1.0 SYSTEM OF ACCOUNTING
 
 The financial statements are prepared according to the historical cost
 convention on accrual basis in line with the generally accepted
 accounting principles in India and the provisions of the Companies Act,
 1956, including accounting standards notified thereunder.
 
 2.0 FIXEDA5SETS
 
 2.1 Fixed Assets are stated at historical cost less accumulated
 depreciation and any impairment in value. Where final settlement of
 bills with contractors is pending/under dispute, capitalization is done
 on estimated/provisional basis subject to necessary adjustment in the
 year of final settlement.
 
 2.2 Fixed Assets created on land not belonging to the Company are
 included under Fixed Assets.
 
 2.3 Capital expenditure on assets not owned by the Company is reflected
 as a distinct item in Capital Work-in-Progress/Fixed Assets.
 
 2.4 Payments made provisionally towards compensation and other expenses
 relatable to land are treated as cost of land.
 
 2.5 Expenditure incurred for compensatory afforestation, soil
 conservation and re-forestation towards forest land is shown as
 Intangible Assets-Expenditure on compensatory afforestation and is
 amortized pro-rata through depreciation over the period of likely use.
 
 2.6 Assets and systems common to more than one generating unit are
 capitalized on the basis of engineering estimates/assessments.
 
 2.7 Construction equipments declared surplus are shown at lower of
 bookvalueand net realisable value.
 
 3.0 MACHINERY SPARES
 
 3.1 Machinery spares procured along with the Plant & Machinery or
 subsequently and whose use is expected to be irregular are capitalized
 and depreciated fully over the residual useful life of the related
 plant and machinery except as stated in para 3.2.
 
 3.2 Cost/WDV of Machinery Spares is fully charged to revenue in the
 year in which such spares are replaced except in cases where retrieved
 spares have useful life after repairs.
 
 3.3 Other spares forming part of inventory are expensed when consumed.
 
 4.0 CAPITAL WORK-IN-PROGRESS
 
 4.1 In respect of supply-cum-erection contracts, the valueof supplies
 received at site/construction store and accepted is treated as Capital
 Work-in-Progress.
 
 4.2 Administration and Other General Overhead expenses at the Corporate
 Office and Projects under Construction / Survey & Investigation
 attributable to construction of fixed assets are identified and
 allocated on systematic basis on major immovable assets other than
 land, infrastructure facilities and bought out items on commissioning
 of Projects. However, no allocation of such expenses pertaining to
 Corporate Office is made on projects taken on BOOT ( Build, Own,
 Operate & Transfer) basis til I the date of grant of generation
 license.
 
 4.3 Expenditure on Survey and Investigation of the Projects is carried
 as capital work in progress and capitalized as cost of Project on
 completion of construction of the Project or the same is expensed in
 the year in which it is decided to abandon such project.
 
 4.4 Expenditure against Deposit Works is accounted for on the basis
 of statement of account received from the concerned agency and
 acceptance by the Company. However, provision is made wherever
 considered necessary.
 
 4.5 Claims for price variation /exchange rate variation in case of
 contracts are accounted for on acceptance.
 
 5.0 DEPRECIATION AND AMORTISATION
 
 5.1 Depreciation is charged on straight-line method to the extent of
 90% of the Cost of Asset following the rates notified by the Central
 Electricity Regulatory Commission (CERC) for the purpose of fixation of
 tariff. In respect of assets, where rate has not been notified by
 regulations by the CERC, depreciation is provided on straight line
 method at the rates corresponding to the rates laid down under the
 Income Tax Act, 1961, except in case of computers & peripherals, and
 mobile phones which are depreciated @ 25% p.a.
 
 5.2 Depreciation is provided on pro rata basis from the month in which
 the asset becomes available for use.
 
 5.3 Depreciation on assets declared surplus/obsolete is provided till
 the end of the month in which such declaration is made.
 
 5.4 Assets costing Rs. 5000/- or less are depreciated fully in the year
 of procurement.
 
 5.5 Expenditure on software is recognized as ''Intangible Asset'' and
 amortized fu I ly over four years.
 
 5.6 Where the cost of depreciable assets has undergone a change during
 the year due to increase/decrease in long term liability on account of
 exchange fluctuation, change in duties or similar factors, the revised
 unamortized balance of such assets is depreciated prospectively over
 the residual life. Depreciation on increase/decrease in the value of
 existing assets on account of settlementof disputes is charged
 retrospectively.
 
 5.7 Capital Expenditure referred to in Policy No. 2.3 is amortized
 overa period of four years starting from the year in which the first
 unit of the project comes into commercial operation and thereafter from
 the year in which the relevant asset becomes available for use.
 However, such expenditure for community development in case of projects
 under operation is charged off to revenue.
 
 5.8 Leasehold land is amortized pro-rata through depreciation over the
 period of lease.
 
 5.9 Expenditure on Catchment Area Treatment (CAT) Plan during
 construction is capitalized along with dam/civil works. Such
 expenditure during O&M stage is charged to revenue in the year of
 incurrence of such expenditure.
 
 6.0 INVESTMENTS
 
 6.1 Long Term Investments are valued at cost less provision for
 permanentdiminution in value.
 
 6.2 Current Investments are valued at lower of cost and fair value.
 
 7.0 INVENTORIES
 
 7.1 Inventories are valued at the lower of cost arrived at on weighted
 average basis and net realizable value.
 
 7.2 Loose tools issued during the year are charged to consumption.
 
 7.3 Stores issued for operation and maintenance but lying unused at
 site are treated as part of inventory.
 
 7.4 The diminution in the value of obsolete, unserviceable and surplus
 stores & spares is ascertained on review and provided for.
 
 7.5 Scrap is accounted for as and when sold.  
 
 8.O FOREIGN CURRENCY TRANSACTIONS
 
 8.1 Foreign currency transactions are initially recorded at the rates
 of exchange ruling at the date of transaction. Monetary items
 denominated in foreign currency are restated at the year end at
 exchange rates prevailing on the Balance Sheet date.
 
 8.2 Exchange differences, except to the extent considered as adjustment
 to borrowing cost as per AS-16 read with ASI-10, are recognized as
 income or expense in the period in which they arise in case of
 operating projects and to EDC in case of projects under construction.
 However, the differences relating to Fixed Assets/Capital
 Works-in-Progress arising out of transactions entered into prior to
 01.04.2004 over & above those considered as borrowing cost are adjusted
 to the carrying cost of Fixed Assets/Capital Work-in-Progress.
 
 9.0 BORROWING COSTS
 
 Borrowing costs attributable to fixed assets during construction
 /renovation and modernization are capitalized. Other borrowing costs
 are recognized as an expense in the period in which they are incurred.
 
 10.0 PROVISION, CONTINCENTLlABILITES & CONTINGENT ASSETS 
 
 Provisions involving substantial degree of estimation in measurement
 are recognized when there is a present obligation as a result of past
 events and it is probable that there will be outflow of resources.
 Contingent liabilities are not recognized, but are disclosed in the
 notes. Contingent assets are neither recognized, nordisclosed in the
 financial statements.
 
 11.0 INCOME
 
 11.1 Sale of energy is accounted for based on tariff approved by the
 Central Electricity Regulatory Commission (CERC).  Recovery/refund
 towards foreign currency variation in respect of foreign currency loans
 as per CERC notification is accounted for on year to year basis.
 
 11.2 The incentives /disincentives are accounted for based on the norms
 notified/approved by the Central Electricity Regulatory Commission.
 
 11.3 Advance against depreciation, forming part of tariff upto
 31.03.2009 to facilitate repayment of loans, is reduced from sales and
 considered as deferred revenue to be included in the sales in
 subsequent years.
 
 11.4 The surcharge on late payment/overdue sundry debtors for sale of
 energy is accounted for on receipt basis or when there is reasonable
 certainty of realisation.
 
 11.5 Interest recoverable on advances to contractors/suppliers and
 other claims from contractors/suppliers under dispute are accounted for
 on receipt/acceptance.
 
 11.6 Income from consultancy services is accounted for on the basis of
 actual progress / technical assessment of work executed or costs
 reimbursable, in line with the terms of respective consultancy
 contracts.
 
 12.0 EMPLOYEE BENEFITS
 
 Provision for gratuity, leave encashment and other post retirement
 benefits as defined in Accounting Standard (AS) -15 is made on the
 basis of actuarial valuation at the end of financial year.
 Providentfund liability isaccounted for on accrual basis.
 
 13.0 MISCELLANEOUS
 
 13.1 Insurance claims are accounted for in the year of receipt/
 acceptance by the insurer/certainty of realisation.
 
 13.2 Prepaid and prior period expenses/income of items of Rs.50,000/-
 and below are charged to natural heads of accounts in the year of
 payment/receipt.
 
 13.3 Liability for claims against the Company is recognized on
 acceptance by the Company / receipt of award by the Arbitrator and the
 balance claim, if disputed /contested by the contractor is shown as
 contingent liability. The claims prior to Arbitration award stage are
 disclosed as contingent liability.
 
 13.4 A specified percentage of Net Profit after Tax of previous year is
 set aside for incurring expenditure towards Corporate Social
 Responsibility (CSR). The unspent amount is carried forward.
 
 14.0 TAXES ON INCOME
 
 14.1 Taxes on income are determined on the basis of taxable income
 under the Income Tax Act, 1961.
 
 14.2 Deferred tax is recognized on timing differences between the
 accounting income and taxable income for the year and quantified using
 the tax rates and laws enacted or substantively enacted as on the
 Balance Sheet date. Deferred tax asset is recognized and carried
 forward to the extentthere is a reasonable certainty that sufficient
 future taxable income will be available against which such deferred tax
 asset can be realized.
 
 15.0 CASH FLOW STATEMENT
 
 Cash Flow Statement is prepared in accordance with the indirect method
 prescribed in Accounting Standard (AS) - 3 ''Cash Flow Statements''.