PTC INDIA FINANCIAL SERVICES LIMITED
ANNUAL REPORT 2011-2012
CHAIRMAN'S REPORT
Dear Shareholders, esteemed Members of the PTC Board, Ladies and Gentlemen,
I have great pleasure in welcoming you to the 13th Annual General Meeting
of your Company. On behalf of the Board of Directors and my colleagues at
PTC, I thank you all for having spared your valuable time to make it
convenient to attend this AGM and to demonstrate your sense of belonging
and solidarity with us.
The Annual Report containing Director's Report and the Annual Audited
Accounts have been with you for some time and I am sure, you have had the
time to go through them.
Your Company has completed another eventful year of its operations, and I
derive pride in informing that your Company has remained number one in the
power trading business since inception. Maintaining sustained leadership
position in a challenging environment and stiff competition is an enviable
record and a major feat.
Global and Indian Economic Scene
As you are aware, in recent years, India's integration with the rest of the
world has deepened and thus its economy will be increasingly affected by
what happens externally. In the year gone by and the current year, one can
see again the impact of international situation on the Indian economy.
There is a clear sign of the slowing down of India's growth due to Euro
Zone debt crisis jolting the global growth prospects and slowing domestic
demand owing to policy tightening and capacity constraints.
But one very encouraging factor is that since India's growth is largely
propelled by domestic demand, we must on our own steam be able to grow at
8% and if the world situation improves, we should be able to achieve the
goal of 9% sooner.
Power Sector Outlook
FY 2012 being the terminal year of 11th plan, we have seen large generation
capacity addition, particularly from the private sector. The country could
achieve the highest generation capacity addition of ~ 55 GW in the 11th
plan- a very significant development and in a manner heralding private
sector's entry into power sector in a big way. Your company had remained in
the forefront of playing the catalytic role in power sector by creating a
vibrant power market-which no doubt paved the way for large scale private
investment and record capacity addition.
Government being the largest player in power sector and private investment
getting increasingly channelized, a high order of Government intervention
and public-private partnership in capacity creation and other supportive
components of electricity business is crucial to sustaining a high growth
rate. Constraints such as the availability of coal and gas, land
acquisition and environmental issues need to be tackled in a more
aggressive manner so that the desired growth in capacity expansion can be
achieved.
Power sector being one of the key infrastructure segments cannot remain
insulated from the economy slowing down. Though there remains innumerable
challenges and need for radically new approach that enables financial
viability, accelerates capacity additions, improves operational
efficiencies and augments fuel supplies, the outlook of power sector in
general is quite positive.
Physical and Financial Performance
I am happy to report to you the good performance of your company for the
year 2011-12 consolidating our position and creating opportunities for a
sustainable future. A future that promises to be even more glorious,
fulfilling and rewarding as your Company pursues its vision to build an
exemplary enterprise. Your continued trust and goodwill has always been
invaluable, and will lend immense encouragement to us for the journey
ahead.
I would like to present to you the highlights of your Company's performance
during the year gone by. Many initiatives taken by the Company in recent
times for achieving sustainable growth and competitiveness have begun
yielding encouraging results.
The trading volumes this year at 24325 MUs were marginally lower (0.64%) as
against 24481 MUs during the previous year. With a turnover of Rs. 77011
million (including other income) for the year 2011-2012 as against Rs.90603
million (including other income) in the financial year 2010-11, your
Company has earned a profit after tax of Rs. 1204 million as against
Rs.1385 million in the previous year. Profitability was low as compared to
previous year due to higher interest burden and lower income from other
sources.
Your Company has two subsidiaries, namely PTC India Financial Services
Limited (60% owned) and PTC Energy Limited (Wholly Owned). The consolidated
turnover of the PTC group is Rs. 81105 million for the current financial
year as against Rs. 92627 million for the financial year 2010-11. The
consolidated profit after tax of the PTC group is Rs. 2041 million for the
current financial year as against Rs. 1660 million for the financial year
2010-11.
Dividend
Your Directors are pleased to recommend for your consideration and approval
dividend @ 15% for the financial year 2011-12 i.e. Rs 1.5/- per equity
share of Rs. 10 each (which is same as paid in last year).
Strategy and New Business Initiatives
Your Company had engaged an international consultant for equipping PTC
India group for the next phase of growth. As a follow up to this exercise,
your Company has adopted multi-pronged strategy - to consolidate its
existing business operations, to explore new opportunities in the energy
value chain, to further strengthen risk management and governance processes
and to develop its organization to achieve its potential aspirations.
The Company had been sensitizing the government and policy makers,
regulators, utilities, media and public-at-large about the fundamental
advantages of market-based operations, in implementing open access to
industry and captives, and a market-friendly regulation in the larger long
term interests of the consumers. The expanding energy market requires PTC
to go beyond its role as a transaction facilitator. With reform and
restructuring gaining grounds, financial health of power utilities will
improve in future, thus putting pressure on intermediary business. Your
Company would have to grow both organically and inorganically by creating
and acquiring assets in the energy value chain to remain a credible player.
As physical market for electricity gets mature and private investment in
the sector gets intensified, electricity derivative markets and gas/coal
trading markets would emerge. Your Company would have to gear itself as
opportunity arises to gain first-mover advantage in these segments through
credible alliances and partnerships.
Your Company has already responded by exploring opportunities in credit
support to clients, advisory role for portfolio management of few states,
by assuring coal supply from overseas sources to IPPs and playing the role
of an aggregator for industry/captives. Your Company has introduced a new
Strategic Business Unit- PTC Retail, to cater to specific needs of large
industrial and commercial consumers (1 MW and above). Also, your Company
has made operational power tolling business - first of its kind in the
country. For power tolling, PTC sources fuel, pays a conversion charge to
the project developer and owns the power produced from these projects. Two
power tolling units of 150 MW each have been commissioned in the current
fiscal and your company is successfully selling that power in the market.
PTC has been continuously making strides in the direction of Energy
Efficiency Management. Your company's engagement with Bureau of Energy
Efficiency (BEE) under Ministry of Power has been extended for a further
period of 5 years to undertake energy efficiency projects and also to seize
emerging opportunities such as perform, achieve, and trade (PAT) etc.
Short Term Trade
Short term bi-lateral trade including over Power Exchange remains the
mainstay of your Company's business. The market for the short term power
has grown substantially by 16% YoY to 94.5 Billion Units (BUs) in FY12. In
volume terms, ST market is 11% of the total electricity generation in the
country and in monetary terms, total size of market is Rs. 20,532 Crores,
10% more than FY11. Traders have been playing a vital role in the
development of ST market which is evident from the fact that bilateral
trading contributed ~ 40% in the total ST market in FY12 and grew by 23%
YOY. Banking transactions (cashless transactions where utilities borrow
power during days of power deficit and return the same in kind during power
surplus days) have shown an upward trend. Comparatively, volume on power
exchanges (PX) grew only by 9.5% YOY and Un-scheduled
Interchange (UI) volume reduced by 1% YOY (mainly because of tightening of
frequency band by CERC) which is a positive sign. Price in bilateral market
remained slightly higher than PX for most part of the year indicating that
buyers are ready to pay premium for reliability of power. Also bilateral
prices were less volatile than PX prices.
As far as performance of your company is concerned, it traded 24.3 BUs of
electricity as against 24.5 BUs previous year with a market share of 43%
(including cross-border and intra-state trades). This drop is primarily
because of slightly lower Cross-border trade with Bhutan at 5.3 BUs in FY12
(5.6 BUs in FY11) on account of increased domestic demand in Bhutan.
Domestic trading contributed almost 80% of the Company's business, rest
from cross-border trade. Trading volumes could have been higher but for the
Company regulating power to some of its clients not making payments on
time. The regulated power supply, primarily to Tamil Nadu and Uttar
Pradesh, caused an approximate opportunity loss of more than 4 BUs.
PTC-Retail continues to develop its credibility across the spot-market in
India. It has successfully added more than hundred new clients to its list.
Long Term Trade
Your Company's portfolio of projects, under long term power purchase
agreements with IPPs, brings unique strength and expectedly a continuous
stream of electricity traded volumes-both short term and long term
business. During the year, PTC entered into Power Purchase Agreements with
aggregate capacity of about 460 MW. The total long term agreements
cumulatively signed by your Company as on 31 March 2012 stand at 14,548.8
MW including cross-border agreements. Power from most of the projects is
being offered for sale through Case -1 bidding process being initiated by
State Utilities and Discoms. The projects are based on domestic coal,
imported coal, gas and hydro resources. Some important projects already
commissioned in FY-12 and current year are: 300 MW Stage-II coal-based
power project of Lanco Amarkantak; 2* 150 MW coal-based Simhapuri Tolling
Project; 100 MW Malana-II hydro-electric project and 70 MW Budhil hydro-
electric project.
Long term power from projects have started contributing to trading volumes
and the total MU traded from projects under long term PPA reached 4749 MUs
in FY 2012. This segment would gradually be contributing significantly to
our total trading volumes.
During this fiscal, PTC signed a long term power sale agreement with Nepal
Electricity Authority (NEA) to supply them 150 MW power for 25 years. The
supply of power is expected to commence after commissioning of 400 KV
Muzaffarpur (India) and Dhalkebar (Nepal) transmission line in next 2 to 3
years.
Your Company is actively participating in the Case-I bids invited by
various utilities and is competitively placed in the tender invited by
Andhra Pradesh for 2000 MW. It also provides key support to IPPs by
highlighting their combined view on key issues related to Case-I bidding
process to the Ministry of Power and Appropriate Electricity Regulatory
Commissions to get their genuine concerns addressed. PTC has balanced and
strategically located projects under long term portfolio likely to be
commissioned in coming years with 3400 MW capacity projects in western
region, 3300 MW capacity in eastern region and 4200 MW capacity projects in
southern region. Due to their strategic locations, projects are likely to
be competitive in Case-I bids. PTC is also actively working towards supply
of 250 MW power to Bangladesh Power Development Board (BPDB) from Indian
power market for a period of 15 years.
Considering the coal supply situation compared to the demand, it looks like
that dependence on imported coal will go up. Projections suggest that there
will be a deficit of up to 265 Million Tonnes (MT) of domestic coal by
FY17. This provides a window of opportunity for our subsidiary PTC Energy
Ltd. (PEL). We have been sourcing coal for Independent Power Producers
(IPPs) on their request and we see a substantial rise in coal trading
volumes in the coming years.
Your Company recognizes that with mounting pressures due to climate change
issues, renewable sources of energy will gain momentum. Prime Minister's
National Action Plan for Climate Change offers tremendous opportunities for
the market to develop renewable energy, particularly, wind, solar and also
energy efficiency projects. This is an emerging area of business and going
to become very significant in the next few years.
PTC, through its subsidiaries and affiliates, is exerting efforts to bring
into its fold renewable energy projects, particularly wind and Solar
projects and is also active in trading Renewable Energy Certificates (RECs)
on Power Exchanges on behalf of member clients.
People@PTC
PTC takes immense pride in its dedicated employees, who have year on year
delivered results against odds through their hard work, discipline, being
close to customers, and by demonstrating ability to quickly put together
solutions in an innovative way.
To foster the culture of innovation in the organization, it is important to
nurture it at an individual level. PTC has made it possible by empowering
individuals to dream and nurture their creativity and innovation. In
essence, this has encouraged them to empathize and understand the inherent
customer needs, customize the solutions and accelerate the deliverables,
thus maintaining an edge over competitors.
PTC recognizes that for sustained profitable growth, talent acquisition and
retention is one of the key result areas for your Company. Capacity
building program is an ongoing exercise and employees are being
continuously mentored on job by senior executives. We also regularly
organize structured management development program as means to create
effective managers-people who can operate across regions with confidence,
able to deal with diversity of cultures and issues, and be highly
analytical and result-oriented.
Corporate Governance and Corporate Social Responsibility
For the long-term viability of any enterprise, you need a viable corporate
culture and that requires a proper framework for Corporate Governance. Eco-
friendly attitude and sustainable business practices are now among the
critical determinants. Today's corporate landscape is pushing companies to
be more transparent and accountable for their actions, open about engaging
with all their stakeholders in a manner that balances the needs of the
community while mitigating the negative social and environmental impacts of
the business. PTC has been following some key aspects of good corporate
governance such as strengthening the responsibilities of audit committees;
improving the quality of financial disclosures, including those related to
initial public offerings; assessing and disclosing business risks;
introducing responsibilities on boards to adopt formal codes of conduct
among others. Trust, transparency and reliability are the hallmark of an
organization with right corporate governance framework- and PTC has adopted
them as core of its business.
Also, there is a significant increase in the expectations of a wide range
of stakeholders in regard to a Company's commitment to socially responsible
business practices. As a result, Corporate Social Responsibility (CSR) is
becoming a progressively more important component of good business
practice. CSR includes maintaining ethical business practices, health and
well-being of employees, energy conservation measures and concern for
environment. PTC is proud of being a socially committed organization and
attaches great importance to discharging its duties to the community and
society.
It has supported primary education and health in rural areas, midday meals
to children, emerging talents in sports, and contribution to the Prime
Minister's National Relief Fund from time to time.
Acknowledgement and Conclusion
At a personal level, I feel great satisfaction to lead an aspiring group of
creative and talented employees, who are ever ready to go that extra mile
to remain competitive and grow further in the field. Theirs has been the
key contribution in transforming PTC into an exemplary enterprise. I am
sure that their continued efforts will continue to propel us to greater
heights of achievements and excellence. I would like to sincerely thank all
our valued customers, both domestic and international, for their unstinted
support at all times.
PTC's quest for continuous value creation and playing its lead
developmental role of power market would not have been possible but for the
support that my colleagues and I have received from all our customers,
business associates, knowledge partners, shareholders and members of the
Board. I take this opportunity to express my sincere thanks to the Ministry
of Power and the Ministry of External Affairs, Government of India,
promoter companies, the financial institutions, insurance companies and
Banks, Regulatory Commissions, Central Electricity Authority, Central
Transmission Utility, State, regional and national load dispatch centers
among others for their encouragement and support to our Company. Their
active involvement has been a source of great encouragement and
inspiration. I am confident of their continued whole-hearted support and
patronage in augmenting our future plans and strategy. India's power market
is at watershed in its development, and its progress is imperative to
sustaining economic growth. The time is right for all stakeholders-
policymakers, regulators, public and private enterprises, lenders and
investors, equipment manufacturers, consumers-to act in concert to power
the country's future.
Shri Tantra Narayan Thakur
Chairman and Managing Director
Newspaper: BUSINESS STANDARD
Dated : 24.09.2012