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Tata Power Company Ltd - Directors' Report

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To The Members

The Directors are pleased to present the Ninety-Seventh Annual Report on the businessoperations and the Statements of Account for the year ended 31st March 2016 ofThe Tata Power Company Limited (Company).

1. Financial Results

Figures in Rs. crore (Table 1)

Consolidated

Standalone

FY16

FY15

FY16

FY15

(a) Net Sales/Income from Other Operations* 36461

34367

8438

8678

(b) Operating Expenditure 28470

27426

5721

6516

(c) Operating Profit 7991

6941

2717

2162

(d) Less/(Add): Forex Loss /(Gain) 218

(64)

58

48

(e) Add: Other Income 297

352

555

1025

(f) Less: Finance Cost 3477

3699

1156

1048

(g) Profit before Depreciation and Tax 4593

3658

2058

2091

(h) Less: Depreciation/Amortisation/Impairment 2376

2174

665

575

(i) Profit Before Exceptional Item 2217

1484

1393

1516

(j) Less: Exceptional Item 281

NIL

226

NIL

(k) Profit before Tax 1936

1484

1167

1516

(l) Tax Expenses 869

1075

395

506

(m) Net Profit/(Loss) after Tax 1067

409

772

1010

(n) Less: Minority Interest 256

289

-

-

(o) Add: Share of Profit of Associates 62

48

-

-

(p) Net Profit after Tax Minority Interest and Share of Profit of Associates 873

168

772

1010

including rate regulatory income/(expense)

2. Financial Performance and the state of the Company's affairs

2.1. Consolidated

On a Consolidated basis the Operating Revenue increased to Rs. 36461 crore in FY16from Rs. 34367 crore in FY15. The increase was mainly due to higher volumes in powertrading amounting to 6737 MUs (refer section 5.8 of MD&A) and higher revenues fromthe solar equipment business (Rs. 616 crore - refer section 5.11 of MD&A) offset bylower realisation in coal companies.

The Consolidated Profit after Tax in FY16 increased to Rs. 873 crore from Rs. 168 crorein the previous year mainly on account of improved operational performance and reversal ofimpairment loss amounting to Rs. 2320 crore (refer section 5.2 of MD&A) in CoastalGujarat Power Limited (CGPL) offset by lower realisations in coal companies and consequentimpairment of goodwill amounting to Rs. 2533 crore in these companies.

2.2. Standalone

On a Standalone basis the Operating Revenue reduced to Rs. 8438 crore in FY16 fromRs. 8678 crore in FY15 mainly due to lower fuel costs and power purchase cost beingpassed through for the regulated business.

The Profit after Tax in FY16 was lower at Rs. 772 crore as compared to Rs. 1010 crorelast year. This was mainly due to provision for diminution in the value of investmentsmade by your Company to the tune of Rs. 226 crore. The Earnings per Share (Basic) in FY16stood at Rs. 2.36. The operating profit was higher in standalone owing to all-roundimprovement in performance of the assets.

3. Dividend

The Directors of your Company recommend a dividend of 130% (Rs. 1.30 per share of Rs. 1each) subject to the approval of the Members.

4. Centenary Year

Your Company completed 100 years of its operations on 9th February 2015having started its first Hydroelectric Power Generation Unit at Khopoli in the year 1915.Your Company is the third company amongst various Tata Companies to have achieved thisrare milestone and has been contributing to the process of nation building for over ahundred years.

Our revered visionary founder Mr. Jamsetji Tata conceptualized green and clean Powerfor the city of Mumbai way back in early 1900. Your Company pursued the founder's visionby generating hydroelectric power at Khopoli Maharashtra harnessing the potential fromthe lakes located in the surroundings of Lonavala. The electricity thus generated wastransmitted to the city of Mumbai. Your Company has been intrinsically linked with theeconomic growth and development of two of the most important cities of the country viz.Mumbai and Delhi.

Not only has your Company been the frontrunner in the power sector in India it hasalso been pioneering new technologies in the country and has played a significant role inthe economic progress of the country through its value chain of power generationtransmission distribution solar & wind energy and its defence related engineeringsystems & solutions.

Today Tata Power has spread its wings and established itself internationally too.Quietly as the country has grown your Company has made sure that electricity theinvisible force that powers a nation has always been reliably available wherever ouroperations exist. Considering the values that Tata Power has been following 'InvisibleGoodness' was chosen as the theme of our Centenary Year Celebration.

In the Centenary Year your Company held celebrations at all its key establishmentsalong with our key stakeholders culminating in a mega ceremony in Mumbai in the esteemedpresence of Chief Minister of Maharashtra Power Minister of Maharashtra and the Mayor ofMumbai. The event was also witnessed by some of the distinguished business leaders and theleadership of the Tata Group. Your Company also launched various initiatives for keystakeholders including the society at large. Tata Power engaged not just with theemployees and their family members but also with many external stakeholders.

The ceremonies and the initiatives undertaken in the Centenary Year were a way ofshowing your Company's gratitude to all its stakeholders who have helped the Company inachieving this rare milestone and we believe that it has helped us strengthenrelationships with all our stakeholders in our ongoing journey for the next severaldecades and centuries.

5. Current Business

The key businesses of the Company are in the area of Generation TransmissionDistribution-cum-Retail Power Trading Power Services Coal Mines and LogisticsStrategic Engineering for defence applications Solar Photovoltaic (PV) manufacturing andEngineering Procurement Construction (EPC) services.

As on date of the report the Tata Power Group of companies had an operationalgeneration capacity of 9184 MW based on various fuel sources - thermal (coal gas andoil) hydroelectric power renewable energy (wind and solar PV) and waste heat recovery.

The Company (including its subsidiaries) has about 20% of its capacity (in MW terms) inclean and green generation sources (Hydro Wind Solar and Waste Heat Recovery) while thetarget is to have 30-40% of its total generation capacity to be from non-fossil fuel basedgeneration sources by 2025.

Details of generation businesses in operations

Fuel Source Location State Normative Capacity under management (MW) Returns / Earnings Model Category Total (MW)
Mundra Gujarat 4150 Long term PPA based on UMPP Bid
Trombay Maharashtra 1580 Long term PPA - Regulated Return on Equity
Thermal - Coal / Oil / Gas Maithon Jharkhand 1050 Long term PPA - Regulated Return on Equity
Jojobera Jharkhand 428 Long term PPA - Regulated Return on Equity and Negotiated PPA 7436
IEL - Jojobera Jharkhand 120 Bilaterally negotiated Long Term PPA
TPDDL - Rithala (Gas based) New Delhi 108 PPA is being pursued
Thermal - Waste Heat Recovery IEL - Jamshedpur Jharkhand 120 Bilaterally negotiated Long Term PPA
IEL - Kalinganagar Odisha 135 Bilaterally negotiated Long Term PPA
Haldia West Bengal 120 Merchant Sales (100 MW) and Bilateral sale to West Bengal (20 MW) 375
Bhira Maharashtra 300
Khopoli Maharashtra 72 Long Term PPA - Regulated Return on Equity
Hydro Bhivpuri Maharashtra 75 693
Dagachhu Bhutan 126 Merchant Power Sale
Itezhi Tezhi Zambia 120 Long Term Regulated Return based project
Fuel Source Location State Normative Capacity under management (MW) Returns / Earnings Model Category Total (MW)
Renewables Wind farms Maharashtra Gujarat Madhya Pradesh Karnataka Tamil Nadu Rajasthan 621 Long Term PPA based on Feed-in-tariff + REC Mechanism (includes 30 MW assets of Indo Rama Renewables) 681
Solar Photovoltaic (PV) Maharashtra Gujarat Tamil Nadu and Delhi 60 Long Term PPA based on Feed-in-tariff
Total 9184

The Company de-commissioned the 81 MW Belgaum Power Plant in June 2015 pursuant toconclusion of the PPA term. Sale of the equipment and establishment is under progress.

Details of other businesses

Business Company/Entity Location Returns / Earnings Model Key details
Tata Power (TPC - T) Mumbai 25 year license w.e.f August 2015 - Regulated Return on Equity Over 1200 Ckm of Transmission lines connecting Generating Stations to 21 Receiving Stations.
Transmission Powerlinks Transmission Limited (PTL) Eastern/ Northern regions Regulated Return on Equity PTL - Installed 400 kV Transmission lines to evacuate and transmit surplus power from Eastern/North Eastern region (Siliguri) to Uttar Pradesh (Mandaula) covering a distance of 1166 km.
Tata Power (TPC - D) Mumbai 25 year license w.e.f August 2015- Regulated Return on Equity 4058 Ckm of Distribution lines. Over 6.5 lakh consumers.
Distribution Tata Power Delhi Distribution Limited (TPDDL) New Delhi Regulated Return on Equity TPDDL - Approximately 14364 Ckm of Distribution lines Over 15 lakh consumers.
Coal Investments Coal and Infrastructure Companies (KPC Arutmin BSSR) Indonesia Returns based on dynamics in International thermal coal market Stake in Indonesian mines.
Solar PV manufacturing EPC Tata Power Solar Systems Limited Bengaluru Returns based on sector dynamics and market competition Manufacturing and sale of C-Si solar PV cells and modules and EPC services.
Power Trading Tata Power Trading Company Limited Across India Returns based on market dynamics in short term and bilateral power market subject to cap prescribed by CERC Category I power trading license which permits the company to trade any amount of power.
Shipping Trust Energy Resources Pte Ltd. Singapore Returns based on sector dynamics and market competition Operates long term charters to meet captive shipping requirements. Vessels operated are of cape size.
Strategic Engineering Tata Power Strategic Engineering Division (SED) Mumbai Returns based on sector dynamics and market competition Amongst the Indian private sector SED is one of the leading suppliers of systems integration for defence equipment and provides creative solutions.
Business Company/Entity Location Returns / Earnings Model Key details
Power Services Tata Power Mumbai Returns based on sector dynamics and market competition One of the leading service providers for Project Management O&M and specialized services in the power sector such as for electrical testing protection audits energy conservation audits inspection and quality assurance.

6. Subsidiaries/Joint Ventures/Associates

As on 31st March 2016 the Company had 28 Subsidiaries (18 of which werewholly-owned Subsidiaries) 35 Joint Ventures (JVs) and 8 Associates.

During the year the following changes occurred in your Company's holding structure:

• Subsidiaries: Supa Windfarm Ltd. Nivade Windfarm Ltd. and Poolavadi WindfarmLtd. were incorporated as wholly owned subsidiaries of Tata Power Renewable Energy Ltd.Tata Ceramics Ltd. an erstwhile Associate became a subsidiary of the Company. NewGenSaurashtra Windfarms Ltd. was merged with Tata Power Renewable Energy Ltd.

• Joint Ventures: Your Company invested in Itezhi Tezhi Power Corporation a hydropower project in Zambia.

• Associates: Your Company and Af-Taab Investment Company Ltd. (a wholly-ownedsubsidiary of your Company) sold their entire respective stakes in Rujuvalika InvestmentsLtd.

The report on the performance and financial position of each of the subsidiaries JVsand associate companies has been provided in Form AOC-1.

The policy for determining material subsidiaries of the Company has been provided inthe following link:

http://www.tatapower.com/aboutus/pdf/dms-policy-15.pdf (scan the adjacent QR code onany mobile device smart phone/ tablet to read the policy on the Company website. QR codescanner app can be downloaded free of cost for Android/iOS/Windows devices from respectiveapp stores)

7. Reserves

The net movement in the various reserves of the Company for FY16 and the previous yearare as follows:

Particulars FY16 FY15
Revaluation Reserve NIL (2.48)
Securities Premium Account (1.67) 1930.97
Debenture Redemption Reserve 110.58 (413.20)
Foreign Currency Translation Reserves (Net) Nil 14.57
Foreign Currency Monetary Item Translation Difference Account 7.42 84.09
General Reserve 77.16 101.03
Surplus in Statement of Profit and Loss 71.85 832.42

8. Foreign Exchange - Earnings and Outgo

A summary of foreign exchange transactions of the Company for FY16 and the previousyear are as follows:

Particulars - Standalone FY16 FY15
Foreign Exchange Earnings 200 419
Foreign Exchange Outflow mainly on account of: 1283 1112
• Fuel purchase 935 793
• Interest on foreign currency borrowings NRI dividends 41 81
• Purchase of capital equipment components and spares and other miscellaneous expenses 307 238

9. Regulatory and Legal Matters

The businesses of the Company are governed primarily by the Electricity Act 2003 (EA2003). Mentioned below are the critical regulatory orders pertaining to the Company thatwere issued during FY16 none of which impact the "going concern" status of yourCompany.

9.1. Compensatory Tariff For CGPL - Mundra UMPP

Due to unforeseen changes in Indonesian law in 2012 and increase of coal pricesrelative to predicted/envisaged prices at the time of bidding CGPL is unable to recoverthe full cost of fuel through the existing tariff. In view of this CGPL had filed apetition before Central Electricity Regulatory Commission (CERC) seeking relief by way ofan appropriate mechanism to offset this adverse impact. CERC passed an order on 21stFebruary 2014 ruling that the Company will be entitled to compensatory tariff to offsetadditional fuel costs till the hardship continues on account of increase in coal prices.

The said Order was challenged by the Procurers before the Appellate Tribunal forElectricity (ATE). ATE in its judgement on 7th April 2016 held that theincrease in price of Indonesian coal is a "force majeure" event and has directedCERC to provide relief to CGPL as per the PPA. CGPL has approached CERC for appropriaterelief. The matter is now with CERC where hearings have commenced. The ATE has given 3months' time to CERC to determine the compensation.

Kindly refer to section 5.2 of MD&A of this Annual Report for further details onthe matter.

9.2. Multi Year Tariff Orders of MERC

In August 2013 the Hon'ble Maharashtra Electricity Regulatory Commission (MERC)determined the Multi-Year Tariff (MYT) for all distribution licensees for FY14 FY15 andFY16. Subsequently the Company had filed Mid Term Review (MTR) petitions for Tata Power -Generation Transmission and Distribution Business with MERC. MERC passed its order in thesaid MTR Petitions on 26th June 2015.

Thereafter the MYT Regulations 2015 were notified on 8th December 2015 fordetermination of Aggregate Revenue Requirement and Tariff in all matters covered under theRegulations for the Control Period from 1st April 2016 up to 31st March2020.

Accordingly the Mumbai Generation Transmission and Distribution Businesses of theCompany have filed MYT Petitions on 10th February 2016 1st February2016 and 27th February 2016 respectively which also include the Truing up ofFY15 and the provisional Truing up of FY16 as per the requirements of the MYT Regulations2011 applicable for these years. All the three matters are currently pending before MERC.

9.3. Key Judgements of the Hon'ble High Court of Bombay Hon'ble ATE and MERC

In November 2014 the ATE had quashed all restrictions on movement of consumers betweenDistribution Licensees but had directed the Distribution Licensees to limit creation of aparallel network. However in places where the Company had made considerable investment inlaying a network or the works were in advanced stages of completion such network had beenallowed to be commissioned and capitalised.

Subsequent to the aforesaid judgement your Company submitted its revised NetworkRollout Plan (Case No. 182 of 2014). MERC passed an interim Order in the said petition on9th November 2015 whereby the Commission directed constitution of a Committeeto examine and finalize the operational specific matters / physical rollout of network forthe consideration of the Commission. On 28th March 2016 the Committee (soconstituted by the Commission) provided its recommendation to the Commission for itsconsideration. MERC decided to constitute a public hearing to take the views of allstakeholders. The Network Rollout Plan of your Company is currently pending approval ofthe Commission.

Another landmark judgement has been passed by the High Court of Bombay on 2ndMarch 2016 in a Writ Petition filed by the Municipal Corporation of Greater Mumbai (MCGM)against MERC challenging its right and power to modify the Standard of Performance (SOP)timelines in the MERC SOP Regulations 2014. Tata Power was included as a Respondent inthe said Writ Petition. The High Court has dismissed the petition for being without anymerits and further passed certain strictures against MCGM in the said judgement.

9.4. Annual Performance Review (APR) Order for FY14 for Jojobera Units 2 and 3 Jojoberastation of Tata Power Group has 5 units. While Unit 1 and 4 (both 67.5 MW) are tied ascaptive with Tata Steel plant Units 2 and 3 (67.5 MW each) are regulated as these havePPAs with licensed Discom promoted by Tata Steel. Jharkhand State Electricity RegulatoryCommission (JSERC) on 31st May 2015 passed the APR Order for FY14 includingtruing-up for FY13 and truing-up of energy charges for FY12 for Jojobera Units 2 and 3wherein JSERC has approved certain additional capital expenditure schemes pertaining tosafety of the units. Your Company has filed an Appeal with ATE challenging a fewdisallowances in the above APR Order.

9.5. Standby Charges

On an appeal filed by your Company the Supreme Court had stayed the operation of theATE order in 2007 subject to the condition that your Company deposit an amount of Rs. 227crore and furnish a bank guarantee for an equal amount. The Company complied with both theconditions. Reliance Infrastructure Limited (R-Infra) also subsequently filed an appealbefore the Supreme Court challenging the ATE order. Both the appeals were admitted in2007. However no hearings were held on the matter during the year.

9.6. Energy Charges and 'Take or Pay' Obligation

MERC directed R-Infra to pay Rs. 323.87 crore to the Company as the difference betweenthe rate of Rs. 1.77 per kWh paid and Rs. 2.09 per kWh payable for the energy drawn at 220kV interconnection towards its 'Take or Pay' obligation for the years 1998-99 and1999-2000. On an appeal filed by R-Infra the ATE had upheld the Company's contention withregards payment for energy charges but reduced the rate of interest. As per the ATE orderthe amount payable works out to Rs. 34.98 crore (excluding interest) as on 31stMay 2008. As regards the 'Take or Pay' obligation the ATE ordered that the issue beexamined afresh by MERC after the decision of the Supreme Court in the appeals relating tothe distribution license and rebates given by R-Infra. Tata Power and R-Infra filedappeals in the Supreme Court. Both the appeals were admitted and listed for hearing andfinal disposal. The Supreme Court vide its order dated 14th December 2009granted a stay against the ATE order and directed R-Infra to deposit with the SupremeCourt a sum of Rs. 25 crore and furnish a bank guarantee for the balance amount. Pursuantto the liberty granted by the Supreme Court your Company has withdrawn the abovementioned sum subject to an undertaking to refund the amount with interest in the eventthe appeal is decided against the Company. No hearings were held during the year on thismatter.

9.7. Entry Tax

Your Company filed a writ in the High Court at Bombay (HC) challenging theconstitutional validity of the Maharashtra Entry Tax Act. Hearings on the matter concludedand the HC reserved the order. No date is fixed for pronouncement of the order.

10. Risks and Concerns

Your Company is faced with risks of different types all of which need differentapproaches for mitigation. Details of various risks faced by the Company are provided insection 4 of MD&A.

11. Risk Management Framework and Internal Financial Controls

Risk Management Framework:

Based on the Risk Management Policy (http://www.tatapower.com/aboutus/pdf/risk-management-policy.)pdf (alternately scan the adjacent QR Code using a mobile device to read the policy onthe Company website) a standardized Risk Management Process and System has beenimplemented across Tata Power Group.

Risk plans have been framed for all identified risks and uploaded in the system withmitigation action target dates and responsibility. This has enabled continuous trackingof status of mitigation action and monitoring of Risk Mitigation Completion Index (RMCI).The Risk Register contains the mitigation plans for eleven categories of risk. EightFunctional Risk Management Committees (FRMCs) closely monitor and review the risk plans.

All risks have been classified into strategic tactical and operational risks. ApexRisk Management Committee (ARMC) meets every quarter to review major strategic andtactical risks identify new risks and assess the status of mitigation initiatives. As perthe Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations 2015 (Listing Regulations) a Risk Management Committee (RMC)was constituted comprising of 3 Independent Directors 1 Executive Director ChiefFinancial Officer and Chief Risk Officer. The RMC meets regularly to review criticalstrategic risks and summary of top risks of each of the eleven categories and their statusin terms of mitigation actions.

The Company has refined its risk quantification method which helps identify key risksof the organisation and reduce subjectivity in assessment of residual value of each risk.This will further help implement appropriate controls in business processes. Alsogrouping of risks has been undertaken for better management control.

Last year British Standards Institution (BSI) conferred the 'Statement of Compliance'on Tata Power for ISO 31000:2009 - a recognition that implies that the Company has strongprocesses for risk identification management and mitigation. Tata Power is the firstpower company in India to get this recognition. In FY16 BSI has done the assessment ofTata Power and its eight major subsidiaries viz CGPL MPL TPDDL TPTCL TPSSL TPRELPTL and IEL. This year Tata Power Group has again been recommended for conferring theStatement of Compliance basis BSI's recent assessment.

Internal financial controls and systems:

The Company has its internal audit function which endeavours to make meaningfulcontributions to the organisation's overall governance risk management and internalcontrols. The function reviews and ensures sustained effectiveness of Internal FinancialControls (IFC) by adopting a systematic approach to its work.

As per the provisions of Section 177 of the Companies Act 2013 (the Act) and the AuditCommittee Charter adopted by the Board of Directors one of the roles and responsibilityof the Audit Committee is to review the effectiveness of the Company's internal controlsystem including financial controls information technology security and its control.

Section 143(3) of the Act provides that the Statutory Auditor's Report shall statewhether the Company has an adequate IFC system in place and the operating effectiveness ofsuch controls for FY16 and beyond.

As per Section 134 of the Act Directors of listed companies based on therepresentations received from the management are to confirm in the DirectorsResponsibility Statement that IFC are not only adequate but are also operatingeffectively.

With this objective in mind and to fulfill the requirements of the Act in FY16 thein-house internal audit team with the support of two expert audit firms performed thetest of design and test of effectiveness of IFC. Scoping was done based on major classesof transactions account balances. Seven key business cycles general IT controls andEntity Level controls were considered for review.

The Internal Audit and Risk Management (IARM) function has generally adopted Committeeof Sponsoring Organizations (COSO) framework. COSO is a leading framework which providesguidance on the design and evaluation of internal controls. This has been done for 5elements and 17 principles which provides assurance of financial controls in place at thelevel of functional heads and at top management level. This has helped in assessing theeffectiveness and efficiency of operational controls enhanced governance andconsideration of anti-fraud expectations reliability of financial reporting and statutorycompliances. Attributes with internal control deficiencies are identified with actionplans to be pursued responsibility centres and target dates for compliances.

For the Business Process level controls are evaluated through internal audits andControl Self-Assessment (CSA). These CSAs have also been rolled out across other TataPower group companies too. The effectiveness of the IFC was then tested by an externalconsultant who found no significant deficiencies. Further the statutory auditor throughtheir independent testing of IFC has also issued an unmodified opinion.

The Internal Audit process includes review and evaluation of process robustnesseffectiveness of controls and compliances. It also ensures adherence to policies andsystems and mitigation of the operational risks perceived for each area under audit.Internal Audit Policy and Manual has been framed based on which a flexible risk basedaudit plan has been formulated that aligns with the organizational strategy and impact onbusiness objectives. Internal audits are classified into Process Audits Spot Audits etc.depending on the past performance and also the risk perception. All processes of theCompany have been classified under vital essential and desirable based on the analysisof process impact on Company's Strategic Objectives. Post the audit process is ratedthrough the Risk Control Index and Process Robustness Index given by the InternalAuditors. Also theme based audits are carried out for certain areas impacted by changingexternal environment. Significant observations including recommendations for improvementof the business processes are reviewed by the Management before reporting to the AuditCommittee. The Audit Committee then reviews the Internal Audit reports and the status ofimplementation of the agreed action plan. Post recognition of 'General conformance tointernational audit standards' from Institute of Internal Auditors (IIA Global) in 2013quality review of audit reports is carried out as per IIA global guidelines before thereport is issued. Internal audit process has been standardized across the Tata PowerGroup.

Internal audit plan is executed by and in-house audit team with support of an expertInternal Audit firm. This risk based audit plan has been used for subsidiaries and othergroup companies as well.

During the previous years standardisation and automation of Risk Control Matrix (RCM)project was undertaken and completed with the support of an expert audit firm. RCM is ofprime importance as it will form the basis of testing effectiveness and assess compliancesto the IFC. This project involved control documentation identification of commoncontrols which has facilitated standardisation of control ratings sample size andtesting methodology. This project has resulted in better control and improved quality ofaudit. Your Company has also started its journey towards digitalization through enhanceddata analysis on audits which will result in improved quality and focused audits. Thisstandardisation process continued during in the current year for subsidiaries and certaingroup companies.

As a step towards achievement of excellence in audit methodology data analyticssoftware has been developed which assists in scientific sampling and exception reportingafter scanning large databases facilitates automation builds

reliability in analysis of transactions assists in effective/focussed field work whichwill improve the quality and give value added results. The by-product of use of this toolis reduction in man weeks and cost of audits of up to 24 man-weeks for FY17.

Changes to the Internal Audit Process in anticipation of the Act were started in theyear gone by. These included creation of a comprehensive framework for fraud movingtowards increased reviews and/or internal audits of group companies for greater comfort onthe investments in the group companies increasingly focused on theme audits and greaterautomation of the internal audit systems.

Assessment mechanism for measuring the existence and effectiveness of controls areestablished by the fact that the Value Added Index which is a measure of effectivenessand contribution of the internal audit to top management and Audit Committee has improvedover the years and so has the Risk Control Index (RCI) thereby giving assurance tomanagement of efficiency and effectiveness of the Internal Financial Controls. The actiontaken statistics emerging out of internal audit reports for last three years reflect anincrease in implementation percentage achieved through rigorous and systematic follow up.Further the total number of action points has decreased over the last three yearsthereby reflecting an improvement in the system and processes.

On review of the internal audit observations and action taken on audit observations wecan state that there are no adverse observations having material impact on financials orcommercial implications or material non-compliances which have not been acted upon.

Control Self-Assessment: The Company continued the CSA process this year wherebyresponses of all process owners are used to assess internal controls in each process. Itwas also extended to seven other Tata Power group companies. This helps the Company toidentify focus audit areas design the audit plan and support CEO/CFO certification forinternal controls. The CSA questionnaire is designed to test effectiveness of deploymentof existing controls for processes which are not to be audited as per the audit plan. Theresponses received from process owners on the questionnaire are analysed and validatedthrough spot audits. This ensures optimum coverage of audit universe to provide assuranceon the operating effectiveness based on results of evaluation across all processes.

Process Robustness Index (PRI): The processes are examined to assess their robustnessprimarily from the perspective of system driven controls (SAP CRM Documentum etc.)which ensures that deviations from the defined process do not occur due to manual errors.In case controls have not been embedded in the system other compensating controls such asmaker-checker are exercised to assess the robustness of the process. This index iscomputed on the basis of existence of robust controls and not on the basis of extent ofimplementation of these controls. Your Company has obtained a copyright for this PRIscoring methodology. While the objective of this measure is to bring about the use of ITand Automation/ Digitalization intervention it is not the intention to have the outcomeachieved through embedded computer & IT systems. Therefore appropriate flexibilityfor decision making on last mile basis the outcomes aspired is allowed.

The following paragraphs bring out the differentiation between IFC and ProcessRobustness Controls.

Process Robustness Index (PRI): The processes being audited are examined to assesstheir robustness in terms of control automation outcome orientation benchmarkingintegration and data/record management. The scope of PRI is not limited to providingassurance on effectiveness of IFC and process controls rather it is worked out byconsidering end-to -end process from inputs to outputs digitalization improvements andoutcome orientation.

There are eight elements based on which the process robustness is assessed - (1)documentation - process workflow training manual; (2) controls - manual or systemdriven; (3) mechanism for obtaining customer inputs; (4) performance measurement tracking;(5) traceability of records; (6) initiatives taken for process improvements; (7)integration of process being audited with other processes and (8) data management. Basedon the system maturity each of the elements is rated.

As an additional support to establish efficiency and effectiveness of IFC in additionto internal audits the Company also submits declarations to various regulatoryauthorities like MERC SEBI RBI etc. The statutory auditors carry out an audit atquarterly intervals and these reports have not reported any adverse findings. TheCompany's Secretarial Audit carried out in the current year has not indicated anyreportable lapses.

12. Safety

Safety has been a core value and always is the top priority in your Company. TheCompany has a structured safety organization for monitoring implementing and takingcorrective actions for safety improvements. There are approximately 12500 employees andcontract workers at various locations of Tata Power Group.

Safety Statistics FY16

Safety Parameters in your Company's work jurisdiction (Tata Power CGPL MPL IEL CTTL Powerlinks TPDDL and TPSSL) FY16 FY15
1 Fatality (Number) 3* 3*
2 LTIFR (Lost Time Injuries Frequency Rate per million man hours) 0.2 0.15
3 Total Injury Frequency Rate (No of injuries per million man hours) 5.19 5.64
4 First Aid Cases (Number) 325 592

• - Company's contractor's employees

The Company is deeply aggrieved by the fatalities and accidents. It treats any fatalityin any of its premises of any of its employees contractor/associate's employees or anythird party with equal gravity and is committed to taking the entire working environmentand behaviour to the highest safety standards.

Your Company increased its efforts on safety during the year and took the followingadditional steps in FY16 to improve safety:

• Revised the contractors' safety code of conduct

• Included consequences and rewards in General Conditions of Contracts (GCC) forassociates and contractors

• Enhanced training of contractors' workers as well as for the family members

• Launched a mobile application on safety for incident reporting

• Nominated departmental engineers on rotation basis to be safety incharge

• Capability building for high risk roles

• High visibility safety tours by leadership and safety observations; audits bysafety experts

13. Sustainability

Your Company successfully completed 100 years of its operation and remains committed tothe legacy of being a responsible corporate citizen. It has practiced Sustainability overthese 100 years and thus reinforced the core value of Leadership with Care. For yourCompany sustainability is care for the environment care for the customers andshareholders care for the community and care for our people.

Figure 1: Tata Power Sustainability Model

The Company's efforts on sustainability were recognized at various platforms and atestimony of this were the various awards bestowed upon your Company the latest beingSustainable Plus Platinum Label for FY15 by CII's Centre of Excellence for SustainableDevelopment (CESD). It is based on a comprehensive assessment of environmental social andgovernance analysis of companies which helps them to measure performance as well asidentify risks that challenge sustainability of their business.

The year also saw the launch of the Company's 6th Sustainability Report forFY15 and the first one to be prepared in accordance with the latest G4 Guidelines of theGlobal Reporting Initiative (GRI).

13.1. Care for our Community Community Relations (Social and Relationship Capital)

Your Company has actively worked on five thrust areas in Corporate SocialResponsibility (CSR) - Primary Education with focus on girl child Health & DrinkingWater Livelihood & Employability Social Capital & Infrastructure and InclusiveGrowth.

In FY16 the CSR policy for different Tata Power Group companies was aligned to thefive thrust areas and programs were rolled out across locations and mapped with Schedule-VII to the Act with timelines and outcome indicators. The same was approved by the CSRCommittees of the respective Tata Power Group companies.

In FY16 Tata Power Group companies reached out to more than 250 villages/urban pocketsacross 7 states. The year saw your Company ramp-up CSR capabilities and operations acrossall locations by bringing robustness to systems and processes to ensure effective programswhich deliver long-term impact and bring changes to the community. This also marked ashift in bringing focus and institutionalisation of 80:20 paradigm of CSR with 80%allocation of resources on long-term sustainable and thematic programs and 20% resourceson location specific programs. Tata Power Community Development Trust (TPCDT) being thedevelopmental vehicle for CSR programs was assigned to undertake CSR Programs for TataPower and its Group companies.

Tata Power Skill Development Institute (TPSDI) launched four key centres and traininghubs at Trombay and Shahad (Mumbai) Maithon (Jharkhand) and Mundra (Gujarat). TPSDIundertook modular power skills training and positively impacted 1700 persons in FY16.

The total CSR spend for the Company in FY16 stood at Rs. 29.01 crore as against therequirement of Rs. 28.29 crore as per the Act. Additionally as a part of disaster reliefoperations the Company contributed towards relief efforts in Nepal Georgia and TamilNadu.

Independent monitoring effectiveness of implementation impact assessment wereundertaken to provide feedback and to refine realign the programs so that the extent andeffectiveness of the initiatives could be improved in pursuance of Tata Power's objectiveto improve the quality of life of the community and to get community's tacit or impliedacceptance of the Company's co-existence with them. One such measure which helped in thepurpose is Community Engagement Index (CEI).

Note: Overall Tata Power CEI score (2015-16): 77.3; Trombay included only in the FY16

Your Company encouraged employee volunteering through its Arpan initiative.Volunteering programs were also organized at Jawhar (a district in Maharashtra) whereTata Power runs Affirmative Action (AA) programs. This program provided the employees anopportunity to understand the concerns of the deprived community and disparity in theliving standards of a community which is in close proximity to developed cities likeMumbai and Nashik. To promote employee volunteering across all locations of Tata PowerARPAN Awards were constituted with the aim of institutionalizing efforts through employeevolunteering and recognition of divisions for exemplary work in volunteering. Mulshi(Bhira) division of Hydros bagged the award last year.

Major highlights of programs in FY16 (Standalone) are as follows:

• Reached out to more than 5 lakh beneficiaries through CSR initiatives inEducation Health Livelihood Social Capital and Nurturing Sustainability.

• Reached out to more than 230 schools covering more than 1 lakh students throughvarious educational initiatives resulting in substantial attendance improvement andreduction in dropout rates.

• Helped provide 6700 households with access to sanitation/toilet facilitycovering over 36700 children.

• Maithon hosted the Life Line Express (first hospital on train) serving nearly6000 patients providing medical care for the needy attending to ENT dental cleft lipsurgery orthopaedic epilepsy gynaecology and eye issues.

• Reached out to 167 villages under vocational training/employability programcovering over 1500 youth.

• 136 villages were covered under Social Capital & Infrastructure creating 363Self Help Groups across locations.

• 114 villages were covered under Rural Energy program reaching out to over 5800households.

• Over 7.5 lakh trees were planted across locations.

• 1039 employee volunteers contributed towards 10854 volunteering hours.

• 1400 Solar Lamps were distributed during Tamil Nadu Flood Relief.

• Tata Power supported treatment of cancer patients through Tata Medical CentreTrust.

Annual report of CSR activities is provided in Annexure - I.

13.2. Affirmative Action

Under its Affirmative Action (AA) program your Company has implemented severalinitiatives for Employment Entrepreneurship Employability Education and EssentialAmenities for the communities around its operating sites and adopted community.

The major programs carried out in the neighbourhood of the operating plants andprojects include skill development programs for youth (Industrial Training InstitutesBusiness Process Outsourcing training and vocational trainings) entrepreneurial programslike fiy ash brick making/supporting Self Help Groups assistance in obtaining castecertificate through dedicated drives and support for educational initiatives for schoolchildren like scholarships and coaching classes in the evenings along with assistance inthe development of adequate infrastructure.

Your Company continued its work in areas beyond its areas of operations such as inJawhar taluka Palghar district of Maharashtra which has a tribal population of over 90%of the total population with a vast majority of them below the poverty line. Theactivities here included new initiatives like livelihood generation - kitchen garden andpoultry farming and setting up of the Village Development Committee (VDC). The VDC haselected members from the village as well as Tata Power and are responsible for thesustainable development of the village.

Some major AA program details are:

• Promoted 240 community entrepreneurship ventures like fly ash brick makingpoultry farming garment manufacturing etc. with an investment of Rs. 139 lakh whichhelped to increase family incomes upto Rs. 60000 to Rs. 80000 per year.

• Outsourced Rs. 17.65 crore of products and services from 36 vendors /contractors.

• Provided technical and monetary support for various agricultural interventionsto enhance the income of about 730 SC/ST farmers.

• Supported 731 SC/ST persons across various Industrial Training Institutes(ITIs) skill development programs.

• Built a full-fledged hostel for outstation SC/ST youth at Industrial TrainingInstitutes (ITIs) at Mulshi.

• Enabled access to computer education and spoken education to 2422 SC/STstudents across locations.

• Provided scholarships to 53 SC/ST students amounting to Rs. 13.17 lakh.

• Extra / night coaching classes benefited about 318 SC/ST students appearingclass X and XII board examination.

• Facilitated access to basic essential amenities like safe drinking waterhealthcare solar lights etc. to over 41000 SC/ST population across locations.

• Helped in obtaining 953 caste certificates at Hydros and Jawhar. The process ofobtaining certificate is going on for SC/ ST community across divisions.

13.3. Care For Our Environment (Natural Capital)

The Company during the year addressed various aspects of resource conservationenergy efficiency carbon footprint renewable power generation biodiversity and greenbuildings. Details of initiatives undertaken are given in MD&A Section 9.1.3

Natural Capital

Acknowledging the adverse impact on climate change caused by the globalindustrialization as also by power sector and to ensure a minimal impact on theenvironment your Company drew up plans to limit carbon emissions and move towards aportfolio with a significant proportion of clean and green generation. Tata PowerStrategic Intent for the year 2025 is to achieve 30-40% generation capacity fromnon-fossil fuel based generating sources.

Your Company instituted a process of due diligence to consider all its developmentproposals (Indian/ International) based on some internal criteria considering assessmentof land parcel water source treatment and disposal of water effluents and solid wasteand likely implications on communities around the proposed development. Tata Powercontinued to implement activities which focus majorly on resource conservation wasteminimisation energy and water conservation and reduction in auxiliary power. Theseinitiatives were tracked through its Green Manufacturing Index (GMI).

The Company is proud of the fact that none of its major Indian operations were in closeproximity to any nationally or internationally designated Protected Areas (PA) such asnational parks wildlife sanctuaries World Heritage Sites etc. and all such areas (ifany) were situated further than laid out requirements from its operations.

Afforestation activities were on-going across the Company to improve greenery. On alocal scale tree cover is needed within the operating stations to maintain ambientmicroclimatic conditions by reducing the heat island effect. They are also essential inthe catchment areas of the Company's water reservoirs to ensure steady precipitation tofill the reservoirs. The Company thus indirectly relies on good quality fertile soil tosustain the tree cover and control the soil erosion. Additionally mangrove restorationwas carried out at Bharuch Gujarat covering an area of 1000 hectares. The Company relieson mangrove stretches for providing a barrier against natural hazards from the sea sincesome of the major operating stations as well as transmission lines run in close proximityto the coast.

Highlights of some Biodiversity initiatives:

Mahseer Breeding program- Since 1971 your Company has been involved in the speciesconservation project with state fisheries department that included setting a Mahseerhatchery at Walwhan Lonavala. In the last 40 years of the execution of the project morethan 1.85 crore fertilized eggs have been obtained from the hatchery and over 10.4 lakhMahseer fingerlings have been produced. For creating awareness on Mahseer anInternational Conference on Conservation of Mahseer was hosted by Tata Power and attendedby fisheries scientists from across the country which culminated in the adoption of'Lonavala Declaration' on Mahseer Conservation. Additionally an awareness campaign Actfor Mahseer was launched for the Company's internal as well as external stakeholders.The campaign included various components such as Pledging to save the Mahseer a Mahseermanual creation of a mascot Tor and such other activities.

Natural Capital Valuation at Hydros in Western Ghats- Your Company piloted a uniqueproject on the Natural Capital Valuation for its Hydro operations in Lonavala. This isbeing carried out to understand the impacts and dependencies between the businessoperations and the ecosystem services and create a tool that helps the business takedecisions considering impact on ecology. This initiative is spearheaded by the NaturalCapital Coalition. Tata Power has actively tried to develop a methodology throughwhich ecosystem services can be valued and make it a replicable and consistent one whichcan be integrated into decision making at the managerial level. The scope of the studyincluded operations focusing on all business activities which result in the setting up andrunning of a Hydro power plant. Tata Power has seven reservoirs spread in and around theLonavala-Mulshi area in Maharashtra nestled in the Western Ghats which are rich inbiodiversity. There are three Hydro power plants which use the water from thesereservoirs.

13.4. Club Enerji

Tata Power's Club Enerji is focused on school students to champion the noble cause ofconservation of resources and moral and civic values. This in turn supplements the causeof nation building. The Club has been ceaselessly working towards creating responsiblecitizens of tomorrow who focus not only on conserving energy and natural resources (likefossil fuel - coal oil gas; water; managing waste; afforestation) but also conservecivic ethical and moral values in society at large.

The Company has further scaled up the magnitude of this initiative by launching anonline module of the Club Enerji programme in 2015. The objective of this initiative wasto reach out to a larger audience and impact a larger group of IT skilled children with avision to transform by adopting a holistic and robust approach towards conservation. TataPower Club Enerji also reaches out to school children through various interactive mediumsand sensitizes them on the need to conserve power and resources.

Recognizing the immense value that schools and school children can bring to theinitiative and taking due consideration of the social need Tata Power started "TataPower Club Enerji" in 2007 to propagate efficient usage of energy and to educate thesociety on climate change issues. Club Enerji covers 500 schools across Mumbai DelhiPune Ahmedabad Bengaluru Kolkata Belgaum Jamshedpur Lonavala and five more cities.It has reached out to more than 12.8 million citizens collectively saved 17.26 millionunits of electricity - equivalent to saving 17000 tons of CO2. 1337 MiniClubs have also been formed all over India under the Club Enerji initiative.

Tata Power Club Enerji also launched its comprehensive Online Module in November 2015with an aim to reach out to a larger audience with a vision of transformation and adoptionof a holistic and robust approach towards conservation. The module since its launch hasalso reached out to audiences in new international geographies like Philippines UAE USAUK and South Africa and newer national geographies like Chandigarh Hyderabad and Chennai.

13.5. Demand Side Management

The Company has been at the forefront of propagating energy conservation andefficiency.

Demand-side management (DSM) refers to cooperative activities between the utility andits customers to implement options for increasing the efficiency of energy utilizationwith resulting benefits to the customer utility and society as a whole.

Industrial commercial and residential consumers in the city have unique usagepatterns. Your Company has developed different programmes for each of these categories andhas launched a unique consumer initiative called "Be Green". This initiativegives an opportunity to Mumbai consumers to exchange their old inefficient electricalappliances for new 5 star rated energy efficient appliances at a discounted price. TheCompany has partnered with leading consumer appliance manufacturers for energy efficientequipment. The consumers appreciate these initiatives as it helps to reduce their energycost by 30% to 50% without compromising on their comfort and convenience.

During this financial year your Company provided to its customers in Mumbai and Delhi15.5 lakh LED bulbs and also facilitated the replacement of nearly 20000 inefficientappliances such as old fans air conditioners etc. with new star rated energy efficientones.

Large industrial and commercial consumers need detailed analysis of their energy use toidentify the saving potential. Your Company carried out energy audits for such consumersat a large discount. The experts mapped their unique power consumption pattern and offeredspecific recommendations to improve the processes and equipment efficiency. Several largeconsumers took the benefit of this programme. In FY16 TPDDL became the only power utilityto be empanelled with Bureau of Energy Efficiency as Grade 1 ESCO and provided value addedenergy efficiency services like comprehensive energy audit and implementation of energyperformance improvement projects to its consumers.

Along with different programmes and schemes Tata Power organized consumer awarenessprogrammes to develop a culture of energy efficiency and conservation.

Your Company received the National Energy Conservation Award under the Discom sectorfrom the Ministry of Power Government of India for the year 2015.

13.6. Sustainability Reporting

Your Company has adopted the latest Global Reporting Initiative (GRI) G4 guidelines toreport on its sustainability performance for FY16. The report prepared in accordance withthe comprehensive criteria is specific to the Indian operations of your Company viz.generation transmission and distribution of power and highlights the sustainabilityperformance of your Company. Your Company has been recognized as one of India's mostsustainable companies with the Sustainable Plus Platinum Label for FY 2015 by CII. TheCompany's Sustainability Report is hosted on its website: http://www.tatapower.com/sustainability/sustainability-communications.aspx (alternately scan the adjacent QR Code using a mobile device to readthe policy on the Company website).

13.7. Business Responsibility Report (BRR)

The Business Responsibility Reporting was in line with the SEBI requirement based onthe 'National Voluntary Guidelines on Social Environmental and Economic Responsibilitiesof Business' notified by Ministry of Corporate Affairs (MCA) Government of India in July2011. Your Company reported its performance for FY16 as per the BRR framework describinginitiatives taken from an environmental social and governance perspective. The BRR ishosted on the Company website: http://www.tatapower.com/investor-relations/pdf/business-responsibility-report-fy16.pdf (alternately scan the adjacent QR Code using amobile device to read the policy on the Company website).

13.8. Integrated Reporting (IR)

Your Company prides itself in making voluntary disclosures to keep its stakeholdersfully informed on all aspects of its business. Your Company decided to take steps tofurther enhance the disclosures and information provided in its annual report in alignmentwith the Integrated Reporting <IR> framework by International Integrated ReportingCouncil (IIRC). This year in addition to the Financial and Manufactured capitals yourCompany has included sections on Natural Intellectual Human and Social &Relationship Capitals. Over the next few years your Company will endeavour to cover moreaspects in consultation with various stakeholders.

13.9. United Nations Global Compact

Your Company reports on United Nations Global Compact's (UNGC) ten principles in theareas of Human Rights Labour standards Environment and Anti-corruption since 2006. TheCompany had submitted the 10th Communication on Progress (CoP) to UNGC for FY16.

13.10. Transition to Indian Accounting Standards (IndAS)

With effect from April 1 2016 your Company is required to align its accountingpolicies and disclosures with new Indian Accounting Standards or IndAS. Consequently thefinancial statements to be issued hereafter will be different from those issued from thecurrent set. Apart from differences in the way assets liabilities income expenses andlosses are measured even the disclosure requirements as also the various statementscomprising the financial report will substantially change.

In the case of the Company a number of changes are expected. The most significantchange that will affect the net worth as also future profit and loss amounts will be onaccount of:

a. The recognition of a fair value gain or loss through profit and loss statement ofoutstanding derivative contracts that the Company holds at each balance sheet date

b. The recognition of unrealized gain or loss when fair valuing the investments thatthe Company holds at each balance sheet date

14. Directors and Key Managerial Personnel

Mr. Thomas Mathew T nominee of Life Insurance Corporation of India (LIC) on theCompany's Board resigned as a Director of your Company effective 30th April2015. The Board has placed on record its appreciation of the valuable contribution made tothe Company by Mr. Mathew during his tenure. Mr. Vijay Kumar Sharma Managing Director ofLIC was nominated by LIC as Director on the Board effective 19th May 2015. Heresigned as Director effective 2nd July 2015. Mr. Pravin H. Kutumbe ExecutiveDirector of LIC was thereafter nominated by LIC as Director on the Board. Mr. Kutumbe wasappointed as an Additional Director with effect from 7th September 2015 inaccordance with Article 132 of the Company's Articles of Association and Section 161 ofthe Act. Mr. Kutumbe holds office only upto the date of the forthcoming Annual GeneralMeeting (AGM) and a Notice under Section 160(1) of the Act has been received from a Membersignifying its intention to propose his appointment as Director.

Mr. R. Gopalakrishnan Non-Executive Non-Independent Director on your Company's Boardstepped down as Director of the Company effective close of business hours on 24thDecember 2015 consequent upon his completing 70 years of age as required by theguidelines adopted by the Company for retirement of Non-Executive Directors. The Board hasplaced on record its deep sense of appreciation of the immense contribution made to theCompany by Mr. Gopalakrishnan during his tenure with the Company since January 1999.

Ms. Vishakha V. Mulye Independent Director on your Company's Board resigned effectiveclose of business on 18th January 2016. The Board has placed on record itsappreciation of the valuable contribution made to the Company by Ms. Mulye during hertenure.

Mr. Anil Sardana was re-appointed as CEO and Managing Director of the Company for aperiod of 5 years from 1st February 2016. His re-appointment and theremuneration payable to him require approval of the Members at the ensuing AGM.

Ms. Sandhya S. Kudtarkar was appointed as an Additional Director with effect from 16thApril 2016 in accordance with Article 132 of the Company's Articles of Association andSection 161 of the Act. Ms. Kudtarkar holds office only upto the date of the forthcomingAGM and a Notice under Section 160(1) of the Act has been received from a Membersignifying its intention to propose her appointment as Director.

In accordance with the requirements of the Act and the Company's Articles ofAssociation Mr. Anil Sardana retires by rotation and is eligible for re-appointment.

Six Board Meetings were held during the year. For further details please refer toReport on Corporate Governance which forms a part of this Report.

In terms of Section 149 of the Act Dr. H. S. Vachha Mr. N. H. Mirza Mr. D. M.Satwalekar Mr. P. G. Mankad and Mr. A. K. Basu are the Independent Directors of theCompany. The Company has received declarations from all the Independent Directorsconfirming that they meet the criteria of independence as prescribed under the Act.

In terms of Section 203 of the Act the following are the Key Managerial Personnel ofthe Company:

• Mr. Anil Sardana CEO and Managing Director

• Mr. Ashok S. Sethi COO and Executive Director

• Mr. Ramesh N. Subramanyam Chief Financial Officer

• Mr. Hanoz M. Mistry Company Secretary

15. Annual Evaluation of Board Performance and Performance of its Committees andIndividual Directors

Pursuant to the provisions of the Act and Regulation 25 of the Listing Regulations theBoard has carried out an annual evaluation of its own performance performance of theDirectors individually as well as the evaluation of the working of its Committees.

The following process was adopted for Board evaluation:

i) Feedback was sought from each Director about their views on the performance of theBoard covering various criteria such as degree of fulfilment of key responsibilitiesBoard structure and composition establishment and delineation of responsibilities tovarious Committees effectiveness of Board processes information and functioning Boardculture and dynamics quality of relationship between the Board and the Management andefficacy of communication with external stakeholders. Feedback was also taken from everyDirector on his assessment of the performance of each of the other Directors.

ii) The Nomination and Remuneration Committee (NRC) then discussed the above feedbackreceived from all the Directors.

iii) Based on the inputs received the Chairman of the NRC also made a presentation tothe Independent Directors at their meeting summarising the inputs received from theDirectors as regards Board performance as a whole and of the Chairman. The performance ofthe Non-Independent Non-Executive Directors and Board Chairman was also reviewed by them.

iv) Post the meeting of the Independent Directors their collective feedback on theperformance of the Board (as a whole) was discussed by the Chairman of the NRC with theChairman of the Board. It was also presented to the Board and a plan for improvement wasagreed upon and is being pursued.

v) Every statutorily mandated committee of the Board conducted a self-assessment of itsperformance and these assessments were presented to the Board for consideration. Areas onwhich the Committees of the Board were assessed included degree of fulfilment of keyresponsibilities adequacy of Committee composition and effectiveness of meetings.

vi) Feedback was provided to the Directors as appropriate. Significant highlightslearning and action points arising out of the evaluation were presented to the Board andaction plans drawn up. During the year under report the recommendations made in theprevious year were satisfactorily implemented.

16. Remuneration Policy for the Directors Key Managerial Personnel and other Employees

In terms of the provisions of Section 178(3) of the Act and Regulation 19 read withPart D of Schedule II to the Listing Regulations the NRC is responsible for formulatingthe criteria for determining qualification positive attributes and independence of aDirector. The NRC is also responsible for recommending to the Board a policy relating tothe remuneration of the Directors Key Managerial Personnel and other employees. In linewith this requirement the Board has adopted the Policy on Board Diversity and DirectorAttributes which is reproduced in Annexure-II and Remuneration Policy for Directors KeyManagerial Personnel and other employees of the Company which is reproduced inAnnexure-III to this Report.

17. Committees of the Board

The Committees of the Board focus on certain specific areas and make informed decisionsin line with the delegated authority. The following statutory Committees constituted bythe Board function according to their respective roles and defined scope:

• Audit Committee of Directors

• Nomination and Remuneration Committee

• Corporate Social Responsibility Committee

• Stakeholders Relationship Committee

• Risk Management Committee

Details of composition terms of reference and number of meetings held for respectivecommittees are given in the Report on Corporate Governance.

The Board has laid down separate Codes of Conduct for Non-Executive Directors andSenior Management personnel of the Company and the same are posted on the Company'swebsite at https://www.tatapower.com/ aboutus/pdf/Code-of-Conduct-NEDs.pdf(alternately scan the adjacent QR Code using a mobile device to read the policy on theCompany website). All Senior Management personnel have affirmed compliance with theTata Code of Conduct (TCOC). The CEO & Managing Director and key managerial personnelhave also confirmed and certified the same. The certification is enclosed at the end ofthe Report on Corporate Governance.

18. Conservation of Energy Technology Absorption

The information on conservation of energy and technology absorption stipulated underSection 134 (3) (m) of the Act read with Rule 8 of The Companies (Accounts) Rules 2014is attached as Annexure - IV.

18.1. Intellectual Capital

Your Company has been a pioneer in the Indian power industry for bringing in newinnovative and efficient technologies in its core business areas. Technology plays animportant role in overall success of business to support our geographical spread productportfolio customer reach and future aspirations. Its Mission "Being the Lead Adopterof Technology with a spirit of pioneering and calculated risk taking" enabled it toadopt advanced / disruptive technologies as well as develop some products andtechnological processes (value added fly ash products blending of coal ZLD networkmanagement / restoration techniques in T & D etc.) through a structured Short /Medium & Long term technological roadmap in order to:

1. Earn affection of our customers by delivering superior experience and value

2. Drive competitiveness by operating our businesses at benchmark levels

3. Practice "Leadership with Care" by pursuing best practices on Care forEnvironment Community Customers Shareholders people and creating a culture that willreinforce our values.

One of the notable examples to show your Company commitment to technology is itsinvestment in the first super critical ultra - mega thermal power plant in Mundra whichreduces the CO2 impact on the environment as compared to a subcritical plant ofthe same size. Your Company also achieved increased efficiencies of solar photovoltaicpanels (13% to 16.8%). Since 75% of generation portfolio is through thermal power plantsthe Company put in place a dedicated group (Clean Tech & Applied Research) inassociation with plant operating teams and CTTL to develop value added products from thesolid waste i.e. ash which is generated from the thermal power plants. Some of theexamples included making bricks plaster from bottom ash and using fly ash in ultra thinwhite topping roads and replacement of sand by bottom ash. Clean Tech & Appliedresearch group also developed products and schemes for Decentralised DistributedGeneration and commissions demo plants with the help of Hydros. These products were in theearly stages of commercialization. The technology and innovation activities wereencouraged at Divisional level and the outcomes were showcased in your Company Knowledgeand Innovation Fair and rewarded. There is also a Technology Advisory Council (TACT)consisting of experts which helps in providing expert guidance in developing projects.

Your Company also participated in international exhibitions conferences seminars andworkshops for capability building as well as for networking. It also collaborated withinstitutions such as IIT Mumbai BITS (Pilani) MIT VIT IISc etc. to keep a tab on thetechnological innovations being developed at these premier institutes as also provideinternship to students who carry out work in the related fields. Your Company has adedicated group which scans various technology related developments in the powergeneration space through forums such as clean tech i3 trade and investment forums.

There were various Knowledge Sharing Sessions regularly conducted across the divisionsto facilitate the transfer of knowledge and sharing of best practices which were inaddition to business level knowledge sharing sessions organised by the business heads.Company wide webinars were conducted through 'Tarang' - a software tool and communicationmeets for dissemination of information and knowledge across the Company. K-Hub a webbased knowledge repository captured internal and external explicit knowledge. There wasa bi-annual Knowledge and Innovation Fair which was used to facilitate sharing of bestpractices and innovations across the organisation.

Your Company collaborated with its OEMs (Original Equipment Manufacturers) suppliersand technology providers to develop customised solutions for its customers. OEMs andtechnology suppliers were also invited to the Knowledge Sharing Workshops organised byTata Power to share knowledge and Best Practices with the participants from acrosslocations and divisions of the organisation.

Your Company learnt and adopted best practices from other Tata group companies byactively participating in the various forums like Learning Missions and Tata EDGE. Inaddition to the above initiatives Tata Power also encouraged its employees to activelyparticipate in the forums created at the Tata Group level like Tata Innoverse and TataInnovista. Tata Power was one of the early companies to join Tata Innoverse and leveragedthe resource available by consistently posting some of its critical challenges in thisgroup forum.

19. Particulars of Employees and Remuneration

The information required under Section 197 (12) of the Act read with Rule 5 of TheCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is attachedas Annexure - V.

The information required under Rule 5 (2) and (3) of The Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 is provided in the Annexure formingpart of this Report. In terms of the first proviso to Section

136 of the Act the Report and Accounts are being sent to the Members excluding theaforesaid Annexure. Any Member interested in obtaining the same may write to the CompanySecretary at the Registered Office of the Company. None of the employees listed in thesaid Annexure is related to any Director of the Company.

Officers of the organization are divided across five work levels i.e. MA MB MC MDand ME. The work levels are further divided into grades. Blue Collared employees areacross different grades but have been classified as unskilled semi-skilled skilled andhighly skilled.

For the officers a benchmarking exercise was undertaken in FY16 with the help of aglobal consultancy firm specializing in remuneration & compensation. The benchmarkingwas to understand the comparative position of remuneration of Tata Power officersvis-a-vis officers in equivalent grades in five key players in the energy and powersector. As per this report the median salary of officers at Tata Power in differentgrades was aligned to the market compensation.

The Company also benchmarked remunerations of 9 key positions below CEO & MD levelbased on the CXO Compensation Study 2016 carried by Tata Group HR.

19.1. Human Capital

Your Company recognises that its people are a key resource and endeavours to enable itsemployees to deliver on business requirements while meeting their career aspirations.Human resources plays a pivotal role in enabling smooth implementation of key strategicdecisions through aligned capability development leadership development diversity andindustry relations practices.

• Capability Development - Your Company takes pride in the technical andfunctional excellence of its employees. It aims at providing an environment wherecontinuous learning takes place to meet the changing demands and priorities of thebusiness including emerging businesses and geographies. It developed a structuredmechanism to support people development as described below:

1. Competency/Learning levels for various roles are regularly evaluated and established

2. Individual level gaps were identified through an assessment mechanism or PMS cycle(Training Need Identification)

3. Training needs were fulfilled through relevant and best in class interventions

4. Job rotation opportunities discussed and enabled where relevant

Also your Company established Tata Power Skill Development Institute (TPSDI) foraddressing the skill gap in power and allied sectors by training incumbents in thecommunity as part of its Corporate Social Responsibility endeavour. TPSDI providedmodulartraining and certification across a wide range of employable skills including electricalmechanical and solar power skills. The skilled manpower from this institute were availablenot only to Tata Power but also contributed to power sector companies across the country.The institute has 4 centres in Shahad Trombay Maithon & Mundra.

• Leadership Development - The current business environment requires a balancebetween business acumen strategic thinking result orientation and people managementwhich are key leadership skills. Your Company has a Leadership Development Framework whichcaters to the developmental needs of senior leaders and key employees in its talent poolto meet these needs. Leaders undergo various programs like the Tata Group Induction forBusiness Leaders (new joinees) Tata Group Strategic Leadership Seminar (TGSLS) TataGroup Executive Leadership Seminar (TGELS) Tata Group emerging Leaders Seminar (TGeLS)and Tata Group Management Development Program (TGMDP). For senior leaders nominationswere made last year to Cambridge Sustainability Leadership Program Spokesperson MediaTraining Market segmentation Safety conference Enterprise Risk management Tata GroupLearning Mission and the World Utility Summit. Periodic nominations were made to best inclass external leadership programs offered by TMTC IIMs XLRI ASCI and CII as also tothe 3 module in-house flagship programs - STEP (Strategic Training for Employees'Progress) EDP (Employee Development Program) and MDP (Management Development Program).

• Talent Retention - Your Company believes that retaining talent gives acompetitive advantage in a fast evolving and challenging business environment. Meritocracyis the central theme for all employee life cycle processes like Recruitment PerformanceManagement Rewards & Recognition Career Growth and Exit Management. Plannedinterventions were carried out across all levels of management to identify and retain theright talent. Some of these interventions included Accelerated Career Enhancement (ACE) -a fast track talent management programme identification of High Potential officers forfurther development succession management Myfeedback - a developmental tool for seniorand top management to enable them to obtain developmental feedback whereby learning anddevelopment can be initiated by self or aided by the organization and Management PlanningDiscussion - a career planning exercise for senior management. Your Company has held itsattrition rate below 4% for the past four years.

• Diversity - Your Company is an Equal Opportunity Employer in all practice areas.Around 35 senior leaders underwent Diversity & Inclusion workshops to ensure that theorganizational agenda percolates from the apex leadership and pervades smoothly throughoutthe organization. In FY16 19 workshops were organized covering around 400 employees forsensitization of employees towards promotion of workplace diversity in addition tocultural sensitivity trainings mutual respect for affinity groups community outreach andcultural celebrations at work.

Also in line with Tata Group's vision to create 1000 women leaders by 2020 yourCompany has been promoting gender diversity within the Tata Power Group of companiesthrough focused interventions like International assignments for women specially designedLDPs for women colleagues MD's Dialogue with women employees to encourage womenparticipation in various forums and to address their concerns and challenges andInternational Women's Day Celebrations. Additionally the induction and on boarding of newjoinees included direct communication on key themes such as Tata Code of ConductPrevention of Sexual Harassment at Work and mutual respect towards colleagues irrespectiveof their cultural and social background.

• Industrial Relations - Cordial relations exist between Management and Unionbased on mutual respect and understanding which allows for smooth and uninterruptedfunctioning of your Company. Meetings were held periodically between Management and Unionto discuss various issues and the Union was consulted on all significant changes. For alloperational changes your Company in consultation with the person concerned gave aminimum notice period and followed legal requirements. Agreements with the Union have beensigned for four years covering aspects related to health and safety salary allowancesbenefits and productivity clauses in line with the business requirements.

Your Company has a robust legal compliance monitoring system for labour laws which isreviewed by top Management. It also has benchmark and forward looking practices related toallied workforce wherein all manpower contracts in the Company have been abolished and itsentire allied workforce.

20. Related Party Transactions

In line with the requirements of the Act and the Listing Regulations the Company hasformulated a Policy on Related Party Transactions and the same is uploaded on theCompany's website: http://www.tatapower.com/aboutus/pdf/policy-on-related-party-transactions.pdf (scan the adjacent QR Code toread the details on the Company website). Details of Related Party Transactions as perAOC-2 are provided in Annexure-VI.

21. Deposits

Particulars Amount in
1. Accepted during the year Nil
2. Remained unpaid or unclaimed at the end of the year * 258105
3. Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so number of such cases and the total amount involved
• At the beginning of the year Nil
• Maximum during the year Nil
• At the end of the year Nil
4. Details of deposits which are not in compliance with the requirements of Chapter V of the Act Not Applicable

* This relates to deposits accepted under the Companies Act 1956.

22. Loans Guarantees Securities and Investments

The Company being an infrastructure company is exempt from the provisions asapplicable to loans guarantees and securities under Section 186 of the Act. The detailsof investments are provided in the schedules to the financial statements.

23. Extract of Annual Return

Pursuant to Section 92 of the Act and Rule 12 of The Companies (Management andAdministration) Rules 2014 the extract of Annual Return in Form MGT-9 is provided inAnnexure-VII.

24. Auditors

M/s Deloitte Haskins & Sells LLP (DHS LLP) who is the statutory auditor of yourCompany hold office until the conclusion of the Ninety-eighth AGM to be held in the year2017 subject to ratification of its appointment at every AGM. The Members year on yearwill be requested to ratify its appointment as Auditor and to authorize the Board ofDirectors to fix their remuneration. In this connection the attention of the Members isinvited to Item No. 5 of the Notice.

Members will also be requested to pass a resolution (vide Item No.11 of the Notice)authorizing the Board of Directors to appoint Branch Auditors for the purpose of auditingthe accounts maintained at the Branch Offices of the Company abroad.

25. Auditors' Report

The Auditor's Report does not contain any qualifications reservations or adverseremarks. The consolidated financial statements of the Company have been prepared inaccordance with Accounting Standard 21 on Consolidated Financial Statements AccountingStandard 23 on Accounting of Investments in Associates and Accounting Standard 27 onFinancial Reporting of Interest in Joint Ventures issued by the Council of The Instituteof Chartered Accountants of India.

26. Cost Auditor and Cost Audit Report

M/s Sanjay Gupta and Associates Cost Accountant was appointed Cost Auditor of yourCompany for FY16.

In accordance with the requirement of the Central Government and pursuant to Section148 of the Act your Company carries out an audit of cost accounts relating to electricityevery year. The Cost Audit Report and the Compliance Report of your Company for FY15 wasfiled on 11th September 2015 with the Ministry of Corporate Affairs throughExtensive Business Reporting Language (XBRL) by M/s Sanjay Gupta and Associates CostAccountants before the due date of 30th September 2015.

27. Secretarial Audit Report

M/s. Parikh & Associates Company Secretaries was appointed as Secretarial Auditorto conduct a Secretarial Audit of records and documents of the Company for FY16. TheSecretarial Audit Report confirms that the Company has generally complied with theprovisions of the Act Rules Regulations and Guidelines.

The Secretarial Audit Report is provided in Annexure-VIII.

28. Corporate Governance

Pursuant to Regulation 34 of the Listing Regulations and relevant sections of the Acta Management Discussion & Analysis Statement Report on Corporate Governance andAuditors' Certificate are included in the Annual Report.

29. Vigil Mechanism

Your Company believes in the conduct of the affairs of its constituents in a fair andtransparent manner by adopting highest standards of professionalism honesty integrityand ethical behaviour. In line with the Tata Code of Conduct (TCOC) any actual orpotential violation howsoever insignificant or perceived as such would be a matter ofserious concern for the Company. The role of the employees in pointing out such violationsof the TCOC cannot be undermined.

Pursuant to Section 177(9) of the Act a vigil mechanism was established for directorsand employees to report to the management instances of unethical behaviour actual orsuspected fraud or violation of the Company's code of conduct or ethics policy. The VigilMechanism provides a mechanism for employees of the Company to approach the Chief EthicsCounsellor (CEC) / Chairman of the Audit Committee of the Company.

30. Directors' Responsibility Statement

Based on the framework of internal financial controls and compliance systemsestablished and maintained by the Company work performed by the internal statutory costauditors secretarial auditors and external consultants including audit of internalfinancial controls over financial reporting by the statutory auditors and the reviewsperformed by Management and the relevant Board Committees including the Audit Committeethe Board is of the opinion that the Company's internal financial controls were adequateand effective during the financial year 2015-16.

Accordingly pursuant to Section 134(5) of the Act the Board of Directors to the bestof its knowledge and ability confirm that:

a) In the preparation of the annual accounts the applicable accounting standards havebeen followed and that there are no material departures therefrom;

b) The Directors selected such accounting policies and applied them consistently andmade judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profit of the Company for that period;

c) The Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company for preventing and detecting fraud and other irregularities;

d) The Directors had prepared the annual accounts on a going concern basis;

e) The Directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively; and

f) The Directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.

31. Acknowledgements

On behalf of the Directors of the Company I would like to place on record our deepappreciation to our shareholders customers business partners vendors - bothinternational and domestic bankers financial institutions and academic institutions.

The Directors are thankful to the Government of India and the various Ministries theState Governments and the various Ministries the Central and State Electricity Regulatoryauthorities communities in the neighbourhood of our operations Corporation and Municipalauthorities of Mumbai and local authorities in areas where we are operational.

Finally we appreciate and value the contributions made by all our employees and theirfamilies for making Tata Power what it is.

On behalf of the Board of Directors
Cyrus P. Mistry
Chairman
(DIN: 00010178)
Mumbai 23rd May 2016

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