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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532898ISIN: INE752E01010INDUSTRY: Power - Transmission/Equipment

BSE   ` 207.10   Open: 209.90   Today's Range 206.20
-4.15 ( -2.00 %) Prev Close: 211.25 52 Week Range 173.05
Year End :2018-03 

1. Critical Estimates and Judgments

The preparation of financial statements requires the use of accounting estimates which may significantly vary from the actual results. Management also needs to exercise judgment while applying the company's accounting policies.

This note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed.

The areas involving critical estimates or judgments are:

Revenue Recognition:

Transmission income is accounted for based on tariff orders notified by the CERC. In case of transmission projects where final tariff orders are yet to be notified, transmission income is accounted for as per tariff regulations and other orders of the CERC in similar cases. Differences, if any, are accounted on issuance of final tariff orders by the CERC. Transmission income in respect of additional capital expenditure incurred after the date of commercial operation is accounted for based on expenditure incurred on year to year basis as per CERC tariff regulations.

Regulatory Deferral Balances:

Recognition of Regulatory Deferral Balances involves significant judgments including about future tariff regulations since these are based on estimation of the amounts expected to be recoverable/payable through tariff in future.

Estimation of defined benefit obligation

Estimation of defined benefit obligation involves certain significant actuarial assumptions which are listed in Note 67.

Estimates and judgments are periodically evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the company and that are believed to be reasonable under the circumstances.

Useful life of property, plant and equipment

The estimated useful life of property, plant and equipment is based on a number of factors including the effects of obsolescence, demand, competition and other economic factors (such as the stability of the industry and known technological advances) and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.

The Company reviewes at the end of each reporting date the useful plant and equipment, other than the assets of transmission business which are governed by CERC Regulations, and are adjusted prospectively, if appropriate.

Provisions and contingencies

The assessments undertaken in recognizing provisions and contingencies have been made in accordance with Ind AS 37 "Provisions, Contingent Liabilities and Contingent Assets". The evaluation of the likelihood of the contingent events has required best judgment by management regarding the probability of exposure to potential loss. Should circumstances change following unforeseeable developments, this likelihood could alter.

Note 2/Property, Plant and Equipment (Contd.)

Further Notes:

a) The Company owns 7232 hectare (Previous Year 7174 hectare) of land amounting to Rs, 2484.92 crore (Previous Year Rs, 2312.64 crore) which has been classified into freehold land 6197 hectare (Previous Year 6129 hectare) amounting to Rs, 2179.20 crore (Previous Year Rs, 2062.59 crore) and leasehold land 1035 hectare (Previous Year 1045 hectare) amounting to Rs, 305.72 crore (Previous Year Rs, 250.05 crore) based on available documentation.

b) i) The land classified as leasehold land held in the state of Jammu and Kashmir with area of 113.88 hectare (Previous Year 112.35 hectare) amounting to Rs, 96.60 crore (Previous Year Rs, 57.62 crore) is acquired by state government as per procedures under State Land Acquisition Act. As per prevailing law the state government remains the owner of the land so acquired and company is only given possession for the specific use.

ii) The transmission system situated in the state of Jammu and Kashmir have been taken over by the company w.e.f. 1st April 1993 from National Hydroelectric Power Corporation of India Limited (NHPC) upon mutually agreed terms pending completion of legal formalities.

c) Freehold land acquired by the company includes 268.50 hectare (Previous Year 266.42 hectare) amounting to Rs, 230.05 crore (Previous Year Rs, 159.75 crore) in respect of which conveyance deed in favour of the company is pending and 289.81 hectare (Previous Year 256.28 hectare) amounting to Rs, 224.78 crore (Previous Year Rs, 130.78 crore) in respect of land acquired by the company for which mutation in revenue records is pending.

d) Leasehold land includes area of 2.65 hectare (Previous Year 2.65 hectare) amounting to Rs, 13.97 crore (Previous Year Rs, 12.36 crore) in respect of land in Chamba (HP) acquired from NHPC by the company for which legal formalities are pending.

e) Leasehold land includes area of 0.41 hectare (Previous Year 0.41 hectare) amounting to Rs, 7.64 crore (Previous Year Rs, 7.64 crore) in respect of land acquired for office complex on perpetual lease basis and hence not amortized.

f) Township building includes Rs, 2.95 crore (Previous Year Rs, 2.95 crore) for 28 flats at Mumbai, for which registration in favour of the company is pending. Out of the above flats, 17 flats are occupied by employees of M/S Power System Operation Corporation Ltd.

g) 5.625 hectare of land (Previous Year 5.625 hectare) having value of Rs, 0.04 crore (Previous Year Rs, 0.04 crore) has been transferred to National High Power Test Laboratory Pvt. Ltd. on right to use without granting ownership.

h) Office space acquired by the Company of 389 Sq Mtr. at Mumbai Rs, 6.42 crore ( Previous Year Rs, Nil crore)for which Lease Deed/agreement not yet executed in favour of the Company.

2) 229319997 Equity Shares (Previous Year 229319997 Equity Shares) of Powerlinks Transmission Limited held by the Company have been pledged as security with consortium offinancial institutions against financial assistance obtained by Powerlinks Transmission Limited.

3) Investments have been valued as per accounting policy no. 2.13, 2.14 & 2.15.

4) Investment of Rs, 0.05 crore in Grid Conductor Limited has been written off during the year as per the approval of the Board of Directors.

5) POWERGRID's Board of Directors in its meeting held on 16th August, 2017 accorded approval for initiating procedure for winding up/ removal of the name of Kalinga Bidyut Prasaran Nigam Private Ltd under fast track Exit mode of Registrar of Companies (ROC). Provision for diminution in the value of Investment of Rs, 0.01 crore had been made in the previous year.

6) Number of shares as at 31st March, 2018 does not include 130000 bonus shares declared in the Annual General Meeting held on 10th January, 2018 and allotted after 31st March, 2018.

Further notes:

# Bank deposits against designated accounts for consultancy work.

Rs,Details of advances to related parties are provided in Note 59.

**CERC vide order dated 06/04/2015 in petition no.127/2012 had directed that 80% of the acquisition price incurred by the Company for Vemagiri Transmission Company Limited (VTSL) shall be reimbursed by the Long Term Transmission Customers (LTTCs) and balance 20% along with the expenditure incurred by VTSL from the date of acquisition till the liquidation of the company shall be borne by the Company. Subsequently, on a review petition filed by the Company, CERC vide order dated 20/10/2016 held that there are sufficient reasons to review the liability of the Company to pay 20% of the acquisition price and accordingly, directed that the issue shall be decided afresh by taking a holistic view in the matter after disposal of appeals filed by the LTTCs on the issue in Appellate Tribunal of Electricity (ATE). The matter is still pending before ATE/CERC.

## Equity Shares allotted on 10th April, 2017.

Note 3/ Borrowings (Contd.)

3 Secured Rupee loans from banks carry floating rate of interest linked to 3M MCLR. These loans are repayable in semiannual installments, as per terms of the respective loan agreements, commencing after moratorium period of 5 years.

4 Unsecured Foreign Currency Loans (Guranteed by Gol) carry fixed rate of interest ranging from 1.63% p.a. to 2.30% p.a. These loans are repayable in semiannual installments as per terms of the respective loan agreements.

5 Unsecured Foreign Currency Loans carry floating rate of interest linked to 6M STIBOR/EURIBOR. These loans are repayable in semiannual installments as per terms of the respective loan agreements, commencing after moratorium period as per terms of the respective loan agreements.

6 Unsecured Rupee loans from banks carry floating rate of interest linked to 3 months MCLR & 6 months MCLR. These loans are repayable in semiannual installments, commencing after moratorium period as per terms of the respective loan agreements.

7 There has been no default in repayment of loans or payment of interest thereon as at the end of the year.

Details of Securities

1 Domestic Bonds are Secured by way of Registered Bond Trust Deed ranking pari passu on immovable property situated at Mouje Ambheti Taluka Kaparada in district Valsad Gujarat and floating charge on the assets of the company.

2 Secured Foreign Currency Loans (Guranteed by Gol) are secured by pari passu interest in the lien created on the assets as security for the debts.

3 Secured Other Foreign Currency Loans and Rupee Loans are secured by the way of

(i) pari passu charge on the assets of the company except investments, land and building, roads and bridges, water supply, drainage and sewerage and current assets or;

(ii) pari passu charge on the assets of the company except investments and current assets or;

(iii) floating charge on the immovable properties of the company as per the terms of respective loan agreements.

Further Notes:

Provision is created for the purpose of leave encashment, Settlement Allowance, Long Service Award and other benefits. Detailed disclosure related to Employee Benefit Obligations is given in Note No 67.

a) Charge of Rs, 18.96 crore (Previous year Rs, 61.16 crore) has been made in the Statement of Profit & Loss.

b) The tariff norms for the block period 2014-2019 notified by the Central Electricity Regulatory Commission (CERC) provide for grossing up of the return on equity based on effective tax rate for the financial year based on the actual tax paid during the year on the transmission income. Accordingly, deferred tax provided during the year ended 31st March, 2018 on the transmission income is accounted as 'Deferred Assets against Deferred Tax Liability'. Deferred Assets against Deferred Tax Liability for the year will be reversed in future years (including tax holiday period) when the related deferred tax liability forms a part of current tax. This is in line with Guidance Note on Rate Regulated Activities, issued by ICAI.

c) Matter regarding presentation of' Deferred Assets against Deferred Tax Liability' in Balance Sheet and Statement of Profit and loss has been referred to Expert Advisory Committee (EAC) of Institute of Chartered Accountant of India, opinion of which is still awaited.

Note 4/Provisions (Contd.)

Wage Revision

Pay revision of employees of the Company is due w.e.f 1st January, 2017. Provision has been made in line with circular of Department of Public Enterprises, Government of India for the impact of the pay revision including towards increase in the ceiling limit of gratuity from the existing limit of Rs, 10 lakhs to Rs, 20 lakhs as per actuarial valuation pending approval of Board of Directors for implementation of pay revision in terms of presidential directives dated 10th May 2018.

Other Employee Benefits

Provision is created for the purpose of meeting out leave encashment, settlement allowance, long service award and POWERGRID Employee Family Rehabilitation Scheme.


Downtime Service Credit -Telecom

Provision is created in case when actual downtime is in excess of the permissible service level agreement, in such cases the necessary credit is passed on to the customer on demand.

However, in some case, the downtime is not claimed by the customer then in such cases necessary provision on account of downtime is made in the books of accounts as per the links availability reports received from National Telecom Control Centre (NTCC) for the period of non-operation of links given to the customers. The calculation of downtime credit is based on the SLA signed with various customers.

Further Notes:

1. Grant in Aid of Rs, 141.27 crore (Previous Year NIL) was received from Power System Development Fund (PSDF) for installation of STATCOM in ER (ERSS-XI) and SR (System Strengthening in SR-XXI).

2. Grant in Aid of Rs, 115.99 crore (Previous Year 63.02 crore) was received from Power System Development Fund (PSDF) for Unified Real Time Dynamic State Measurement (URTDSM).

3. Grant in Aid of Rs, 164.13 crore (Previous Year NIL) was received from Ministry of Natural Resources & Environment (MNRE) for establishment oftransmission system associated with Ultra Mega Solar Parks in Andhra Pradesh, Karnataka, Madhya Pradesh, Rajasthan and Gujarat.

Further notes:

a) In exercise of powers u/s 178 of the Electricity Act 2003, Central Electricity Regulatory Commission (CERC) has notified "CERC (Terms and Conditions of tariff) Regulations 2014" vide order dated 21st February, 2014 for the determination of transmission tariff for the block period 2014-19.

b) The company has recognized transmission income during the year as per the following:-

i) Rs, 24212.99 crore (previous year Rs, 22065.90 crore) as per final tariff orders issued by CERC.

ii) Rs, 4234.17 crore (previous year Rs, 2345.76 crore) in respect of transmission assets for which final tariff orders are yet to be issued as per CERC Tariff Regulations and other orders in similar cases.

c) Consequent to the final order issued by CERC, transmission income includes Rs, 79.33 crore (decrease) (Previous Year Rs, 125.08 crore (increase) pertaining to earlier years.

d) Other operating income includes interest on differential between provisional and final tariff and income from finance lease.

In addition to the above remuneration, the whole time directors have been allowed to use the staff car (including for private journeys) on payment of Rs, 2000/- p.m. as contained in the Department of Public Enterprises (DPE) OM No. 2 (23)/ll-DPE (WC)-GL-V/13 dated 21/01/2013.

b) Employee benefit expense (net of amount transferred to Expenditure during construction) includes Rs, 348.52 crore (Previous Year Rs, 204.51 crore) towards Pay Revision of employees of the Company due w.e.f 1st January,2017.

c) Pending approval of Ministry of Power and Department of Public Enterprises, special allowance upto 10% of basic pay amounting to Rs, 12.88 crore for the Financial Year 2017-18 (Rs, 12.34 crore for F.Y. 2016-17) (Cumulative amounting to Rs, 139.23 crore upto 31st March, 2018) is being paid to employees who are posted in the difficult and far flung areas. The above allowance is in addition to the maximum ceiling of 50% of basic Pay as per DPE office memorandum No. 2(70)/08-DPE (WC)-GL-XVI/08 dated 26th November, 2008.

5. Cash equivalent of deemed export benefits availed of Rs, 209.99 crore in respect of supplies effected for East South Inter Connector-II Transmission Project (ESI) and Sasaram Transmission Project (STP), were paid to the Customs and Central Excise Authorities in accordance with direction from Ministry of Power (GOI) during 2002-03 due to non-availability of World Bank loan for the entire supplies in respect of ESI project and for the supplies prior to March 2000 in respect of STP project and the same was capitalised in the books of accounts. Thereafter, World Bank had financed both the ESI project and STP project as originally envisaged and they became eligible for deemed export benefits. Consequently, the company has lodged claims with the Customs and Excise Authorities.

In this regard the Cumulative amount received and de-capitalized upto 31st March, 2018 is Rs, 12.12 crore (Previous Year Rs, 12.12 crore). The company continued to show the balance of Rs, 197.87 crore as at 31st March, 2018 (Previous Year Rs, 197.87 crore) in the capital cost of the respective assets / projects pending receipt of the same from Customs and Excise Authorities.

6. a) Balances of Trade Receivables and recoverable shown under Assets and Trade and Other Payables shown under Liabilities include balances subject to confirmation/reconciliation and consequential adjustments if any. However reconciliations are carried out on ongoing basis.

b) In the opinion of the management, the value of any of the assets other than Property, Plant and Equipment and non-current investments on realization in the ordinary course of business will not be less than value at which they are stated in the Balance Sheet.

7. Information in respect of cost plus consultancy contracts, considering the same as consultancy business as required under Ind AS-11 'Construction Contracts' is provided as under:

8. The company has been entrusted with the responsibility of billing collection and disbursement (BCD) of the transmission charges on behalf of all the ISTS (Interstate transmission System) licensees through the mechanism of the POC (Point of Connection) charges introduced w.e.f. 01st July, 2011 which involves billing based on approved drawl/injection of power in place of old mechanism based on Mega Watt allocation of power by Ministry of Power. By this mechanism, revenue of the company will remain unaffected.

Some of the beneficiaries aggrieved by the POC mechanism have preferred appeal before various High Courts of India. All such appeals have been transferred to Delhi High Court as per order of the Supreme Court on the appeal preferred by the company and company has also requested for directing agitating states to pay full transmission charges as per new methodology pending settlement of the matter. Honorable Delhi High Court has directed all the above beneficiaries to release payments and accordingly the beneficiaries have started making payments as per the said directions.

9. (i) FERV Loss of Rs, 146.36 crore (Previous Year Gain of Rs, 810.37 crore) has been adjusted in the respective carrying amount of Property, Plant and Equipment/Capital work in Progress (CWIP)/Lease Receivables.

(ii) FERV Loss of Rs, 161.76 crore (Previous Year Gain of Rs, 31.05 crore) has been recognized in the Statement of Profit and Loss.

10. Borrowing cost capitalized during the year is Rs, 1645.65 crore (Previous Year Rs, 1824.91 crore) in the respective carrying amount of Property, Plant and Equipment/Capital work in Progress (CWIP) as per Ind AS 23 'Borrowing Costs'.

11. Disclosure as per IND AS 17 'Leases'

a) Finance Leases: -

Other Non-current Financial Assets and Other Current Financial Assets include lease receivables representing the present value of future lease rentals receivable on the finance lease transactions entered into by the company with the constituents in respect of State Sector ULDC and Bilateral Line Assets. Disclosure requirements of Ind AS 17 'Leases' notified under the Companies Act, 2013 are given as under:

(iv) There are differences in balance lease receivable as at year end as per accounts and tariff records on account of:

(a) Undercharged liabilities amounting to Rs, 52.19 crore (Previous Year Rs, 66.41 crore). Such cost become part of project cost only on discharge of such liabilities.

(b) Unamortized FERV on loans included in lease receivable amounting to Rs, 17.15 crore (Previous Year Rs, 28.65 crore). Such FERV are allowed to be recovered as part of tariff on actual payment basis.

b) Operating leases:-

The company's significant leasing arrangements are in respect of operating leases of premises for residential use of employees, offices and guest houses/transit camps which are usually renewable on mutually agreed terms but are not non cancellable. Employee benefits expense include Rs, 26.12 crore (previous year Rs, 40.59 crore) towards lease payments, net of recoveries, in respect of premises for residential use of employees. Lease payments of Rs, 14.60 crore (previous year Rs, 12.42 crore) in respect of premises for offices and guest house/transit camps are shown under the head Rent in Note 41- Other expenses

2. Disclosures relating to Regulatory Deferral Account Balances

The company is mainly engaged in the business of transmission of power. The tariff for transmission of power is determined by the CERC through tariff regulations. The tariff is based on capital cost admitted by CERC and provides for transmission charges recovery of annual fixed cost consisting of Return on equity, Interest on loan capital, Depreciation, interest on working capital and Operation & Maintenance expenses.

FERV arising during the construction period for settlement/translation of monetary items (other than non-current loans) denominated in foreign currency to the extent recoverable/payable to the beneficiaries as capital cost as per CERC Tariff Regulations are accounted as Regulatory Deferral Account Balances. In respect of long term foreign currency loan drawn on or after 1st April,2016, exchange difference to the extent recoverable as per CERC Tariff Regulations are recognized as Regulatory Deferral Account Balances. The company expects to recover these amounts through depreciation component of the tariff over the life of the asset or as exchange rate variation on repayment of the loan.

The company has recognized an amount of Rs, 11.31 crore (Previous Year Rs, 103.18 crore) on account of pay revision as recoverable from the beneficiaries in subsequent periods under Regulatory Deferral Account Balances. These balances are to be adjusted in the year in which they become recoverable from beneficiaries as per CERC.

Any change in the Tariff regulations beyond the current tariff period ending on 31st March, 2019 may have an impact on the recovery of Regulatory Deferral Account Balances.

2. To firms/companies in which directors are interested : NIL

B. Investment by the loanee (as detailed above) in the shares of Power Grid Corporation of India Ltd: NIL

This section explains the judgments and estimates made in determining the fair values of the financial instruments that are measured at amortized cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity bonds which are traded in the stock exchanges, valued using the closing price as at the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities, contingent consideration and indemnification assets included in level 3.

There are no transfers between levels 1 and 2 during the year. The company's policy is to recognize transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

- the use of quoted market prices or dealer quotes for similar instruments

- the fair value of the remaining financial instruments is determined using discounted cash flow analysis.

All of the resulting fair value estimates are included in level 2 apart from equity instruments of PTC India Limited which is included in Level 1 fair value hierarchy.

The fair value of Energy Efficiency Services Limited has been determined by making qualitative adjustment to trading multiples such as P/E, EV/EBITDA of comparable listed prices. The same has been included in Level 2 fair value hierarchy.

Fair value of financial Instrument has been determined by an independent valuer.

Fair value of financial assets and liabilities measured at amortized cost:

The carrying amounts of trade receivables, trade payables, cash and cash equivalents and other current financial liabilities are considered to be the same as their fair values, due to their short-term nature.

For financial assets that are measured at fair value, the carrying amounts are equal to the fair values.

(c) Key Managerial Personnel

Name Designation

Shri I.S. Jha Chairman and Managing Director

Shri Ravi P. Singh Director (Personnel)

Shri K. Sreekant Director (Finance)

Shri R.P. Sasmal Director (Operations) retired on 28.02.2018

Sh. Prabhakar Singh Director (Projects)

Ms. Seema Gupta Director (Operations) w.e.f 01.03.2018

Dr. Pradeep Kumar Government Nominee Director Ceased to be Director w.e.f 31.07.2017

Ms. Jyoti Arora Government Nominee Director Ceased to be Director w.e.f 05.07.2017

Shri Jagdish Ishwar Bhai Patel Independent Director

Shri Tse Ten Dorji Independent Director

Ms. Shalini Prasad Government Nominee Director w.e.f. 14.08.2017 to 30.08.2017

Ms. Bharati Government Nominee Director w.e.f. 31.08.2017

Ms. Jyotika Kalra Independent Director Ceased to be Director w.e.f 06.04.2017

Shri. Manoj Kumar Mittal Independent Director w.e.f. 12.09.2017

Smt. Divya Tandon Company Secretary

(d) List of Other Related Parties

Name of Entity Place of business/country Nature of Relationship

of incorporation

Powergrid Employees P.F. Trust India Post-employment benefit plan of Powergrid

Powergrid Self Contributory Superannuation India Post-employment benefit plan of Powergrid

Benefit (Pension) Fund Trust

Powergrid Employees Gratuity Fund Trust India Post-employment benefit plan of Powergrid

(e) Government Related Entities

The company is controlled by the Government of India (GOI), being a Central Public Sector Enterprise (CPSE) under the Ministry of Power, with GOI holding 56.91% of equity shares capital issued and paid up (previous year 57.90%).

The Company has business transactions with other entities controlled by the GOI for procurement of capital equipment, spares and services. Transactions with these entities are carried out at market terms on arms-length basis through a transparent price discovery process against open tenders, except in a few cases of procurement of spares/services from Original Equipment Manufacturer (OEM) for proprietary items/or on single tender basis due to urgency, compatibility or other reasons. Such single tender procurements are also done through a process of negotiation with prices benchmarked against available price data of same/similar items.

The above transactions are in the course of normal day-to-day business operations and are not considered to be significant keeping in view the size, either individually or collectively.

(f) Outstanding balances arising from sales/purchases of goods and services

The following balances are outstanding at the end of the reporting period in relation to transactions with related parties:

13. Operating Segments

a) Business Segment

The Board of Directors is the company's Chief operating decision maker who monitors the operating results of its business segments separately for the purpose of making decisions about resource allocation and performance assessment. Three reportable segments have been identified on the basis of services provided.

- Transmission Services- Company's principal business is transmission of bulk power across different states of India.

- Telecom Services-The company Utilizes the spare Optical fibres available in the Optical Ground Wire (OPGW) laid on the transmission network for providing telecom services. It operates as a neutral carrier in the point to point bandwidth leasing business.

- Consultancy Services- provides Consultancy Services in the Transmission, Distribution and Telecom sectors, including Planning Design, Engineering, Load Dispatch, OPGW on intra state Transmission network, Procurement Management, Operation & Maintenance, Financing and Project Management.

b) The operations of the company are mainly carried out within the country and therefore there is no reportable geographical segment.

c) Information about major customer: Revenue from any single customer is not equal to or exceeds 10% of the company's total revenue.

Segment Revenue and Expenses

Revenue directly attributable to the segments is considered as Segment Revenue. Expenses directly attributable to the segments and common expenses allocated on a reasonable basis are considered as segment expenses.

Segment Assets and Liabilities

Segment assets include all operating assets comprising of Property, Plant and Equipment, current assets and loan and advances. Construction, Work-in-progress, construction stores and advances and investments are included in unallocated assets. Segment facilities include operating liabilities and provisions.

14 Contingent Liabilities and contingent assets Contingent Liabilities

1. Claims against the Company not acknowledged as debts in respect of:

(i) Capital Works

Some of the contractors for supply and installation of equipments and execution of works at our projects have lodged claims on the company seeking enhancement of the contract price, revision of work schedule with price escalation, compensation for the extended period of work, idle charges etc. These claims are being contested by the Company as being not admissible in terms of the provisions of the respective contracts.

The company is pursuing various options under the dispute resolution mechanism available in the contract for settlement of these claims. In such cases, contingent liability of Rs, 1440.68 crore (Previous Year Rs, 1381.17 crore) has been estimated.

(ii) Land compensation cases

In respect of land acquired for the projects, the land losers have claimed higher compensation before various authorities/courts which are yet to be settled. In such cases, contingent liability of Rs, 2490.90 crore (Previous Year Rs, 2671.53 crore) has been estimated.

(iii) Other claims

In respect of claims made by various State/Central Government Departments/Authorities towards building permission fees, penalty on diversion of agriculture land to non-agriculture use, Nala tax, water royalty etc. and by others, contingent liability of Rs, 4.12 crore (Previous Year Rs, 4.00 crore) has been estimated.

(iv) Disputed Income Tax/Sales Tax/Excise/Municipal Tax Matters

Disputed Income Tax/Sales Tax/Excise/Municipal Tax Matters amounting to Rs, 432.64 crore (Previous Year Rs, 388.38 crore) are being contested before various Appellate Authorities. Many of these matters have been disposed of in favour of the company but are disputed before higher authorities by the concerned departments.

(v) Others

a) Other contingent liabilities amounts to Rs, 403.95 crore (Previous Year Rs, 201.32 crore).

b) Some of the beneficiaries have filed appeals against the tariff orders of the CERC. The amount of contingent liability in this regard is not ascertainable.

c) Under the Transmission Service Agreement (TSA) with Power links Transmission Ltd, the company has an obligation to purchase the JV company (Power links Transmission Ltd) at a buyout price determined in accordance with the TSA. Such an obligation may result in case JV company (Power links Transmission Ltd) serves a termination notice either on "POWERGRID event of default" or on "force majeure event" prescribed under TSA. No contingent liability on this account has been considered as the same is not ascertainable.

b) The Company has given guarantee for the dues & punctual payment and discharge of the obligations amounting to Rs, 290 crore (Previous Year Rs, 290 crore) against bond issued by Powergrid Vizag Transmission Company Ltd.

15. Capital management

a) Risk Management

The company's objectives when managing capital are to

- maximize the shareholder value;

- safeguard its ability to continue as a going concern;

- maintain an optimal capital structure to reduce the cost of capital.

For the purpose of the company's capital management, equity capital includes issued equity capital, securities premium Account and all other equity reserves attributable to the equity holders of the company. The company manages its capital structure and makes adjustments in light of changes in economic conditions, regulatory framework and requirements of financial covenants with lenders. To maintain or adjust the capital structure, the company may adjust the dividend payment to shareholders, regulate investments in new projects, return capital to shareholders or issue new shares. The company monitors capital using debt-equity ratio, which is the ratio of long term debt to total net worth. The policy is to keep the debt-equity ratio wherein the debt is less than 75% of total capital employed (i.e. debt to equity ratio less than 75:25). The company includes within long term debt, interest bearing loans and borrowings and current maturities of long term debt.

Under the terms of the major borrowing facilities, the company is required to comply with the financial covenants. Breaches in meeting the financial covenants would permit the lenders to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current reporting period.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31st March, 2018 and 31st March, 2017.

b) Dividends

16. Financial Risk Management

The Company's principal financial liabilities comprise loans and borrowings denominated in Indian rupees or foreign currencies, trade payables and other payables. The Company has also provided financial guarantee in respect of bonds issued by its wholly owned subsidiary, Powergrid Vizag Transmission Limited. The main purpose of these financial liabilities is to finance the Company's capital investments and operations.

The Company's principal financial assets include loans and advances, trade and other receivables, and cash and cash equivalents that are generated from its operations.

The Company's activities expose it to the following financial risks, namely,

a) Credit risk,

b) Liquidity risk,

c) Market risk.

This note presents information regarding the company's exposure, objectives, policies and processes for measuring and managing these risks. Risk management framework

The Company has a duly constituted Risk Management Committee headed by Director (Projects) with Director (Finance) and Director (Personnel) as members. For the purpose of evaluating and managing the uncertainties the enterprise faces, Enterprise Risk Management framework has been implemented in the Company. The framework is a structured, consistent and continuous process for identification, assessment, monitoring and management of risks. As per this framework, the significant business processes/risks are monitored and controlled through various Key Performance Indicators (KPIs). The Committee meets at regular intervals and reviews KPIs and provides updates to the Audit Committee/Board.

The management offinancial risks bythe Company is summarized below:-

A) Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities on account of trade receivables and loans and advances and from its financing activities due to deposits with banks and financial institutions, foreign exchange transactions and other financial instruments and for its investment activities due to investment in State Government Bonds.

A default on a financial asset is when the counterparty fails to make contractual payments within 3 years of when they fall due. This definition of default is determined considering the business environment in which the Company operates and other macro-economic factors.

Assets are written-off when there is no reasonable expectation of recovery, such as a debtor declaring bankruptcy or failing to engage in a repayment plan with the Company. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where such recoveries are made, these are recognized in the statement of profit and loss.

(i) Trade Receivables

The Company primarily provides transmission facilities to inter-state transmission service customers (DICs) comprising mainly state utilities owned by State Governments. The Company has a robust payment security mechanism in the form of Letters of Credit (LC) backed by the Tri-Partite Agreements (TPA). The TPA was signed among the GOI, Reserve Bank of India and the individual State Governments subsequent to the issuance of the One Time Settlement Scheme of State Electricity Boards dues during 2001-02 by the GOI, which was valid till October 2016. GOI has approved the extension of these TPAs for a further period of 10 years. Majority of the States have executed the agreements for extension of TPAs and matter is being pursued with the remaining states.

As per the provisions of the TPA, the customers are required to establish LC covering 105% of the average monthly billing of the Company for last 12 months. The TPA also provides that if there is any default in payment of current dues by any State Utility, the outstanding dues can be deducted from the State's RBI account and paid to the concerned CPSU. There is also provision for regulation of power by the Company in case of non-payment of dues and non-establishment of LC.

CERC tariff regulations allow payment against monthly bills towards transmission charges within a period of 60 days from the date of the bill and levy of surcharge on delayed payment beyond 60 days. A graded rebate is provided by the Company for payments made within 60 days.

Trade receivables consist of receivables relating to transmission services of Rs, 3257.37 crore (Previous Year Rs, 2835.17 crore), receivables relating to consultancy services of Rs, 253.79 crore (Previous Year Rs, 315.92 crore) and receivables relating to telecom business of Rs, 175.95 crore (Previous Year Rs, 102.42 crore).

(ii) Other Financial Assets (excluding trade receivables)

- Cash and cash equivalents

The Company held cash and cash equivalents of Rs, 502.48 crore (Previous Year Rs, 1401.57 crore). The cash and cash equivalents are held with public sector banks and high rated private sector banks and do not have any significant credit risk.

- Deposits with banks and financial institutions

The Company held deposits with banks and financial institutions of Rs, 1853.80 crore (Previous Year Rs, 2097.25 crore). Term deposits are placed with public sector banks and have negligible credit risk.

- Investments

The Company holds investment of Rs, Nil (Previous Year Rs, 2.50 crore) in 8.5% tax free State government bonds issued under the One Time Settlement Scheme The Company does not expect the counterparty to fail to meet its obligations, and has not experienced any impairment losses in respect of these investments.

- Loans

The Company has given loans to employees, subsidiaries and other parties. House building loans and conveyance advance to the employees are secured against the mortgage of the house properties or hypothecation of vehicles for which such loans have been given in line with the policies of the Company. The loans provided to group companies are for projects under Tariff Based Competitive Bidding route. The risk of default in respect of these loans is considered negligible.

o Provision for expected credit losses

(a) Financial assets for which loss allowance is measured using 12 month expected credit losses

The Company has assets where the counter-parties have sufficient capacity to meet the obligations and where the risk of default is very low. At initial recognition, financial assets (excluding trade receivables) are considered as having negligible credit risk and the risk has not increased from initial recognition. Therefore expected credit loss provision is not required.

(b) Financial assets for which loss allowance is measured using life time expected credit losses

In respect oftrade receivables from Telecom and Consultancy, customer credit risk is managed by regular monitoring of the outstanding receivables and follow-up with the consumer for realization.

With regard to transmission segment, the Company has customers most of whom are state government utilities with capacity to meet the obligations and therefore the risk of default is negligible. Further, management believes that the unimpaired amounts that are 30 days past due date are still collectible in full, based on the payment security mechanism in place and historical payment behavior.

Considering the above factors and the prevalent regulations, the trade receivables continue to have a negligible credit risk on initial recognition and thereafter on each reporting date.

Based on historic default rates, the Company believes that, apart from the above, no impairment allowance is necessary in respect of any other assets as the amounts are insignificant.

B) Liquidity risk

Liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. The Company monitors its risk of a shortage of funds using a liquidity planning tool. The Company has access to a variety of sources of funding such as commercial paper, bank loans, bonds and external commercial borrowings and retains flexibility in funding by maintaining availability under committed credit lines.

Management monitors rolling forecasts of the Company's liquidity position comprising the undrawn borrowing facilities below and cash and cash equivalents on the basis of expected cash flows.

The Company depends on both internal and external sources of liquidity to provide working capital and to fund capital expenditure,

i) Financial Arrangement

The Company had access to the following undrawn borrowing facilities at the end of the reporting period.

The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time and have remaining availability period oflto5 years (Previous Year lto5 years).

C) Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk:

i. Currency risk

ii. Interest rate risk

iii. Other price risk, such as equity price risk and commodity risk,

i) Currency risk

The Company is exposed to currency risk mainly in respect of foreign currency denominated loans and borrowings and procurement of goods and services whose purchase consideration is denominated in foreign currency. Transmission tariff are regulated by the CERC. According to the CERC tariff regulations for the block 2014-19 the Company may hedge foreign exchange exposure in respect of the interest on foreign currency loan and repayment of foreign loan acquired for the transmission system, in part or full in its discretion and recover the cost of hedging of foreign exchange rate variation corresponding to the normative foreign debt, in the relevant year.

If hedging of the foreign exchange exposure is not undertaken, the extra rupee liability towards interest payment and loan repayment corresponding to the normative foreign currency loan in the relevant year is permissible to be recovered as part of transmission tariff provided it is not attributable to the generating Company or the transmission licensee or its suppliers or contractors. During the financial year 2017-18, no hedging for foreign exchange exposure has been undertaken by the Company. In respect of goods and services procured for Capital Investment, the exchange rate variation is part of the project cost, for determination of transmission tariff. The currency risk in respect of goods and services procured for operation activities is not significant.

The Company's exposure to foreign currency risk at the end of the reporting period expressed in INR is provided in Note No. 53.


Since the impact of strengthening or weakening of Indian rupee against USD, Euro, JPY and other currencies on the statement of profit and loss would not be very significant; therefore, sensitivity analysis for currency risk is not disclosed.

ii) Interest rate risk

The Company is exposed to interest rate risk arising mainly from long term borrowings with floating interest rates. The Company is exposed to interest rate risk because the cash flows associated with floating rate borrowings will fluctuate with changes in interest rates. The Company manages the interest rate risks by maintaining a debt portfolio comprising a mix offlxed and floating rate borrowings in domestic and foreign currencies.

Fair value sensitivity analysis for interest-rate risk

As per CERC Regulations, interest on loan during construction forms part of project cost for the purpose of tariff and after the date of commercial operation, interest on loans is recoverable through tariff calculated on the normative average loan of the year by applying the weighted average rate of interest of the actual loan portfolio.

Accordingly, the Company's interest rate risk is not considered significant; hence sensitivity analysis for the risk is not disclosed.

iii) Other price risk

The Company's exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet as fair value through OCI.

Considering the magnitude of equity investments, no significant risk is expected to arise.

17. Income Tax expense

This note provides an analysis of the company's income tax expense, and how the tax expense is affected by non-assessable and nondeductible items. It also explains significant estimates made in relation to the Company's tax position.

(i) Long Term Employee Benefits

A. Leave Obligations

The Company provides for earned leave benefit (including compensated absences) and half-pay leave to the employees of the company which accrue annually at 30 days and 20 days respectively. Earned leave is encashable while in service. Half pay leaves (HPL) are en-cashable only on separation beyond the age of 55 years upto the maximum of 300 days (HPL). However, total number of leave that can be encashed on superannuation shall be restricted to 300 days and no commutation of half pay leave shall be permissible. The liability for same is recognized on the basis of actuarial valuation.

B. Other employee benefits - POWERGRID Employee family rehabilitation scheme

The company has introduced POWERGRID Employees Family Economic Rehabilitation Scheme during the year. The Objective of the scheme is to provide monetary assistance and support to an employee in case of his/her permanent total disablement and to his/her family in case of death while in service. The beneficiary would be entitled to monthly payment equivalent to the employee's 50% of one month pay last drawn provided the beneficiary deposits with the company an amount equal to PF (excluding VPF) balance, Gratuity amount and Group Insurance (EDLI) amount, Such monthly payment would continue till the normal notional date on which the employee concerned would have attained the age of superannuation had the employee continued in the service of the company. The schme is optional. Provision for POWERGRID Employees Family Economic Rehabilitation Scheme amounting to Rs, 6.62 crore (Previous Year Rs, Nil crore) for the year has been made during the year based on actuarial valuation.

18. Employee Benefit Obligations (Contd.)

(ii) Post-employment obligations(Defined Employee Benefit/Contribution Schemes)

A. Post-retirement Medical Facility fPRMR

The Company has Post-retirement Medical Facility (PRMF), under which retired employees and the spouse are provided medical facilities in the empanelled hospitals. They can also avail treatment as Out-Patient subject to a ceiling fixed by the company. The scheme is unfunded and liability for the same is recognized on the basis of actuarial valuation on annual basis on the Balance Sheet date.

B. Other employee benefits - Long Service Award

This benefit is applicable to all regular employees of the company (except for Directors and CMD) who have superannuated after completing at least 10 years of service.

C. Gratuity

The company has a defined benefit gratuity plan. Every employee who has rendered continuous service of five years or more is entitled to get gratuity at 15 days salary (15/26 x last drawn basic salary plus, dearness allowance) for each completed year of service on superannuation, resignation, termination, disablement or on death subject to a maximum of Rs, 10 lacs. The scheme is funded by the company and is managed by a separate trust. The liability for the same is recognized on the basis of actuarial valuation on annual basis on the Balance Sheet date. Company has carried out the actuarial valuation of Gratuity benefit considering enhanced ceiling of Rs, 20 Lakhs as notified vide order No. W-02/0020/2018-DPE(WC)-GL-XII/18 dated 11th April 2018.

D. Other Defined Retirement Benefits fODRBVBaggage Allowance

The Company has a scheme for settlement at the time of superannuation at home town for employees and dependents to superannuated employees. The scheme is unfunded and liability for the same is recognized on the basis of actuarial valuation on annual basis on the Balance Sheet date.

E. Provident Fund

Company pays fixed contribution to Provident Fund at predetermined rate to a separate trust, which invests the funds in permitted securities. Contribution to family pension scheme is paid to the appropriate authorities. The contribution to the fund and EPS scheme for the year amounting to Rs, 93.07 crore (previous year Rs, 89.47 crore) has been recognized as expense and is charged to Statement of Profit and Loss. The obligation of the company is limited to such fixed contribution and to ensure a minimum rate of interest on contributions to the members as specified by GOI. As per the report of actuary overall interest earning and cumulative surplus is more than statutory interest payment requirement. Hence, no further provision is considered necessary. Since the company does not have unconditional right over the PF corpus, the surplus has not been recognized in the Balance Sheet.

*Fair valuation as per actuarial valuation is Rs, 579.51 crore.

Fair value of company's own transferable financial instruments held as plan assets is Rs, 87.53 crore (Previous Year Rs, 103.38 crore).

(vi) Description of Risk exposures

Valuation is based on certain assumptions which are dynamic in nature and vary over time. As such company is exposed to various risks as follows:

A) Salary Increases (except for PF) - Actual salary increase will increase the plan's liability. Increase in salary increase rate assumptions in future valuation will also increase the liability.

B) Investment risk - If plan is funded then assets liabilities mismatch and actual investment return on assets lower than the discount rate assumed at the last valuation date can impact the liability.

C) Discount Rate - Reduction in discount rate in subsequent valuations can increase the plan's liability.

D) Mortality & disability - Actual deaths and disability cases proving lower or higher than assumed in the valuation can impact the liabilities.

E) Withdrawals - Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal rates at subsequent valuations can impact Plan's liability.

19 Recent Accounting Pronouncements:

Standard issued but not yet effective

In March 2018, the Ministry of Corporate Affairs issued the Company (Indian Accounting Standards) (Amendment Rules, 2017) notifying Ind AS 115, 'Revenue from Contracts with Customers'. This Ind AS is applicable to the company from 1st April, 2018.

Introduction to Ind AS 115 'Revenue from Contracts with Customers ':

With the introduction to Ind AS 115 'Revenue from Contracts with Customers', Ind AS 11 'Construction Contracts' and Ind AS 18 'Revenue' will ceases to be applicable to the entities. There is a shift from the present' transfer of risk and rewards model to transfer of control of goods and services by the entity. The company is evaluating the requirements of the amendment and the effect on the financial statements.

20. a) Figures have been rounded off to nearest rupees in crore up to two decimal.

b) Previous year figures have been regrouped / rearranged wherever considered necessary.