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Tata Power Company Ltd - Directors' Report

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Code: TATAPOWER
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To the Members

The Directors are pleased to present to you the Ninety-Eighth Annual Report on thebusiness and operations of your Company and the Statements of Account for the year ended31st March 2017.

1. FINANCIAL RESULTS

Figures in Rs crore (Table 1)

Consolidated Standalone
FY17 FY16 FY17 FY16
(a) Net Sales / Income from Other Operations* 27288 28526 7282 8316
(b) (Less) Operating Expenditure (22051) (22354) (5109) (5737)
(c) Operating Profit 5237 6172 2173 2579
(d) (Less) Add: Forex (Loss) Gain (383) (663) (78) (57)
(e) Add: Other Income 586 754 992 962
(f) (Less): Finance Cost (3114) (3236) (1296) (1146)
(g) Profit before Depreciation and Tax 2326 3027 1791 2338
(h) (Less): Depreciation / Amortisation / Impairment (1989) (1649) (634) (604)
(i) Profit Before Exceptional Item 337 1378 1157 1734
(j) (Less): Exceptional Item (651) (98) (651) Nil
(k) Profit (Loss) before Tax (314) 1281 506 1734
(l) (Less) Add: Tax Expenses or Credit 46 (681) (223) (379)
(m) Net Profit (Loss) after Tax (268) 600 283 1355
(n) Add: Share of Profit of Associates and Joint Ventures 1217 186 - -
(o) Net Profit for the year 949 786 283 1355
Attributable to -
- Owners of the Company 746 662 283 1355
- Non-controlling interests 203 124 - -
(p) Other Comprehensive income (Net of Tax) (133) (23) (121) (258)
(q) Total Comprehensive Income 816 762 162 1097
Attributable to -
- Owners of the Company 613 639 162 1097
- Non-controlling interests 203 123 - -

*Including rate regulatory income (expense)

Details regarding the changes due to the transition to IndAS are listed in Section 13of this Board's Report.

2. FINANCIAL PERFORMANCE AND THE STATE OF THE COMPANY'S AFFAIRS

2.1. CONSOLIDATED

On a Consolidated basis the Operating Revenue was at _ 27288 crore in FY17 comparedto _ 28526 crore in FY16. The decrease was mainly due to lower fuel cost and powerpurchase cost being passed through for the regulated business. The Consolidated Profitafter Tax in FY17 was at _ 746 crore compared to _ 662 crore in the previous year mainlydue to higher contribution by the coal mines renewables business and associates and lowerforeign exchange losses o_set by loss towards contractual obligation on account ofpurchase of shares in Tata Teleservices Limited (TTSL) from NTT DoCoMo Inc. Japan(Docomo). (Refer Section 11 - Management Discussion and Analysis (MD&A) of this reportfor details)

2.2. STANDALONE

On a Standalone basis the Operating Revenue stood at _ 7282 crore in FY17 compared to_ 8316 crore in FY16. The decrease was mainly due to lower fuel cost and power purchasecost being passed through for the regulated business.

The Profit after Tax in FY17 was at _ 283 crore as compared to _ 1355 crore last year.This was mainly due to loss toward contractual obligation on account of purchase of sharesin TTSL form Docomo along with the increase in finance cost softened by the impact offavourable regulatory orders in the previous year. The Earnings per Share (Basic andDiluted) in FY17 stood at _ 0.63.

(Refer Section 10 - MD&A of this report for details)

2.3. EXCEPTIONAL ITEM

In 2008-09 Docomo acquired shares of TTSL from Tata Sons Limited (TSL) and other groupcompanies including your Company. In terms of the Agreements with Docomo TSL inter aliaagreed to provide various indemnities and a sale option entitling Docomo to sell itsentire shareholding at a minimum predetermined price per share if certain performanceparameters were not met by TTSL. Under the provisions of these agreements your Companywas obligated to purchase from Docomo its holding in TTSL in the proportion of sharessold by the Company to the total secondary sale by the group companies as a part of theprocess. The minimum pre-determined price represented 50% of the acquisition price of2008-09.

Docomo exercised its sale option in July 2014 to sell its entire shareholding at thepredetermined price. As the sum payable amounted to a capital account transaction underthe Foreign Exchange Management Act (FEMA) permission of the Reserve Bank of India (RBI)was required. RBI did not permit the acquisition of the shares at the predetermined priceas the price was higher than fair market value of the shares. The matter was taken up forarbitration at U.K. by Docomo and it received a favourable award. The arbitration awardhad to be petitioned by TSL with Delhi High Court for implementation due to RBI'sobjection. On 28th April 2017 the Delhi High Court while deciding on thematter allowed TSL to pay the amounts to Docomo as per arbitration award for acquisitionof the shares. This obligated your Company to purchase 118222767 shares. Consequentlyduring the year your Company has deposited Rs 790 crore with Delhi High Court through TSLtowards its share of the award. Based on the latest available valuation of TTSL sharesthe Company has accounted for the loss of Rs 651 crore towards contractual obligation onaccount of purchase of shares in TTSL in the standalone and consolidated financialstatements as an Exceptional Item. Further since your Company holds 17% stake in TataCommunications Limited proportionate impact of its share in the loss towards the saidcontractual obligation has been accounted in the share of Profit/(loss) of associates andjoint ventures amounting to Rs 146 crore.

2.4 ANNUAL PERFORMANCE

Details of the Company's annual financial performance as published on the Company'swebsite and presented during the Analyst Meet after declaration of annual results can beaccessed using the following link:https://www.tatapower.com/pdf/investor-relations/analyst-presentation-may-17.pdf (scan theadjacent QR code on any mobile device smart phone/ tablet to read the policy on theCompany website. QR code scanner app can be downloaded free of cost forAndroid/iOS/Windows devices from respective app stores)

3. DIVIDEND

The Directors of your Company recommend a dividend of 130% (` 1.30 per share of Rs 1each) subject to the approval of the Members. According to Regulation 43A of theSecurities and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations 2015 the top 500 listed entities based on market capitalization (calculatedas on 31st March of every financial year) are required to formulate a dividenddistribution policy which shall be disclosed in their annual reports and on theirwebsites. Accordingly the Dividend Policy of the Company is provided in Annexure-I. TheDividend Policy of the Company has been provided in the following link:https://www.tatapower.com/ aboutus/dividend-policy.pdf (alternately scan the adjacent QRcode using a mobile device to read the policy on the Company website).

4. CURRENT BUSINESS

Your Company is present across the value chain of power business viz. GenerationTransmission Distribution Power Trading Power Services Coal Mines and Logistics SolarPhotovoltaic (PV) manufacturing and associated Engineering Procurement Construction(EPC) services. Apart from the above your Company is present in defence electronics andapplications.

As on date of the report the Tata Power group of companies had an operationalgeneration capacity of 10463 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 nearly 30% of its capacity (in MW terms)in clean and green generation sources (hydro wind solar and waste heat recovery) whilethe target is to maintain 30-40% of its total generation capacity to be from non-fossilfuel based generation sources by 2025.

Details of generation businesses in operations (Table 2)

Fuel Source Location State Normative capacity under management Returns/ Earnings Model Category Total
(MW) (MW)
Mundra Gujarat 4150 Long term PPA based on UMPP Bid
Trombay Maharashtra 1430 Long term PPA - regulated Return on Equity
Maithon Jharkhand 1050 Long term PPA - regulated Return on Equity
Jojobera Jharkhand 428 Long term PPA - regulated Return on Equity and negotiated PPA
Thermal – Coal / Oil / Gas Industrial Energy 7322
Limited (IEL) – Jharkhand 120 Bilaterally negotiated long term PPA
Jojobera
PT Citra Kusuma
Indonesia 36 Captive Arrangement
Perdana
TPDDL Rithala (Gas Based) New Delhi 108 PPA is being pursued
IEL – Jamshedpur Jharkhand 120 Bilaterally negotiated long term PPA
Thermal – IEL – Kalinganagar Odisha 135 Bilaterally negotiated long term PPA
Waste Heat 375
Recovery Haldia West Bengal 120 Merchant sale (100 MW) and bilateral sale to West Bengal (20 MW)
Bhira Maharashtra 300
Khopoli Maharashtra 72 Long term PPA - regulated Return on Equity
Bhivpuri Maharashtra 75 693
Hydro Dagachhu Bhutan 126 PPA with Tata Power Trading Company Limited (TPTCL)
Itezhi Tezhi Zambia Maharashtra Gujarat Madhya Pradesh 120 Long term regulated return
Renewables Wind farms Karnataka Tamil Nadu Rajasthan and South Africa Maharashtra Gujarat 1140 Long term PPA based on Feed-in-tariff + REC Mechanism (includes 30 MW assets of Indo Rama Renewables Jath Limited) 2073
Solar Photovoltaic (PV) Tamil Nadu and Delhi 933 Long term PPA based on Feed-in tariff
Total 10463

NOTE: Trombay Unit 4 - 150 MW has been scrapped during the year and the same hasbeen removed from the total installed capacity.

Details of other businesses

Business Company/Entity Location Returns/ Earnings Model Key details
25 year license w.e.f Over 1200 CKms. of transmission
Tata Power
Mumbai August 2015 - regulated lines connecting generating stations
(TPC - T)
Return on Equity to 21 receiving stations.
Transmission 1166 Kms. of 400 kV transmission
Powerlinks Eastern/
Regulated Return on lines to evacuate power from
Transmission Northern
Equity Eastern/North Eastern region to
Limited (PTL) regions
Northern Region.
25 year license w.e.f Over 4300 Ckm of distribution
Tata Power
Mumbai August 2015 - regulated network. Around 6.75 lakh
(TPC - D)
Return on Equity consumers.
Distribution
Tata Power Delhi Approximately 15000 Ckm of
Regulated Return on
Distribution New Delhi distribution lines. Over 1.58 million
Equity
Limited (TPDDL) consumers.
Returns based on
Coal and
Coal Investments Indonesia dynamics in international Stake in Indonesian mines
Infrastructure
thermal coal market
Solar PV Tata Power Solar Returns based on sector
Manufacturing and sale of solar PV
manufacturing Systems Limited Bengaluru dynamics and market
cells and modules and EPC services.
EPC (TPSSL) competition
Returns based on market
Tata Power dynamics in short term Category I power trading license
Power Trading Trading Company Across India and bilateral power market which permits the company to trade
Limited subject to cap prescribed any amount of power.
by CERC
Trust Energy Operates long term charters to meet
Returns based on long
Shipping Resources Pte. Singapore captive shipping requirements.
term charters
Limited Vessels operated are cape size.
Tata Power Amongst the Indian private sector
Returns based on sector
Strategic Strategic SED is one of the leading suppliers
Mumbai dynamics and market
Engineering Engineering of systems integration for defence
competition
Division (SED) equipment.
One of the leading service providers
Returns based on sector
of project management O&M and
Power Services Tata Power Mumbai dynamics and market
specialized services in the power
competition
sector.

Percentage contribution of different business models (Table 4)

Model Capacity (MW) % of overall capacity Returns Tata Power projects
Regulated returns 3275 31.3% Fixed return on equity Mumbai Operations (Trombay & Hydro) Maithon Jojobera
Unit #2 and #3 TPDDL Rithala
Regulated tariff mechanism (Renewables) 2073 19.8% Fixed tariff + PLF driven Wind Solar
PPA driven IEL (Unit 5 PH6 KPO) CKP
Captive power plant 411 3.9%
(14-19%) (Indonesia)
Merchant 226 2.2% Market driven Haldia (100MW) Dagachhu (126MW)
MoU/ Bilateral 20 0.2% PPA driven Haldia (20MW)
PPA or Bid driven/ Fixed Tariff / Case II 4458 42.6% Bid driven Jojobera Unit#1 and #4 CGPL ITPC (Zambia)

5. SUBSIDIARIES/JOINT VENTURES/ASSOCIATES

As on 31st March 2017 the Company had 49 subsidiaries (38 are wholly-ownedsubsidiaries) 37 Joint Ventures (JVs) and 8 Associates. Of the erstwhile subsidiaries 3companies have been classified as Joint Ventures under Indian Accounting Standards (IndAS) and 1 of the investments has been classified as Associate.

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

Subsidiaries: The Company through its subsidiaries incorporated Nelco NetworkProducts Limited Vagarai Windfarm Limited and Chirasthayee Saurya Limited. Furtherthrough its subsidiary Tata Power Renewable Energy Limited it acquired Welspun RenewablesEnergy Private Limited and its 19 operating subsidiaries. It also acquired the wind assetsof Indo Rama Renewables Jath Limited. Post acquisition of WREPL by TPREL WREPL acquiredone company (Welspun Urja India Limited) and merged one of the19 subsidiaries (SolarsysEnergy Private Limited).

Joint Ventures: The Company formed Resurgent Power Ventures Pte. Ltd. and LTH MilcomPrivate Limited as joint ventures and divested OTP Geothermal Pte. Ltd. PT Sorik MarapiGeothermal Power and PT OTP Geothermal Services Indonesia during the year.

Associates: The Group also divested its holding in ASL Advanced Systems PrivateLimited.

Report on the performance and financial position of each of the subsidiaries JVs andAssociates has been provided in Form AOC-1.

The policy for determining material subsidiaries of the Company has been provided inthe following link: https://www.tatapower.com/aboutus/pdf/dms-policy-15.pdf (alternatelyscan the adjacent QR code using a mobile device to read the policy on the Companywebsite).

6. RESERVES

The net movement in the various reserves (Standalone Accounts) of the Company for FY17and the previous year are as follows: Figures in Rs crore (Table 5)

Particulars FY17 FY16
Capital Redemption Reserve 1.60 1.60
Capital Reserve 61.66 61.66
Securities Premium Account 5634.98 5634.13
Debenture Redemption Reserve 1000.90 545.24
General Reserve 3866.24 3866.24
Retained Earnings 4466.08 5110.80
Investment Revaluation Reserve (253.40) (139.69)

7. FOREIGN EXCHANGE - EARNINGS AND OUTGO

Figures in Rs crore (Table 6)

Particulars – Standalone FY17 FY16
Foreign Exchange Earnings 340 200
Foreign Exchange Outflow mainly on account of: 1263 1283
Fuel purchase 971 935
Interest on foreign currency borrowings NRI dividends 42 41
Purchase of capital equipment components and spares and other miscellaneous expenses 250 307

8. REGULATORY AND LEGAL MATTERS

The businesses of the Company are governed primarily by the Electricity Act 2003 (EA2003) and associated regulations. Mentioned below are the critical regulatory orderspertaining to the Company that were issued during FY17 none of which impact the"going concern" status of your Company.

8.1. MUNDRA UMPP

8.1.1. COMPENSATORY TARIFF/ FORCE MAJEURE RELIEF

Coastal Gujarat Power Limited (CGPL) - Mundra UMPP had approached Central ElectricityRegulatory Commission (CERC) for evolving a mechanism for compensating CGPL for theadverse impact of the uncontrollable and unprecedented escalation in the imported coalprices and the change in law in Indonesia. CERC had after considering the recommendationsof a Committee appointed for the aforesaid purpose vide its order dated 21stFebruary 2014 decided that CGPL was entitled to compensatory tariff from 1stApril 2012 over and above the tariff agreed under the PPA with the Procurers till thehardship on account of Indonesian regulations persisted.

The Procurers challenged the order and filed an appeal with Appellate Tribunal forElectricity (APTEL). APTEL passed an interim order dated 21st July 2014directing the Procurers to pay a compensatory tariff from March 2014 onwards although itstayed the compensation for the prior period till disposal of the appeal filed before it.On appeal by the Procurers the interim order of APTEL was set aside by the Supreme Courtand APTEL was directed to hear and dispose o_ the appeals expeditiously. On 7thApril 2016 APTEL while rejecting the grounds of change in law and use of regulatorypowers remanded the matter to CERC to assess the compensation on grounds of Force Majeure(FM) as permissible under the PPA.

The Procurers including a consumer group filed a Civil Appeal before the SupremeCourt challenging the FM relief provided as per APTEL's judgment. The Supreme Courtdirected that CERC may pass the Order on FM relief but it was to be given effect onlywith the prior permission of the Supreme Court. Based on the remand by APTEL matter washeard by CERC and order passed on 6th December 2016 prescribing the FM reliefmechanism.

Subsequently the civil appeals filed by Procurers and consumer groups were heardbefore the Supreme Court. The Supreme Court vide judgement dated 11th April2017 disposed o_ the appeal with regard to compensatory tariff inter alia holding that:

a) CGPL's case does not fall under the FM clause in the PPA

b) The Change in Law as defined under PPA contemplates only change in domestic (Indian)laws The Supreme Court has however upheld that the CERC has powers under Section 79(1)(b) of EA 2003 to regulate which includes power to determine or adopt tariff even fortariff that is determined under competitive bidding route (Section 63). While the SupremeCourt held that the Regulatory Commission has the powers under Section 79 of EA 2003 thejudgement did not specifically validate the applicability of said principle to the reliefthat had been granted by CERC to CGPL earlier. Your Company therefore is inconsultation with its legal counsels for advice on the possible legal options and wayforward. The Company remains committed to operating and maintaining the 4000 MW MundraUltra Mega Power Station which is operating at benchmark operational parameters and ismaking a significant contribution in ensuring the energy security of the country. Whilethe Company continues to make Efforts to seek additional tariff it is pursuing allalternative options at CGPL including sourcing of competitive coal from other relevantgeographies as also use low grade and blended coal options to contain the under-recoveryat Mundra UMPP. Efforts are also in progress to optimally refinance debt and minimize thetotal cost incurred on debt servicing. It may also be noted that the combined investmentsin the Indonesian coal mines along with investment in coal logistics and CGPL whenconsidered together provide a natural hedge towards future fluctuations in coal prices.It may be noted that CGPL project cost does not include the investment made in the coalmines . For the long-term sustainability of the power station however your Company isexploring all options to structure the investment in a manner that it earns a reasonablereturn.

8.1.2. CHANGE IN LAW

A) CHANGE IN LAW - OPERATIONS

CGPL filed a Petition for its claim under Change in Law relevant to Indian provisionsfor the period FY12 FY13 and FY14 in June 2015 and CERC passed the order on 17thMarch 2017 which is consistent with the orders passed by CERC for other generatorsseeking relief under change in law operations.

B) CHANGE IN LAW - CONSTRUCTION

Petition for claiming the impact of Change in Law - Construction has been filed beforeCERC in July 2016. The matter has been admitted and is yet to be heard.

8.1.3. PETITION SEEKING IN-PRINCIPLE APPROVAL FOR CAPEX AND OPEX TO COMPLY WITH NEWENVIRONMENT NORMS

The Ministry of Environment Forest and Climate Change (MoEF&CC) vide itsnotification dated 7th December 2015 has revised the environment emissionsnorms mandating all thermal power plants to comply with new/revised norms. Your Companyhad filed a petition with CERC seeking in-principle approval for the capital expenditurein order to secure finance from the financial institutions. Meanwhile your Company isalready in compliance with the new norms related to Suspended Particulate Matter (SPM)etc. Though your Company was all prepared to move ahead and complete requirements on timebut for regulatory delays it is believed that implementations of the proposed regulationsis likely to be postponed.

8.1.4. SUO-MOTU PETITION BY CERC ON DECLARATION OF COMMERCIAL OPERATION OF UNITS 2030 40 & 50 OF MUNDRA UMPP

Based on representations made by an individual before Ministry of Corporate Affairs andSecurities and Exchange Board of India (SEBI) on the issue of declaration of commercialoperations dates for Units 20 30 40 and 50 of Mundra UMPP the matter was referred toCERC and a suo-motu petition has been initiated in the matter. When the matter was listedand heard before CERC on maintainability on 24th May 2016 issues on locusstandi of the individual and jurisdiction of CERC were raised by the Company. The matterhas been heard by CERC and order reserved on the issue of maintainability of theproceedings. In December 2016 Energy Watchdog has filed an intervention applicationbefore CERC with a prayer to allow it to intervene/ participate in the above referredsuo-motu petition. On this issue CEA and WRLDC had earlier reviewed all inputs and giventheir acceptance on COD dates.

8.2. MUMBAI OPERATIONS

8.2.1. MULTI YEAR TARIFF ORDERS OF MERC

The Multi Year Tariff (MYT) petitions for Mumbai generation transmission anddistribution businesses of the Company were filed with MERC during the year whichincluded truing-up for FY15 and provisional truing-up for FY16 as also the Annual RevenueRequirement (ARR) for 3rd MYT Control Period from FY17 to FY20 was filed. MERCpassed its MYT order for generation business on 8th August 2016; fortransmission business on 30th June 2016 and for distribution business on 21stOctober 2016. Review petitions with MERC and appeals with APTEL have been filedchallenging the disallowance by MERC in the tariff orders.

8.2.2. NETWORK ROLL-OUT PLAN

Post the judgement of APTEL in November 2014 your Company submitted its revisednetwork rollout plan in Case No. 182 of 2014. MERC passed an interim order in the saidpetition on 9th November 2015 directing constitution of a committee to examineand finalize the operational specific matters/physical rollout of network for theconsideration of MERC. On 28th March 2016 the committee provided itsrecommendation to MERC for its consideration and a public hearing was conducted on 21stJune 2016. The network rollout plan of your Company is currently pending order ofthe Commission.

8.2.3. DISTRIBUTION LICENSES - APPEAL FILED BY R-INFRA AND BEST

Appeal filed by Reliance Infrastructure Limited (R-Infra) challenging the distributionlicense granted to Tata Power -Distribution in August 2014 is pending before APTEL.Further appeals filed by R-Infra and Brihanmumbai Electric Supply & TransportUndertaking (BEST) against the interim order dated 9th November 2016 passed byMERC are also pending before APTEL.

8.2.4. MID TERM REVIEW ORDERS - CIVIL APPEAL FILED WITH HON'BLE SUPREME COURT

A civil appeal has been filed by your Company before the Supreme Court challenging thejudgement of APTEL in Review Petition No. 13 of 2016 and order dated 3rd June2016 in appeal nos. 244 and 246 of 2015 dismissing the appeals and review petition filedby Tata Power-Generation and Transmission against the mid-term review orders issued byMERC. The civil appeal was heard on 30th January 2017 and is currently pendingbefore the Supreme Court.

8.2.5. KEY JUDGEMENT - CHALLENGING EOI BY MERC FOR GRANT OF LICENSE

A critical judgement has been passed by APTEL on 4th November 2016dismissing appeal no. 243 of 2016 filed by BEST against MERC challenging the invitationfor expression of interest issued by MERC for grant of licence to Tata Power -Distribution.

APTEL dismissed the appeal on the grounds that the points raised by BEST have beeninter alia covered by the judgement of the Supreme Court that there can be a parallellicensee in the area where a local authority is licensed to supply electricity.

8.2.6. KEY JUDGEMENT - ALLOWING TATA POWER TO SUPPLY OUTSIDE THE LICENSE AREA

MERC passed an order dated 10th May 2016 in Case No. 43 of 2016 allowingTata Power to continue to supply power to six consumers who fall outside the licence areaof Tata Power. MERC also disallowed Maharashtra State Electricity Distribution CompanyLimited's (MSEDCL) claim on seeking cross subsidy surcharge from the six consumers in itsarea of supply. MSEDCL's revenue petition is pending for hearing.

8.2.7. STANDBY CHARGES

On an appeal filed by your Company the Supreme Court had stayed the operation of theAPTEL order in 2007 subject to the condition that your Company deposits an amount of Rs227 crore and submits a bank guarantee for an equal amount. Your Company has complied withboth the conditions. R-Infra has also subsequently filed an appeal before the SupremeCourt challenging the APTEL order. Both the appeals have been admitted in 2007. The matterwas part heard during the year and the hearings are yet to be completed.

8.2.8. ENERGY CHARGES AND ‘TAKE OR PAY' OBLIGATION

MERC directed R-Infra to pay Rs 323.87 crore to Tata Power towards its ‘Take orPay' obligation for the years 1998-99 and 1999-2000. On an appeal filed by R-Infra APTELupheld Tata Power's contention with regard to payment for energy charges but reduced therate of interest. As regards the ‘Take or Pay' obligation APTEL has ordered that theissue should be examined afresh by MERC after the decision of the Supreme Court in theappeals relating to the distribution license and rebates given by R-Infra. Tata Power andR-Infra have filed appeals with Supreme Court. The Supreme Court vide its order dated 14thDecember 2009 has granted stay against the APTEL order and has directed R-Infra todeposit with the Supreme Court a sum of Rs 25 crore and furnish a bank guarantee for thebalance amount. No hearings were held during the year on this matter.

8.2.9. ENTRY TAX

Your Company had filed a writ in the High Court at Bombay (HC) challenging theconstitutional validity of the Maharashtra Entry Tax Act. HC vide its order dated 2ndAugust 2016 dismissed the writ petition. Aggrieved your Company filed Special LeavePetition (SLP) in the Supreme Court. Vide its order dated 21st October 2016the Supreme Court passed the order staying the demand of Entry tax by extending theinterim stay earlier granted by the High Court. There is no date fixed for further hearingof the matter and the same will come up in due course.

8.3. JOJOBERA OPERATIONS

8.3.1. APTEL JUDGEMENT FOR JOJOBERA UNIT 2 and UNIT 3

APTEL in August 2016 passed a favourable order in an appeal filed by your Companychallenging some of the findings of the Jharkhand State Electricity Regulatory Commission(JSERC) in the Annual Performance Review (APR) order for FY13 for Jojobera Unit 2 and Unit3.

8.3.2. ANNUAL PERFORMANCE REVIEW (APR) ORDER FOR FY15-16 FOR JOJOBERA UNIT 2 AND UNIT 3

In January 2017 JSERC passed the APR order for FY16 including truing-up for FY14 andFY15 and revised true-up for FY13 in light of the judgement of APTEL. JSERC has alsoallowed claims of your Company while carrying out the true-up for FY14 and FY15.

8.3.3. APPROVAL OF THE REVISED PPA OF JOJOBERA UNIT 2 & UNIT 3

JSERC had earlier directed your Company to renegotiate the terms and conditions of thePower Purchase Agreement (PPA) with Tata Steel Distribution Licensee (TSDL) for JojoberaUnit 2 and Unit 3 subsequent to their transition to the regulatory regime. Accordinglythe PPA for the above Units was re-negotiated with TSDL and submitted before JSERC for itsapproval. JSERC has in August 2016 accorded its approval on the Revised PPA for JojoberaUnit 2 and Unit 3 which has now been taken up for execution between your Company andTSDL.

8.4. MAITHON POWER LIMITED (MPL)

8.4.1. APPEAL FILED AGAINST DISALLOWANCES BY CERC IN MPL TARIFF ORDER

In May 2016 APTEL passed its judgement on the appeal filed by MPL against the partialdisallowance by CERC in its order dated 19th November 2014 of the Interestduring Construction (IDC) and cost of secondary fuel oil consumption. APTEL has upheld thefindings of CERC and dismissed the plea of MPL. MPL thereafter has filed a petition forreview of the above judgement before APTEL and an appeal with the Supreme Court againstAPTEL's judgment. Both the submissions are pending before the respective forums.

8.4.2. APPEAL FILED CHALLENGING DERC ORDER

MPL has challenged before APTEL the findings of Delhi Electricity RegulatoryCommission (DERC) regarding the jurisdiction of the appropriate Commission pertaining toresolution of disputes arising out of the medium-term PPA between MPL and the Delhidiscoms for the period October 2010 to March 2012. APTEL in its judgement has directedMPL to approach CERC for resolution of the disputes. Accordingly MPL has approached CERCwith a petition for resolution of the disputes.

8.4.3. TARIFF PETITION FOR FY14-19

MPL has filed a Petition for determination of the tariff for the period FY14-19 alongwith the truing-up for FY11-14 on 1st June 2015 before CERC. The proceedingsin the above matter has been completed in December 2016 and the order is reserved.

8.4.4. PETITION SEEKING IN-PRINCIPLE APPROVAL FOR CAPEX SCHEMES FOR MEETING NEWENVIRONMENT NORMS

MoEF&CC vide its notification dated 7th December 2015 has revised theenvironment emissions norms mandating all thermal power plants to comply with new/revisednorms. Petition (72/MP/2016) filed by MPL seeking in-principle approval of abstract schemeof capex in compliance with new environmental norms has been disposed o_ by CERC directingMPL to approach CEA and MoEF&CC to decide the optimum technology and associated costsfor phasing of implementation of different environment measures and to then approach CERCbased on the approval of CEA and direction of MoEF&CC. MPL has approached CEA andMoEF&CC as per directions of CERC.

8.4.5. PETITION SEEKING CLARIFICATION ON METHODOLOGY OF AVAILABILITY

MPL has filed a miscellaneous petition before CERC seeking clarification on themethodology of computation of availability for generating stations where PPA with thebeneficiaries is based on contracted capacity and not on government allocated percentagesas in the case of central generating stations. The proceedings in the above matter havebeen completed in October 2016 and the order is reserved.

8.4.6. GRADE SLIPPAGE

CERC in 2014 Regulations changed the methodology of measurement of Gross CalorificValue (GCV) from ‘as _red' to ‘as received' basis. TPDDL had filed Petitionbefore CERC against National Thermal Power Corporation (NTPC) Damodar Valley Corporation(DVC) and MPL for measurement of GCV in accordance with the 2014 Regulations. CERC passeddirections laying down the procedure for measurement of GCV and CERC is examining theprogress made by generating companies in compliance with its directions. MPL has filedaffidavits listing out the existing procedure and seeking relaxation in the methodprescribed by CERC. The matter is pending before CERC for orders.

8.5. POWERLINKS TRANSMISSION LIMITED (PTL)

8.5.1. TRUING-UP FOR FY10 TO FY13 FOR PTL

CERC in May 2016 passed the true-up orders for FY10 to FY13 for transmission assetsof PTL pertaining to eastern northern and ER-NR inter-connector region. CERC in theabove order had approved the annual transmission charges along with the transmissionmajoration factor for above period. However CERC has directed its sta_ to examine theissue of transmission majoration factor and its impact to review the continuation oftransmission majoration factor for subsequent years.

8.6. OTHER MATTERS

The Company has had a number of contracts with the M. Pallonji group of companies (MP)over last several years. These include contracts related to barging dredging shippingand contracts for painting of the Company's power stations at Trombay hydros andJojobera.

Some of the contracts were awarded long-term as new capital equipment had to bedeployed and significant cost and logistics benefits would be achieved vis--vis the thenprevalent arrangement to get coal to Trombay station. The Company had followed therequisite processes in award of the contracts and necessary approvals from the BoardCommittees / Management have been taken as required as per the Schedule of Authoritiesprevailing at various times.

9. 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 of this Annual Report.

10. RISK MANAGEMENT FRAMEWORK AND INTERNAL FINANCIAL CONTROLS

Risk Management Framework:

Based on the Risk Management Policy(https://www.tatapower.com/aboutus/pdf/risk-management-policy. pdf)(alternately scan theadjacent QR Code using a mobile device to read the policy on the Company website) astandardized Risk Management Process and System has been implemented across Tata PowerGroup. Risk plans have been framed for all identified risks and uploaded in the systemwith mitigation action target dates and responsibility. This has enabled continuoustracking of status of mitigation action and monitoring of Risk Mitigation Completion Index(RMCI). The Risk Register contains the mitigation plans for eleven categories of risk.Eight Functional Risk Management Committees (FRMCs) closely monitor and review the riskplans. This year standardisation of risks and mitigation measures was taken up as anexercise to ensure uniformity of risks across Tata Power Group and learning and sharing.All risks have been classified into strategic tactical and operational risks. Apex RiskManagement Committee (ARMC) meets every quarter to review major strategic and tacticalrisks identify new risks and assess the status of mitigation measures. As per theSecurities and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations 2015 (Listing Regulations) a Risk Management Committee (RMC) was constitutedwhich currently comprises 3 Independent Directors 1 Executive Director the ChiefFinancial Officer and the 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. To increase focus on critical risk groups all risks havebeen grouped into 20 risk themes. In FY15 British Standards Institution (BSI) conferredthe ‘Statement of Compliance' on Tata Power for ISO 31000:2009 – a recognitionthat implies that the Company has strong processes for risk identification management andmitigation. Tata Power is the first power company in India to get this recognition. InFY16 BSI did the assessment of Tata Power and its eight major subsidiaries (viz. CGPLMPL TPDDL TPTCL TPSSL TPREL PTL and IEL) and conferred the ‘Statement ofCompliance' for Tata Power Group for ISO 31000:2009. This year Tata Power Group has againbeen recommended for conferring the Statement of Compliance basis BSI's recent assessmentin February 2017.

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 responsibilitiesof 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 adequate as also operating effectively.

With this objective in mind and to fulfil 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 and 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 Committee of Sponsoring Organizations (COSO)framework. COSO is a leading framework which provides guidance on the design andevaluation of internal controls. This has been done for 5 elements and 17 principleswhich provides assurance of financial controls in place at the level of functional headsand at top management level. This has helped in assessing the effectiveness and efficiencyof operational controls enhanced governance and consideration of anti-fraud expectationsreliability of financial reporting and statutory compliances. Attributes with internalcontrol deficiencies are identified with action plans to be pursued responsibilitycentres 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 defficiencies. Further the statutory auditor throughtheir independent testing of IFC has also issued an unmodified opinion.

All processes of the Company have been classified under vital essential and desirablebased on the analysis of process impact on Company's Strategic Objectives. Post the auditprocess is rated through the Risk Control Index and Process Robustness

Index given by the Internal Auditors. Also theme based audits are carried out forcertain areas impacted by changing external environment. Significant observationsincluding recommendations for improvement of the business processes are reviewed by theManagement before reporting to the Audit Committee. The Audit Committee then reviews theInternal Audit reports and the status of implementation of the agreed action plan. Postrecognition of ‘General Conformance to International Audit Standards' from Instituteof Internal Auditors (IIA Global) in 2013 quality review of audit reports is carried outas per IIA global guidelines before the report is issued. Internal audit process has beenstandardized across the Tata Power group.

Internal audit plan is executed by an in-house audit team with support from expertInternal Audit firms. This risk based audit plan has been used for subsidiaries and othergroup companies as well. Your Company has also started its journey towards digitalizationthrough enhanced data analysis on audits which will result in improved quality and focusedaudits. 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 IFC. The action taken statisticsemerging out of internal audit reports for last three years reflect an increase inimplementation percentage achieved through rigorous and systematic follow up. Further thetotal number of action points has decreased over the last three years thereby reflectingan 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 theirrobustness primarily from the perspective of system driven controls (SAP CRM Documentumetc.) which ensures that deviations from the defined process do not occur due to manualerrors. In case controls have not been embedded in the system other compensating controlssuch as maker-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. The scores for RCI and PRI for the past 3 years are listed below:(Table 7)

Scores FY17 FY16 FY15
Risk control index (RCI) 92 91 88
Process robustness index (PRI) 52 44 40

11. SAFETY

Safety is a core value of the Company. The Company has adopted a structured approachtowards implementation of Safety Policies and Programs and integrating safety withcritical business processes to continuously improve safety performance. Safetyorganisation has been established for developing and implementing Safety ManagementSystems and to facilitate a change in culture through leadership interventions to mitigaterisks.

Safety Statistics FY17: (Table 8)

Sl. No. Safety Parameters in your Company's work jurisdiction (Tata Power CGPL MPL IEL CTTL PTL TPDDL and TPSSL) FY17 FY16
1 Fatality (Number) 2 3
2 LTIFR (Lost Time Injuries Frequency Rate per million man hours) 0.23 0.20
3 Total Injury Frequency Rate (No of injuries per million man hours) 4.67 5.16
4 First Aid Cases (Number) 190 325

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 gravitas and is committed to taking the entire working environmentand behaviour to the highest safety standards.

Your Company has increased its Efforts on safety during the year and has taken thefollowing additional steps in FY17 to improve safety:

Coaching to further improve Felt Leadership at all levels

Implemented the contractors' safety code of conduct to improve capability and capacityof contractors

Structured Reward and Recognition Program which includes consequences and rewards inGeneral Conditions of

Contracts (GCC) for associates and contractors

Enhanced Capability building through competency based training programs at TPSDI'sstate of the art skill building schools for high risk activities across all levels

Improvements in the mobile application ‘Suraksha' on safety for incident reporting

High visibility safety tours by leadership

Risk Based Audit program to evaluate implementation of standards and effectiveness ofmanagement system

Implementation of SAP EHSM to integrate safety with business process

12. SUSTAINABILITY

Your Company successfully completed 100 years of operations and remains committed tothe legacy of being a responsible corporate citizen. It has practised 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.

The Company's Efforts on sustainability were recognized at various platforms and atestimony of this was the various awards bestowed upon your Company. The Company hasreceived a high rating of ‘A' for its sustainability performance according to a newassessment done by Confederation of Indian Industry (CII). It is based on a comprehensiveassessment of environmental social and governance analysis of companies which helps themto measure performance as well as identify risks that challenge sustainability of theirbusiness.

The year also saw the launch of the Company's 7th Sustainability Report forFY16 and the first one to be prepared in accordance with the latest G4 Guidelines of theGlobal Reporting Initiative (GRI).

12.1. CARE FOR OUR COMMUNITY/COMMUNITY RELATIONS

Your Company has actively worked on the key focus areas in Corporate SocialResponsibility (CSR) of education health livelihood and employability social capitaland financial inclusivity as well as rural energy.

Your Company has a unique governance system for Sustainability as a strategic theme.This is guided by the Sustainability Advisory Council (SAC) comprising eminent expertsfrom various fields impacting sustainability. Your Company's standalone CSR spend for FY17stood at _ 22.79 crore against the Companies Act requirement of Rs 21.84 crore.Additionally as a part of disaster relief operations the Company contributed towardsrelief Efforts in Assam. Besides this 5 employees were selected to be trained as projectmanagers to be deployed as part of Tata Group relief Efforts.

Independent monitoring effectiveness of implementation and 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 the community's tacit orimplied acceptance of the Company's co-existence with them. Details of the CSR activitiesof your Company and its key subsidiaries are listed in the MD&A section of this AnnualReport. Annual report of CSR activities is provided in Annexure-II.

12.2. 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.

The major programs carried out in the neighbourhood of the operating plants andprojects are Skill Development Programs for youth (Industrial Training InstitutesBusiness Process Outsourcing training and Vocational Trainings) entrepreneurial programslike _y ash brick making/supporting Self Help Groups (SHG) and support for educationalinitiatives for school children like scholarships and coaching classes in the eveningsalong with assistance in the development of adequate infrastructure. The Company continuedits work in areas beyond its areas of operations such as in Jawhar taluka Palghardistrict of Maharashtra which has a tribal population of over 90% of the total populationwith a vast majority of them below the poverty line. The activities here includeinitiatives like generating livelihood opportunities to improve sub-economic statusintegrated watershed management program capacity building through a participatoryapproach women's empowerment through SHGs and a Village Development Council (VDC) forsustainable development. The VDC has elected members from the village as well as a TataPower representative and are responsible for the sustainable development of the village.

12.3. CARE FOR OUR ENVIRONMENT

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

12.4. CLUB ENERJI

Tata Power's Club Enerji is focused on school students to champion the noble cause ofconservation of resources and enhance moral and civic values. The Club has beenceaselessly working towards creating responsible citizens of tomorrow who focus not onlyon conserving energy and natural resources (like fossil fuel - coal oil gas water;managing waste; a_orestation) but also conserve civic ethical and moral values insociety at large. Tata Power Club Enerji is a sustainability initiative aimed at creatingawareness among school students who in turn sensitise their families and neighbourhoodtowards energy and resource conservation through dynamic and innovative measures. Thecurrent program is based on the four stage model of Educate (sensitise school childrenabout energy conservation practices) Engage (empower energy champions to spread awarenessamongst peers and the community) Enhance (enthuse schools to participate and contributeto Club Enerji initiatives) and Empower (create self-sustaining Mini Clubs that will leadthe movement). Recognizing the immense value that schools and school children can bring tothe initiative and taking due consideration of the social need Tata Power started"Tata Power Club Enerji" in 2007 to propagate efficient usage of energy and toeducate the society on climate change issues. Club Enerji covers 500 schools acrossMumbai Delhi Pune Ahmedabad Bengaluru Kolkata Belgaum Jamshedpur Lonavala and fivemore cities. It has reached out to more than 1.28 crore citizens collectively saved 17.26million units of electricity - equivalent to saving 17000 tons of CO2. Allover India 1337 Mini Clubs have also been formed 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.

Club Enerji & Greenolution was presented at IIM – Ahmedabad in Feb 2017 in aTEDx IIM Ahmedabad event held on the topic: "Driving Conservation by shaping thefuture generations".

12.5. DEMAND-SIDE MANAGEMENT

Your 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. Industrialcommercial and residential consumers in the city have unique usage patterns. Under"Be Green" initiative your Company gives an opportunity to Mumbai consumers toexchange their old inefficient electrical appliances for new 5 star rated energyefficient appliances at a discounted price. The Company has partnered with leadingconsumer appliance manufacturers for energy efficient equipment. The consumers appreciatethese initiatives as it helps to reduce their energy cost by 30% to 50% withoutcompromising on their comfort and convenience.

During this financial year these programs received a good response and more than13000 energy efficient appliances (LED tube lights ceiling fans refrigerators and splitACs) have been distributed in FY17. HVAC Audit Pump Audit Power Quality Audit werecarried out through Energy Audit program this year. These audits helped consumers to focuson the areas which offer the greatest scope for energy savings. Your Company alsofacilitated the implementation of National-level Program (DELP/UJALA) which is beingimplemented by M/s. EESL a Union Govt. Undertaking and aims to increase the penetrationof LED lighting technology in the residential sector. The DELP/UJALA program witnessed thedistribution of more than 1.1 lakh LED bulbs for Tata Power consumers in Mumbai duringFY17.

12.6. SUSTAINABILITY REPORTING

Your Company has adopted the latest Global Reporting Initiative (GRI) G4 guidelines toreport on its sustainability performance. The report prepared in accordance with thecomprehensive criteria is specific to the Indian operations of your Company viz.generation transmission and distribution of power and highlights the sustainabilityperformance of your Company. The Company's Sustainability Report is hosted on its website:https://www.tatapower.com/sustainability/sustainability-communications.aspx (alternatelyscan the adjacent QR Code using a mobile device to read the policy on the Company website)

12.7. BUSINESS RESPONSIBILITY REPORT (BRR)

The Business Responsibility Reporting was in line with the SEBI requirement based onthe ‘National Voluntary Guidelines on Social Environmental and EconomicResponsibilities of Business' notified by Ministry of Corporate Affairs (MCA) Governmentof India in July 2011. Your Company reported its performance for FY17 as per the BRRframework describing initiatives taken from an environmental social and governanceperspective. The BRR is hosted on the Company website:https://www.tatapower.com/investor-relations/brr. aspx (alternately scan the adjacent QRCode using a mobile device to read the policy on the Company website).

12.8. INTEGRATED REPORTING (IR)

Your Company prides itself in making voluntary disclosures to keep its stakeholdersfully informed on all aspects of its business. It has decided to take steps to furtherenhance the disclosures and information provided in its annual report in alignment withthe Integrated Reporting <IR> framework by International Integrated ReportingCouncil (IIRC).

13. TRANSITION TO INDIAN ACCOUNTING STANDARDS

With effect from 1st April 2016 your Company was required to align itsaccounting policies and disclosures with new Indian Accounting Standards or IndAS.Consequently the financial statements to be issued thereafter are different from thoseissued from the previous set. Apart from differences in the way assets liabilitiesincome expenses and losses are measured even the disclosure requirements as also thevarious statements comprising the financial report have substantially changed.

The significant changes that have affected the net worth and the Profits are on accountof the following:

a) effect of some erstwhile subsidiaries (IEL PTL and Dugar Hydro) re-classified asJoint Ventures (JV) and change to Equity Accounting for JVs and reclassified subsidiaries.JVs and erstwhile subsidiaries were earlier consolidated on line by line basis;

b) Tata Power Jojobera Plant and IEL PPA arrangements categorized as Finance Leasetheir assets derecognized and treated as Lease Receivables;

c) Fair valuation of current and non-current investments other than investments insubsidiaries joint ventures and associates. However certain unquoted investments in Tatagroup companies have been valued at cost as their fair value based on appropriatemethodology is not materially different from their carrying cost;

d) effective Interest Rate (EIR) Method adopted for Long term borrowings anddebentures;

e) Fair valuation of forward and option contracts and IRS;

f) Preference shares considered as compound/debt instrument;

g) Consider Interest and Commission charges for Interest free loan and Guarantee issuedto group companies;

h) Reversal of proposed dividend and Dividend Distribution Tax thereon;

i) Change in Deferred Tax computation from P & L approach to Balance Sheetapproach;

j) De-recognition of Interest on Forex Loan Capitalized;

k) Revamping of the notes to the accounts and much more elaborate disclosures

14. DIRECTORS AND KEY MANAGERIAL PERSONNEL

Directors

Ms. Anjali Bansal Ms. Vibha Padalkar and Mr Sanjay V. Bhandarkar were appointed asAdditional Directors of the Company with effect from 14th October 2016 inaccordance with Article 132 of the Company's Articles of Association and Section 161 ofthe Act. They hold Office only upto the date of the forthcoming Annual General Meeting(AGM) and a Notice under Section 160(1) of the Act has been received from a Membersignifying his intention to propose their appointment as Directors. They were alsoappointed as Independent Directors for a period of 5 years with effect from 14thOctober 2016 upto 13th October 2021 subject to approval of the Members at theensuing AGM.

Mr. S. Padmanabhan was appointed as an Additional Director of the Company with effectfrom 16th December 2016 in accordance with Article 132 of the Company'sArticles of Association and Section 161 of the Act. Mr. Padmanabhan holds Office only uptothe date of the forthcoming AGM and a Notice under Section 160(1) of the Act has beenreceived from a Member signifying its intention to propose his appointment as Director.Mr. Padmanabhan was nominated as Chairman of the Board of Directors of the Company witheffect from 3rd January 2017 by Tata Sons Limited (TSL) pursuant to Article164(b) of the Company's Articles of Association where TSL has the right to nominate theChairman of the Board of Directors of the Company. He continued as Chairman till 10thFebruary 2017 and thereafter continues as Non-Executive Director on the Company's Board.Mr. N. Chandrasekaran was appointed as an Additional Director of the Company with effectfrom 11th February 2017 in accordance with Article 132 of the Company'sArticles of Association and Section 161 of the Act. Mr. Chandrasekaran holds Office onlyupto the date of the forthcoming AGM and a Notice under Section 160(1) of the Act has beenreceived from a Member signifying its intention to propose his appointment as Director.Mr. Chandrasekaran was also nominated as Chairman of the Board of Directors of the Companywith effect from 11th February 2017 by TSL pursuant to Article 164(b) of theCompany's Articles of Association. Mr. K. M. Chandrasekhar was appointed as an AdditionalDirector of the Company with effect from 4th May 2017 in accordance withArticle 132 of the Company's Articles of Association and Section 161 of the Act. Mr.Chandrasekhar holds Office only upto the date of the forthcoming AGM and a Notice underSection 160(1) of the Act has been received from a Member signifying his intention topropose his appointment as Director. Mr. Chandrasekhar was also appointed as anIndependent Director for a period of 5 years with effect from 4th May 2017 upto3rd May 2022 subject to approval of the Members at the ensuing AGM. Mr. AshokS. Sethi was re-appointed as COO and Executive Director of the Company for a periodcommencing from 1st April 2017 till 30th April 2019. Hisre-appointment and the remuneration payable to him require approval of the Members at theensuing AGM.

Mr. Cyrus P. Mistry Non-Executive Chairman on your Company's Board resigned asDirector effective 19th December 2016. Consequently Mr. Mistry ceased to beChairman of the Board of Directors of the Company. Consequent upon their completing 75years of age as required by the guidelines adopted by the Company for retirement ofNon-Executive Directors Mr. Piyush G. Mankad Mr. Ashok K. Basu and Dr. Homiar S. VachhaIndependent Directors on your Company's Board ceased to be Directors of the Companyeffective 18th November 2016 24th March 2017 and 23rdApril 2017 respectively.

The Board of Directors place on record their deep appreciation for the contribution ofthese Directors during their tenure. In accordance with the requirements of the Act andthe Company's Articles of Association Ms. Sandhya S. Kudtarkar retires by rotation and iseligible for re-appointment.

Nine 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 Mr. N. H. Mirza Mr. D. M. Satwalekar Ms. AnjaliBansal Ms. Vibha Padalkar Mr. S. V. Bhandarkar and Mr. K. M. Chandrasekhar are theIndependent Directors of the Company. The Company has received declarations from all theIndependent Directors confirming that they meet the criteria of independence as prescribedunder the Act.

Key Managerial Personnel

In terms of Section 203 of the Act the following are the Key Managerial Personnel(KMP) of the 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. Thefollowing 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-III and Remuneration Policy for Directors KeyManagerial Personnel and other employees of the Company which is reproduced inAnnexure-IV 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. (alternatelyscan the adjacent QR Code using a mobile device to read the policy on the Companywebsite). All Senior Management personnel have affrmed compliance with the Tata Code ofConduct (TCOC). The CEO & Managing Director has also confirmed and certified the same.The certification is enclosed at the end of the 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 - V.

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 - VI.

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 provision to Section 136 of the Act the Reportand Accounts are being sent to the Members excluding the aforesaid Annexure. Any Memberinterested in obtaining the same may write to the Company Secretary at the RegisteredOffice of the Company. None of the employees listed in the said Annexure is related to anyDirector of the Company.

Officers of the organisation are classified into five management work levels i.e. MAMB MC MD and ME. The work levels are further divided into grades. Non-managementemployees are across different grades and also have been classified as unskilledsemi-skilled skilled and highly skilled.

For the Officers a benchmarking exercise was undertaken in FY17 on compensation withthe help of a global consultancy firm specializing in remuneration and compensation. Thebenchmarking was to understand the comparative position of remuneration of the Company'sOfficers vis--vis Officers in equivalent grades in ten key companies in the energy andpower sector. As per this report the median salary of Officers at your Company indifferent grades was aligned to the market compensation.

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: https://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-VII.

21. DEPOSITS (Table 9)

Sl. No. 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 NA
At the beginning of the year
Maximum during the year
At the end of the year
4. Details of deposits which are not in compliance with the requirements of Chapter V of the Act NA

* 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 notes 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-VIII.

24. AUDITORS

M/s Deloitte Haskins & Sells LLP (DHS LLP) who are the statutory auditors of yourCompany hold Office until the conclusion of this year's AGM. The Board has recommendedappointment of S R B C & CO. LLP (SRBC) Chartered Accountants as statutory auditorsof the Company in place of DHS LLP the existing auditors of the Company for a period of5 years from the conclusion of this 98th Annual General Meeting (AGM) held in2017 till the conclusion of the 103rd AGM to be held in 2022. In thisconnection the attention of the Members is invited for approval of Item No. 5 of theNotice for appointment of Statutory Auditors. Members will also be requested to pass aresolution (vide Item No.17 of the Notice) authorizing the Board of Directors to appointBranch Auditors for the purpose of auditing the accounts maintained at the Branch Officesof the Company abroad.

25. AUDITORS' REPORT

The standalone and the consolidated financial statements of the Company have beenprepared in accordance with Indian Accounting Standards (IndAS) notified under section 133of the Companies Act 2013.

The Auditor's Reports on the standalone and the consolidated financial statementscontain the following qualification: As described in Note 34 (b) and (c) to the standaloneIndAS financial statements and Note 34 (ii) and (iii) to the consolidated Ind AS financialstatements the fair value of unquoted equity shares of Tata Teleservices Limited (TTSL)has not been determined as at 31st March 2017. We are therefore unable tocomment on whether the carrying value of:

a) Investments in TTSL of Rs 384.88 crore represents the fair value of such investmentsas at 31st March 2017 and the consequent impact thereof on Other ComprehensiveIncome and

b) ‘Other advance' which represent TTSL shares receivable from DoCoMo under acontractual obligation of Rs 138.55 crore as at 31st March 2017 represents thefair value of such shares and the consequent impact thereof on the Statement of Profit andLoss.

Board's comments:

The valuation report in respect of investment in TTSL is available from the Companyonly as at 30th September 2016. The Auditors have qualified their report sinceTTSL was in the process of working out valuation as at 31st March 2017 whenyour Company's accounts were audited and adopted by the Board of Directors.

26. COST AUDITOR AND COST AUDIT REPORT

M/s Sanjay Gupta and Associates Cost Accountants were appointed Cost Auditors of yourCompany for FY17.

In accordance with the requirement of the Central Government and pursuant to Section148 of the Act your Company carries out an annual audit of cost accounts relating toelectricity. The Cost Audit Report and the Compliance Report of your Company for FY16 wasfiled on 30th August 2016 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 2016.

27. SECRETARIAL AUDIT REPORT

M/s. Parikh & Associates Company Secretaries were appointed as SecretarialAuditors of your Company to conduct a Secretarial Audit of records and documents of theCompany for FY17. The Secretarial Audit Report confirms that the Company has complied withthe provisions of the Act Rules Regulations and Guidelines and that there were nodeviations or non-compliances. The Secretarial Audit Report does not contain anyqualifications reservations or adverse remarks or disclaimers. The Secretarial AuditReport is provided in Annexure-IX.

28. CORPORATE GOVERNANCE

At Tata Power we ensure that we evolve and follow the corporate governance guidelinesand best practices sincerely not just to boost long-term shareholder value but also torespect minority rights. We consider it our inherent responsibility to disclose timely andaccurate information regarding our operations and performance as well as on theleadership and governance of the Company.

During the second half of the year under review the Company witnessed a leadershipchange at Tata Sons Limited (our Promoter). During this period there were allegationsmade regarding the ethics and governance of the Company. Clarifications were also soughtby the Regulators with respect to certain business decisions and governance process.

We categorically deny these references and would like to impress upon you that yourCompany has the highest corporate governance standards robust processes and a dulyconstituted and independent Board. Your Board exercises its independence both in letterand spirit. Your Directors understand their fiduciary duties and have always acted in thebest interests of the Company and will continue to do so. Equally your Company has aprofessional and competent management to run the business. The Board compliments themanagement team in coping with the leadership transition seamlessly and in remainingsteadfast towards achieving set objectives without getting distracted.

Further during the course of the leadership transition allegations were made withrespect to certain contracts which had been awarded by the Company. In this regard wewould like to place on record the fact that after a careful consideration of the issuesinvolved the Audit Committee had requested the management to examine whether due processin award of contracts had been followed and necessary approvals had been sought from theconcerned authorities based on which the Audit Committee would decide next steps. Themanagement had compiled the required information and submitted the required data to theAudit Committee. Based on the records the current management has reviewed the oldcontracts awarded and confirmed that due process had been followed. The management hassince then submitted to the Audit Committee a white paper on the subject duly confirmingthat the Company has not been subjected to any commercial deterrent or loss over theperiod of such contracts. The Audit Committee has now asked the (external) internalauditors of the Company to study the records and answer certain queries raised by theAudit Committee members. Findings are awaited from the internal auditor in this regard.Management is of the view that the allegations are incorrect.

Queries were also raised with regard to bidding and award of Mundra Project in 2006which have been appropriately responded to.

The Company employed rigorous processes in preparation of all accounts/ financialstatements including detailed review by the Board of Directors and the concernedCommittees. The accounts and financial statements of the Company have also been reviewedby the statutory auditors. The Company reiterated that its annual reports accounts andfinancial statements as published from time to time present a true and fair view of thestate of Affairs of the Company and its business and the Company has disclosed allmaterial facts as required under applicable laws.

Pursuant to Regulation 34 of the Listing Regulations and relevant sections of the Acta Management Discussion and 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 the highest standards of professionalism honestyintegrity and ethical behaviour. In line with the Tata Code of Conduct (TCOC) any actualor potential 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 EthicsCounselor (CEC)/Chairman of the Audit Committee of the Company for redressal.

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 IFC forfinancial reporting by the statutory auditors and the reviews performed by management andthe relevant Board Committees including the Audit Committee the Board is of the opinionthat the Company's IFC were adequate and effective during FY17. Accordingly pursuant toSection 134(5) of the Act the Board of Directors to the best of its knowledge andability confirms that:

a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures in the matterof valuation of certain unquoted investments and the adequacy of the provision forcontractual obligation in the matter of NTT Docomo Inc.;

b) the Directors had selected such accounting policies and applied them consistentlyand made 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 Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;

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;

f) the Directors had devised proper systems to ensure compliance with the provision 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 forall the support rendered during the year.

The Directors are thankful to the Government of India the various Ministries of theState Governments the Central and State Electricity Regulatory authorities communitiesin the neighbourhood of our operations Municipal authorities of Mumbai and localauthorities in areas where we are operational in India; as also partners governments andstakeholders in International geographies where the Company operates for all the supportrendered during the year.

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
N. Chandrasekaran
Chairman
Mumbai 19th May 2017 (DIN: 00121863)

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