(a) Basis for preparation of accounts:
 
 The financial statements have been prepared and presented under the
 historical cost convention, on the accrual basis of accounting and in
 accordance with the generally accepted accounting principles in
 compliance with the relevant provisions of the Companies Act, 1956.
 
 (b) Use of estimates:
 
 The preparation of financial statements requires the management of the
 Company to make estimates and assumptions that affect the reported
 balance of assets and liabilities, revenues and expenses and
 disclosures relating to the contingent liabilities. The management
 believes that the estimates used in preparation of the financial
 statements are prudent and reasonable. Future results could differ from
 these estimates. Any revision to accounting estimates is recognised
 prospectively in the current and future periods. Examples of such
 estimates include provision for employee benefit plans, provision for
 diminution in value of long term investments, provision for doubtful
 debts/advances, provision for income taxes, etc.
 
 (c) Fixed Assets:
 
 (i) Fixed assets are stated at cost of acquisition or construction less
 accumulated depreciation/amortisation.
 
 (ii) Cost includes purchase price, taxes and duties, labour cost and
 directly attributable costs for self constructed assets and other
 direct costs incurred upto the date the asset is ready for its intended
 use. Borrowing cost incurred for qualifying assets is capitalised upto
 the date the asset is ready for intended use, based on borrowings
 incurred specifically for financing the asset or the weighted average
 rate of all other borrowings, if no specific borrowings have been
 incurred for the asset.
 
 (d) Impairment:
 
 At each balance sheet date, the Company assesses whether there is any
 indication that the fixed assets have suffered an impairment loss. If
 any such indication exists, the recoverable amount of the asset is
 estimated in order to determine the extent of the impairment, if any.
 Where it is not possible to estimate the recoverable amount of
 individual asset, the Company estimates the recoverable amount of the
 cash-generating unit to which the asset belongs.
 
 (e) Depreciation/Amortisation:
 
 (i) Depreciation for the year in respect of assets relating to the
 electricity business of the Company as Licensee/other than a Licensee,
 has been provided on straight line method in terms of the repealed
 Electricity (Supply) Act, 1948 on the basis of Central Government
 Notification No.S.O.265(E)/266(E) dated 27th March, 1994/29th March,
 1994, except that computers acquired on or after 1st April, 1998 are
 depreciated at the rate of 33.40% p.a. on the basis of approval
 obtained from the State Government.
 
 (ii) In respect of assets relating to other business of the Company,
 depreciation has been provided for on written down value basis at the
 rates and in the manner prescribed in Schedule XIV to the Companies
 Act, 1956, except in the case of technical know-how which is written
 off on a straight line basis over a period of six years.
 
 (iii) Assets costing less than Rs. 5,000/- are depreciated at the rate of
 100%.
 
 (iv) Leasehold Land is amortised over the period of the lease.
 
 (v) Depreciation on additions/deletions of assets is provided on
 pro-rata basis.
 
 (vi) Depreciation rates used for various classes of assets are:
 
 Hydraulic Works – 1.95% to 3.40%
 
 Buildings – 3.02% to 33.40%
 
 Railway Sidings, Roads, Crossings, etc.  – 3.02% to 5.00%
 
 Plant and Machinery – 1.80% to 45.00%
 
 Transmission Lines, Cable Network, etc.  – 3.02% to 13.91%
 
 Furniture, Fixtures and Office Equipment – 12.77% to 18.10%
 
 Mobile Phones – 100%
 
 Motor Vehicles, Launches, Barges, etc.  – 25.89% to 33.40%
 
 Helicopters – 9.00% to 33.40%
 
 Depreciation so provided has been determined as being not less than the
 depreciation which would have been recognised in the Profit and Loss
 Account had the rates and the manner prescribed under Schedule XIV to
 the Companies Act, 1956, been applied.
 
 (f) Leases:
 
 (i) Finance Lease:
 
 Assets taken on finance lease are accounted for as fixed assets in
 accordance with Accounting Standard (AS -19) - Leases. Accordingly,
 the assets are accounted at fair value. Lease payments are apportioned
 between finance charge and reduction in outstanding liability.
 
 (ii) Operating Lease:
 
 Assets taken on lease under which all risks and rewards of ownership
 are effectively retained by the lessor are classified as operating
 lease. Lease payments under operating leases are recognised as expenses
 on straight line basis.
 
 (g) Investments:
 
 Long term investments are carried at cost, less provision for
 diminution other than temporary, if any, in the value of such
 investments. Current investments are carried at lower of cost and fair
 value.
 
 (h) Inventories:
 
 Inventories of stores, spare parts, fuel and loose tools are valued at
 lower of cost and net realisable value. Cost is ascertained on weighted
 average basis. Work-in-progress and property under development are
 valued at lower of cost and net realisable value. Cost includes cost of
 land, material, labour, manufacturing and other overheads.
 
 (i) Taxes on Income:
 
 Current tax is determined as the amount of tax payable in respect of
 taxable income for the year. Credit in respect of Minimum Alternate Tax
 paid is recognised only if there is convincing evidence of realisation
 of the same.
 
 Deferred tax, which is computed on the basis of enacted/substantively
 enacted rates, is recognised, on timing differences, being the
 difference between taxable income and accounting income that originate
 in one period and are capable of reversal in one or more subsequent
 periods. Where there is unabsorbed depreciation or carry forward
 losses, deferred tax assets are recognised only if there is virtual
 certainty of realisation of such assets. Other deferred tax assets are
 recognised only to the extent there is reasonable certainty of
 realisation in future.
 
 (j) Research and Development Expenses:
 
 (i) Expenditure of the research phase (other than cost of fixed assets
 acquired) are charged as an expense in the year in which they are
 incurred and
 
 (ii) Expenditure on development phase which met the recognition
 criteria are recognised as an intangible asset and the expenditure
 which do not meet recognition criteria are charged as an expense in the
 year in which they are incurred.
 
 (k) Intangible Assets:
 
 Intangible assets are recognised only if it is probable that the future
 economic benefits that are attributable to the asset will flow to the
 Company and the cost of the asset can be measured reliably.
 
 (l) Premium on redemption of Debentures and Foreign Currency
 Convertible Bonds (FCCB):
 
 Premium payable on redemption of FCCB and Debentures as per terms of
 their respective issues is provided fully in the year of issue by
 adjusting against the Securities Premium Account.
 
 (m) Warranty Expenses:
 
 Anticipated product warranty costs for the period of warranty are
 provided for in the year of sale.
 
 (n) Foreign Exchange Transactions:
 
 (i) Transactions denominated in foreign currencies are recorded at the
 exchange rate prevailing on the date of the transaction.
 
 (ii) All monetary assets and monetary liabilities in foreign currencies
 other than net investments in non-integral foreign operation are
 translated at the relevant rates of exchange prevailing at the year end
 and exchange differences are recognised in the Profit and Loss Account.
 
 (iii) Exchange differences relating to monetary items that are in
 substance forming part of the Company''s net investment in non-integral
 foreign operations are accumulated in Exchange Translation Reserve
 Account.
 
 (iv) In respect of foreign exchange contracts, the premium or discount
 arising at the inception of such a contract is amortised as expense or
 income over the life of the contract.
 
 (o) Employee Benefits:
 
 (i) Defined Contribution Plan:
 
 Company''s contributions paid/payable during the year to Provident Fund,
 Superannuation Fund, ESIC and Labour Welfare Fund are recognised in the
 Profit and Loss Account.
 
 (ii) Defined Benefit Plan/Long term compensated absences:
 
 Company''s liability towards gratuity, compensated absences, post
 retirement medical benefit schemes, etc. are determined by independent
 actuaries, at each reporting date, using the projected unit credit
 method. Past services are recognised on a straight line basis over the
 average period until the benefits become vested. Actuarial gains and
 losses are recognised immediately in the Profit and Loss Account as
 incomes or expenses. Obligation is measured at the present value of
 estimated future cash flows using a discounted rate that is determined
 by reference to the market yields at the Balance Sheet date on
 Government Bonds where the currency and terms of the Government Bonds
 are consistent with the currency and estimated terms of the defined
 benefit obligation.
 
 (iii) Short term employee benefits are recognised as an expense at the
 undiscounted amount in the Profit and Loss Account of the year in which
 the related services are rendered.
 
 (p) Revenue Recognition:
 
 (i) Revenue from Power Supply and Transmission Charges are accounted
 for on the basis of billings to consumers/State Transmission Utility
 and inclusive of Fuel Adjustment Charges and includes unbilled revenues
 accrued upto the end of the accounting year.
 
 (ii) The Company determines surplus/deficit (i.e. excess/shortfall
 of/in aggregate gain over Return on Equity entitlement) for the year in
 respect of its Mumbai Licensed Area operations (i.e. Generation,
 Transmission and Distribution) based on the principles laid down under
 the respective Tariff Regulations as notified by Maharashtra
 Electricity Regulatory Commission (MERC) and on the basis of Tariff
 Order''s issued by them. In respect of such surplus/deficit, appropriate
 adjustments as stipulated under the regulations have been made during
 the year. Further, any adjustments that may arise on annual performance
 review by MERC under the aforesaid Tariff Regulations will be made
 after the completion of such review.
 
 (iii) Delayed payment charges and interest on delayed payments are
 recognised, on grounds of prudence, as and when recovered.
 
 (iv) Interest income/Guarantee commission is accounted on an accrual
 basis. Dividend income is accounted for when the right to receive
 income is established.
 
 (v) Amounts received from consumers towards capital/service line
 contributions is accounted as a liability and is subsequently
 recognised as income over the life of the fixed assets.
 
 (vi) Revenue from infrastructure management services is recognised as
 income as and when services are rendered and when no significant
 uncertainty as to the collectability exists.
 
 (q) Accounting for Construction Contracts:
 
 Income on contracts in respect of Transmission EPC, Strategic
 Electronics Business and Project Management Services are accounted on
 Percentage of Completion basis measured by the proportion that cost
 incurred upto the reporting date bear to the estimated total cost of
 the contract.
 
 (r) Issue Expenses:
 
 (i) Expenses incurred in connection with the issue of Euro Notes,
 Foreign Currency Convertible Bonds, Global Depository Receipts and
 Debentures are adjusted against Securities Premium Account.
 
 (ii) Discount on issue of Euro Notes are amortised over the tenure of
 the Notes.  
 
 (s) Payments under Voluntary Retirement Schemes (VRS):
 
 Compensation paid under VRS is charged to the Profit and Loss Account
 in the year of exercise of option.
 
 (t) Segment Reporting:
 
 The accounting policies adopted for segment reporting are in line with
 the accounting policy of the Company. Revenue and expenses have been
 identified to segments on the basis of their relationship to the
 operating activities of the segment.  Revenue and expenses, which
 relate to the enterprise as a whole and are not allocable to segments
 on a reasonable basis, have been included under Unallocable
 income/expenses.
 
 (u) Provision, Contingent Liabilities and Contingent Assets:
 
 A Provision is recognised when the Company has a present legal or
 constructive obligation as a result of past event and it is probable
 that an outflow of resource will be required to settle the obligation,
 in respect of which reliable estimate can be made. Provisions
 (excluding retirement benefits) are not discounted to its present value
 and are determined based on best estimate required to settle the
 obligation at the Balance Sheet date. These are reviewed at each
 Balance Sheet date and adjusted to reflect the current best estimates.
 Contingent Liabilities are not recognised in the financial statements.
 A Contingent Asset is neither recognised nor disclosed in the financial
 statements.