Power Finance Corporation

1.  Contingent liabilities:
 
 (i) Guarantees issued by the Corporation in foreign currency.
 
 (a) EURO 1.421 million equivalents to Rs.9.02crores (previous year EURO
 1.776 million equivalent to Rs.10.36 crores).
 
 (b) US$ 24.545 million equivalent to Rs.98.45 crores (previous year US$
 27.95 million equivalent to Rs.122.32 crores).
 
 (ii) Guarantee issued by the Corporation in Indian Rupee: Rs.400.04
 crores, (previous year Rs. 224.52 crores).
 
 (iii) The Corporation has issued letters of comfort for disbursement of
 loans to borrowers amounting to Rs.3205.97 crores (Previous year
 Rs.3014.38 crores) against which a sum of Rs. 2410.76 crores (Previous
 Year Rs. 1931.11 crores) has been disbursed to borrowers.
 
 (iv) The additional demands raised by Income Tax Deptt. (net of relief
 granted by Appellate Authorities) of Rs.3.39 crores for Assessment Year
 1996-97, Rs.28.56 crores for Assessment Year 1997-98, Rs.0.13 crores
 for Assessment Year 1998-99, Rs.17.47 crores for Assessment Year
 1999-2000, Rs.18.77 crores for Assessment Year 2000-01, Rs.23.36 crores
 for Assessment Year 2001-02, Rs.24.71 crores for Assessment Year
 2002-03, Rs.23.07 crores for Assessment Year 2003-04, Rs.63.88 crores
 for Assessment Year 2004-05 and Rs.23.64 crores for Assessment Year
 2005-06 were paid and provided for.
 
 For Assessment Year 2006-07 Assessing Officer has raised a demand of
 Rs.44.23 crores against which Rs.38.92 crores is paid and for the
 balance amount of Rs.5.31 crores stay is applied. The company has filed
 an appeal against this demand and based upon the decision of ITAT on
 similar issues for Assessment Year 1996-97, being final and binding on
 PFC as well as Income Tax Deptt., as Committee of Disputes has not
 granted permission to either party to pursue the matter further, the
 management do not feel it is necessary to make any provision for this
 demand.
 
 (v) In respect of cess on turnover or gross receipt of company u/s 441
 A of Companies Act, to be levied @ not less than 0.005% and not more
 than 0.1% on the value of annual turnover or gross receipt whichever is
 higher. No provision has been made as the cess rate & the date from
 which it is applicable has not been notified so far by the Govt. Though
 no such notification has been issued so far, the Corporation may have
 to pay cess minimum of Rs.1.07 crores and maximum of Rs. 21.43 crores
 if levied from the financial year 2002-03.
 
 (vi) Contracts of Capital nature remaining to be executed and not
 provided for Rs.0.17 crores. (Previous year Rs.NIL).
 
 (vii) Claim not acknowledged as debts are Rs.7.80 crores (previous year
 NIL).
 
 2.  The Govt.of India, Ministry of Power, under section 58(4) of the
 Madhya Pradesh Reorganisation Act, 2000 (MPRA) issued an order No
 42/8/2000-R&R dated 12.04.2001 through which assets, transfer rights,
 liabilities, undertaking etc, of erstwhile Madhya Pradesh Electricity
 Board (MPEB) were passed on to the successor boards namely MPSEB & CSEB
 after bifurcation of state of Madhya Pradesh.
 
 Subsequently, the GOI, Ministry of Power through the Gazette of India
 Extraordinary-MOP, New Delhi notification dtd.4.11.2004 had decided to
 divide the liability and assets of erstwhile MPEB into MPSEB & CSEB in
 the ratio of fixed assets of 90:10 respectively. Consequent upon this,
 CSEB has informed that although it has been clearing the dues of PFC
 based on the acquired liability of erstwhile MPEB at Rs.110.64 crores,
 it has requested the corporation to align the dues in line with MoP
 order to Rs.105.23 crores. 
 
 Nevertheless, the corporation will receive the full amount of principal
 payment either from CSEB or MPSEB.  Further, PFC has taken up the
 matter with MoP and has requested MoP to review and revise the order on
 a plea that PFC’s loans are project specific and the amount disbursed
 actually goes into the creation of the assets on such projects are not
 to be allocated in the manner as suggested by MoP in the new order.
 
 3.  A project under the implementation having total outstanding of
 Rs.94.54 crores excluding additional disbursement of Rs.91 crores under
 the loan (previous year as on 31.03.2007 Rs.98.18 crores excluding
 additional disbursement of Rs.70 crores) has been considered as
 Standard Asset in terms of RBI Circular No.
 
 DBS.FID.No.C-11/01.02.00/2001-02 dated 1.02.2002 read with D.O. letter
 DBS.FID No.1285/01.02.00/2001-02S dated 14.05.2002 though the borrower
 had not cleared its entire dues since 23.09.2000 except on additional
 loan of Rs.91 crores,Though the above dispensation is available upto
 June,2008 only, the institutions propose to review the status of the
 project as the financial closure has since been achieved in order to
 adopt the Date of Commissioning as agreed by the Institutions in the
 Common Loan agreement.
 
 Keeping in view the positive factors in this project such as
 achievement of RBI norm for financial closure by tying up at least 90%
 of the project cost, substantial progress on the Project which is being
 monitored by MoP as well as PFC, availability of approvals for
 financial restructuring package from almost all the lenders and
 implementation of the Project by the Management appointed by the
 lenders. The interest on this loan is not recognized on accrual basis. 
 
 A remittance of Rs.17.60 crores (including penal and interest on
 interest) made during the year relating to past dues have been
 accounted for in the books as income on receipt basis as per the terms
 of the original agreement.
 
 Further, the interest of Rs.7.40 crores (including penal and interest
 on interest) earned on additional disbursed loan amount of Rs.91 crores
 has also been recognized as income on receipt basis.
 
 4.  In the case of one of the borrower, the Board of Directors had
 given an In principle approval‘ of Interest Restructuring with effect
 from 15.07.2004, However, the same was subsequently approved with
 effect from 15.10.2004 subject to fulfillment of certain conditions.The
 party has been paying the interest as per oringial terms and the amount
 in excess of restructured rates amounting to Rs.25.09 crores (previous
 year Rs.23.20 crores) for the period 15.10.2004 to 15.10.2007 has been
 retained as other liabilities.The interest on this loan has again
 become due for reset with effect from 15.10.2007 at the original rate
 as was applicable at the time of initial restructuring. Accordingly the
 interest income has been booked @ 16.84% as against the borrower’s
 request for fixing the interest in line with other consortium lenders,
 i.e.10.5 %.Pending the decision on the borrower’s request, with effect
 from 15.10.2007, the interest income has been accounted for as Rs. 8.94
 crores as against Rs. 5.58 crores on the basis of borrower’s request.
 
 5.  In case of one of the borrower, the dispute regarding recovery of
 interest amounting to Rs.46.19 crores as on 31.03.2007 has been settled
 for Rs.18.97 crores with the approval of respective Board of Directors.
 The amount so settled has been accounted for as the Income for the year
 following the provisions of clause 9.5 of the Accounting Standard 9.
 
 6.  The Prudential Norms of the Corporation have been revised for the
 financial year 2007-08 to 2009-10 with the approval of the Ministry of
 Power vide their letter dated 19th April,2007 with partial modification
 vide their letter dated 31st March,2008.
 
 7.  (i) Assets of Rs.13.97 crores (Previous year Rs.43.20 crores) were
 classified as Non Performing Assets in terms of prudential norms of the
 corporation. Accordingly, a provision of Rs.6.81 crores is held in the
 accounts (provision held in previous year Rs.17.01 crores).
 
 (ii) The total principal loan amount in default (excluding NPAs) is
 Rs.74.83 crores, (previous year Rs.13.70 crores) which is considered
 good.
 
 (iii) The company has recovered a sum of Rs.83.93 crores (including
 interest upto 31st March, 2008) of Interest subsidy under AG & SP from
 various borrowers where the same was withdrawn by the Ministry of Power
 vide their order dated 31stMarch,2007.  The amount has been retained as
 amount payable to Ministry of Power.
 
 (iv) Non payment pertaining to refund of AG&SP subsidy (including
 interest upto 31st March, 2008) amounting to Rs.93.73 crores from two
 parties are yet to be recovered and the same is payable to the Ministry
 of Power after the same is received.
 
 (v) In case of two gas based projects , having an aggregate outstanding
 of Rs.587.32 crores, the terms of repayment have been renegotiated due
 to non allocation of gas and the same have been classified as standard
 assets in line with clause 6C (ii) of the Prudential Norms adopted by
 the company.
 
 (vi) During the year, Corporation has changed its Prudential Norms for
 provision for non-performing assets from Sub-standard Assets to
 Doubtful Assets from 24 months to 18 months from the date of asset
 becoming non-performing asset. This change has resulted in increase in
 provision by Rs. 1.07 crores.
 
 8.  The Corporation discontinued interest rate restructuring policy
 w.e.f. December 2005. However, the loans which were restructured with 3
 year reset (after 3 years the loan shall carry original interest rate
 i.e. the rate before interest restructuring).
 
 Borrower was given option to seek further restructuring after 3 years,
 on payment of 50% premium being NPV of difference between Original
 interest rate and Current interest rate for the entire remaining period
 of Loan. Accordingly the Corporation has done interest restructuring
 amounting to Rs.85.22 crores (previous year NIL). An amount of Rs. 0.07
 crores (previous year NIL) has been received and credited to Profit and
 Loss Account as Interest Restructuring Premium (Refer schedule 10).
 
 9.  (i) The Corporation is not required to create Bond Redemption
 Reserve in respect of bonds by virtue of the Department of Company
 Affairs’ Circular of 18.04.2002 according to which the financial
 institutions within the meaning of section 4A of the Companies Act 1956
 were not required to create Bond Redemption Reserve in case of
 privately placed debentures.
 
 (ii) The Corporation is not required to maintain Reserve Fund under
 Section 45-IC of the Reserve Bank of India Act, 1934 by transferring 20
 percent of its net profits, as it is exempted by RBI vide its letter
 dated 24.01.2000.
 
 12.  Interest Differential Fund (IDF) – KFW
 
 Since the agreement entered into between KFW and PFC provides that the
 IDF belongs to the borrowers solely and will be used to cover the
 exchange risk variations under this Loan and any excess will be used in
 accordance with the agreement, the balance in the IDF fund has been
 kept under separate account head titled as KFW-Interest Differential
 Fund and shown as a liability. The total fund accumulated as on
 31.03.2008 is Rs.36.85 crores (previous year Rs. 38.61 crores) after
 adjusting the translation loss of Rs. 18.24 crores (previous year Rs.
 12.09 crores).
 
 13.  The foreign exchange loss (net) of Rs. 20.14 crores (previous year
 foreign exchange gain of Rs.7.39 crores) arising on repayment and
 translation of foreign currency assets and liabilities has been taken
 to Profit and Loss Account during the year.
 
 14.  The company was having outstanding forward foreign exchange
 contracts and principal only swaps amounting to US $ 20 million and US
 $ 110 million respectively and the same have been considered for
 valuation of foreign exchange liabilities as per Accounting Standard
 11.
 
 15.  (a) Assets under finance lease prior to 01.04.2001
 
 (i) The Corporation has purchased assets amounting to Rs.280 crores
 from APSEB (now APGENCO), which in turn were leased out to them. Sale
 Deed between PFC and APSEB (now APGENCO) was executed on 14.02.97 for
 the amount of Rs.264.10 crores only. However, the execution of
 Supplementary Sale Deed for the balance amount of Rs. 15.89 crores
 (previous year Rs 15.89 crores) is pending though the same has been
 considered for fixing lease rental.
 
 In respect of the above, the Corporation approved for extension of
 secondary lease period @ nominal rental of Rs. 1000/- p.a for the
 period of 5 years & transfer of assets to APEGENCO anytime during five
 year, on payment of balances rental on unexpired lease period and any
 other charges, as may be agreed by APGENCO. Further APGENCO requested
 for transfer of the residual asset (Boiler and Steam Turbine of
 Kothagudem TPS Stage-unit 9) to them at the earliest & complete the
 formalities. The same is pending for final decision.
 
 (ii) In respect of assets leased to MSEB, the asset has been
 capitalized for Rs.5.46 crores. Out of the above, the payment of
 Rs.0.45 crores (previous year Rs.0.45 crore) is still outstanding.
 However, the same has been considered for fixing lease rental.
 
 (b) Asset under finance lease after 01.04.2001
 
 (i) Gross investment in the leased assets and the present value of the
 minimum value receivable at the balance sheet date has been covered in
 the note with the description as total of future minimum lease payments
 and present value of the lease payments amounting to Rs.302.12 crores
 and Rs.211.67 crores respectively. The reconciliation of these figures
 has also been indicated under the head “unmature finance charges” with
 an amount of Rs. 90.45 crores.
 
 (ii) In case of Rajasthan Renewable Energy Corporation Ltd, the
 Corporation had sanctioned an amount of Rs.88.90 crores to RRECL in the
 year 2004 for financing Wind turbine Generator which was reduced to
 Rs.88.85 crores in December 2006.  The Gross Investment stood at the
 level of Rs.91.24 crores. The lease rent is to be recovered within a
 period of 15 Years, which comprises of 10 years as a primary period and
 5 years as a secondary period.
 
 (iii) In case of Enercon Windfarms (Jaisalmer) Pvt. Ltd, the
 Corporation had sanctioned an amount of Rs.98.44 crores to Enercon
 Windfarms (Jaiselmer) in the year 2004 for financing Wind turbine
 Generator. The Gross Investment stood at Rs.108.37 crores. The lease
 rent is to be recovered within a period of 20 years, which, comprises
 of 10 years as a primary period and 10 years as a secondary period.
 
 (iv) In case of Enercon Windfarms (Rajasthan) Pvt. Ltd, the Corporation
 had sanctioned an amount of Rs.93.51 crores to Enercon Windfarms
 (Rajasthan) in the year 2004 for financing Wind turbine Generator. The
 Gross Investment stood at Rs.102.51 crores. The lease rent is to be
 recovered within a period of 20 years which comprises of 10 years as a
 primary period and 10 years as a secondary period.
 
 16.  Subsidy under Accelerated Generation & Supply Programme (AG&SP):
 
 The Corporation is claiming subsidy from Govt. of India at Net Present
 Value calculated at indicative interest rates in accordance with GOI’s
 letter vide D.O.No.32024/17/97-PFC dated 23.09.1997 and
 O.M.No.32024/23/2001-PFC dated 07.03.2003 irrespective of the actual
 repayment schedule, moratorium period and duration of repayment. The
 amount of interest subsidy received and passed on to the borrower is
 retained as Interest Subsidy Fund Account.
 
 The impact of difference between the indicative rate and period
 considered at the time of claims and at the time of actual disbursement
 can be ascertained only after the end of the respective schemes.
 However on the basis of the projections made for each project (based
 upon the certain assumptions and also that these will remain same over
 the projected period of each loan / project) the corporation estimated
 the net excess amount of Rs.  253.47 crores and Rs. 52.49 crores as at
 31/03/2008 for ixth & xth plan respectively under AG&SP schemes. 
 
 This net excess amount is worked out on overall basis & not on
 individual basis & may vary due to change in assumptions , if any
 during the projected period such as changes in moratorium period ,
 repayment period , loan restructuring , pre payment , interest rate
 reset etc. Hence the corporation will return the net excess amount, if
 any at the end of the respective scheme.
 
 The amount of Rs.1066.75 crores (previous year Rs.1231.63 crores) under
 the head Interest Subsidy Fund represents the amount of subsidy
 received from Ministry of Power, Govt. of India which is to be passed
 on to the borrowers against their interest liability arising in future
 under Accelerated Generation & Supply Programme (AG&SP) which comprises
 of the following:-
 
 17.  Some of the State Electricity Boards against whom loans are
 outstanding were restructured by the respective State Governments and
 new entities were formed. Consequently, the liabilities stand
 transferred to new entities and transfer agreement were to be executed
 amongst the Corporation and New Entities. In case of MPSEB and for
 UPSEB transfer agreements are yet to be executed Consequent upon the
 formation of new state of Chhatisgarh, the transfer agreements are yet
 to be executed in respect of loans transferred from MPSEB to CSEB.
 
 18.  (i) The Corporation has complied with all the applicable
 Accounting Standards issued by the Institute of Chartered Accountants
 of India.
 
 (ii) The Corporation does not have more than one reportable segment in
 terms of Accounting Standard No. 17 issued by the Institute of
 Chartered Accountants of India.
 
 19.  The net deferred tax liabilities is Rs.1240.25 crores (previous
 year Rs.1142.60 crores) computed as per Accounting Standard 22
 Accounting for Taxes on Income.
 
 20. The Deferred Tax Assets/Liabilities have been created in terms of
 the Accounting Standard 22 issued by the Institute of Chartered
 Accountants of India (ICAI) since the year it became applicable to the
 company, i.e., 2001-02 except on account of “Special reserve created
 and maintained under section 36(1) (viii) of Income Tax Act.” on which
 the DTL was created by debiting profit & loss account for 2004-05 & by
 charging revenue reserve for 2001-02 to 2003-04. However, PFC has taken
 up the issue for total withdrawal of DTL on Special Reserve with the
 ICAI and with Ministry of Corporate Affairs. The Institute in its
 letter dated 04-04-2007 stated that the Accounting Standard Board
 examined AS 22, Accounting for Taxes on Income, in the light of the
 opinion of the Expert Advisory Committee.
 
 It is further stated that “the Board decided to take up the revision of
 the standard on the lines of the corresponding IAS, namely, IAS 12,
 Income taxes, as a part of its convergence with IFRS project. It was
 argued that since IAS 12 is based on the ‘balance sheet approach ‘as
 against ‘income statement approach’ on which the existing AS 22 is
 based, the problem being encountered by the company may not arise”.
 Ministry of Corporate Affairs also endorsed the letter issued by ICAI
 to PFC.
 
 22.  The Corporation has no outstanding liability towards small-scale
 industrial undertakings.
 
 23.  The value of lease hold land aggregating to Rs.38.33 crores
 (previous year Rs.38.33 crores) comprises of amount of Rs.31.83.
 crores (previous year Rs.31.83 crores) paid as deposit to Land and
 Development Office (L&DO), Ministry of Urban Affairs, Govt.  of India ,
 stamp duty liability of Rs.2.47 crores (previous year Rs.2.47 crores)
 and capitalization of ground rent upto the date of completion of
 building of Rs.4.03 crores ( previous year Rs. 4.03 crores) In
 accordance with Memorandum of Agreement (MOA) executed with L&DO, the
 lease deed is yet to be signed. Pending execution of perpetual lease
 deed, (which does not have limited useful life) the value of leasehold
 land is not amortized and /or no provision for depreciation has been
 made on the said leasehold land.
 
 25.  Pending receipt / approval of some of the final bills of
 contractors, the cost of building, plant & machinery and equipment have
 been adjusted capitalized during the year on a provisional basis.
 Depreciation has also been provided on provisional capitalization
 amounts.
 
 26.  The pay revision of the employees of the corporation is due w.e.f.
 01.01.2007 Pending revision of pay, a provision of Rs 19.60 crores has
 been made on estimated basis for the period 01.01.2007 to 31.03.2008.
 
 27.  Provision for gratuity, sick leave, earned leave, post retirement
 medical benefits, economic rehabilitation benefit, leave travel
 concession, settlement allowance after retirement and service award
 scheme are accounted for on actuarial basis as per AS 15 (revised) at
 the year end. The actuarial valuation has been made on the basis of
 present emoluments without considering the expected wage revision as
 the same is not ascertainable with reasonable accuracy.
 
 28.  During the year, the Corporation has sent letters seeking
 confirmation of balances as on Dec 31, 2007 to borrowers. However,
 confirmation in a few cases were yet to be received.
 
 29.  Previous year’s figures have been re-grouped / re-arranged,
 wherever practicable, to make them comparable with the current year.
 
 30.  Figures have been rounded off to the nearest lakh of rupees.
 
 31.  Balance Sheet abstract and Company’s General Business Profile as
 per Part IV of Schedule VI of the Companies Act, 1956 is enclosed as
 Appendix.