Rural Electrification Corporation Directors Report, Rural Elect Cor Reports by Directors

Directors Report	Year End : Mar '12 � Mar 11

The Directors have pleasure in presenting the Forty Third Annual Report together with the Audited Financial Statements of your Company for the financial year ended 31st March, 2012. 1. PERFORMANCE HIGHLIGHTS 1.1 The highlights of performance of the Company for the financial year 2011-12 were as under with comparative position of previous year''s performance:- (Rs. in crore) Parameter 2011-12 2010-11 Loans sanctioned (excluding subsidy under RGGVY) 51296.77 66419.98 Disbursements (including subsidy under RGGVY) 30593.30 28517.11 Recoveries (including interest) 18440.09 16951.31 Total Operating Income 10337.59 8256.91 Profit before tax 3792.86 3476.63 Profit after tax 2817.03 2569.93 1.2 Financial Performance The total operating income of your Company for the financial year 2011-12 increased by 25% to Rs. 10337.59 crore from Rs. 8256.91 crore during the previous year.The profit after tax increased by 10 % to Rs. 2817.03 crore from Rs. 2569.93 crore for the previous year. Loan asset book of your Company as on 31st March, 2012 has increased by a healthy 24% to reach a historic high of Rs. 101426 crore from Rs. 81725 crore in the previous year. The outstanding borrowings as on 31st March, 2012 were Rs. 89968 crore. Earnings Per Share (EPS) for the financial year ended 31st March, 2012 is Rs. 28.53 per share of Rs. 10/- each. Net worth of the Company as on 31st March 2012 has increased by 15% to Rs. 14745 crore from Rs. 12788 crore in the previous year. 1.3 Dividend In addition to interim dividend of Rs. 5/- per share paid in February, 2012, Directors of your Company have recommended a final dividend of Rs. 2.50 per share for the financial year 2011-12, which is subject to approval of the Shareholders in the ensuing Annual General Meeting. The total dividend for the financial year 2011-12 will work out to Rs. 7.50 per share and is same as was paid last year. The total dividend pay-out for the financial year will amount to Rs. 740.60 crore (excluding dividend tax). 1.4 Share Capital The Issued and Paid up Share Capital as on 31.03.2012 is Rs. 987.46 crore divided into 98,74,59,000 equity shares of Rs. 10/- each against the Authorized Share Capital of Rs. 1200 crore.The Government of India holds 66.80% of the paid up equity share capital. 2. LOANS SANCTIONED Your Company sanctioned loans worth Rs. 51296.77 crore during the financial year 2011-12, as against Rs. 66419.98 crore in the previous year, excluding subsidy under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). The state and category-wise break-up of loans sanctioned during the financial year are given in enclosed Table-1 and 2 respectively. The cumulative amount of sanctions made since inception up to 31.03.2012 was Rs. 404376.79 crore including subsidy under RGGVY.The cumulative state-wise position of sanctions up to the end of financial year 2011-12 is given in enclosed Table-3. 3. DISBURSEMENTS A total sum of Rs. 30593.30 crore was disbursed during the financial year 2011-12 as against Rs. 28517.11 crore in the previous year including subsidy under RGGVY. The cumulative amount disbursed since inception up to 31.03.2012 was Rs. 165872.91 crore excluding subsidy under RGGVY. The state-wise disbursements and repayment by borrowers during the year together with cumulative figures and outstandings as on 31.03.2012 are given in enclosed Table-4. 4. RECOVERIES 4.1 The amount due for recovery including interest during the financial year 2011-12 was Rs. 18528.61crore as compared to Rs. 16979.84 crore during the previous year. The Company recovered a total sum of Rs. 18440.09 crore during the year 2011-12 against Rs. 16951.31 crore during the previous year. The overdues from defaulting borrowers as on 31.03.2012 were Rs. 283.64 crore. The details are given as under: (Rs. in crore) Particulars Amount Overdues as on 1.4.2011 195.13 Dues receivable during the year 18528.61 Received during the year 18440.09 Overdues as on 31.03.2012 283.64 Principal repayments due on 31.03.2012 of three State Sector Power Utilities with outstanding loan of Rs. 11591 crore and one Private Sector borrower with outstanding loan of Rs. 375 crore, were rescheduled due to extension of Commercial Operation Date (COD) of their projects. 4.2 Out of the overdues of Rs. 283.64 crore as on 31.03.2012, a sum of Rs. 69.89 crore stands recovered as on 31.05.2012. 4.3 Your Company''s Non-Performing Assets (NPAs) continue to be at the low levels. As on 31.03.2012, the Gross NPAs of the Company stood at Rs. 490.40 crore (i.e. 0.48% of Gross Loan Assets), as compared to Rs. 19.54 crore (0.02% of Gross Loan Assets) as on 31.03.2011. Our loans provided to Shree Maheshwar Hydel Power Corporation Limited and Konaseema Gas Power Limited had to be classified as substandard assets during the year due to non-servicing of loan on account of issues concerning Re-settlement/Re-habilitation and low availability of gas etc. respectively, faced by the projects. 5. FINANCIAL REVIEW 5.1 A summary of Financial Results The summary of audited financial results of the Company for the financial year ended 31stMarch, 2012 is given as under: (Rs. in crore) Particulars Standalone Consolidated 2011-12 2010-11 2011-12 2010-11 Gross Income 10509.07 8495.26 10553.62 8532.20 Profit before tax 3792.86 3476.28 3825.80 3498.80 Depreciation 3.27 3.03 3.34 3.06 Provision for Income Tax , Deferred Tax & FBT 975.83 906.35 987.14 913.91 Net Profit available for appropriations 2817.03 2569.93 2838.66 2584.89 Appropriations : Transfer to Special Reserve u/s 36(1) (viii) of the Income Tax Act, 1961 681.70 610.11 681.70 610.11 Transfer to Reserve for Bad & Doubtful Debts u/s 36(1)(viia) of the Income Tax Act, 1961 159.59 144.09 159.59 144.09 Interim Dividend 493.73 345.61 493.73 345.61 Dividend Tax on Interim Dividend 80.09 57.39 80.09 57.39 Proposed Final Dividend 246.86 394.98 246.86 395.03 Dividend Tax on proposed Final Dividend 40.05 64.08 40.08 64.09 Transfer to Reserve for Doubtful Debts - - 0.43 0.20 Transfer to Debenture Redemption Reserve 113.99 - 113.99 - Transfer to General Reserve 281.73 260.00 289.73 263.00 Balance carried forward 719.29 693.67 732.46 705.37 Note:Consequent to the notification of Revised Schedule-VI under the Companies Act, 1956, the financial statements for the year ended 31st March, 2012 have been prepared as per Revised Schedule-VI. Accordingly, the previous year figures have also been re-classified to conform to this year''s classification. 5.2 Resource Mobilization Your Company mobilized Rs. 29709.36 crore from the market during the financial year 2011-12 for its operational requirements. This includes Rs. 5239.36 crore raised by way of Capital Gains Tax Exemption Bonds, Rs. 157.59 crore by way of Infrastructure Bonds under Section 80CCF of Income Tax Act, 1961, Rs. 3000 crore by way of Tax Free Secured Redeemable Non-convertible Bonds u/s 10(15)(iv)(h) of Income Tax Act, 1961, Rs. 17465.60 crore by way of non- priority sector bonds, Rs. 3231.46 crore by way of External Commercial Borrowings and Rs. 615.35 crore by way of Official Development Assistance (ODA) loan from KfW, Germany, & Japan International Cooperation Agency (JICA), Japan. External Commercial Borrowings Your Company mobilized USD 670 million (Rs.3231.46 crore) from international markets during the financial year 2011-12, by way of Swiss bonds equivalent to USD 220 million and Syndicated Term Loans equivalent to USD 450 million . Cash Credit Facilities Your Company has tied up cash credit limits of Rs. 2500 crore with various banks for its day to day operations. 5.3 Domestic and International Credit Rating Domestic During the financial year 2011-12, the domestic debt instruments of REC continued to enjoy AAA or equivalent rating � the highest ratings assigned by CRISIL, CARE, FITCH & ICRA Credit Rating Agencies. International Your Company enjoys international credit rating from International Credit Rating Agencies Moody''s and FITCH which are Baa3 and BBB- respectively equivalent to sovereign rating of India. Baa3 rated obligations denote moderate credit risk and BBB- rated obligations denote that expectations of default risk are currently low. 5.4 Cost of borrowing The overall annualized average cost of funds during the financial year 2011-12 was 8.05%p.a. As a result your Company was able to deliver debt financing at competitive rates. As per the Finance Act 2006, Rural Electrification Corporation Limited (RECL) and National Highways Authority of India (NHAI) are the only two companies eligible to raise money through Capital Gains Tax Exemption Bonds issued under Section 54 EC of the Income Tax Act, 1961. 5.5 Redemption and Pre-Payment During the year, the Company repaid a sum of Rs. 12483.22 crore. This includes repayments amounting to Rs. 11.48 crore to the Government of India, Rs. 2759.22 crore to non-priority / priority sector bond holders, Rs. 2995.11 crore to bond holders of Capital Gains Tax Exemption Bonds, Rs. 870.26 crore towards external commercial borrowings and Rs. 119.56 crore towards Official Development Assistance (ODA) loans. The Company also redeemed long term loans from Banks amounting to Rs. 5727.59 crore. 5.6 Financial status at the close of the year At the close of the financial year 2011-12, the total resources of your Company stood at Rs. 108728.59 crore. Out of this, Equity Share Capital contributed Rs. 987.46 crore, Reserve and Surplus stood at Rs. 13757.46 crore, Loans from LIC, Commercial Banks and market borrowings accounted for Rs. 90056.47 crore and other liabilities & provisions stood at Rs. 3927.20 crore. These funds were deployed as Long / Short Term Loans of Rs. 101361.74 crore, Fixed Assets of Rs. 78.48 crore (including Capital Work in progress & Intangible Assets under development), Investments of Rs. 757.59 crore, Deferred Tax Assets of Rs. 10.05 crore, Cash & Cash Equivalents of Rs. 5311.48 crore and other assets of Rs. 1209.25 crore. 5.7 Policy Initiative Your Company constantly reviews and revises its lending and operation policies/ procedures to suitably align with market requirements as also with its corporate objectives. In spite of growing competition in the market as well as concerns on account of factors like high government borrowings, increase in interest rates as per RBI policy, rise in inflation etc., your Company has been able to maintain healthy spreads, balancing its objectives of business growth and profitability during the year. 6 PRESENT DISTRIBUTION SCENARIO AND MAJOR CHALLENGES A reliable transmission and distribution system is important for the proper and efficient transfer of power from generation facilities to sub-stations or between sub-stations and up to the consumer. A transmission and distribution system is typically comprised of transmission lines, sub-stations, switching stations, transformers and distribution lines. Distribution is the most challenging area as compared to Transmission due to various reasons and your Company has always strived to play an active role in creation of new infrastructure and improvement of the existing ones, as well as encourage the various reform measures and technology interventions under distribution sector in the country to help turnaround the sector. Distribution sector is responsible for collecting revenue from consumers and thereby plays a significant role for sustenance of the Power sector. 6.1 Major reforms in Distribution sector Electricity Act, 2003, along with various policy announcements such as National Tariff Policy, National Electricity Policy, Rural Electrification Policy etc, provides a comprehensive framework and also the blueprint for power sector reforms. The previous decade has seen significant progress in implementation of various aspects of the reforms agenda � in most states the process of unbundling, corporatisation, instituting regulatory commission etc, has been completed; the two ambitious programmes, namely,the Re-structured Accelerated Power Development and Reform Programme (R-APDRP), for undertaking improvements in urban pockets, and the RGGVY, for providing the much needed boost for rural infrastructure, are both going ahead with full force. To ensure competition in distribution, bottlenecks in open access implementation have been removed. REC has provided counterpart funding for a large part of the R-APDRP projects which aim to reduce the Aggregate Technical and Commercial (AT&C) losses considerably in various towns. Keeping in view the huge funding requirements of the state sector distribution segment of the power sector, the National Electricity Fund (NEF), an interest subsidy scheme was conceived and operationalised by the Central Government as the catalyst for incentivising investment into development, upgrading, renovation & modernisation of power distribution infrastructure in the country. Technology intervention and evolution of smart grids in Power Distribution Sector Technology enables the electric system to become smart. Near-real-time information allows utilities to manage the entire electricity system as an integrated framework, actively sensing and responding to changes in power demand, supply, costs, quality, and emissions across various locations and devices. Similarly, better information enables consumers to manage energy use to meet their needs. A technology- enabled electric system will be more efficient, will enable applications that can reduce greenhouse gas emissions, and improve power reliability. Development of intelligent grid at local distribution level shall however be crucial for ensuring efficient & seamless flow of power, up to last mile access by embedding IT/Internet/Communication Technologies in the existing grid for data acquisition on real time and supervisory control throughout the network. This will include integrated communication system, sensing and measurement technology, advance components for control & determining electrical behaviour & online management of the grid upto Distribution Transformer level and eventually up to consumer point. R-APDRP & Reduction of AT&C losses The experience of APDRP in X Five Year plan has shown that sustained loss reductions can only be achieved by taking up issues concerning governance, commercial intervention and adoption of technology and modernization of the infrastructure. APDRP was therefore re-launched as R-APDRP by making it more performance-based and financially attractive.The success of programme would depend on pinpointing of problem areas and ensuring accountability and responsibility. It has also been reported that the best results in improving energy efficiency in the power distribution sector have often been obtained by separating agricultural consumers from domestic and industrial areas through separate feeders, and by conversion of low voltage distribution systems into High Voltage Distribution Systems (HVDS) in theft prone areas, both rural and urban. National Electricity Fund National Electricity Fund, an Interest Subsidy Scheme has been set up by Ministry of Power, Government of India to provide interest subsidy on loans disbursed to the State Power Utilities, Distribution Companies (DISCOMs) � both in public and private sector, to improve the infrastructure in distribution sector. Under National Electricity Fund (NEF), interest subsidy would be provided on loans taken by private and public power utilities in distribution sector for all Distribution Sector Infrastructure capital projects, provided that the proposed works have not been funded through the R-APDRP or RGGVY schemes. National Electricity Fund provides interest subsidy aggregating Rs. 8466 crore spread over 14 years for loan disbursement amounting to Rs. 25,000 crore for distribution schemes sanctioned during the 2 years viz., 2012-13 and 2013-14. Your Company is the designated nodal agency to operationalise the scheme for channelizing the interest subsidy amounts from the Government of India to the state utilities, with the approval of Steering Committee constituted for the National Electricity Fund scheme. For financial assistance under NEF, the States have been categorized as Special category and focused states, and States other than special category and focused states. The pre-conditions for eligibility are linked to reform measures taken by the States and the amount of interest subsidy is linked to the progress achieved in reforms-linked parameters. Power utilities eligible for subsidy on interest would be assigned marks based on baseline parameters. Based on the consolidated score achieved on these parameters, the utilities would be categorized and will be eligible for subsidy in interest rates from 3% to 5% in States other than Special category and focused states and 5% to 7% in Special Category and focused states. These would be monitored on annual basis and eligibility of the utility and subsidy in Interest rate will be calculated accordingly. 7. FINANCING ACTIVITIES Your Company has been providing funding assistance for power generation, transmission & distribution projects besides for electrification of villages. Details of major financing activities during the financial year 2011-12 are as under: 7.1 Generation During the financial year 2011-12, your Company sanctioned 16 nos. of generation / R&M loans including 1 no. of additional loan assistance with total financial outlay of Rs. 22834.34 crore including consortium financing with other financial institutions, and has disbursed Rs. 12349.12 crore against the on going generation projects. The sector wise break up of loans sanctioned including additional loan assistance is as under: (Rs. in crore) Particulars No. of Loans Loan Amount STATE SECTOR Fresh Loan 3 12486.22 Additional Loan 1 PRIVATE SECTOR Fresh Loan 12 10348.12 Total 16 22834.34 7.2 Renewable Energy Continuing with our foray into the area of renewable energy financing, your company sanctioned loan assistance of Rs. 342.19 crore for eight nos. grid-connected Renewable Energy projects with installed generation capacity aggregating 70 MW, with total project cost aggregating Rs. 685.47 crore. These include 5 nos. Solar Photovoltaic projects, 2 nos. Bio-mass projects and 1 no. Small Hydro project, besides additional loan to existing Small Hydro project and Solar Photovoltaic project. Your company disbursed a sum of Rs. 144.54 crore during the financial year 2011-12 towards Renewable Energy Projects. 7.3 Transmission & Distribution Your Company continued to play an active role in creation of new infrastructure and improvement of the existing ones under the transmission and distribution network in the country under its T&D portfolio. In line with the country''s objective to provide power for all by the year 2012 and also reduce the AT&C losses, your Company has been financing schemes for expansion and strengthening of the transmission network and more importantly, modernizing the distribution system. During the year 2011-12, your Company sanctioned 1033 nos. of Transmission and Distribution schemes involving a total loan assistance of Rs. 23506.64 crore. This includes primary power evacuation schemes associated with generating plants, system improvement schemes including R-APDRP projects, feeder segregation schemes, bulk loan schemes, intensive electrification schemes and pumpset energisation schemes. The state-wise and category-wise details of the projects sanctioned are as per Table 1 & 2 respectively.The major programmes covered by your company under T&D in brief are as under: System Improvement During the financial year 2011-12, a total of 830 system improvement schemes and bulk loan schemes were sanctioned involving a loan outlay of Rs. 19998 crore. This included: (i) 63 schemes involving a loan assistance of Rs. 2203.91 crore for financing investment in the distribution system by way of installation of essential equipments like transformers, meters, capacitors etc. (ii) 24 schemes involving a loan assistance of Rs. 742.24 crore for conversion of Low Voltage Distribution to High Voltage Distribution System (HVDS), (iii) 101 schemes for Rs. 2634.86 crore for improving the distribution system, and (iv) 369 schemes for Rs. 5898.70 crore towards counterpart funding of Part-B of R-APDRP projects and (v) 273 schemes for loan assistance of Rs. 8518.44 crore for improving the transmission network. Feeder Segregation Scheme The power supply for agriculture sector in India has been heavily subsidized and, agricultural consumers are normally charged around 10 per cent of the cost of supply. In many states these consumers are paying a flat rate per unit of horsepower per pump and the actual level of power use is not metered. The balance part of the tariff is provided by state Governments as part of agricultural subsidy. Moreover, feeder wise amount of power consumed on a specific feeder cannot be differentiated between rural non-agriculture and agriculture consumption. Further, the load shedding hours are much more in rural areas because of power deficit and lack of accountability between rural non-agricultural and agricultural consumption. Quite often state utilities seek to limit the supply hours to agricultural consumers in the range of 6-8 hours, normally during night time. It is in this context that several states in India have undertaken the program of rural feeder segregation that separates supply to rural non-agricultural & agricultural consumers. Through this mechanism, utilities have attempted to measure and limit the amount of power supplied for free for irrigation, while ensuring that rural non- agricultural consumers receive better quality supply for longer periods. The states like Andhra Pradesh, Gujarat, Haryana, Punjab, Karnataka, Maharashtra and Rajasthan have already initiated rural load segregation schemes. REC till the close of Financial Year 2011-12 has sanctioned financial assistance of Rs. 7079 crore under feeder separation/ segregation programme in the states of Maharashtra, Uttarakhand, Haryana, Uttar Pradesh, Madhya Pradesh and Chhattisgarh. REC in its endeavour to improve distribution infrastructure in the country shall continue to assist power utilities for these category of schemes in times to come. Pumpset Energization During the year 2011-12, under REC financed schemes 329022 Nos. electric irrigation pumpsets were reported to be energized. A loan assistance of Rs. 1911.42 crore were sanctioned for 149 new schemes during the year under this category. The state-wise details and cumulative position of pumpset energized up to 31.3.2012 are given in the enclosed Table-5. 7.4 Financing Activities in North Eastern States A loan assistance of Rs. 519.52 crore was disbursed to North Eastern states under T&D, Generation & RGGVY programme during the financial year 2011-12. Further, 14 schemes in Nagaland were sanctioned involving a loan outlay of Rs. 9634 crore for T&D projects. 8. INTERNATIONAL COOPERATION & DEVELOPMENT REC has signed its third loan agreement with KfW, Germany, on 30.03.2012 for availing ODA loan of EUR 100 million (approx Rs. 700 crore) for financing Renewable Energy Projects in the areas of Wind Power / Small Hydro Power / Biomass Cogeneration / Biomass Power / Solar PV / Solar Thermal & Energy Efficiency. The loan shall be drawn over the next five years i.e. upto December, 2017. KfW-II ODA loan of EUR 70 million (approx. Rs. 480.97 crore) was fully drawn during financial year 2011-12. Under JICA-I & II ODA loans, cumulative amounts of JPY 16356 million (approx. Rs. 778.17 crore) and JPY 9735 million (approx. Rs. 520.64 crore) respectively were drawn as on 31.03.2012 and under KfW I amount of EUR 70 million (Rs. 454.02 crore) was drawn as on 31.03.2012. 9. RAJIV GANDHI GRAMEEN VIDYUTIKARAN YOJANA Government of India, launched the scheme Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)�Scheme of Rural Electricity Infrastructure and Household Electrification vide OM No.44/19/2004/D(RE) dated 18th March, 2005, for providing access to electricity to all rural households. The scheme is being implemented through REC. Under the scheme, 90% capital subsidy is being provided by Government of India for overall cost of the projects. 9.1 Electrification of villages and BPL Households The initial approval was for implementation of Phase I of the scheme for capital subsidy of Rs. 5000 crore during X Plan period. Further sanction for continuation of the scheme in XI Plan was conveyed by Ministry of Power vide OM No.44/37/ 07-D(RE) dated 6th February, 2008 with an outlay of Rs. 28000 crore as capital subsidy. 645 projects covering electrification of 120142 un-electrified / de-electrified villages and 2.84 crore BPL households costing Rs. 40942.95 crore have been sanctioned by the Ministry of Power for implementation. The state-wise details are given in enclosed Table-6. Cumulatively, works in 104496 un-electrified villages have been completed and connections to 1.94 crore BPL households have been provided under the scheme up to 31.03.2012. The state-wise details are given in enclosed Table-7. During the financial year 2011-12, it has been reported that works have been completed in 7934 un-electrified villages and connections to 3444902 BPL households have been provided. Further, during the year under review, RGGVY Subsidy of Rs. 2237.31crore was disbursed by the Ministry of Power, Government of India, to REC. 10. RGGVY- DECENTRALISED DISTRIBUTED GENERATION (DDG) 10.1 RGGVY provides grants for DDG projects from conventional or renewable non-conventional sources such as biomass, biogas, mini hydro, wind and solar etc. for villages where grid connectivity is either not feasible or not cost effective. Under the scheme, ninety percent capital subsidy is provided under RGGVY towards overall cost of the DDG projects under the scheme, excluding the amount of state or local taxes, which is borne by the concerned State/State Utility. 10% of the project cost is to be contributed by states through own resources/loan from financial institutions. A provision of Rs. 540 crore has been kept as subsidy under XI Five Year Plan. 10.2 The Guidelines for DDG projects under RGGVY were issued by Ministry of Power (MoP) on 12.01.2009. Amendments to DDG Guidelines were issued by Ministry of Power on 05.01.2011, 17.03.2011 and 18.03.2011 for more coverage & faster implementation of DDG projects and also for facilitation of DDG in Left Wing Extremism (LWE) affected districts. 10.3 During the financial year 2011-12, in the states of Andhra Pradesh, Bihar, Madhya Pradesh and Uttar Pradesh, 234 Nos. of DDG projects were sanctioned for total project cost of Rs. 151.85 crore. Most of the States are in the process of preparation of DPRs for DDG projects and some of the States are in the process of award and implementation of DDG Projects. The state-wise details of DDG projects under RGGVY sanctioned during 2011-12 are given below: Sl. State No. of No. of No. of un- No. of BPL Total No. Projects Districts electrified Households sancti oned villages / covered Project Cost hamlets (Rs. in crore) covered 1. Andhra Pradesh 76 2 95 2735 21.07 2. Bihar 48 2 175 10143 37.85 3. Madhya Pradesh 48 4 170 3367 28.83 4. Uttar Pradesh 62 5 103 4821 64.10 Total 234 13 543 21066 151.85 11. MoU RATING AND AWARD The performance of your Company in terms of Memorandum of Understanding (MoU) entered into with Ministry of Power, Government of India, for the financial year 2010-11 has been rated as Excellent. This is the 18th year in succession that your Company has received Excellent rating since the year 1993-94 when the first MoU was signed with the Government. For the financial year 2011-12 also, based on the performance achieved, the Company is poised to receive Excellent rating. During the year under review, your Company has received the MoU Excellence Award for the year 2009-10 for the Best Listed CPSE awarded by Department of Public Enterprises, Government of India. The Award was given by Hon''ble Prime Minister of India on 31st January 2012. 12. STANDARDISATION, QUALITY CONTROL & MONITORING Your Company has continually provided technical expertise in the distribution system to State Power Utilities. The technical specifications and construction standards issued by the Company are used extensively by the State Power Utilities. The Company, in order to promote new technologies, has been continuously looking for innovations using latest R&D in the field of power distribution. In line with the Three-Tier Quality Control Mechanism for ensuring proper quality of materials and works in implementation of RGGVY XI-Plan schemes, (i) REC Quality Monitors (RQM) have been appointed covering 339 projects in 25 states and (ii) National Quality Monitors (NQMs), on behalf of Ministry of Power, have been appointed under Tier- III for the 332 projects covering 24 states of country. Further during the financial year 2011-12, RQMs have undertaken 2001 Nos. of materials inspections and 6316 village / substation inspections, and NQMs have undertaken 1260 Nos. of village / substation inspections for ensuring quality of works. 13. BUSINESS DEVELOPMENT Preferred Customer Policy As a part of business promotion strategy, a Preferred Customer Policy was formulated in 2008 with the basic purpose of offering an enhanced level of services to the Company customers and to have a long term mutually beneficial relationship with them. The policy lays down the eligibility criteria which takes into account various factors, such as, amount of loan outstanding, duration of loan relationship, repayment track record of the borrower etc, for determining preferred customers and sponsoring them for capacity building/domestic/ international seminars/training programmes organized by various external agencies as well as CIRE, Hyderabad. During the Financial Year 2011-12, under this policy, participants from nine such preferred customers mostly from the State Utilities viz. Punjab State Transmission Corporation Limited, Panchkula, Maharastra State Electricity Distribution Company Limited, Mumbai, Maharastra State Electricity Transmission Company Limited, Mumbai, Maharastra State Electricity Generation Company Limited, Mumbai, Damodar Valley Corporation, Kolkata, Rajasthan Rajya Vidyut Prasaran Nigam Limited and Tamil Nadu Generation & Distribution Corporation Limited, Chennai etc. were sponsored by REC for 11 day training programme on Best Global Practices in Power Sector held at MDI Gurgaon, India, Rome, Milan and Paris. 14. JOINT VENTURE AND ASSOCIATES 14.1 Joint Venture REC, along with three other PSUs, namely Power Grid Corporation of India Limited, NTPC, and PFC as equal partners, has formed a Joint Venture Company by the name Energy Efficiency Services Limited (EESL) on December 10, 2009. The total equity requirement for EESL is Rs. 190 crore to be shared equally by the four PSUs. EESL is expected to take a lead in implementing energy efficiency projects, play a market creation role in promoting usage of energy efficient appliances, promote the concept of Energy Service Companies (ESCOs) and performance contracting, manage a partial risk guarantee fund to provide risk mitigation to ESCOs etc, besides taking over the current commercial roles being discharged by the Bureau of Energy Efficiency (BEE). Thus EESL is expected to implement the recommendations under the National Mission for Enhanced Energy Efficiency (NMEEE) which is part of the National Action Plan for Climate Change (NAPCC). The business plan of EESL envisages taking up projects in Energy Conservation and Building Codes, Agriculture Demand Side Management (DSM), Municipal DSM, Bachat Lamp Yojana, besides taking up other functions. 14.2 Associate Company Your Company has also contributed Rs. 1.25 crore (being 4.68% of paid-up capital) towards equity contribution in Indian Energy Exchange Limited (IEX) up to 31st March, 2012. The IEX has a nationwide presence in the form of electronic exchange for trading in power. 15. ERP BASED INTEGRATED INFORMATION SYSTEM 15.1 All important business functions of your Company like Central Accounting, Project Appraisal and Sanction, Disbursement and Management of Loan Accounts, Cash Management & Treasury functions etc. are done through ERP System resulting in continuous & sustainable improvement of internal efficiency and greater customer satisfaction. Data Centre is certified ISO/IEC 27001:2005 security standard, by British Standards Institution (or BSI). Towards achieving efficient e-governance and transparency, REC has implemented on- line procurement system ''E-procurement''. 15.2 As a step towards achieving paperless regime in the office, your Company has initiated project of digitization of documents by implementing Document Management System (DMS). Important divisions in Corporate Office have been brought under this system. The system is being extended to other divisions in Corporate Office, Zonal and Project offices. Up gradation of existing cold Disaster Recovery Center (DRC) to hot DRC for ERP operation has also been initiated. 16. CENTRAL INSTITUTE FOR RURAL ELECTRIFICATION 16.1 Central Institute for Rural Electrification (CIRE) was established at Hyderabad in 1979 under the aegis of REC to cater to the training and development needs of engineers and managers of Power and Energy Sector and other organisations concerned with Power and Energy. The programmes are conducted on state-of-art subjects and subjects of importance of Power Generation, Transmission and Distribution. 16.2 National Training Programmes sponsored by Ministry of Power CIRE is designated as a nodal agency for implementation of National Franchisee and C&D Employees Training Programmes under the Human Resources Development component of RGGVY programme. 40,000 Franchisees and 75,000 C&D Employees are to be trained under National Training Programme. During the year 2011-12, CIRE/REC entered into MoUs with 44 Power Utilities/Training Institutes, so as to implement the training programme. During 2011- 12, 431 Franchisee Programmes were conducted with 16051 participants and 1076 C&D Employee''s programmes were conducted with 24782 participants. As on 31st March 12, 3204 C&D programmes covering 76793 participants and 1107 Franchisee programmes covering 40843 participants have been conducted. 16.3 Regular National Programmes CIRE has organised 16 Regular Training Programmes with 345 participants for the personnel of various Power Utilities/ Distribution Companies, on the topics such as, Pilferage of Electricity - Technical & Legal Remedies, Construction Standards for Lines and Sub-stations in Distribution Systems, Open Access, Power Trading and Tariffs - ABT Scenario, Latest Trends in Metering, EHT Transmission Line - Design and O&M,Earthing Practices in Electrical Installations and Safety Precautions, Protection System in Sub-stations, Reactive Power Management, O&M of Thermal Generating Stations, Distribution Automation & SCADA for Power utilities, Power Purchase Agreement, EHT Sub-stations - Design, Erection, O&M, Power & Distribution Transformers - Efficient O&M, Maintenance Management of Power Distribution, Design and O&M of Hydro Power Stations. 16.4 Sponsored National Programmes CIRE has organised 4 customised programmes and trained 113 participants. One programme was organised for the executives of Torrent Power Limited at Ahmedabad on Earthing Practices and three programmes were organised for the executives of Electricity Department of A&N Islands at Port Blair on Pilferage of Electricity - Legal Remedies, Construction Standards for Lines & Sub-stations in Distribution Systems and O&M of 33/11 KV Sub-stations. 16.5 Regular International Programmes CIRE is empanelled by Ministry of External Affairs, Government of India to organise training programmes in the area of power sector under ITEC/SCAAP. During the year, CIRE has organised 7 International programmes with 82 participants, on the topics, viz., Business Management of Power Utilities through IT/Automated Solutions; Modernization of Power Distribution Sector, Planning and Management of Power Transmission and Distribution System; Planning and Financial Management of Power Projects, Decentralised Distributed Generation and Rural Power Distribution Management, Best Practices in Generation and Transmission System, and Financial Management and Accounting Systems for Power Companies. The participation was from various countries, viz., Afghanistan, Egypt, Mauritius, Nigeria, Sudan, Guatemala, Myanmar, Bangladesh, Ethiopia, Iraq, Comoros, Namibia, Uzbekistan, Tanzania, Palestine, Kazakhstan, Russia, Syria, Thailand, South Africa, Bhutan, Sri Lanka, Nepal, Yemen, Vietnam, Ghana, Zimbabwe, Philippines, Kenya, etc. 16.6 Programmes organised in collaboration CIRE is organising training programmes in coordination with premier Management Institutes i.e., Institute of Public Enterprise and has conducted 5 programmes during the financial year 2011-12, viz. on Human Resources and Personnel Management in Power Sector, Financial Management for Power Distribution Utilities, Finance for Non- Finance Executives, Contract Management for Power Utilities and Material Management and e-Procurement with 66 participants drawn from various power utilities. 16.7 Distribution Reform, Upgrades and Management (DRUM) Programmes CIRE is empanelled as a training institute to organise DRUM training programmes, sponsored by Ministry of Power, Government of India under the financial support of USAID, through Power Finance Corporation Limited. CIRE has organised 17 programmes most of them as offsite programs (at Utilities premises) and trained 483 participants for various power utilities in the country in different areas, viz. Best Practices in Distribution Systems Operation and Maintenance, Distribution Efficiency and Demand Side Management, Best Practices in Distribution Loss Reduction, Communication Skills, Employee Motivation and Moral Development, Disaster Management, Electrical Safety Procedures and Accident Prevention and Financial Management in Distribution Business. 16.8 R-APDRP Programme CIRE, as partner training institute, organizes R-APDRP programme sponsored by Ministry of Power through Power Finance Corporation Limited. CIRE has conducted four R-APDRP programme on O&M of 33/11 KV Sub-stations with 135 participants for APDCL, APEPDCL, DHBVN and KSEB. 16.9 Conduction of National Training Programme by CIRE as Empanelled Training Institute During the financial year 2011-12, CIRE as Empanelled Training Institute, has also conducted 49 Franchisee Programmes with 2011 participants and 7 C&D Programmes with 165 participants for various power utilities. CIRE has also organised a training programme on National Training Programme Web Portal for the nodal officers of the power utilities. 22 executives from various power utilities attended the programme. 16.10 In all, during the financial year 2011-12, in addition to coordinating and monitoring the National Training Programmes for Franchisees and C&D employees, CIRE has conducted 115 programmes on various themes and trained 3485 executives as indicated below: SL. Name of the Programme No. of No. of No. Programs Participants 1 Regular - National Programmes 16 345 2 Sponsored - National Programmes 4 113 3 Regular - International Programmes 7 82 4 Programmes in collaboration with IPE 5 66 5 DRUM Programmes sponsored by USAID 17 483 6 R-APDRP programmes sponsored by MoP/PFC 4 135 7 National Training Programme for Franchisees conducted by CIRE 49 2011 8 National Training Programme for C&D Employees conducted by CIRE 7 165 9 In-house & other Programme 6 85 Total 115 3485 17. RISK MANAGEMENT 17.1 Asset Liability Management The Company has a Risk Management Policy which covers inter alia Asset Liability Management and Derivative Instruments. An Asset Liability Management Committee (ALCO) is currently functioning under the chairmanship of CMD and it comprises of Director (Finance), Director (Technical), Executive Director (Finance), General Managers in Finance, Generation, T&D Division and also one Part-time Non-official Independent Director, nominated by Board of Directors of the Company. ALCO monitors risk related to liquidity, interest rates and currency rates. The liquidity risk is being monitored with the help of liquidity gap analysis and the Committee manages the liquidity risk through a mix of strategies, like a forward looking resource raising program based on projected disbursement and maturity obligations. The interest rate risk is monitored through interest rate sensitivity analysis and managed through review of lending rates, cost of borrowings and the terms of lending and borrowing. 17.2 Foreign Currency Risk Management The Company manages foreign currency risk associated with exchange rate and interest rate through various derivative instruments. For this, the Company has put in place a hedging policy to manage risk associated with foreign currency borrowings. Out of total foreign currency liabilities outstanding as on 31st March 2012, 66% were fully hedged as detailed below: Currency Total Hedged (Currency and/or Interest rate) Foreign Currency INR Equivalent Foreign Currency INR Equivalent (in million) (in crore) (in million) (in crore) JPY 35669.38 1969.21 23144.38 1187.28 EURO 121.58 818.03 51.58 339.65 USD 1470.00 6778.29 1220.00 5499.38 CHF 200.00 1132.56 - - Total - 10698.09 - 7026.31 Currency Unhedged Foreign Currency INR Equivalent (in million) (in crore) JPY 12525.00 781.93 EURO 70.00 478.38 USD 250.00 1278.91 CHF 200.00 1132.56 Total - 3671.78 17.3 Enterprise-wide Integrated Risk Management The Company has constituted a Risk Management Committee (RMC) consisting of Director (Finance), Director (Technical) and one Part-time Non-official Independent Director for monitoring the integrated risk of the Company. The main function of RMC is to monitor various risks likely to arise and to examine Risk Management Policies and practices adopted by the Company, and also to initiate action for mitigation of risk arising in the operation and other related matters of the Company. 18. ISO 9001:2008 QUALITY ASSURANCE CERTIFICATION Your Company has implemented Quality Management Systems as per ISO 9001:2008 standards in six major Divisions of Corporate Office and all Zonal / Project Offices across the country for claims processing. Your Company has conducted two batches of ISO 9001:2008 � Internal Auditors Training Programme during the year. Total number of 33 participants has successfully completed the said training programme of ISO 9001:2008. 19. HUMAN RESOURCES MANAGEMENT In order to professionalize the Executive strength of REC and also to infuse fresh blood, 10 Executives were appointed through open advertisement and 12 Executives through campus recruitment drawn from premier Institutions empanelled for the purpose during the financial year.The total manpower of the Company as at 31.03.2012 was 678 employees which includes 432 executives and 246 Non- executives. 19.1 Reservation in Employment The directives issued by the Government of India regarding reservations for SC/ST etc. in appointment and promotion to various posts were complied with. The group wise details of SC and ST employees out of the total strength as on 31.03.2012 are given below: Group Total No. of SC ST employees A 378(366) 36(32) 9(9) B 123(137) 15(18) 3(3) C 83(87) 15(17) 0(0) D 94(98) 28(30) 2(2) Total: 678(688) 94(97) 14(14) (Figures in bracket give the corresponding position in the previous year) 19.2 Training & Human Resource Development As a means of equipping employees with a range of skills including their up-gradation and to enable them to perform their responsibilities, Training and HRD continued to receive priority during the year. Training and Human Resource Development policy of the Company aims at sharpening business skills and competence needed for better employee performance and provides all possible opportunities and support to the employees to improve their performance and productivity. Based on the assessed needs and as a means to satisfy them, the Company sponsored 211 employees to various training programmes, workshop etc. within the country and abroad. In addition, 20 training programmes were conducted in house, which were attended by 381 employees. This included four programmes delivered by Indian Institute of Management, Lucknow on the subject of Managerial Effectiveness and Performance Management System. 19.3 Employee Welfare and Sports Activities Your Company has been providing a wide range of welfare amenities to employees to take care of their diverse needs with a view to ensure their commitment to the organizational objectives. Among different activities pursued during the financial year, REC hosted14th Inter-CPSU Carrom (Men & Women) Tournament 2011-12 under the aegis of Power Sports Control Board, Ministry of Power, from 22nd to 25th November, 2011 at New Delhi and also sponsored its Teams to the Inter-CPSU (Chess / Table Tennis / Kabaddi) Tournaments 2011-12 organized by various CPSU''s of Power Sector under the aegis of Power Sports Control Board, Ministry of Power. 19.4 Representation of Women Employees Your Company provides equal growth opportunities to its women employees. Two separate Committees viz. (i) Women Cell and (ii) Complaints Committee with a representative of an N.G.O are in operation in the Company for looking after the issues concerning women employees and for ensuring safe work environment for them in the Company. REC Women Cell celebrated the International Women''s Day on 6th March, 2012. 19.5 Industrial Relations The Industrial Relations continued to be cordial and harmonious. Sound industrial relations are based on participative and meaningful decision making and information sharing between employees and management which help in establishment of industrial democracy in the organization. The process of participative decision making which involved consultation on important issues such as employee benefits and welfare etc. continued with REC Employee''s Union and REC Officer''s Association. With such robust process in place consensus was reached on majority of issues which is a true reflection of the environment of mutual trust and harmonious relations that prevails in the organization. In tune with the participative culture which is seriously encouraged and practised in the organization, periodic interactions were held with Employee''s Union and Association. 19.6 Public Grievance Redressal Machinery In accordance with the guidelines issued by the Government of India, the Company has constituted a Grievance Redressal Committee to redress the grievances of officers and staff. The scope of the Committee has further been enlarged to cover Public Grievance also. One day during a week has been fixed as meetingless day to attend the grievances by the Heads of Divisions at Corporate Office as well as Zonal / Project Offices and CIRE. 20. CORPORATE SOCIAL RESPONSIBILITY POLICY 20.1 During the year, the Corporate Social Responsibility (CSR) initiatives were pursued pro-actively with a view to integrate RECs'' Business operations with social responsibilities and to relate to all stakeholders meaningfully. Strategic focus was accorded by REC to this function. While identifying CSR initiatives, REC has adopted an integrated approach to address the community, societal and environmental concerns. CSR Budget @ 0.5% of Profit After Tax (PAT) was allocated for financial year 2011-12, amounting to Rs. 12.85 crore. Viable and sustainable CSR projects were identified and sanctioned assistance aggregating to Rs. 14.10 crore. Disbursement of an amount of Rs. 12.99 crore has been achieved during the financial year 2011-12 against the MoU target of Rs. 12.85 crore, thereby achieving the targets set under excellent category for CSR initiatives. The following project based CSR activities were initiated during financial year 2011-12 based on base-line surveys and need assessment. (i) Support of Rs. 10.50 crore to implement a prestigious programme entitled Saakshar Bharat Mission of the Government of India by National Literacy Mission Authority (NLMA) under MoHRD in Public Private Partnership (PPP) mode was provided to six identified States with low literacy percentage. Over 1.61 lakh Nos. Adult Education Centres (AECs) are targeted to be set up under Saakshar Bharat Mission in these States. It has been decided to upgrade the existing Adult Education Centres (AECs) into Model AECs by providing them with ICT infrastructure viz. computers, furniture and audio visual equipment etc. In line with CSR vision and REC CSR policy to promote education including infrastructure creation, your Company had sanctioned up-gradation of 220 AECs in rural locations @ Rs. 2.5 lakh per AEC thus creating a platform/hub in the rural areas enabling the literates to attend the various educational programmes to achieve higher skills and thus leading to creation of livelihood opportunities and employment in urban areas and 100 new MAECs cum vocational training centres to be set up by State Resource Centres (SRCs) in rural areas /district headquarters @ Rs. 5 lakh each thus establishing an educational hub for both illiterates and literates to acquire higher skills by attending various educational programmes thus leading to creation of livelihood opportunities and employment in urban areas. (ii) Financial support of Rs. 1.63 crore was provided to Dr. Reddy Foundation the CSR arm of Dr. Reddy Laboratories Hyderabad, for skills up-gradation and job oriented training leading to creation of livelihood opportunities and employment to 2400 rural/ semi urban youths from economically weaker section at 15 centres located in 6 states viz. Odisha, Jharkhand, Chhattisgarh, Bihar, West Bengal and Uttar Pradesh. (iii) Financial assistance of Rs. 1.53 crore was provided to Construction Industry Development Council (CIDC), an autonomous body established by Planning Commission, Government of India, for skills up-gradation and job oriented training leading to creation of livelihood opportunities and employment to 500 rural/ semi urban youths from economically weaker section of society in construction industry at designated training centres viz. Faridabad (Haryana), Ghaziabad, Sidhauli & Ramshahpur in Uttar Pradesh and Pavpuri in Bihar States. (iv) Further recognition was given to National Men''s Hockey team by awarding them @ Rs. 1.5 lakh per player for winning Asian Championship Trophy 2011 and @ Rs. 1.0 lakh per player for qualifying for London Olympics, 2012. This CSR initiative Promotion of Talent in Sports was identified and undertaken to raise their morale to bring our National game Hockey to shining glories in future. Concurrent and final evaluation of all CSR projects initiated during financial year 2010-11 is being perused actively by engaging an external agency during financial year 2011-12 in compliance with DPE Guidelines. Shri Rajeev Sharma, CMD, REC (right), signing MoU with Shri Jagmohan Singh Raju, CEO, National Literacy Mission Authority (left), in the presence of Shri Kapil Sibbal, Hon''ble Minister for Education, on 13th March 2012, for providing REC-CSR support for the Saakshar Bharat Abhiyaan of the Government of India. 21. INTERNAL CONTROL SYSTEM AND ITS ADEQUACY The Company maintains system of Internal Control including suitable monitoring procedures which ensures accurate and timely financial reporting of various transactions, efficiency of operations and compliance with statutory laws, regulations and Company policies. In order to ensure that adequate checks and balances are in place and that all internal control systems are in order, regular and exhaustive Internal Audit of various Divisions / offices are conducted by In-house Internal Audit Division and for some selected Project Offices by experienced firms of Chartered Accountants. The Internal Audit Division covers all the major areas of operations including identified critical / risk areas as per the Annual Internal Audit Programme. Audit Committee periodically reviews the significant findings of different Audits as prescribed under the Companies Act and in the Listing Agreement. 22. VIGILANCE ACTIVITIES 22.1 The Vigilance Division continued its efforts to enhance transparency and accountability in the systems and procedures. Towards this purpose, regular meetings were conducted with functional divisions to identify the areas which needed to be streamlined. REC''s CDA Rules were reviewed and revised to make them more comprehensive. Recruitment process has been made more transparent by HR Division by putting requisite details on the website of the Company at various stages of the recruitment process like advertisement, eligibility criteria, details of applicants, shortlisted candidates, date and time of interview, results etc. The Company has also introduced IT based Bill Tracking System so as to process the bills of third parties on First in First Out basis. This will also facilitate third parties to track their bills on Website of the Company. Status of loan applications received in the Company for various categories i.e. Generation and T&D are uploaded on Company''s website to facilitate the borrowers to know the status of their loan proposals. The Leveraging of IT Technology (ERP) has resulted in availability of on-line secure information and improved response time to customers, leading to their satisfaction and reduction in average disbursement period. 22.2 Policy for Investor/Debt Servicing mechanism and Resource Mobilisation are under finalization and modalities/procedure adopted in raising External Commercial Borrowing were also reviewed and suggestions for making the operations more transparent for appointment of external agencies i.e., Arrangers, Managers, Fiscal Agents etc. were made. All HoDs/ CEOs-RECPDCL/RECTPCL have been advised to comply with the Centralised Complaint Handling system and ensure that complaints received in various divisions are sent to Vigilance Division. 22.3 E-procurement has been implemented for procurement above Rs. 10 lakh in the Company. In view of CVC/MoP''s instructions, the Procurement guidelines are revised and made more comprehensive by prescribing specific timelines for each step under different tendering procedures. In addition to this, computerization of Annual Immovable Property Returns (IPRs) has been done and employees entered details of movable/immovable property online which were subjected to systematic scrutiny and clarifications were sought wherever necessary. As per directions of MoP the details of Immovable Property of all the Executives of the Company have been uploaded on website of the Company and vigilance clearance has been linked with timely submission of IPR. 22.4 Inspections and field visits were regularly conducted by the Vigilance Division. Audit Reports were scrutinized from vigilance point of view. Training programmes were also organized for vigilance and non-vigilance officers at Corporate Office as well as field offices on vigilance related matters. Agreed lists and list of Officers of Doubtful Integrity are finalized. In compliance to the instructions of CVC, the sensitive posts in the Corporation were identified, and most of the officers working on these posts for a long time have been rotated. Prescribed periodical statistical returns were sent to CVC, CBI, MoP on time. 22.5 The Vigilance Awareness Week was observed from 31st October, 2011 to 5th November, 2011. During this period, posters containing messages discouraging corruption and encouraging preventive vigilance were got displayed at Corporate Office as well as Zonal / Project Offices. Debate and Essay Writing Competitions were organized for executives as well as non-executives. Eminent faculty was also invited for delivering lectures on various important topics, which included focus on participative vigilance through all stakeholders'' involvement. The performance of Vigilance Division was reviewed regularly by CVC, Board of Directors and CMD of REC in addition to constant reviews undertaken by CVO, REC in accordance with prescribed norms. 23. IMPLEMENTATION OF OFFICIAL LANGUAGE 23.1 The Company excelled most of the targets fixed by Department of Official Language, Ministry of Home Affairs in its Annual Programme 2011-12. In order to encourage employees, all incentive Schemes introduced by the Government of India have been implemented in the Company. During the year, Officers and Staff of the Company have shown keen interest in Hindi with the result that its usage has increased in day to day working. 23.2 An Akhil Bhartiya Rajbhasha Sammelan was organized by the Company at New Delhi under the aegis of Ministry of Power on 16th May, 2011 which was inaugurated by Hon''ble Union Minister of Power, Shri Sushilkumar Shinde. A large number of MPs and senior officers of Ministry of Power, Famous Hindi scholars and CMD of other PSUs under the administrative control of Ministry of Power also attended. 23.3 The Company has been honoured with RAJBHASHA SHRI SAMMAN by Bhartiya Rajbhasha Vikas Sansthan, Dehradun during the year 2011-12 for promoting Rajbhasha. 23.4 During the year, inspections were carried out to assess the progressive use of Hindi in 11 Divisions of Corporate Office/ 12 Project Offices and suggestions were given to them to improve the shortcomings. Ministry of Power''s officers have also inspected two Project Offices during the year. A target of 25% inspection of Divisions of Corporate Office and Project Offices was set out in the Annual Programme 2011-12 by Official Language Department. Against this, the Company has achieved twice the target of inspections at Corporate Office as well as Project Office. Hindi pakhwara was also organized from14.09.2011 to 28.09.2011. 23.5 Four quarterly review meetings of Official Language implementation Committee were held during the year 2011-12 under the chairmanship of CMD in which detailed discussion were held to review the progress and suggest measures to overcome the difficulties in order to achieve the targets. 23.6 The website of the Company is maintained both in Hindi and English and is being updated from time to time. Bilingual working facility has been made available on all computers. All publications, reports, memorandum, press release, MOUs, tenders, annual reports etc. were issued bilingually. To give impetus to the correspondence in Hindi, standard formats have also been made available on intranet. 24. FINANCIAL STATEMENTS / DOCUMENTS UNDER SECTION 212 OF THE COMPANIES ACT, 1956 The Ministry of Corporate Affairs, Government of India, vide its Circular dated 8th February, 2011 has granted general exemption to all Companies from attaching the financial statements of its subsidiary companies, pursuant to Section 212(8) of the Companies Act, 1956, subject to compliance of certain conditions by the Companies as prescribed in this circular. Accordingly, copies of the balance sheet, statement of profit and loss and reports of the Board of Directors and auditors of the subsidiaries have not been attached with the balance sheet of the Company. However, these documents will be made available upon request by any member of the Company interested in obtaining the same. As directed by the Central Government, the financial data of the subsidiaries has been furnished in the Notes on consolidated financial statements, which forms part of the Annual Report. The annual accounts of the Company including that of subsidiaries will be kept for inspection by any member. Further pursuant to Accounting Standard-21 (AS-21) prescribed under the Companies (Accounting Standard) Rules, 2006, Consolidated Financial Statements presented by the Company include financial information about its subsidiaries. 25. PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO There are no significant particulars, relating to conservation of energy, technology absorption under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 as your Company does not own any manufacturing facility. However, the Company has made intensive use of technology in its operations during the year under review. No export activities/initiatives were carried out and no foreign exchange was earned during the financial year 2011-12. The particulars regarding foreign exchange outgo during the year are as under: (Rs. in crore) Particulars Amount Royalty, Know-how, Professional Consultation Fees 1.34 Interest 192.95 Finance Charges 65.45 Other Expenses 0.69 Total 260.43 26. SUBSIDIARY COMPANIES Your Company has four subsidiary companies as on March 31, 2012 for undertaking specific business activities. The names of these companies, dates of their formation and the percentage of ownership interest in these Companies are as follows:- Sl. Name of Date of Percentage No. Subsidiary Formation of ownership Company interest 1. REC Transmission Projects Company Limited (RECTPCL) (a wholly owned subsidiary of REC) 08.01.2007 100% 2. REC Power Distribution Company Limited (RECPDCL) (a wholly owned subsidiaryof REC) 12.07.2007 100% 3. Vemagiri Transmission System Limited (VTSL)* (a wholly owned subsidiary of RECTPCL) 21.04.2011 100% 4. Vizag Transmission Limited (VTL) (a wholly owned subsidiary of RECTPCL) 30.11.2011 100% *Vemagiri Transmission System Limited (VTSL) has been transferred on April 18, 2012 to Power Grid Corporation of India Limited (PGCIL), substantially upon the terms & conditions as detailed in the Share Purchase Agreement executed between RECTPCL, VTSL and Power Grid Corporation of India Limited. 26.1 REC Transmission Projects Company Limited During the year, REC Transmission Projects Company Limited (RECTPCL), commenced the process of selection of developer for Transmission System associated with IPPs of Vemagiri Area: Package-A. For this purpose, a project-specific SPV namely Vemagiri Transmission System Limited (VTSL) was incorporated on April 21, 2011, as a Wholly Owned Subsidiary of RECTPCL, for development of above project. RECTPCL invited global invitation for Request for Qualification (RfQ) for short-listing of bidders as Transmission Service Provider. Upon successful completion of the selection process, the Letter of Intent (LoI) was issued to Power Grid Corporation of India Limited on 20.03.2012 who emerged as successful bidder with lowest levelised transmission tariff of Rs. 119.74 crore per annum. Power Grid Corporation of India Limited acquired 100% shares of Vemagiri Transmission System Limited on 18.04.2012 on payment of acquisition price amounting to Rs. 18.28 crore which includes professional fee of Rs. 15.00 crore. The Ministry of Power, GoI, on October 7, 2011 allocated another project namely, ''Evacuation System for Vizag� Vemagiri Projects�Hinduja (1040 MW)'' to RECTPCL to act as Bid Process Coordinator for selection of developer for the project. For this purpose, a project-specific SPV namely Vizag Transmission Limited (VTL) was incorporated on November 30, 2011, as wholly owned subsidiary of RECTPCL. RECTPCL had invited global invitation for Response to Request for Qualification (RfQ) for shortlisting of bidders as Transmission Service Provider on December 7, 2011. The process of selection of developer for this project has been however kept in abeyance till further notice as advised by Central Transmission Utility (CTU). The bidding process in respect of other two projects viz. Transmission System associated with IPPs of Vemagiri Area: Package B and Package-C shall commence once the associated generation projects have made significant progress. During the year ended 31st March, 2012, REC Transmission Projects Company Limited has been able to generate an income of Rs. 18.10 crore. The Profit BeforeTax and Profit After Tax for the year is Rs. 18.09 crore and Rs. 11.71 crore respectively. The Net Worth of RECTPCL has reached Rs. 42.36 crore against initial capital of Rs. 0.05 crore injected by REC. For the year, the Board of Directors has recommended a dividend @ Rs. 20/- per share for the financial year 2011-12, subject to approval of shareholders of the Company in the Annual General Meeting. 26.2 REC Power Distribution Company Limited During the year, REC Power Distribution Company Limited (RECPDCL) completed milestone of Third Party Inspection (TPI) of 9634 villages and 1489 feeders under Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY) and Feeder Renovation Programme (FRP) / High Voltage Distribution System (HVDS) works respectively. The company has carried out the material inspection under RGGVY under XI Five Year plan in 15 DISCOMs and material inspection of HVDS project of Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL). RECPDCL has carried out the Lenders Engineer Assignment for 1 MW Solar Power Generation Plant installed in Bolangir District of Odisha by Raajratna Energy Holding Private Limited, Five MW Solar Power Generation Plant installed in Tinwari Village, Jodhpur, Rajasthan by Swiss Park Vanijya Private Limited and one MW Solar Power Generation Plant installed in Anantpur District of Andhra Pradesh by Amrit Jal Ventures Private Limited. The Company has widened its business horizon by taking up the new initiatives viz., MRI based Billing and Data Analysis, Revised Cost Estimation works of RGGVY Phase-II and start participating in Tenders. During the financial year 2011-12, RECPDCL has been able to generate gross income of Rs. 23.28 crore and Profit Before Tax (PBT) and Profit After Tax (PAT) of Rs. 12.86 crore and Rs. 8.67 crore respectively.The net worth of the Company has doubled this year and reached Rs. 16.12 crore against initial capital injected by REC of Rs. 0.05 crore. For the year, Board of Directors has recommended a dividend @ Rs. 10/- per equity share for the financial year 2011-12, subject to approval of shareholders of the Company in the Annual General Meeting. 27. PARTICULARS OF EMPLOYEES UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 During the financial year 2011-12, no employee of the Company was drawing remuneration either on monthly or annual basis exceeding the limit as prescribed under Section 217(2A) of the Companies Act, 1956, read with Companies (Particular of Employees) Rules, 1975. 28. DIRECTORS'' RESPONSIBILITY STATEMENT With reference to Section 217 (2AA) of the Companies Act, 1956, your Directors confirm that:� (i) in the preparation of the Annual Accounts for the period ended 31.03.2012, the applicable Accounting Standards had been followed and no material departures have been made from the same; (ii) such accounting policies have been selected and applied consistently and judgements and estimates made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period; (iii) proper and sufficient care is taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (iv) the annual accounts have been prepared on a going concern basis. 29. GREEN INITIATIVE IN CORPORATE GOVERNANCE As part of the Green Initiative in Corporate Governance, the Ministry of Corporate Affairs (MCA), Government of India, through its Circular Nos. 17/2011 and 18/2011, dated April 21, 2011 and April 29, 2011 respectively, has also allowed companies to send official Notices/documents to their shareholders electronically. As a responsible Corporate Citizen, your Company has actively supported the implementation of ''Green Initiative'' circulars issued by Ministry of Corporate Affairs (MCA) last year and effected electronic delivery of Notice of Annual General Meeting (AGM) and Annual Report for the year ended March 31, 2012 to those shareholders whose email addresses were already registered with the respective Depository Participants (DPs) and downloaded from the depositories viz. NSDL/CDSL and who have not opted for receiving Annual Report in physical form, as done in previous year and the same shall also be available on REC website www.recindia.nic.in. The intimation of final/Interim Dividend paid during the Financial Year 2011-12 to those shareholders whose email addresses were registered was also made electronically. Shareholders are requested to support the THINK GREEN, GO GREEN initiative of your Company by registering/ updating e-mail addresses for receiving electronic communications. It is reiterated that upon receipt of requisition from the member including the members who have exercised the option of electronic delivery of these documents, every member of the Company is entitled to be furnished free of cost, with a copy of the Balance Sheet of the Company and all other documents required by law to be attached thereto, including the Statement of Profit and Loss and Auditors'' Report etc. 30. BOARD OF DIRECTORS 30.1 The current composition of the Board of Directors of your Company is under:- Sl. Name of Designation Date of No. Director present Appointment 1. Shri Rajeev Sharma Chairman & 29.11.2011 Managing Director 2. Shri Prakash Thakkar Director (Technical) 02.05.2011 3. Shri Ajeet Kumar Agarwal Director (Finance) 01.08.2012 4. Shri Devender Singh Government Nominee 29.08.2007 Director 5. Dr. Devi Singh Part-Time Non-official 10.06.2011 Independent Director 6. Dr. Govinda Marapalli Rao Part-Time Non-official 10.06.2011 Independent Director 7. Shri Venkataraman Part-Time Non-official 10.06.2011 Subramanian Independent Director 8. Dr. Sunil Kumar Gupta Part-Time Non-official 16.03.2012 Independent Director 30.2 The following changes took place in the Board of Directors of your Company during the year: 30.2.1 Shri Rajeev Sharma took over the charge of Chairman and Managing Director of the Company w.e.f. November 29, 2011(A/N) pursuant to Ministry of Power (MoP) Order No. 46/8/2011-RE dated November 29, 2011; 30.2.2 Dr. J.M. Phatak who took over the charge as CMD, REC on June 15, 2010 relinquished charge on April 16, 2011 (F/N). Shri Hari Das Khunteta, Director (Finance), REC was holding additional charge as CMD, REC from April 16, 2011 to November 29, 2011(F/N); 30.2.3 Shri Prakash Thakkar has been appointed as Director (Technical) on the Board of REC w.e.f. May 2, 2011 vide Ministry of Power (MoP) Order No. 46/9/2010-RE dated May 2, 2011; 30.2.4 Dr. Devi Singh, Dr. Govinda Marapalli Rao and Shri Venkataraman Subramanian were appointed as Part-time Non-official Independent Directors on the Board of the Company for a period of three years w.e.f. the date of their appointment or until further orders, whichever is earlier, pursuant to MoP Order No. 46/2/2010-RE dated June 10, 2011; 30.2.5 Services of Shri Rakesh Jain, Joint Secretary & Financial Advisor, MoP, who was appointed as Government Nominee Director on the Board of the Company on 20th January, 2011, were withdrawn by the MoP w.e.f. July 5, 2011, from the Board of REC; 30.2.6 Dr. Sunil Kumar Gupta has been appointed as Part-time Non- official Independent Director on the Board of the Company for a period of three years w.e.f. the date of notification of his appointment or until further orders, whichever is earlier pursuant to MoP Order No. 46/2/2010-RE dated March 16, 2012; 30.2.7 The tenure of Shri Hari Das Khunteta, Director (Finance) ended on July 31, 2012 on attaining the age of superannuation (i.e. 60 years); and 30.2.8 Shri Ajeet Kumar Agarwal, has been appointed as Director (Finance) on the Board of the Company, for a period of five years with effect from the date of his taking over charge of the post on or after August 1, 2012, or until the date of superannuation, or until further orders, whichever event occurs the earliest pursuant to MoP Order No. 46/9/2011-RE dated May 17, 2012. 30.3 In accordance with the provisions of Articles 82 (4) of the Articles of Association of the Company, Shri Prakash Thakkar and Dr. Devi Singh, Directors shall retire by rotation at the ensuing Annual General Meeting of the Company and, being eligible, offer themselves for re-appointment. 31. RIGHT TO INFORMATION ACT, 2005 The Company has taken necessary steps for the Implementation of Right To Information Act, 2005 (RTI) in REC and independent RTI Cell has been set up for coordinating the work relating to receipt of applications and furnishing information thereto. RTI Handbook, both in English and Hindi, has been placed on REC website which is updated periodically. The status of RTI applications for the financial year 2011-12 is given under: Sl. No. Particulars Nos. 1. Applications received 104 2. Applications disposed off 101 3. Applications disposed off subsequently 2 4. Appeals received by AA, REC 5 5. Appeals disposed off by AA, REC 5 6. Appeals received from CIC 1 7. Appeals disposed off by CIC Pending before CIC and notice from CIC is yet to be received. RTI MACHINERY IN REC CORPORATE OFFICE: (A) Assistant Public Information Officer Ms. Suraksha, Manager (B) Public Information Officer Shri R.K. Mittal, General Manager (C) Appellate Authority Shri Vinod Behari, Executive Director 32. COMMENTS OF C&AG OF INDIA The Comptroller and Auditor General (C&AG) of India, through letter dated 24th July, 2012 has given ''NIL'' Comments on the Audited Financial Statements of your Company for the year ended March 31, 2012 under Section 619 (4) of the Companies Act, 1956. The Comments of C&AG for the financial year 2011-12 have been placed along with the report of Statutory Auditors of your Company elsewhere in this Annual Report. 33. STATUTORY AND OTHER INFORMATION REQUIREMENTS Information required to be furnished as per the Companies Act, 1956, Listing Agreement with Stock Exchanges, Government Guidelines etc. is annexed to this report as under:- Particulars Annexure Management Discussion & Analysis Report I Report on Corporate Governance II Certificate from Joint Statutory Auditors of the Company regarding compliance of conditions of Corporate Governance III Secretarial Audit Report issued by the Secretarial Auditors of the Company IV Statement pursuant to Section 212 (1) (e) of the Companies Act, 1956 relating to subsidiary companies. V 34. STATUTORY AUDITORS M/s Bansal & Co. Chartered Accountants, New Delhi and M/s P.K. Chopra & Co., Chartered Accountants, New Delhi, were appointed as Joint Statutory Auditors of your Company for the financial year 2011-12 by the Comptroller and Auditor General (C&AG) of India. The Joint Statutory Auditors have audited the Annual Financial Statements of the Company for the financial year ended 31st March, 2012. Following documents are annexed to this Report: a) Auditors'' Report on the Standalone Financial Statements of the Company for the financial year ended 31st March, 2012; b) Auditors'' Report on the Consolidated Financial Statements of the Company and its Subsidiaries; c) Non-Banking Financial Companies Auditors'' Report; d) Audited Standalone Financial Statements and Cash Flow Statement of the Company for the financial year ended 31st March, 2012; e) Annexure to be enclosed with the audited Balance Sheet as prescribed by RBI; and f) Audited Consolidated Financial Statements and Cash Flow Statement of the Company for the financial year ended 31stMarch, 2012. 34.1 Replies to the Observations/Comments of Joint Statutory Auditors In terms of Section 217(3) of the Companies Act, 1956, the information / explanations to the observations of Joint Statutory Auditors in para (iv) of Annexure to the Auditors Report referred in Point No. 3 of Auditors'' Report are submitted as under: Observation of Joint Statutory Auditors Management Reply In our opinion and according to information & Continuous explanations given to us, internal controls are efforts are being generally commensurate with the size of the made to further Corporation and the nature of its business. strengthen the However, in certain areas internal control needs internal control in further strengthening like Utilization of grants/ the said areas. subsidies received under various schemes; Monitoring and supervision of loans given to various SEBs/DISCOMs/ TRANSCOs/ GENCOs including obtaining search reports for charges created against the loans given, regular updating of Loan Module and generation of various reports from loan module in ERP to have better control over loan assets. During the course of audit we have not come across any major failure in internal control system. 35. SECRETARIAL AUDITORS M/s Chandrasekaran Associates, Company Secretaries, New Delhi was appointed as Secretarial Auditors of your Company for carrying out Secretarial Audit for the financial year ended 31st March 2012. A copy of the Secretarial Audit Report is annexed to this report. 36. ACKNOWLEDGEMENTS The Directors are grateful to the Government of India particularly the Ministry of Power & Ministry of Finance, the Planning Commission and the Reserve Bank of India for their continued co-operation, support and guidance in effective management of Company''s affairs and resources. The Directors thank the State Governments, State Electricity Boards, State Power Utilities and other Borrowers for their continued interest and trust in the Company. The Directors also place on record their sincere appreciation for the continued support and goodwill of the esteemed Shareholders, Investors in REC Bonds, domestic and overseas Banks, Life Insurance Corporation of India, KfW of Germany and JICA of Japan in the fund raising programmes of the Company. The Directors also thank Joint Statutory Auditors M/s Bansal & Co. and M/s P.K. Chopra & Co.,the Secretarial Auditors M/s Chandrasekaran Associates and the Comptroller & Auditor General of India for their valued cooperation. The Directors also sincerely appreciate and thank all the employees of the Company for their valuable contribution and dedicated efforts in steering the Company to excellent performance for yet another year in succession. For and on behalf of the Board of Directors (Rajeev Sharma) Chairman & Managing Director New Delhi August 3, 2012

Source : Dion Global Solutions Limited

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