPERATING PERFORMANCE (P&L A/C) OF KPCL (Rs. In Cr) PARTICULARS FY 2002-03 2003-04 2004-05 2005-06 2006-07 Sale of Energy 2094.25 2438.22 2483.18 2520.67 3433.82 Other Income 69.79 58.46 133.86 148.89 316.55 TOTAL TURNOVER 2164.04 2496.68 2617.04 2669.56 3750.37 Fuel & Chemical Expenses 1090.26 1260.16 1415.32 1334.32 1789.75 Administrative Expenses 353.28 397.12 373.74 335.70 905.49 Financial Charges 226.77 273.48 246.20 349.65 383.28 Depreciation 213.26 260.80 267.41 265.55 244.66 Misc. Expenses 32.55 35.92 46.81 39.78 56.13 TOTAL EXPENDITURE 1916.12 2227.48 2349.59 2325.00 3379.31 Profit After Tax (PAT) 240.69 223.23 239.46 251.58 322.32 Transferred to Reserves 232.08 214.29 224.50 236.46 304.93 Dividend Paid 14.95 14.95 14.95 15.12 17.39 Total PAT : 240.69 223.23 239.46 251.58 322.32
    • 19. CASH FLOW STATEMENTS OF KPCL ( Rs. In. Cr.) PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07 Operating Profit before Working Capital Changes 623.78 753.35 662.16 947.12 1003.55 Operating Profit After Working Capital Changes 825.46 171.61 93.03 403.61 1443.20 Net Cash Flow from Operating Activities = (A) 564.81 -156.16 -215.92 376.59 1344.04 Net Cash Flow from Investment Activities = (B) -190.55 -338.81 -401.35 -690.00 -1063.06 Net Cash Flow from Financing Activities = ( C ) -440.73 383.50 630.83 298.12 -127.99 Net Changes in Cash and Cash Equivalents = (A+B+C) -66.47 -111.47 13.56 -15.29 152.99 Closing Cash and Cash Equivalents 179.71 91.88 105.43 95.67 248.68
    • 20. FINANCIAL RATIOS OF KPCL PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07 LIQUIDITY RATIO Current Ratio 3.19 4.63 5.09 8.32 3.72 Acid-test Ratio 2.82 4.27 4.71 7.60 3.46 Working Capital Turnover Ratio 0.28 0.33 0.39 0.45 0.43 LEVERAGE RATIO Debt-Equity Ratio 1.44 1.43 1.72 1.82 1.66 Debt assets Ratio 0.81 0.83 0.85 0.87 0.88 Interest Coverage Ratio 2.09 1.98 2.08 1.99 1.97 Debt Service Coverage Ratio 1.03 2.44 2.61 2.19 2.20 TURNOVER RATIO Inventory Turnover Ratio 5.76 7.13 7.71 5.59 7.01 Debtors Turnover Ratio 1.99 1.57 1.35 0.99 1.32 Average Collection Period (Days) 183 233 309 367 276 Fixed Assets Turnover Ratio 0.81 0.53 0.49 0.49 0.68 Total Assets Turnover Ratio 0.28 0.32 0.29 0.25 0.31
    • 21. FINANCIAL RATIOS OF KPCL PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07 PROFITABILITY RATIO Gross Profit Margin Ratio (%) 51.27 50.71 48.39 52.97 57.10 Net Profit Margin Ratio (%) 22.67 22.26 20.69 27.54 21.97 Admin & Other Exp Ratio (%) 16.85 16.27 15.04 13.31 26.36 Financial Charges Ratio (%) 10.83 11.22 9.91 13.87 11.16 Return On Assets (%) 3.25 2.96 2.79 2.53 2.87 Earning Power (%) 4.99 4.11 3.80 3.47 4.04 Return on Capital Employed (%) 12.17 10.95 10.58 10.07 11.02 Dividend (%) 2 2 2 2 2.24 Dividend Payout Ratio (%) 5.51 5.95 5.54 5.27 4.61 Earning Per Share (EPS) Rs. 363.04 336.71 361.19 379.47 486.17 Face Value of Share (Rs.) 1000 1000 1000 1000 1000 Dividend Per Share (Rs.) 20 20 20 20 22.42 Book Value Per Share (Rs.) 2983.79 3074.69 3413.05 3769.71 4412.42 Economic Value Added (Rs.) -91.65 -177.65 -121.99 -255.87 -255.98
    • 22. INTER-FIRM COMPARISON STUDY OF BALANCE SHEETS AS ON 31.3.2005 (Rs. in Cr) Source: Annual Reports of Co. for - FY 2004-05 PARTICULARS KPCL APGEN CO NTPC NHPC REL TATA POWER Source of Funds 2262.79 2106.80 42113.70 13797.10 6339.89 5136.47 Loan funds 3889.51 9952.86 17087.80 7021.80 3738.67 2860.01 TOTAL : ( A) 6300.93 12059.66 59201.60 22194.71 10361.22 8007.80 Fixed Assets 4046.21 9502.27 3224.30 18364.52 2912.31 3246.66 Net Current Assets 2199.00 1288.63 6160.60 59.58 6752.69 1235.51 TOTAL : (B) 6300.93 12059.66 59201.60 22194.71 10361.22 8007.80 Installed Capacity (MW) 4640 6555 23435 2449 941 2203 Generation (MU) 18993 28720 158271 111286 5977 13283
    • 23. INTER-FIRM COMPARISON STUDY OF PROFIT & LOSS ACCOUNTS AS ON 31.3.2005 (Rs. in Cr) PARTICULARS KPCL APGEN CO NTPC NHPC REL TATA POWER Total Income 2617.04 4293.01 25546.00 1845.94 4592.55 4317.57 Total Expenditure 2349.59 4207.42 19478.00 1068.41 4022.91 3558.78 Profit After Tax (PAT) 239.46 51.63 5807.00 684.58 520.14 551.36 Dividend Paid 14.96 0 2247.00 159.21 99.10 169.90 Transferred to Reserves 224.50 0 3537.30 159.21 425.32 150.00 Transferred to B/S 0 51.63 81.20 2369.02 200.31 235.19 TOTAL PAT 239.46 51.63 5865.50 2528.23 625.63 555.09
    • 24. COST PER UNIT OF INTER-FIRMS Source: Annual Reports PARTICULARS KPCL APGEN CO NTPC NHPC REL TATA POWER Sales per KWh (Rs.Ps) 1.38 1.49 1.61 1.64 7.68 3.25 Cost of Generation (Rs.Ps) 1.24 1.46 1.23 0.95 6.73 2.68 Margin of profit (Ps.) 0.14 0.03 0.38 0.69 0.95 0.57 Man/MW Ratio 1.39:1 1.68:1 0.91:1 5.50:1 1.17:1 1.36:1 PRICE PER UNITS OF KPCL 2002-03 2003-04 2004-05 2005-06 2006-07 Gross Sale per KWh ( Rs.ps) 1.26 1.35 1.38 1.34 1.41 Cost of Generation (Rs.Ps) 1.12 1.21 1.24 1.17 1.27 Gross margin (Ps.) 0.14 0.15 0.14 0.17 0.14
    • 25. PRICE MOVEMENT IN INTER-FIRMS FY 2004-05
    • 26. FINANCIAL RATIO OF INTER-FIRMS For FY 2004-05 6.93 6.04 11.39 9.91 -1.69 3.80 R O C E (%) PARTICULARS KPCL APGEN CO NTPC NHPC REL TATA POWER Debt Equity Ratio 1.72:1 4.72:1 0.41:1 0.51:1 0.65:1 0.63:1 Face Value Per Share (Rs) 1000 100 10 1000 10 10 Book Value Per Share (Rs) 3413 100 51 1464 342 260 Earning Per Share (Rs.) 361.19 2.42 7.04 72.57 28.02 27.84 Return On Equity (%) 10.58 2.42 13.90 4.96 8.20 10.73 Dividend Per Share (Rs) 20.00 0 2.40 14.85 4.69 7.48 Dividend Payout Ratio(%) 5.54 0 34.08 20.47 16.73 26.86 Performance Ratings V VI II IV III I
    • 27. RESPONDENTS FOR QUESTIONNAIRE Source: Questionnaire based Survey and Findings TECHNICAL No. NON-TECHNICAL No. TOTAL Director – Technical Executive Directors Chief Engineers Superintendents Engineers Executive Engineers Assistant Executive Engineers Assistant Engineers Junior Engineers 1 1 3 8 25 20 23 14 Director – HR / Finance Executive Directors General Managers Deputy General Managers Assistant General Managers Accounts Officers Assistant Accounts Officers Junior Officers (HR, A/cs, Adm.) 1 1 3 8 20 36 25 11 2 2 6 16 45 56 48 25 TOTAL : 95 TOTAL : 105 200 Sample Size : 9% Response Rate : 100% Total Officers – 2301 Total Workers – 3936 6237
    • 28. SUMMERY OF FINDINGS - i
      • I. OPERATIONAL ASPECTS;
      • Moderate Utilization of Thermal Power Plants (PLF)
      • Use of Un-washed coal (not imported coal)
      • R,M & U Programm not in all old Plants(15 to 20 Years Old)
      • Not implemented IT Tools at all Power Plants and Site offices
      • Only Demo Wind Mills and manage O & M effectively
      • To put up at least 500 MW Power Plants annually to meet demand
      • ( Appx Rs.2000 Cr need of funds)
      • Fixed Assets to be utilized more productively
      • To dispose-off old scraps
      • To increase productivity of HR
      • To be focused on R & D
      • Continued …
    • 29. SUMMERY OF FINDINGS - ii
      • II. ON FINANCIAL ASPECTS;
      • It is depended upon Govt. for Equity Funds and for other supports
      • More focus to initiate Swapping of Debt Funds with Low cost
      • To maintain Debenture Redemption Reserves ( u/s 117C of Co. Act)
      • More Capital W-I-P in existence
      • Lack of concentration to utilize Current assets (Inventories) effectively
      • Huge amount of Sundry Debtors (ESCOMs/KPTCL)
      • Longer Average Collection Period (276-367 days)
      • To Implement a Separate Cost Control Programme
      • Continued …
    • 30. SUMMERY OF FINDINGS - iii
      • II. ON FINANCIAL ASPECTS:
      • To rationalize the Tariff Structure (PPAs)
      • There is no financial constraints for day to day operations
      • Loans and Advances are at comfortable level
      • Current Liabilities and Provisions are met in time
      • Try to diversify business activities
      • To enter into power trading activities
      • Huge cost of consumption of Coal and Fuel
      • Try to reduce Administrative and other Expenditures (KERC directives)
      • To try to control financial charges ( Swapping, Fin Engg, W/C Mgt etc., )
      • To Clarify the Depreciation ( EA 2003, ESA 1948, IT Act 1961,Co. Act, 1956)
    • 31. SUGGESTIONS - i
      • I. OPERATIOANAL ASPECTS:
      • To implement R,M and U Programme for Optimum level operation
      • To implement SCADA System and other IT initiatives
      • To maintain cleaning systems (at Boiler, Turbines, Generators) Coal
      • To reduce Capital W-I-P
      • To maintain Current Assets (Inventories) at optimum level
      • To utilize Fixed Assets effectively (Optimize PLF)
      • To put control on current Assets
      • To Focus on Corporate Social Responsibility Activities
      • To Focus on Research & Development activities
      • To Focus on modern systems and technologies
      • Continued …
    • 32. SUGGESTIONS - ii
      • II. FINANCIAL ASPECTS:
      • To enter into Capital Market (IPO)
      • To reduce Sundry Debtors
      • To put focus on cost control system on RTPS
      • To enter into direct selling to bulk customers through Open Access
      • To upgrade Tariff Structure of PPA
      • To equalize level playing field with IPPs
      • To maintain Escrow Accounts with ESCOMs for realization of dues
      • To outsource non-core activities at plant level
      • To implement Availability Based Tariff (ABT) mechanism
      • To control Cost of Consumption of Fuel and Coal
              • Continued … .
    • 33. SUGGESTIONS - iii
      • II. FINANCIAL ASPECTS:
      • To put periodical study on financial management
      • To put efforts to increase ROCE, EVA, Balance Scorecard etc.
      • To increase Dividend Pay out ratio
      • To maintain Debt equity ratio, Current Ratio and DSCR
      • To put Benchmark with other best managed companies like TATA Power and Reliance Energy and NTPC.
      • Try to bring down Financial Charges
      • To increase expenses on Preventive measures for Environmental Protection, Global Warming etc.
    • 34. RESEARCH PAPERS PUBLISHED “ Financing and Investment Decisions in Power Projects of Karnataka – A Case study of KPCL ”, Renewable Energy and Environment for Sustainable Development, a proceedings of an International Conference on “Renewable Energy Asia -2008” held at IIT Delhi, Pp.239-244. “ Impact of Availability Based Electricity Tariffs (ABT) on the Power Sector - Case Study of Karnataka ” in The ICFAI University Journal of Infrastructure , The ICFAI University Press, Hyderabad, Volume No.VI, No.3, September 2008, Pp.51-64.   “ Power Sector in Karnataka - A Review of Reforms Status and Impact of the Electricity Act 2003” PARLIAMENTARY AFFAIRS , monthly journal published by Institute of Parliamentary Affairs, Bangalore, Volume 25, Issue 12, December 2005, Pp 23-33. “ Power Sector in India – Heading towards Reforms” ICFAI Journal of Public Administration , ICFAI University Press, Hyderabad, Volume 2, Issue 1, January 2006. Pp 39-56. “ Wind Power Development In Karnataka – A Micro Study” SOUTHERN ECONOMIST , Bangalore, October 15, 2005, Volume 44, Issue No.12, Pp.13-15. “ International Financial Reporting Standards (IFRS)- Emerging Opportunities and Challenges for India”, CHARTERED ACCOUNTANT , New Delhi,, Volume 54, No.07, January 2006, Pp 988-992. “ A Peep into the Power Sector of India ” GITAM JOURNAL OF MANAGEMENT , Visakhapatnam, Volume.4, No.2, July-December 2006, Pp.115-140.
    • 35. THANK YOU

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