Contents

Preface Acknowledgments Declaration About UPRVUNL Mission Objectives Executives Summary Introduction Demand Projections Methodology Supply Projections Coal Supply Corporate Values SWOT Analysis Corporate & Business Strategies Managing Dynamic Environment Business Portfolio Working Capital Management (Introduction) What is working capital? Working Capital Calculation of working capital Working capital management Management of working capital Definitions of working capital Example of calculating working capital The working capital cycle Working capital Ratios Current Ratio Acid test (Quick) Ratios Interpreting the Ratios Limitations of Liquidity What is Overtrading? Key terms

PREFACE
Sometimes words fall short to show gratitude, the same happened with me during this project. The immense help and support received from Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd. overwhelmed me during the project. No professional curriculum is considered complete without industry experience. Every individual doing any kind of professional course has to undergo through practical study before one can consider himself or herself fully qualified as potential manager. After completing the second semester I got an opportunity to do my summer training in ANALYSIS OF FINANCIAL SATATEMENT OF UTTAR PRADESH RAJYA VIDYUT UTPADAN NIGAM LTD Obra. A very renowned organisation of India. It was a like a dream come true while getting trained at such a reputed organization. It was a wonderful experience to understand the working environment and activities performed at this organization. The project period comprise of 6 weeks and was divided into several phase, where I learnt about managing the financial activities, filling up different type of requesting form, checking the various required documents and how to train any consultant. I also learnt about various steps of the UPRVUNL. In the second phase I was to conduct the survey of 100 persons to know the risk analysis of UPRVUNLs employees. Also, the aim of my survey was to know analyse the views of employees how much they are aware about risk of this organisation. Field component like survey, with respect to organising helped me a lot and would be a great support in future. In such a short span of time during my stay at Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd, I have got the practical knowledge of every aspects related to the organization and have understood the real life situation. It is at Uttar Pradesh Rajya Vidyut Utpadan Nigam, that I realised bookish knowledge has got its application.

This report is basically prepared on ANALYSIS OF FINANCIAL SATATEMENT OF UTTAR PRADESH RAJYA VIDYUT UTPADAN NIGAM LTD, I hope that the report will provide the adequate knowledge about working capital of UPRVUNL.

ACKNOWLEDGEMENT

I take pleasure in presenting my project work done with UTTAR PRADESH RAJYA VIDYUT UTPADAN NIGAM LTD. Obra Sonebhardra during the period 07/06/2011 to 19/07/2011. I would like to express my sincere gratitude to my company guide B.N Pathik, Sr. Account Manager P & AD, BTPS UTTAR PRADESH RAJYA VIDYUT UTPADAN NIGAM LTD, Obra Sonebhardra for guiding me throughout my summer internship and research project. His encouragement, time and effort are greatly appreciated. I would then like to thank my faculty guide, Prof. O. P. Rai for all his valuable inputs and constant support towards me throughout my project and providing me an opportunity to learn outside the class room. It was a truly wonderful learning experience. I would like to dedicate this project to my parents without their help and constant support this project would not have been possible.

I would like to thank all my friends who did their SIP from Obra Power Plant for their valuable suggestions and support. I would also like to thank all the respondents who offered their opinions and suggestions and sometimes critical views throughout the survey which made me constantly update myself come out with a successful project. At last but not least Im also thankful to all the teaching and non-teaching staff members of faculty as well as all of them who helped me directly or indirectly in completion of this work successfully.

Mr. RAMESH PRASAD

DECLARATION
I, RAMESH PRASAD hereby declare that this project report is the record of authentic work carried out by me during the academic year 2010 2011 and has not been submitted to any other University or Institute towards the award of any degree.

I undersigned hereby declare that the project report on the title ANALYSIS OF FINANCIAL SATATEMENT OF UTTAR PRADESH RAJYA VIDYUT UTPADAN NIGAM LTD with reference to UTTAR PRADESH RAJYA VIDYUT UTPADAN NIGAM LTD. is developed and submitted by me. The findings & Suggestions in this report are based on the data collected by me. The matter presented in this report is not copied from any source. I understand that any copy is liable to be punished in anyway the university authorities deem to fit. This work has been submitted for the award of the MASTER OF FINANCIAL MANAGEMENT (RISK & INSURANCE) MFM-RI to Faculty of Commerce, BHU.

Date: Place: - VARANASI

Mr. RAMESH PRASAD

ABOUT UPRVUNL:

UTTAR PRADESH RAJYA VIDYUT UTPADAN NIGAM LTD. (UPRVUNL) AT GLANCE

UPRVUNL is wholly owned state thermal power utility with present generating capacity of 4082 MW, operating 5 Thermal Power Stations within Uttar Pradesh. Poised to contribute in the growth of state, we're in the process of adding further 2000 MW capacity to our existing fleet by year 2012. Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited (UPRVUNL) was constituted on dated 25.08.1980 under the Companies' Act 1956 for construction of new thermal power projects in the state sector. The first Thermal Power Station constructed by UPRVUNL was Unchahar Thermal Power Station of 2X210 MW capacity and it was transferred to NTPC on dated 13.02.1992. On dated 14.01.2000, in accordance to U.P. State Electricity Reforms Acts 1999 and operation of U.P. Electricity Reforms Transfer Scheme 2000, U.P. State Electricity Board, till then responsible for generation, transmission and distribution of power within the state of Uttar Pradesh, was unbundled and operations of the state sector thermal power stations were handed Over to UPRVUNL. Today it is looking after operations of five thermal power plants located in different parts of U.P., with a total generation capacity of 4082 MW with planting facility as follows. U.P. Rajya Vidyut Utpadan Nigam Ltd. (UPRVUNL) is a progressive & fast expanding state thermal power generation undertaking having an installed capacity of 3933 MW for thermal generation and proposing to double it within next five years.

UPRVUNL is also in joint venture with NTPC in the field of thermal generation and with other states in development of coal mines. On the other hand UP Jal Vidyut Nigam Ltd. (UPJVNL) is a state Hydel generation undertaking having an installed capacity of 526.5 MW for hydro electric generation and proposing to expand by another 100 MW within next three years.

Mission

The mission of UPRVUNL for 2011 is as follows: To accelerate addition of power generation capacity by extending existing projects and installing new plants to make available reliable and quality power, using state-of-the art technologies. Adopt a broad based capacity portfolio including Hydro Power, LNG and nonconventional and eco-friendly facts. To enhance the power generation through increasing efficiency of operations above the national level by periodic refurbishment and renovation & modernization of plants, and maximizing the availability of units. To reduce the cost of generation through efficient management practices including implementation of Commercial Accounting system and Enterprise Resource Planning. Ensure timely realization of revenues. To focus our efforts to meet all environmental norms and standards in order to become a socially responsible corporate entity with thrust on environment protection, ash utilization, community development and energy conservation. To become the preferred employer by incorporating total quality philosophy in all Human resource policies and norms to continuously attract and develop competent and human resources to match national standard. To explore opportunities for vertical integration in areas such as power trading, distribution, transmission, coal mining etc.

OBJECTIVES

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

BUSSINESS PORTFOLIO GROWTH

To consolidate UPRVUNL position as the leading state thermal power generation company in India and establish a presence in hydropower segment. To broad base the generation mix by evaluating conventional and nonconventional source of energy to ensure long run competitiveness and mitigate fuel risks. To diversify across the power value chain in the State by considering backward and forward integration into areas such as power trading, transmission, distribution, coal mining, coal beneficiation etc. To develop a portfolio of generation assets in domestic markets. To establish a strong service brand in the domestic markets.

COSTOMER FOCUS
To foster a collaborative style of working with customers, growing to be a preferred brand for supply of quality power. To expand the future customer portfolio through profitable diversification into downstream business, 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 Organisation having knowledge-based competitive edge in current and future businesses. To effectively leverage information technology to ensure speedy decision-making across the Organisation.

PERFORMANCE LEADERSHIP
To continuously improve on project execution time and cost in order to sustain long run competitiveness in generation. To operate & maintain UPRVUNL stations at par with the best-run state utilities in the country 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.

HUMAN RESOURCE DEVELOPMENT

To enhance organisational performance by institutionalising an objective and open performance management system. To align individual and organisational needs and develop business leaders by implementing a career development system. To enhance commitment of employees by recognizing and rewarding high performance. To build and sustain learning Organisation of competent class professionals. To institutionalise core values and create a culture of team building, empowerment, equity, innovation and openness which would motivate employees and enable achievement of strategic objectives. To install and implement state of the art systems in conformity with similar function successful Organisations. To effectively leverage Information Technology in promoting complete transparency.

FINANCIAL SOUNDNESS

 To maintain and improve the financial soundness of UPRVUNL by prudent management of the financial resources. To continuously strive to reduce the cost of capital through prudent management of deployed funds, leveraging opportunities in domestic markets. To develop appropriate commercial policies and processes which would ensure remunerative tariffs and minimize receivables. To continuously strive for reduction in cost of power generation by improving operation practices.

SUSTAINABLE POWER DEVELOPMENT

To contribute to sustainable power development by discharging corporate social responsibilities. To lead the sector in the areas of resettlement and rehabilitation and environment protection including effective ash-utilization, peripheral development and energy conservation practices.

CORE VALUES
This Corporate Plan provides details of the overall agenda for UPRVUNL. The successful delivery of the agenda would require a risk taking dynamic leadership along with committed workforce that identifies with and supports the vision. To ensure realization of this corporate agenda, a set of core values should be central to, and govern each activity of the Organisation:

Customer focus Organisational pride Mutual respect and trust Initiative and speed Total quality

Executive Summary

The environment for UPRVUNL looks good because of very high demand for electricity for which deficit would last for next 6-7 years. Managing ongoing and new projects is critical to benefit from the market demand. The corporation has enough experience in implementing the projects, but the equipment supplies and receivables had been major concerns. One of the strongest points is the established business and early mover advantage for UPRVUNL in the State of Uttar Pradesh with deeper technical processes like the design and development; erection and commissioning with very experienced people and 5 major plants with about 4000 MW capacity. The very strengths are converting into debilitating liabilities. The plants are ageing; the people have become somewhat complacent with obsolescing skills with increasing burden of wages and inefficiencies resulting into not so good financial performance. The non-cooperative suppliers, increasing competition are threatening the financial health of the corporation. In the review report 2005-12 it became clear as in corporate plan 2012-17 that the corporation needs to handle some of these critical problems. We suggest that to reduce monopoly power of suppliers like BHEL, the corporation needs to diversify BTG supplier base with internationally recognized and cheaper vendors especially from China. The coal supply chain needs to be further smoothened and internal project teams are constituted with capable/ well trained people in project management skills and technical capabilities. Sadly the experienced managers and the top management in spite of being highly committed to the physical and financial progress have not been able to reach performance levels that were targeted. Therefore the whole organization needs to be revamped: corporate and plant structures, organizational cadres, re-allocation of employees to right jobs, strengthening project management and building new capabilities for larger sized projects, get off from up rating projects to new projects at the same premises, except those projects which can give services at least for next 15 years with PLF above 60%, benchmarked auxiliary consumption, reduced outages, SHR, cost per unit. The regulator cannot perpetually fund the inefficiently generated power by compensating with higher tariffs. The competitive pressure will be felt immediately after the supply deficit is overcome.

Each of the ten areas recommended must be worked upon if the corporation needs to reach its desired vision and meet it mission commitments: Managing dynamic

environment, balancing business portfolio, smoothening supply chain, operations including project management, Human resource management, organizational restructuring, Board of Directors, and investment management, Employee welfare and corporate social responsibility.

Managing dynamic environment

There is need to establish the environmental intelligence group assisting both in operations, strategic areas like new investment, divestment, closure etc to help make more discipline decisions

Balancing business portfolio

Although O&M, R&M and refurbishment will remain important areas given more than average aging plants, however the investment should shift towards new projects due to better economy and better market control. Retirement of many aging units may be a wise strategy.

Smoothening Supply chain

The most critical aspect here is the BTG and BOP timely supplies. Diversified vendor base will help timely commissioning of projects. In case of contractual failures penalty clause should be enforced on undue delays. The coal and oil supply chains must be studied for better efficiencies and environmental compliance perspective.

Operations including project management

Here the most critical area is to build critical project management competencies and empowered structural positions of project management teams. Operational benchmarks as targets be pursued vigorously through well designed organizational structures, clear accountability and incentive systems. ERP and IT project should be implemented at faster speed to derive returns from this investment.

Human resource management

This being the only source of competitive advantage enough resources must be diverted towards training and development with at 3% budget of revenue dedicated to training and development for the employees. The cadre restructuring should be done keeping in mind that the internal environment is enabling and empowering with adequate responsibility and accountability

Organisational Restructuring

The PRAGATI teams proposed organizational structure (draft) appears to meet the new requirements of the organizations. However, a concept of executive teams is proposed at the corporate and each plant levels. The strategy and project management should be given higher emphasis. The divisional structure (with profit responsibility) will unclutter information overload as well as more effective operations because of clear accountability.

Board of Director

We suggest that board of directors should also be restructured by bringing in more independent directors and create more transparency so that in future it could be listed on stock exchanges. In some critical areas board committees should be constituted.

Investment management

Emphasis should be placed on profitability and more internal generation of funds for investment in future projects, without perpetually depending on the UP Government. This is necessary especially in future if capital markets were to be tapped. By 2017 it should acquire financial autonomy. It is necessary the government continue funding until then and it should issue bonds to fund investment against receivables from its customers. It is suggested that if the above areas are successfully navigated the corporation has the potential to meet its vision and mission spirit.

Employee Welfare

Employees are the greatest resource of any organization, especially if they are considered the source of competitive advantage. The developmental needs of employees on the job must be seriously considered and their socio-psychological needs beside physical comfort. The working environment should have hazard free and physically comfortable working ambience especially in plants. Medical facilities, recreation needs and religious and social needs may be considered with very clear policy and programmes.

Corporate Social Responsibility

It is essential to build a focus of CSR activity to have impact. Beside R&R guidelines, which are very well elaborated by NTPC, which can be modified as per Nigam needs and vision, the corporation should focus on an impact area like education, especially scholarship scheme for higher education. The other important are to which Nigam can look into is the construction of electricity distribution network around 5 Kms. radii around each of the plants for the local communities. A mobile health van can provide assistance through an NGO engaged in health sector in the proximity of each plant. Finally drinking water facilities can be provided to the local communities.

Introduction:

Energy is the most important building block of every civilization. Most of the modern day war in fact is, overtly or covertly fought over energy security. Much of the past slow social-economic development can directly or indirectly be attributed to lack of energy resources specially electricity. To power the growth of the country to gain and sustain 10% growth in GDP will raise more energy demands, including hydrocarbons and electricity. The later still the cheapest source and possibly one of the cleanest sources of energy, notwithstanding the polluting supply side of generation if oil or coal is used. UPRVUNL represents the pride place in electricity generation in the state of Uttar Pradesh. The common man and the government look at it with considerable expectations to solve the problem of energy needs in the State. It is therefore imperative that UPRVUNL go beyond what it is doing today in meeting these expectations or it will be dumped by its stakeholders. It is the onus on its managers to make it a more vibrant , responsive and responsible organization to all its stakeholders and thus it needs to review its functioning and improve management systems in order to meet the expectations raised by its stakeholders: common man, immediate customers, suppliers, owners , managers and many thousand employees, regulators, lenders and supporters . But before we begin with articulating its strategic intent in the form of vision, mission and objectives, we need to analyze the demand and supply scenario.

Demand Projection

Business forecasting can be done by:

1. Trend projection method This methodology is quantitative in nature and gives us figures based on regressing thepast time series data.

2. Barometric method The government has an ambitious program Power all by 2012 (a lead indicator) which indicates higher demand prospects for electricity in coming years. Uttar Pradesh being the second largest state-economy of India contributes 8.17% to Indias GDP. Given the fact that Uttar Pradeshs economy has grown by 7% in last 5 years we expect that this will continue leading to higher demand of manpower, capital, and infrastructure including electricity (coincidental indicators).

We have used the trend projection method to forecast the demand for the next seven years viz. 2011-2017.

Methodology:
The time series forecasting can be done using the trend of past years. These trends can be captured as linear, exponential functions. Following the demand breakup in previous years, we feel that a linear estimation will be a better indicator. The past data has been taken from the power census done by central government. Data

for some years was not available and has been interpolated from the other years.

Looking closely we can observe that the trend was different before 2003 where it was relatively flatter. Demand has grown at a higher rate in last 6 years. Hence we will forecast the total demand using linear regression over last 6 years. The sector-wise demand in following years will be done on the basis of current (2009-10) sector-wise allocation.

By 2015, the state will require about 54211 MU of power, an increase of about 14000 MU over current demand. The projections for different sectors for the next five years using this technique are:

Table2: Demand Projections 2010-17

Projected Power consumption in 2010-11 & 2016-17:

Graph: Projections based on linear trend:

From the past data and the projections, we can observe that the growth rate in industrial, utilities and agricultural sector have been almost half that of the domestic consumption. Much of the rural areas were not electrified earlier but now are slowly being covered by the grid leading to increased demand in this sector.

The demand data is very close to consumption data from 2000-2010(refer to Category Wise Energy Sold in UP data). This is indicative of the fact that demand estimation has only been done for cities, towns and villages which have been covered by grid in their respective years. This means that the demand from unelectrified regions of Uttar Pradesh is not a part of these projections. Besides there is unmet demand due to roistering and non-supply of electricity especially during peak hours. To achieve a more holistic projection of demand, we have used the population and GDP of Uttar Pradesh and compared it with other states. The scatter plot below shows the Per capita GDP vs. Per capita electricity demanded for various states. Graph showing regression based on lead indicators:

The above graph denotes that SDP and electricity consumption fit a linear regression line with 61% predictability, and SDP can be considered as a good predictor of lectricity consumption per capita. Using the values obtained from this regression and the annual growth rate of GDP and population, we are able to project the demand in Uttar Pradesh. Assumptions: GDP Growth Rate 10% Population Growth Rate 2.16% Availability factor 0.66

Table 4: Capacity Required in MU and MW in UP:

The results obtained from this regression reveal that the demand severely exceeds the estimates from preceding method. However, these results are more accurate as the net demand is directly linked to the population and electricity consumption per person.

Supply Projections:
Estimating Supply of power in UP: In order to increase the power generations there are two alternatives available. One is obviously to increase the installed capacity by building new plants. This is a long term solution but this will take a lot of time and investment. On the other hand there are quick fix solutions like renovation and modernization (R&M), refurbishment, up rating and life extension. These R&M and refurbishment increase power generation by improving the operating condition of the plant in terms of PLF and availability. Up rating on the other hand is a small capacity addition to existing plants. Life extension increases the life of the plant, which otherwise is 25 years. These solutions require less investment compared to new plant and can be implemented quickly. However their benefits are limited in terms of useful life and the power output.

Methodology
We have compared refurbishment and up rating to new plant in terms of Net Present Value of the capex required for a 1MW capacity and the additional revenues generated. The detailed calculations and the assumptions taken can be seen in the excel sheet attached as Annexure IV All the inputs and assumptions to the model are kept in a

separate tab Assumptions and Inputs of table 5 bellow. In case of any disagreement with any of the assumptions/values or to carry any sensitivity analysis the value can be changed in the assumptions sheet. All the related changes will get reflected in the calculations and results. Table 5: Assumptions

Variable operating costs are assumed to be same for new and refurbished plants In case of refurbishment or up-ration R&M expenses will continue to occur at the same rate as in 10yr old plant In fact the Operating costs will be lower thus improving NPV. The excel sheet is provided as Annexure IV separately in electronic form. However, the result summary is presented below:

Table 6: showing average cost/MW by different Project Process: and Table 7: NPV of Investment in different Project processes:

Conclusion From the calculation it was seen that a new plant would be most beneficial followed by up-rating in terms of the net present value. Refurbishment was not found profitable for the given set of benefits it is expected to provide. Therefore it is not recommendable to carry out refurbishment unless it is the only possibility due to resource crunch or pressure from demand side. However other than financial criteria should be considered, which may temper the above conclusion. Other major issue discovered in case of refurbishment and R&M is the delay of supplies from EPC contractor. This has caused delay in repair and maintenance activities and caused permanent damage to facilities besides decreasing efficiency. A penalty clause for delay should be incorporated in EPC contracts to account for any delay. Table 8: Existing Projects:

Capacity Projection:
Uttar Pradesh Currently has 10369 MW of installed power generation capacity of which 4082 MW comes from UPRVUNL. Following is the breakup of the current capacity in UP. Table 9: Sector and Raw material wise availability in 2009-10:

Table 10: Ongoing up rating of UPRVUNL Plants:

UPRVUNL also has some ongoing projects which will come up in the near future increasing the UPRVUNLs capacity by 2000 MW. Following are the details of UPRVUNLs projects: Table 11: Expected project completion dates of UPRVUNL Projects (As on March, 2011):

Four private sector/NTPC projects are also in progress in UP, which will give varying share of their output to the state:

Table12: 11th five year Plant availability of power with UPRVUNL:

In addition there have been several MOUs signed by UPPCL in the recent past with the various power producers to setup their facilities in the state, and there are several other projects in the pipeline including a few from UPRVUNL (Panki Extn, Harduaganaj Extn Stage II, Obra C, Anapara E). Following are the details for the 12th Five year plan. Table 13: Total power availability in 12th Plan in MW:

Source: UPRVUNL For these projects a conversion rate of 50% can be assumed considering the various hurdles they may face. Considering these capacity addition plans in UP, the total available power to UP is given in table 12. Table 14: Projected Demand and supply 2012-17:

Which when compared to the demand projections still leave big headroom for further expansion. Private sector is expected to expand rapidly in north India, given the scarcity of electricity in the region, which will lead to further capacity additions from Private sector in this region. Considering the 40% conversion rate for the proposed plants, UP will have excess capacity by 2017 and can look out to sell the power. One assumption regarding the capacity addition plans of UPRVUNL is that at least 1320 MW might not be materialized in the 12th five year plan, considering the tough environmental norms.

Table 15: Demand- supply gap in UP:

Resource Analysis Generation equipment broadly comprises boiler-turbine-generator (BTG), balance of plants (BoP) and civil construction. While BTG involves products, most of BoP and civil construction is classified under projects. Below, we represent various components of a generation system:

15% of the total initial investment required goes to meet the working capital requirements. BHEL and Thermax have been key boiler manufacturers in India; BHEL, along with Siemens, has been a key player in turbine generators. BHEL, the largest equipment vendor in the country, has 10 GW annual BTG capacity. However, according to the Eleventh Plan capacity addition targets, the BTG industry is required to have an annual capacity of ~15 GW. Given this gap in demand and supply, imports will play a vital role in meeting this demand. Among foreign players, Chinese and Korean (Shanghai, Doosan, and Dong Fang) manufacturers have been particularly active in India due to their ability of executing standardized 300 and 600 MW plants on lower time schedules and lower initial capex.

All plants commissioned after 2017 shall have to be supercritical (e.g. 660MW and above) and to have a coal linkage. Chinese and Korean manufacturers have the capabilities to produce supercritical. BHEL had a market share of 64.4% in FY07, when the total installed capacity of India was 125.4 GW. However, the BTG equipment

market in India had started changing from H1FY07, with the states beginning to focus on power generation capacity addition. Simultaneously, presence of international vendors also increased, primarily of the Chinese. Hence, we have seen the market share of BHEL declining progressively. It had a market share of 59.2% at the end of FY09, when the total installed capacity of India was at 147.9 GW.

Annual capacity of the BTG equipment industry will be at ~35-40 GW by the end of Eleventh Plan or the beginning of the Twelfth plan. Capacity addition in the Twelfth plan is expected to be at 80-100 GW, implying an annual BTG equipment capacity requirement of ~16-20 GW.

Table 16: Details of New Entrants in BTG:

Coal Supply:
Availability and affordability make coal the most cost-effective fuel ultra mega power project developers. The supply of coal, however, continues to rest largely with the two

public sector coal mining companies - Coal India Ltd and Singareni Collieries Company Ltd, which together meet over 80 per cent of the country's coal demand. Imported coal bridges the demand-supply gap to some extent, but at prices which are at premiums in excess of 30-35 per cent even after adjusting for its higher calorific value. Though the public sector miners sell coal at regulated prices, which are at a substantial discount to market determined (e-auction) prices and prices of comparable imported coal, the supply of cheap domestic coal via this route is not assured. Public Sector Undertaking (PSU) miners are obligated to supply coal to the extent of the Annual Contracted Quantity (ACQ) set in the Fuel Supply Agreement (FSA), but are free to make up for any short-fall in ACQ by supplying imported coal paid for by the buyer. The newly formulated FSA which PSU miners will sign with all future consumers (except those opting for Central Electricity Authority (CEA) allocated ACQ), has lowered the committed fuel supply from 90 per cent of the ACQ for power utilities (60 per cent of ACQ for non-power sector industries) earlier to 50 per cent of ACQ, indicating that PSU miners do not expect their production to catch up with demand, going forward. In such a scenario, captive coal blocks play a crucial role in addressing the fuel security concerns of consumers. However, the development of captive blocks is a challenging and time-consuming process, with a whole host of issues slowing down the timely commissioning of mines.

Progress on captive blocks hit by forest clearance, land acquisition hurdles:

Captive Blocks allotment since 1993

Source: Ministry of Coal, CRISIL Research

Progress on Captive Blocks allotted since 1993:

Coal block allotment was initiated in 1993 when the Sarshatoli coal block was allotted to Integrated Coal Mining Ltd, an RPG group company, for power generation. Coal block allocation then picked up only in 2003 when 21 coal blocks with geological reserves of more than 1.4 billion tones were allotted. The period 2003 to 2008 saw a surge in block allotment with 179 blocks allotted during this period. Of all the captive coal blocks in the country, 26 currently produce coal, nine of which are legacy blocks. However, out of the 208 coal blocks allotted since 1993, only 17 have commenced production as of 2009-10, reflecting the dismal state of progress on captive block development by allocates. The principle reasons for the slow pace of development are the inordinate delays in land acquisition and in obtaining environmental and forest clearances.

Source: Ministry of Coal, CRISIL Research Source: Ministry of Coal, CRISIL Research

Mission Statement
UPRVUNL will be leader in generating, transmitting and distributing electric energy most efficiently through collaborations with its partners by using its technical people as its competitive advantage while balancing and serving the interest of all of its stakeholders.

Corporate Values
1. Excellence in everything it does 2. Respectful and fair to each employee 3. Committed to nurturing of its technical talent 4. Fair to its partners 5. Will remain environmentally and socially responsible

Corporate Objectives
1. Build a strong competence in customer responsiveness by leveraging human business through training, development and motivation 2. Expansion and growth by improving the efficiency of existing plants and adding new generation capacities 3. Reducing supply chain bottlenecks and operating costs 4. Diversifying both into vertical chain activities and diversifying the input base that lead to the leading market share 5. By taking advantage of economies of scale becoming the lowest cost generator of electricity in the state and the country 6. Partnering with other entities to minimize investment needs and reducing the

investment risk 7. Becoming one of the leaders in environmental management and socially responsible citizenship in its peer group

In order to meet the objectives, mission, vision of the corporation, UPRVUNL needs to take stock of its Strengths and weaknesses and assess the environmental future threats and opportunities in order to allocate resources judiciously. There we attempt the SWOT Analysis.

SWOT Analysis:
Strengths
1. Ownership is with state government that reduces the risk of liquidation who can make investment in public interest should the things turn hostile 2. It has R&D support from Central Electricity Authority keeping the research and development costs almost zero. 3. It is easy to get land and environmental clearances from respective authority without suspecting foul play 4. It has top management who very competent and committed who work for the government as well as for the corporation-facilitating government support as and when required 5. UPRVUNL has a rich history and competence of generating electricity through coal and oil, water with priority allocation of inputs 6. The input costs are cushioned against market price vagaries and thus helps in realizing costs through regulated tariff system

7. It has access to large real estate which is now free of cost and does not require fresh investment with all the facilities required for a TPS like water, transport access. 8. It has the largest market share of about 50% of capacity in generation business as compared to its competitors. The actual capacity for generation is 3933 MW as on 31 st March, 2011 after excluding unit 6 of Obra and unit no. 3 of Harduaganj. 9. Assured market reducing the cost of marketing because of historical relationships and scarcity of electricity. Demand is not an issue for next 10 years. 10. Most of the plants are depreciated leading to less strain on the balance sheet 11. It has the largest number of technical manpower in the state and one of the largest in the country that is well experienced. 12. The percentage of youngsters is growing beyond 50 (about 750 out of 1450) at executive (technical) level which are well educated , getting good training and are very motivated 13. Corporate values are already articulated and are in place 14. Security of employment provides stability to the knowledge base which does not migrate. Continuously and good compensation policy.

Weaknesses
1. Being state owned organization it suffers from slow decision making process and dealing with less risky but expensive suppliers and buyers which also limit speed of decision making 2. Because of SOE employees do not have commercial mindset 3. The top management comes from Government which also has its negative side: the commitment levels are not very high because of uncertain tenure. 4. Cost, quality, and schedules for works lowers efficiency in O&M and Project management 5. Has already adequate input linkages 6. Three Full time directors positions are vacant, substituted by part time director finance, and former technical director serving as advisor. Post of Director Personnel is vacant.

7. Disputes on seniority are quite frequent which delays the promotion on senior positionssince last many years lowering motivation 8. Promotions are not based on competence but other politically determined criteria 9. Old organization continue which is not consistent with todays ground realities 10. Induction on compassionate ground has resulted in work inefficiencies and high cost work force, which UP Government has already stopped in its own departments. 11. Roles and responsibilities are not commensurate with compensation, which are needed to be defined and refined. 12. Deferred or partial payments by customers adversely affect the cash cycle 13. It is difficult to mobilize equity and thereby loans due to profit/loss account losses and because government also takes very long time in implementing financial recommendations 15.Supply of coal comes from distantly located pit heads increasing input transportation costs. 16.Government ownership provides cushion against inefficient working resulting in lower efficiencies. 17.Very high age of plants keeps the breakdowns as frequent resulting in lower PLF and high input costs 18.Project implementation is a very serious drawback for lack of project management skills and bureaucratic procedures 19.Poor contract reinforcement with equipment suppliers like the virtual monopolist BHEL resulting into high cost and time overruns 20. Coal linkages for plants are inadequate for future needs 21.Coordination and communication processes are very slow 22.Technology enablers such as IT have only been addressed recently whose implementation is moving at a slow pace. 23.Inadequate focus on regulatory affairs. Handled at plant level instead of corporate level. 24.Auxiliary consumptions are very high compared to its competitors like NTPC 25.Political interference at the level of supplies (favored), operationslack of proper allocation of manpower at right jobs/ place, subcontractors, and employees (transfers/promotions) 26.. Lower PLF compared to competitors and national average makes operations expensive. 27. It is estimated that the balance sheet may have the losses until 31st March 2010 to the tune of Rs. 585.7 crore as per provisional balance sheet, whereas we have repayments from customer of the same tune, therefore the interest cost without any benefits to Corporation.

Opportunities
1. BOP and BTG can be awarded through bidding system instead of single supplier as is given to BHEL which do not adhere to timelines of the contract who do not pay penalties for project time over runs. 2. Possibility of increasing revenues through CDM, PAT( Perform, Achieve and Trade) mechanism of BEE (Bureau of Energy Efficiency). 3. There is a good opportunity to increase the PLF close to national average of 75% thereby raising higher generation of electricity 4. Revenues can further increased by gains from UI provisions through disciplined management of its resources. 5. There is going to be about 10-20% gap until 2017 in the demand and supply which will ensure that whatever is produced is consumed- no demand risk. 6. Fuel security through JVs with mining companies 7. Productivity improvements through usage of IT applications 8. Improving financial health by setting outstanding receivables from UPPCL through inter department coordination 9. New projects can improve the PLF, and higher energy generation which will have positive impact on the financial health 10.Automated equipments / super critical plants can produce higher levels of energy at reduced prices 11. Renewable sources especially solar energy can be a good opportunity in future especially in UP which eventually translate into more energy with lower costs. 12.. Availability of land from ash ponds, which can be utilized for further expansion by converting that land planting Jatropha plants which can be converted into diesel, and we can earn carbon credits too. 13. Scrapping the non-functional units that are officially deleted. They can be sold out in market and vacated land can be used for new plants eg. Obra and Harduaganj units. The scrapped units can be sold through MMTC. 14.Scope for Joint venture exist today more because private sector has already moved in generation and many are willing to join the business who normally do not have experienced manpower 15.Value chain partners and competitors are willing to join forces to produce electricity like NTPC, Coal India limited, even transmission and distribution companies.

Threats

1. BTG had be given without tender to BHEL, which has become a liability because of noncompliance of the agreement- non competitive rates and late completion of the projects against DPR/Work Order 2. BHEL has taken advance money for R&M but may not start work even in future. Which may result in closure notice from Central Pollution Control Board and other regulatory authorities, which may cause higher penalties and closure of old plants draining production capacity and profitability 3. Integrity of employees, suppliers as mafias with political linkage are a serious threat to the functioning of UPRVUNL. 4. The deregulated generation sector may see more competition in future which may threaten the leadership position of UPRVUNL Operations. 5. New plants have long gestation periods making the progress slow towards leadership position. 6. The aging plants underperform but maintenance cannot be done on schedule because of demand pressure. 7. Pollution control regulation is becoming more stringent under international guidelines whose compliance can threaten closure of many units, if not acted upon in time 8. Coal mafia continues to exert pressure on the prices, quality and quantity of coal. 9. The constant pressure on input prices may build pressure on energy prices which because of more competitive output may force regulator to reduce prices which may adversely affect the expansion plans 10.Government is rather reluctant to provide additional equity required for expansion of capacities and thus affecting expansion plans 11.The skill gap appeared because of attrition due to retirement or lack of training in ABT regime 12.Continuing government mindset may result in serious lag in financial viability of future investments 13.The state of monopoly has already been threatened by larger firms with adequate investment capacity which is likely to threaten the leadership position of Nigam. 14.At some point in time the UP State may get trifurcated reducing the power of the Nigam as happened in case of Uttrakhand 15.The stranglehold of politician may become worsen in future in curbing the freedom of the professionally managed corporation, because of 100% ownership. 16.Increasing inflation may lead to higher interest rates, wages and cost of electricity unless competition bring in commensurate reduction in operating costs 17.The continuous changes in the business environment makes it

difficult for companies to keep environmental knowledge undated regularly which calls for continuous learning to which old timers are ill-equipped to handle.

Corporate & Business Strategies

We classify our recommendations into Ten broad categories: managing dynamic environment, business portfolio, Smoothening supply chain, Operations including project management, Organizational restructuring, Human Resource management, Board of Directors, Investment management, Employee welfare and Corporate Social responsibility.

Managing Dynamic Environment

1. There is a need for a business planning Department to collect, generate and collate data so that informed decision can be made. This unit can scan information regarding customers, suppliers, regulatory changes, business opportunities, partnership opportunities, Human resource related practices, new technologies, competitor activities, political changes, social changes, economic and financial matters , pollution, energy audit reports , related technologies , issues of sustainability. 2. This department can be headed by a Director Corporate Strategy (25-30 years experience) trained or experienced enough in strategic Planning who may be supported by other managers (see corporate structure) and young business analysts (2-3 years experience with MBA degree) with some specialization in economics , statistics, environmental engineering/ pollution control , business development, with skills in competitor and customer analysis , a financial manager, an electrical technologist, 3. The roles will be to analyze related issues through different disciplinary perspectives and build a comprehensive view of the issue at the planning levels. They will also be responsible to continuously review the current business environment and suggest future trends with respect to new emerging trends. They will assist the operating managers on various issues including the related data/ information availability. Some of the hard data will be stored in the computers which will be accessible to anyone who want any relevant information. They will help set up monthly, quarterly targets, annual targets and plans and 20 years rolling plan. They will also alert respective operating managers about any significant changes that might affect their functions. We have recommended this entity on environmental intelligence because the future leaders will compete on the basis of superior knowledge and information and also we think the high quality manpower is going to be the basis of competition at least for UPRVUNL

as we have recommended in the mission statement. This unit will work as a brain of the corporation. Needless to mention that highly qualified people should be brought in or developed through extensive training in their respective areas. It will help identify future threats and opportunities and at the same deepen the organized and disciplined decision making which is right now in a very ad hoc and rudimentary form.

Business Portfolio:
1. The capacity additions through R&M, up rating and new capacity additions are projected in tables 7-10 in the report. 2. Consider continuous evaluations of each generating unit which can perform above 60% PLF with low maintenance, otherwise scrapped. We have analyzed below that the new capacity additions are more beneficial than renovation & modernization beyond certain performance point. 3. Any future generating unit should not be below 500 MW as the new entrants will come with super critical plants who will threaten the leadership position of UPRVUNL. The larger plants have higher fixed costs but lower running expenses and thus making smaller plants or less capacity plants as unviable in 10-15 years time period. 4. Since most places land and utilities are already developed and there is ample scope of putting up new plants which may not face demand crunch and it should help UPRVUNL to maintain its leadership profitably at least until 2017. We need to explore new plot of land for future expansion. 5. We can consider LNG based thermal plants if the LNG linkages could be tied up in the medium term. 6. In the meantime we also explore the nonconventional energy sources for which we can create a new cell and recruit experienced engineers for experimentation. The special interest areas could be solar energy, Jatropha plant based fuel. This may help in getting renewable sources of energy. The technological Institutes may be made partner in R&D beside exploring R&D based small firms or joint partners for exploring newer technologies (0.5% of sales could be allocated to this unit on new product or process development). They pay offs could be longterm

7. In addition we put up at least limited resources (1%of sales) in R&D and get external consultants to assist in R&D lab to find ways and means of improving operational efficiencies in plant which look for reduction in auxiliary consumption in operations and examine the whole input supply chain. 8. Also the planning unit can explore possible partners who can work as partners in joint ventures which will ease input supplies, or bring in much needed equity into new plants. Part of employees could be shifted to the joint venture. This will give a chance to bring in efficiencies in our own plant as the JVs can work and learn in less bureaucratic environment away from political interference or operational fire fighting.

Working capital:
It is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital, that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has aworking capital deficiency, also called a working capital deficit.
Net Working Capital = Current Assets Current Liabilities Net Operating Working Capital = Current Assets Non Interest-bearing Current Liabilities Equity Working Capital = Current Assets Current Liabilities Long-term Debt

A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

Calculation
Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business where managers have the most direct impact: accounts receivable (current asset) inventory (current assets), and accounts payable (current liability) The current portion of debt (payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit.

An increase in working capital indicates that the business has either increased current assets (that is has increased its receivables, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors. Implications on M&A: The common commercial definition of working capital for the purpose of a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment mechanism in a sale and purchase agreement) is equal to: Current Assets Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus assets and/or deposit balances. Cash balance items often attract a one-for-one purchase price adjustment.

Working capital management:

Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's shortterm assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue itsoperations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Decision criteria
By definition, working capital management entails short term decisions - generally, relating to the next one year period - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability.

One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital investment decisions as above. ROC measures are therefore useful as a

management tool, in that they link short-term policy with long-term decision making. See Economic value added (EVA).

Credit policy of the firm: Another factor affecting working capital management is credit policy of the firm. It includes buying of raw material and selling of finished goods either in cash or on credit. This affects the cash conversion cycle.

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.

Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow. Besides this, the lead times in production should be lowered to reduce Work in Progress (WIP) and similarly, the Finished Goods should be kept on as low level as possible to avoid over production - see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic quantity

Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances

Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring"

Bibliography
Financial management: Prassanna Chandra Financial Services in India: M.Y. Khan Website of UPRVUNL Website of NHPC Website of BHEL Website of Coal India Google Wikipedia Annual Report of UPRVUNL.