Rural Electrification Corporation

I am pleased to extend a very warm welcome to all of you on the
 occasion of the Fortieth Annual General Meeting of the Company.
 
 ECONOMIC ENVIRONMENT
 
 The global environment entered a crisis phase in mid-September-2008
 following growing distress among large international financial
 institutions. The knock-on effect of the unprecedented global
 developments became evident in the macroeconomic performance of the
 Indian economy, as it experienced some loss of growth momentum with
 major drivers witnessing moderation. However, the fiscal stimulus along
 with other committed expenditures of the Government could arrest the
 moderation in growth to a great extent. Notwithstanding several
 challenges, particularly from the global economy, the Indian economy
 remained relatively resilient; its financial institutions and private
 corporate sector remained sound and solvent.  Further, the
 macroeconomic
 
 management helped in maintaining lower volatility in both the financial
 and real sectors in India when compared to several other advanced and
 emerging market economies.
 
 POWER SECTOR
 
 Power Sector is one of the key constituents of infrastructure required
 for overall growth of the economy. While there was some decline in the
 rate of growth of Indian economy in the financial year 2008-09, owing
 to the global economic crisis, the Power Sector remained less affected
 when compared to other segments of the economy, and the ability of the
 borrowers in mobilizing capital and debt for new and ongoing projects
 continued to remain stable.
 
 In the year 2008-09, the electricity generation grew by 2.71% from
 704.45 Billion Units (BU) to 723.56 BU, whereas during the same period
 the requirement grew from 739.35 BU to 774.32 BU. The annual energy
 shortage increased to 11% from 9.9% in the previous year. The peak
 shortage however declined to 12% in the year 2008-09 from 16.6% in the
 previous year. The gross electricity requirement by the end of the
 Eleventh Plan as projected by the Working Group on Power is 1038 BU and
 peak demand estimation is 151000 MW. To fulfil the estimated
 electricity demand requirement, the target for capacity addition during
 the Eleventh Plan is kept at 78577 M W. The capacity addition during
 the Twelfth Plan is expected to be even higher.
 
 Government of India estimates for investments in the Power Sector, in
 order to meet the required targets for Eleventh Plan, stand at Rs.10316
 Billion which includes funds required for adding power generation
 capacity, R&M of existing power plants, expansion and upgradation of
 transmission and distribution infrastructure, decentralized distributed
 generation etc.
 
 The three key components which drive the Power Sector are Generation,
 Transmission and Distribution. The total requirement of funds for
 generation projects, during the Eleventh Plan period is estimated at
 Rs.4,108,960 million, with Rs.2,020,670 million for the central sector,
 Rs.1,237,920 million for the state sector and Rs.850,370 million for
 the private sector. Investments for transmission system development and
 related schemes during the Eleventh Plan period is estimated at
 Rs.1,400,000 million, with Rs.750,000 million for the central sector
 and Rs.650,000 million for the state sector. The total fund requirement
 for sub-transmission and distribution systems development for urban as
 well as rural areas during the Eleventh Plan period is estimated at
 Rs.2,870,000 million inclusive of APDRP and RGGVY schemes.
 
 The opportunities for financing power infrastructure projects in the
 coming years are thus colossal and your Company will have a sizable
 share in funding these power projects. Besides, as a nodal agency for
 monitoring and channelizing funds under the RGGVY programme, your
 Company continues to take up the socio-economic responsibility of
 village electrification and contribute to the mission of Power for all
 by 2012.
 
 PERFORMANCE HIGHLIGHTS
 
 Your Company continued to register higher growth and record performance
 for the year 2008-09 under review, in key areas of Disbursements of
 Loans, Recoveries, Operating Income and Profits. A total sum of
 Rs.22277.86 Crore was disbursed during the year 2008-09, up by 37%, as
 against Rs.16304 Crore in the previous year, including subsidy under
 RGGVY. A sum of Rs.9796.97 Crore was recovered during the year as
 against Rs.9042 Crore in the previous year. The Operating Income went
 up to Rs.4757.17 Crore, up by 41%, from Rs.3378.21 in the previous
 year. The Profit before Tax was Rs.1920.11 Crore, up by 46%, as against
 Rs.1312.42 Crore in the previous year. The Profit after Tax was
 Rs.1272.08 Crore, up by 48%, as against Rs.860.15 Crore in the previous
 year.
 
 Your directors have recommended payment of final dividend of Rs.2.50
 per share for the year 2008-09, in addition to interim dividend of Rs.2
 per share paid in March 2009. The total dividend for the year 2008-09
 would work out to Rs.4.50 per share, up by 50%, as against Rs.3 per
 share paid for the previous year.
 
 RESOURCE MOBILISATION
 
 Your Company mobilized Rs.14,895 Crore from the market during the year
 2008-09. This included loans from commercial banks, issue of Capital
 Gain Tax Exemption Bonds, Non-priority Sector Bonds and Commercial
 Paper, Official Development Assistance (ODA) loan from Kreditanstat fur
 Wiederaufbau (KfW), Germany and Japan International Cooperation Agency
 (JICA). The domestic debt instruments of the Company continued to enjoy
 AAA rating - the highest credit rating assigned by CRISIL, CARE,
 FITCH & ICRA. Your Company also enjoys international credit rating
 equivalent to sovereign rating of India from International Credit
 Rating Agency Moodys and FITCH which is Baa3 and BBB-
 respectively.
 
 Your Company has been promptly servicing and repaying loans taken from
 the lending agencies as well as from the Government of India. The
 Company has also been promptly redeeming the Bonds on maturity and it
 has also been pre-paying some high cost loans and Bonds to contain the
 overall cost of borrowings.
 
 In order to meet the growing demand for funding of power projects in
 the Eleventh Plan period, the Company is scaling up its borrowing
 programme from domestic and international lending agencies.
 
 FINANCING GENERATION
 
 During the year 2008-09, the Company sanctioned 20 Nos. new
 Generation/R & M loans and 3 Nos. additional loan assistance with total
 financial outlay of Rs.21525.31 Crore, including consortium financing
 with other financial institutions, and disbursed Rs.7850.56 Crore
 against the on-going projects. Since 2002-03 and upto 31-3-2009, your
 Company has sanctioned financial assistance of Rs.79527 Crore for R &
 M, thermal and hydro generation projects.
 
 FINANCING TRANSMISSION & DISTRIBUTION
 
 Your Company continued to play an active role in creating new
 infrastructure and improving the existing ones under the transmission
 and distribution network in the country. In line with the national
 objective of providing 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 of the distribution system. During the year
 2008-09, the Company sanctioned a total sum of Rs.16037.24 Crore and
 disbursed a total sum of Rs.6687.33 Crore for Transmission and
 Distribution projects.
 
 FINANCING OF DECENTRALISED DISTRIBUTED GENERATION (DDG)
 
 Upto 31-3-2009, your Company has sanctioned 21 DDG projects with a
 total loan amount of Rs.628.87 Crore and disbursed Rs.347.08 Crore.
 Out of 21 projects, 8 projects have been commissioned covering 36.60 MW
 and balance 13 projects covering 152.70 MW are under implementation.
 
 RGGVY
 
 Under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), launched by
 the Government of India in April 2005, for the attainment of the
 National Common Minimum Programme goal of providing access to
 electricity to all households in five years, your Company is appointed
 as the nodal agency for overseeing the ambitious programme. Under this
 RGGVY programme, cumulatively up to 31-03-2009, works in 1,37,488
 villages (59882 un-electrified and 77606 electrified villages) have
 been completed and connections to 53.78 lakh BPL households have been
 released. During the year 2008-09, the Company disbursed a total sum of
 Rs.5699.97 Crore including Government Subsidy of Rs.5120.52 Crore and
 Loan component of Rs.579.45 Crore.
 
 SUBSIDIARY COMPANIES
 
 REC Transmission Projects Company Ltd. (RECTPCL), which is a wholly
 owned subsidiary of your Company, was mandated the implementation of
 two transmission projects by Ministry of Power, Govt. of India, through
 tariff based bidding. These two projects are for system strengthening
 in northern and western region for import of power from North Karanpura
 & other projects and augmentation of Talcher-II transmission system.
 These projects shall be implemented on Build, Own, Operate and Maintain
 (BOOM) basis following two stage process of Request for Qualification
 (RFQ) and Request for Proposal (RFP). Tw o project-specific SPVs namely
 North Karanpura Transmission Company Ltd. (NKTCL) and Talcher II
 Transmission Company Ltd. (TTCL) have been formed for development of
 the above two projects. These SPVs would be merged with the
 Transmission Service provider of the Transmission system after the
 developer is granted a license by the CERC. After processing RFQ and
 shortlisting, six bidders have been issued letters for issuance of RFP.
 
 REC Power Distribution Company Ltd. (RECPDCL), another wholly owned
 subsidiary of your Company, has secured orders from 13 Discoms and 4 RE
 co-operative societies for undertaking third party quality monitoring,
 supervision and inspection of the village electrification work awarded
 on turnkey basis under RGGVY covering approximately 34,934 villages in
 71 districts of 9 states with a cumulative project cost of about
 Rs.1868 Crore. On completion of these projects, RECPDCL would get a
 consultancy fee of about Rs.31 Crore. During the year 2008-09, RECPDCL
 has been able to generate an Income of Rs.5.27 Crore and Profit after
 Tax of Rs.1.42 Crore and declared 100% Dividend on the paid- up capital
 of Rs.5 Lakh.
 
 CORPORATE GOVERNANCE
 
 Your Company has been complying with the requirements of Corporate
 Governance as stipulated in the Listing Agreement and also the
 provisions notified by the Department of Public Enterprises, Government
 of India in this regard. The Company has obtained a Certificate from
 the Statutory Auditors - M/s G.S.Mathur & Co. regarding compliance of
 conditions of Corporate Governance as per Listing Agreement.
 
 MOU WITH THE MINISTRY OF POWER
 
 The performance of the Company in terms of Memorandum of Understanding
 signed with the Government of India, Ministry of Power, for the
 financial year 2007-o8 has been rated as Excellent for the 15th year
 in succession. The Company has met all the targets against MOU for the
 year 2008-09 also, and its performance is poised for Excellent 
 Rating.
 
 ERP
 
 Your Company is implementing an integrated Oracle based ERP system
 covering all major business functions. This is being implemented by M/s
 Tata Consultancy Services (TCS) under the consultancy of Management
 Development Institute (MDI), Gurgaon.  IIT, Delhi has been
 
 working as Technical consultant for IT infrastructure. Data Migration
 has been completed and GO-LIVE has been achieved for most of the
 functional modules. As a part of implementation of IT infrastructure
 for ERP operation, Commissioning of ERP Data Centre and MPLS-VPN based
 Wide Area Network (WAN), for interconnecting all offices of REC, has
 been completed.
 
 HUMAN RESOURCE DEVELOPMENT
 
 Training and HRD continued to receive its due priority during the year
 and your Company remained committed to employee development by
 investing in training and entry level recruitment of executives to
 infuse fresh blood. In order to develop global exposure, several
 officers were deputed abroad to attend various training and development
 programmes.
 
 CENTRAL INSTITUTE FOR RURAL ELECTRIFICATION (CIRE)
 
 CIRE was established by the Company at Hyderabad 30 years ago to cater
 to the training and development needs of engineers and managers of
 Power and Energy Sector and other organizations concerned with Power
 and Energy. CIRE conducts regular programmes on various aspects of
 Transmission and Distribution of Power Sector.
 
 During the year 2008-09, CIRE conducted as many as 98 Programmes,
 including 6 International Training Programmes sponsored by Ministry of
 External Affairs, Government of India, and trained in all 2767
 participants. This is the best achievement of CIRE since its inception
 in 1979.
 
 LOOKING AHEAD
 
 The power sector will continue to provide one of the biggest avenues to
 participate in the development of Indias infrastructure. The demand
 for power and the associated transmission and distribution systems is
 likely to be higher than what most current estimates show. Your Company
 is confident of making all efforts to maintain the growth rate and
 profitability by taking full advantage of buoyancy in the power sector
 and at the same time continue to make significant contribution to the
 development of power infrastructure in the country.
 
 ACKNOWLEDGEMENTS
 
 I am deeply grateful to the immense support and guidance received for
 the Company from the Honble Minister for Power, the Honble Minister
 of State for Power, the Secretary (Power), the Joint Secretary (Rural
 Electrification) and other officers in the Ministry of Power. I am also
 grateful to the officers in the Ministry of Finance, Planning
 Commission and the Reserve Bank of India, the Comptroller & Auditor
 General of India and the Statutory Auditors of the Company for all
 their support and guidance extended in ensuring smooth and successful
 operations of the Company. I extend my special thanks to my colleagues
 on the Board for their valuable guidance and support in achieving
 excellent performance of the Company. I take this opportunity to
 acknowledge the hard work, dedication and commitment by the officers
 and staff of the Company at all levels.
 
 I convey my special thanks to all the other stakeholders of the Company
 for extending their valuable support and cooperation, and reposing
 continued confidence in the Companys performance.
 
                                           With best wishes,
                                           ( P. Uma Shankar) 
                                Chairman & Managing Director