CHAPTER-1

COMPANY PROFILE

NTPC ltd:

Figure-1

BRIEF BACKGROUND:

NTPC was incorporated in 1975. In the last 30 years, it has grown into the largest power utility of

India.. At present, Government of India holds 89.5% of the total equity shares of the company and the

balance 10.5% is held by FIIs, Domestic Banks, Public and others.. Within a span of 30 years, NTPC

has emerged as a truly national power company, with power generating facilities in all the major
1
regions of the country. Based on 1998 data, carried out by Data-monitor UK, NTPC is the 6th largest

in terms of thermal power generation and the second most efficient in terms of capacity utilization

amongst the thermal utilities in the world.

NTPC’s core business is engineering, construction and operation of power generating plants and also

provides consultancy to power utilities in India and abroad. As on date the installed capacity of

NTPC is 22,435 MW through its 13 coal base (18480 MW),7 gas base(3955 MW) and 3 Joint

venture projects(314 MW).NTPC acquires 50% equity in SAIL Power Supply Corporation Ltd.

(SPSCl). This joint venture company operates the captive power plant of Durgapur (120 MW),

Rourkela (120 MW) and Bhilai (74 MW).

TillearlyseventiespowergenerationinIndiawasmainlydonebyStateElectricity

Boards.Thegapbetweenthedemandandsupplyofpowerhadbeenontheincreaseand

Thesamewasaffectingtheeconomicgrowthofthecountry.Withaviewto

SupplementingtheeffortsofStateElectricityBoardsinthematterofintegrated

Developmentofpower,itwasdecidedtoset-upgeneratingcompaniesinCentralSector

also.Topursuethisobjective,NationalThermalPowerCorporationLimitedwasformed in November

1975 as ageneratingcompany inthe Central Sector.

AfterincorporationinNovember1975,NTPChasgrowntobecomenotonlythelarges

Utilityofthecountrybutalsoaleadingpowerutilityofinternationalacclaim.The

installedcapacityofNTPCasonMarch31,2005is23749Mw throughits13coalbased

(19480MW),7gas/liquidfuelbased(3955MW)and3JointVenture(coalbased)

Projects(314MW).NTPChasgenerated161557millionunits(MUs)ofelectricityin 2004-05 including

2447million units generatedby JV Companies.

2
JOINT VENTURES;

Joint Ventures are viewed as vehicle for growth for any company. NTPC has been engaged in various

successful joint ventures in the past and other are under consideration. They are:

Joint Venture with Railways:

NTPC has signed a MOU with Ministry of Railways on February 18, 2002 for setting up power

plant(s) of 2000 MW capacity to meet the traction and non-traction power requirements of Railways.

After studying various sites in India, it has been decided to set up a 1000 MW (4*250) power plant at

Nabinagar, Bihar.

Joint Venture with BHARAT HEAVY ELECTRICAL Ltd.(BHEL):

An MOU was signed with BHEL on June19, 2003 to take up EPC jobs, running maintenance and

peripheral activities in India and abroad. Joint Venture Company will be formed after signing a joint

venture agreement.

Joint venture with Rural Electrification Corporation (REC):

NTPC is exploring the possibility to take up Decentralized Distribution Generation (DDG) for rural

electrification for non-conventional energy recourses such as biomass, solar etc. REC has shown a

keen interest on joining the NTPC on such projects. An MOU has been signed with REC on March 23,

2004.

Joint Venture with Gujarat Power Corporation Ltd.:

An MOU has been signed on February 20, 2004 between NTPC, Gujarat Power Corporation Ltd.

(GPCL) and Gujarat Electricity Board (GEB) to set up 1000 MW Thermal Power Project at Pipavan in

3
Gujarat. Share acquisition and shareholding agreement, for transfer of 50% of NTPC’s equity share in

its wholly owned subsidiary viz. PPDCL to GPCL, is under discussion with GPCL.

Joint Venture and Managed Power Station

Owned By Location Operational Current Installed Fuel

Arrangement Capacity
NTPC-SAIL Durgapur 50/50 joint venture 120 MW Coal

Power Company with the SAIL

Private Ltd.
NTPC-SAIL Rourkela 50/50 joint venture 120 MW Coal

Power Company with the SAIL

Private Ltd
Bhilai Electric Bhilai 50/50 joint venture 74 MW Coal

Supply Company with the SAIL

Private Ltd.
Government of Badarpur, Delhi Managed by 705 MW Coal

India Government

Table-1

VISION, MISSION AND VALUES

OUR VISION;
4
  Peers and stakeholders will recognize us as one of the best managed and operated utilities in

Canada based on our record of providing environmentally sound, safe, reliable, cost-effective

energy and related services in the territories.

 Our shareholder will benefit from the economic returns of our profitable, financially strong

company.

 Our customers will have the tools and knowledge they need to understand energy

consumption, drivers of consumption and how to conserve energy.

 Communities will see us as preferred partners, contributing to the future energy plan for the

Northwest Territories and assisting them to complete their local energy plans.

 Partners will join with us to  be major contributors to the development and operation of new

energy resources in ways that meet the North’s unique environmental needs.

 Residents of the Northwest Territories and our Shareholder will support the benefits of a

business model for NTPC that provides least-cost electricity to customers in the Northwest

Territories.

 Employees will see us as a  great place to work – innovative, proactive and driven to meet the

expectations of our shareholder, customers and communities.

 MISSION STATEMENT;

Position NTPC for future sustained, profitable growth through:

5
  Customers – Providing excellent value and service to our customers, delivering them reliable

service and fostering efforts to conserve energy.

 Communication - Establishing and advocating strategies which support open, timely and

informative communication to build the support of customers, employees and other

stakeholders for the achievement of our corporate Vision.

 Return – Improve efficiency in order to control costs, over the long term while consistently

delivering 100 percent of forecast net income.

 Employees – Strengthening the Corporation by emphasizing employee safety and

development by encouraging and supporting a workplace where employees feel valued and

recognized for their efforts.

 Environment – Demonstrating environmental leadership, implementing cost-effective energy

conservation and alternative energy programs and maintaining our facilities to a high

environmental standard.

 Partnerships – Pursue partnerships to develop alternative energy initiatives as and when they

become available and we are adequately resourced.

 Business Model – Creating a business model to deliver least-cost electricity to customers,

recognizing both monetary costs and non- monetary costs such as environmental and other

social costs.

 OUR VALUES;

In achieving the Corporation’s Vision Statement and objectives, we will endeavour to:
6
  be cost effective in the utilization of all resources, always remembering that we are spending

the customer’s money;

 strive to increase shareholder value in the long-term;

 be responsive to our customers and their changing needs;

 act ethically and honestly treating employees, customers and others with fairness, dignity and

respect;

 commit to the safety of our employees and the public;

 respect and protect the environment in all our activities to ensure a sustainable environment

for the NWT; and

 communicate in an open and timely manner.

GROWTH PLAN

Looking Ahead: 1997-2012

The liberalization process initiated in the year 1991 and the new power policy announced by the

Government in October 1991 have redrawn the contours of power industry in the country.

Participation of the private sector in the hitherto exclusive domain of the Government in power

generation, transmission and distribution is bringing in fundamental changes in the sector.Thus the

terminal year of this Plan, year 2012,will witness a very different scenario with patterns of ownership

of assets significantly altered, and the norms of project implementation, plant availability

&reliability, operations etc. changed to match international standards. The emerging competition

form Independent Power Producers (IPP), stringent environmental regulations, uncertainties in fuel

linkages, funds constraints, restraints, restructuring of reforms in the power sector are all crucial and

interrelated factors having major impact on business decisions.These fundamental changes have

7
necessitated a fresh look at how NTPC do their business and what it is that they must do to achieve

their vision:

Figure-2

“To be one of the worlds largest and best power utilities, powering India's growth".

To realize this vision, NTPC has drawn up a detailed Corporate Plan for the period 1997-2012 which

represents the company's collective optimism and enthusiasm, inspired by a glorious past, a vibrant

present and a brilliant future. The Plan has been prepared in-house in consultation the committed,

competent and confident members of the NTPC family. The road map that has been charted out was

after a thorough scan of the strengths and weaknesses within the organization as well as

opportunities and threats in the environment.

Considering multidimensional opportunities in the energy sector, NTPC will adopt a multi-pronged

growth strategy for capacity addition through Greenfield sites, expansion of existing stations,

takeovers and joint ventures.

The capacity addition plans that we have drawn up for the fifteen-year period using all the above

strategies to enable the corporation to become a 40,000 MW company by 2012 A.D.

In addition to the above, NTPC also has plans to venture into the following areas:

8
Renovation & Modernization of old power stations through a separate joint venture company;

 Investment in LNG terminal;

 Investment in coal mining and washeries;

 Setting up of power plants abroad;

 Joint ventures for ash-based industries;

 Setting up of small pilot plants using renewable energy sources;

 Setting up of hydel power plants to facilitate techno-economic operation of thermal-hydro

mix of NTPC stations;

POWER STATIONS:

The following is the list of power station as well as joint projects owned by NTPC.

Power Station Location Installed capacity as of Fuel

march 2004(MW)
Northern

Region
Singrauli Sonebhadra, Uttar Pradesh 2000 Coal
Rihand Sonebhadra, Uttar Pradesh 1000 Coal
Tanda Ambedekar Nagar, Uttar 440 Coal

Pradesh
Unchahar Rae bareli, Uttar Pradesh 840 Coal
Total 4280
Western

Region
Korba Bilaspur, Chhattisghar 2100 Coal
Vindhyalchal Sidhi, Madhya Pradesh 2260 Coal
Kawas Surst, Gujarat 645 Gas
JhanorGandha Bharuch, Gujarat 648 Gas

9
 Total 5653

Southern

Region
Ramagundam Karimnagar, Andhra Pradesh 2600 Coal
Simhadri Pittavanipalem Village, Andhra 1000 Gas

Pradesh

Owned power station

Kayamkulam Allapuzha, Kerala 350 Naptha

Total 3450

Eastern

Region
Farakka Murshidabad, West Bengal 1600 Coal
Kahalgaon Bhagalpur, Bihar 840 Coal
Talcher STPS Angul, Orissa 2500 Coal
Talcher TPS Angul, Orissa 460 Coal
Total 4900

National

Capital

Region
Dadri Budh Nagar Uttar Pradesh 840 Coal

Thermal
Dadri Gas Budh Nagar Uttar Pradesh 817 Gas
Anta Bran Rajasthan 413 Gas
Auraiya Etawah, Uttar Pradesh 652 Gas
Faridabad Faridabad, Haryana 430 Gas
Total 3152

Grand Total 22435

Table-2

10
SERVICE OFFERED

NTPC, as a consultant in power business, follows an integrated approach to problem solving for

business organizations from all over the world. Combining the technical, managerial and financial

skills, and keeping in mind the cross-functional implications; it provides the holistic solution for

organizations in power and related infrastructure.

The prowess of NTPC in handling the power business springs from the fact that it has done

engineering, project management and operates over 22,000 MW capacity, covering about 75 coal/gas

units of capacities varying from 50 MW to 500 MW. NTPC has developed nearly 8,000 MW for

other utilities and Independent Power Producers. With the string of achievements behind it, NTPC

has emerged as the acknowledged leader in engineering, construction, O&M and management of

power projects.

The Consultancy Wing of NTPC is the nodal point for all the Consultancy and turnkey project for

clients. NTPC has the capability and expertise to provide the total range of services from Concept to

Commissioning of power station covering areas such as feasibility & EIA studies, design,

engineering, QA&I, procurement, project management, construction supervision, testing,

commissioning, operation & maintenance and training etc. NTPC has the varied and rich experience

of working with equipment/systems sourced from different parts of the world such as USA, UK,

France, Germany, Japan, Italy, and Russia etc.

The Consultancy Wing of NTPC, with an ISO 9001 accreditation, undertakes all the Consultancy

and turnkey project contracts for clients. NTPC has the capability and expertise to provide the total

range of services from Concept to Commissioning of power station covering areas such as Feasibility

& Environmental Impact Assessment studies, design, engineering, Quality Assurance and Inspection

11
services, procurement, project management, construction supervision, testing, commissioning,

operation & maintenance and training. NTPC has rich experience of working with equipment

sourced from different parts of the world such as USA, UK, France, Germany, Japan, Italy, Russia

etc.

NTPC is registered as a consultant with several leading international development and financial

institutions such as The World Bank, The Asian Development Bank, the African Development Bank,

and UNDP.

NTPC's vast pool of qualified technical and managerial manpower is well supported by excellent

infrastructure facilities to deliver customer value through Time, Quality and Cost standards meeting

the global standards.

NTPC offers consultancy services related to infrastructure sector business such as:

 Fossil fuel based thermal power generation

 Combined cycle power generation

 Cogeneration

 Non-conventional energy

 Water supply and treatment

 Environment engineering and management

 Surface transport (Roads, bridges and fuel transportation)

 Town planning and development

An entire gamut of services is offered in the areas mentioned above. These are:

 Owner's Engineer Services

 Lender's Engineer Services

12
 Environment Engineering and Management

 Procurement Services

 Project Management

 Quality Assurance and Inspection Services

 Materials Management

 Construction Management, Erection and Commissioning

 Financial Systems and Modeling

 Operation and Maintenance

 Restoration, Efficiency Improvement and Renovation and Modernization

 HRD and Training

 Research and Development

 Information Technology

 Management Consultancy

13
NTPC AS CORPORATE;

Figure-3

Largest Power Utility in South Asia

In 29 years since its inception, NTPC has emerged as the largest power utility in South Asia, owning

13 Coal based Super Thermal Power Stations and 7 Gas based Combined Cycle Power Plants, with a

approved capacity of 30,425 MW and has total installed capacity of 22,249 MW.

In a survey carried out by Market Line International Ltd, London, NTPC has been ranked as

the 6th Largest Thermal Power Generating Company in the World and the 2nd most efficient

in capacity utilization amongst these thermal power generators.

 Integrated Project Management

NTPC follows a systems approach to Project Management integrating the various functions

such as Engineering, Procurement, Quality Assurance & Inspection, Construction

Management, Operations Management etc. in all facets of project construction from Concept

to Commissioning.

14
 In recognition of the systems adopted by NTPC and quality of services provided, NTPC

has received ISO 9000 accreditation for most of its divisions at Corporate Centre

including Consultancy Wing and its various Power Stations.

 Expertise from Concept to Commissioning

NTPC has the capability and expertise to provide the total range of services from Concept to

Commissioning of Power Stations covering areas such as feasibility & EIA studies, design,

engineering, QA&I, construction supervision, testing, commissioning, operation and

maintenance and training etc.

 Expertise based on rich O&M experience

NTPC has developed rich experience in engineering and O&M of conventional fossil fuel fired

Power Plants based on Coal/Oil as well as Gas/liquid fuel by way of implementation of its own

Power Plants covering 32 units of 200/210 MW & 16 units of 500 MW of Coal/Oil fired Plants

and 7 Gas based Combined Cycle Power Plants

 O&M feedback incorporated in designs

Being a power utility itself, NTPC has the unique advantage of receiving regular feedback on

various operational and maintenance aspects from its generating plants. This feedback is suitably

incorporated for improvement in future designs.

 State-of-the-art equipment/systems procured through ICB

15
Most of the NTPC power plants have been funded by International Funding Agencies like the

World Bank, KFW, ADB, JBIC, etc. These plants incorporate state-of-the-art equipment and

systems generally procured through International Competitive Bidding (ICB).

 Experience of various Equipment/Systems

NTPC has the varied and rich experience of working with Plant & Equipment sourced from

different parts of the world such as USA, UK, France, Germany, Japan, Italy, Russia, etc.

 Registered with World Bank & other Funding Agencies

NTPC is registered as a Consultant with the World Bank, Asian Development Bank, African

Development Bank and other international funding agencies.

 Experience of working with International Consultants

NTPC engineers have had the opportunity of working in close association with several

international consultants viz. Black and Veatch Intl., USA; UE&C, USA; British Electricity

International, U.K.; EDF, France; Gilbert Commonwealth, USA and many more.

 Experience of working overseas

NTPC has experience in working overseas in countries of West Asian countries (Middle East),

SAARC countries and Africa.

 Familiarity with Environment Regulations

With funding from International Funding Agencies, NTPC is fully familiar with the requirements

of various Environment Control Regulations imposed by statutes and the funding agencies.

16
  Performance comparable to best performing utilities

During the year 2003-2004 NTPC stations have generated 149 Billion units of electricity, which

is about 26% of the total annual generation in the country. NTPC coal based Stations recorded an

impressive Plant Load Factor (PLF) of above 80%. Due to successful implementation of modern

management systems, NTPC power plants could achieve performance level comparable to most

efficient power plants of the World.

 Largest pool of qualified manpower

NTPC has a vast pool of over 24,000 qualified, technical and managerial manpower. This include

over 6800 executives, well supported by highly trained staff and other infrastructure facilities for

providing services for its own Power Plants as well as to its distinguished Clients in various

areas.

TRAINING FACILITIES

NTPC has full-fledged facilities in Power Management Institute (PMI), Noida, for providing training

in all aspects of Management and Systems for power sector.

 NTPC also has Training Simulators both for Coal as well as Gas based Stations for training

personnel in Operation and Maintenance of Power Plants.

 Research & Development: NTPC has set up full-fledged Research & Development

facilities in its R&D Centre, Noida with the objective of resolving O&M problems through

applied research using analytical tools. The R&D centre is fully equipped with most of the

new ultramodern testing & laboratory equipment. The main functions are to carry out applied

17
 research work to help achieve improvement in reliability, to provide laboratory test services,

to undertake scientific studies in environmental pollution and waste utilization, etc.

FUTURE INITIATIVES BY NTPC:

NTPC has set new benchmarks for the power industry both in the area of power plant construction

and operations. It is providing power at the cheapest average tariff in the country. With its experience

and expertise in the power sector, NTPC is extending consultancy services to various organizations

in power business. NTPC has entered into a joint venture with Alstom, Germany for renovation and

modernization of power plant in India.

NTPC is also working hard on their hydro power projects. They have plan to add additional capacity

of 2,028 MW by 2012 through the implementation of hydro electric power projects. NTPC is

currently implementing the Koldam hydroelectric power project (4*200 MW) in Himanchal Pradesh.

It is expected that 3 units of 200 MW each of the project to be completed by 2009. They have also

entered into an MOU with state government of Uttranchal for the development of Tapovan-

Vishnugad (520 MW) and the Loharinag-Pala (600 MW) hydroelectric power project.

Reckoning its excellent performance and vast potential, Government of India has identified NTPC

as one of the jewels of public sector “Navratnas”- a potential global giant.

ECO-FRIENDLY POWER GENERATION

NTPC is committed to the environment, generating power at minimal environmental cost and

preserving the ecology in the vicinity of the plants. NTPC has taken massive afforestation in the

vicinity of its plants. Plantations have increased forest area and reduced barren land. The massive

18
afforestation by NTPC in and around Ramagundam Power Station (2100 MW) have contributed

reducing the temperature in the areas by about 3 degree Celsius. NTPC has also taken proactive steps

for ash utilization. In 1991, it set up Ash Utilization Division to manage efficient use of the ash

produced at its coal stations. The ash can be utilized for making bricks, cement, land filling, other

construction material.

A “Centre for Power Efficiency and Environmental Protection (CENPEEP)” has been established in

NTPC with the assistance of United States Agency for International Development (USAID).

CENPEEP is efficiency oriented, eco-friendly and eco-nurturing initiative-a symbol of NTPC’s

concern towards environmental protection and continued commitment to sustainable power

development in India.

As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-economic

status of the people affected by its projects. Through its Rehabilitation and Resettlement

programmes, the company endeavors to improve the overall socio-economic status of Project

Affected Persons.

AUTONOMY–“NAVRATNAS”

BasedonNTPC’sperformanceandthepotentialtobecomea“GlobalGiant”,the

GovernmentofIndiahasidentifiedNTPCasone oftheninePSUs“Navratnas”(Nine

Jewels)andhasgrantedenhancedautonomyinmakingfinancialandotherdecisions.NTPChascontinuousl

yexceededthetargetssetbytheGovernmentinMemorandumof

Understanding(MOU)andhasbeenrated“excellent”forthelastseventeenyears,ever since theinception

of the MOU systeminthecountry.

19
CREDIT RATING:

CreditRatingandInvestmentServices ofIndiaLtd.

(CRISIL),AppointedbyNTPCtorateitsdomesticbond,fixeddepositand commercialpaper

issues.CRISIL,hadgivena"AAA"ratingtoBondissuesduring

March2005indicatingahighdegreeofsafetyofpaymentofinterestandprincipal.The

Fixeddepositprogrammehasbeenassignedaratingof"FAAA"indicatinghighestsafety

Regardingtimelypaymentofinterestandprincipal.Thecommercialpaperprogramme

Hasbeenassigned"P1+"ratingindicatingaverystrongdegreeofsafetyregardingtimely

Paymentontheinstrument.Anotherreputedcreditratingagency ofIndia,InvestmentInformation&

CreditRatingAgency(ICRALtd.)wasalsoappointedbyNTPCtorateitsBondIssues. ICRAhasassigned

"LAAA"whichindicateshighestsafety,fundamentallystrong

position,negligibleriskfactorstoourrecentBondissueinMarch2005.Standard&Poor's(S&P)havereaffir

medinDecember2004a"BB”withapositive

OutlooklongtermforeigncurrencycorporatecreditratingtoNTPCreflectingNTPC's

Strongmarketposition,agoodtrackrecordandanadequatefinancialprofile.NTPC’s

RecentEuroBondIssueofUSD200MillionconcludedinMarch2004wasalsoassigned

“BB”ratingbyS&P.

INITIAL PUBLIC OFFERING (IPO) OF EQUITY SHARES

20
The company has embarked on a massive capacity addition programme. The equity component of

the programme is envisaged to be funded from Internal Accruals supplemented by fresh

issue of equity. With a view to augmenting the capital base, the company came out in October, 2004

with an IPO of 432.915 million equity shares which constituted 5.25% of the post issue capital. The

Government which held 100% equity in NTPC also combined their offer for sale of 432.915 million

with the IPO. The issue received an overwhelming response and was oversubscribed by 13.14 times.

The issue price was fixed at Rs. 62 per share. The total amount mopped-up by the issue was Rs.

235,241 million. An amount of Rs. 181,560 million was refunded after retaining the proceeds of the

issue amounting to Rs. 53,681 million. A sum of Rs. 26,840.7 million was credited to government

account towards the sale of their holding in NTPC and Rs. 26,840.7 million was retained by NTPC

towards share capital and share premium. The shares were listed in NSE and BSE on 5 th November

2004.

OTHER AREAS OF BUSINESS

SUBSIDIARIES

NTPChasfourwhollyowned subsidiariesasdetailedbelow:

NTPC Vidyut Vyapar NigamLimited

NTPCVidyutVyaparNigam Limitedhas been established toundertakepowertrading.Its

objectiveistoevenout powerimbalancesamongvariousregionsandtheirconstituentstatesandtodevelopa

marketfortradingintheIssuer’spower.

NTPC Hydro Limited

NTPC has formeda wholly–ownedsubsidiarycompanyNTPCHydroLimitedto

21
developsmallandmediumscalehydroelectricpowerprojectsofupto250MW. The

GovernmentofUttaranchalsigned Memorandum ofUnderstanding withNTPC Hydro Limitedfor

implementationofLata–TapovanProjecthavingacapacityof108MW,arunofriver project onthe Dhauli

Ganga river.

NTPC Electric SupplyCompany Limited

NTPCElectricSupplyCompanyLimited has been

establishedtopursueinvestmentsinelectricitydistributionbusinesses.The

CompanyhasbeenawardedtheconsultancyworkofProjectMonitoringandQuality

AssuranceandInspectionofAPDRPcirclesofIndoreandUjjainalongwith8districtsof

WesternZoneofMPSEB. It isintheprocessofimplementationofAcceleratedRural0

ElectrificationProgramme(AREP)inWestBengal.

Pipavav Power DevelopmentCo. Ltd

PipavavPowerDevelopmentCo.Ltd(PPDCL)hasthemainobjectivetopromote

andtakeupdevelopmentworkfor

powerprojectsforgenerationoftheelectricitybyusofanytypeoffuelinanymanneron

builtoperateandtransferoronanyotherbasis.

CLEAN DEVELOPMENT MECHANISM (CDM)

The Company is pioneer in undertaking climate change issues proactively. It has taken several

initiatives in CDM Projects in Power Sector. North Karanpura STPP, Loharinagpala HEPP and

TapovanVishnughad

HEPP have got Host Country Approval from National CDM Authority. A methodology prepared by

the Company namely Consolidated baseline and monitoring methodology for new grid connected

22
fossil fuel fi red power plants using less GHG intensive technology for super critical Technology has

been approved by United Nations Frame Work Convention on Climate Change (UNFCCC) under

Approved Consolidated Methodology 13. More green fi eld and energy efficiency CDM projects are

in pipeline.

ASH UTILISATION

During the year 2009-10, all time high 27.61 million tonne of ash has been utilized for various

productive purposes which is 59.73% of the total ash generation against MoU target of 55%.

Important areas of ash utilization are- manufacturing cement, concrete, ash based products, asbestos

sheets, construction of road embankment, ash dyke raising, mine fi lling and land development. Issue

of fl y ash to cement and concrete industry this year has been 10.85 Million Tonnes, about 8.5%

more than last years issue. Fly ash and pond ash is being issued free of cost to fl y ash/ clay ash

bricks, blocks and tiles manufacturers on priority basis over other users from all the NTPCs Stations.

Fund collected from sale of ash is being maintained in a separate account by the subsidiary company

i.e. NTPC VidyutVyapar Nigam Limited and the same is being utilized for development of

infrastructure facilities, promotion and facilitation activities to enhance ash utilization.

FINANCIAL YEAR HIGHLIGHTS;

 The turnaround experienced in the june half was significant , particularly when considered

against the background of challenging economic condition.

 In sharp contrast to the December results , the june half year was the most profitable six

months trading period in the company’s history with earnings before interest and tax of more

than $3.5 million.

23
  We achieved top-line growth with increase in financial year 2009 revenue demonstrating the

company’s strong market position in winning business across each of its business units.

 Since the alled Technologies Australia acquisitions in july 2006 Allied Technologies

extended its geographic scope in the financial year 2009 and in addition operates out of South

Australia , Western Australia and Victoria. Allied Technologies is a communication focused

company with a department of Defence accreditation. The brand is particularly recognised for

specialist communication services in the defence , local and federal government departments.

 The ongoing expansion of Allied Technologies Australia.

 The continued delivery of related service offerings and increased cross selling opportunities.

 Maintain emphasis on increasing profitability & margin.

 NTPC ltd has announced the following Unaudited results for the quarter ended june 30, 2010;

The company has posted a net profit of Rs. 18418.90 million for the quarter ended june

30,2010 as compared to Rs. 21936.20 million for the quarter ended june 30, 2009. Total

Income has increased from Rs.127789.60 million for the quarter ended june 30,2009 to

Rs.135294.20 million for the quarter ended june 30, 2010.

 The company has been granted the coveted status of MAHARATNA by the government of

India on 19th May 2010 granting higher level of financial and managerial autonomy.

FINANCIAL RESULTS;

Rs. In million

Income 2009-2010 2008-2009

Sale of energy461687 417913

24
Consultancy 1539 1325
Other income (including
Energy internally consumed) 29113 33053
Total income 492339 452291

Expenditure
Fuel 294628 271107
Employees remuneration &
Benefits 24124 24631
Generation , Administration &
Other expenses 20940 18192
Interest 10709 12750
Net profit after tax 87282 82013
Interium dividend 24736 23087

Table-3

25
 Figure-4

BALANCE SHEET:

Assets 2009 2008

Current assets
Cash $ 5,327 $ 689
Accounts receivable 21,737 29,268
Net receivables from related 6,788 6,096

parties
Inventories 3,977 4,081
Prepaid expenses 649 492
38,478 40,626
Property, plant and 262,267 249,881

26
 equipment , net

Other long-term assets

Sinking fund investments 27,954 45,924
Regulatory assets 22,306 14,752
Receivable from NTEC(03) 3,676 3,359

for Taltson studies

53,936 64,035

354,681 354,542
Liabilities and

shareholder’s equity
Current liabilities
Short term debt $ 29,357 $ 32,920
Accounts payable, accrued
Liabilities and derivatives 20,574 22,349
Dividend payable 3,880 4,300
Current portion of long term 1,202 21,153

debt
55,013 80,722
Long term debt
Long term debt, net sinking 125,180 83,428

fund investment
Sinking fund investment 27,954 45,924
Net lease obligation 1,540 1,448
154,674 130,798
Other long term liabilities
Regulatory liabilities 35,420 35,019
Asset retirement obligations 4,330 4,397
Environment liabilities 3,240 3,240
Employee future benefits 2,905 2,350
Deferred government 55 -

contributions
45,950 45,006
Shareholders equity 99,044 98,018
$ 354,681 $ 354,542
Table-4

Chapter- 2

27
 OBJECTIVE OF THE STUDY

During the training in NTPC DADRI, main objective of my study was to find out the overall process

of purchase management, how purchasing of material is done to get right quality and quantity of

material at right time with right price. In every organisation, there is a specified and organised

methodology to be followed for the purchase management, that is what i was studing there.

My main objectives of study are below-

 To analyse the complete process of purchase management deeply to determine whether it is

in accordance of company’s policies and fastest growing market conditions like liberalized

economy, new technology and fast obsolescence need.

 To identify the areas of efficiencies and non-efficiencies so that improvement can be made.

 To check the co-ordination between purchase and indenting department ensures enhancement

mutual confidence and effective end result.

 To check at what inventory the company makes the purchase, what level o inventory the

company should make tomaintain the overall functioning of the organisation.

 To analyse how the books of accounts of purchase are maintained, how the accounting is

done, whether it is done monthly , quarterly or annually.

 To analyse the purchase budgeting process.

 To know how the payment against purchase is made in NTPC.

CHAPTER- 3

28
 RESEARCH METHODOLOGY

Research is a process of enquiry and investigation. It is systematic and methodical, and increase the

knowledge. The main purpose of research is:-

 To review and synthesise existing knowledge.

 To investigate some existing situation or problem.

 To explore and analyse some more general issue.

 To Construct or create a new procedure or system.

 To explain a new phenomenon.

 To generate new knowledge.

In a research we want to know

 The prpose of research – the reason why are we conducting it.

 The process of research – the way in which we will collect and analyse our data.

 The logic of research – whether we are moving from the general to the specific or vice versa.

 The outcome of research – whether we are trying to solve a particular problem or make a

general contribution to knowledge.

Type of research:

29
 It is an EXPLORATORY RESEARCH , in which the focus is on gaining insights and familiarity

with the subject area. Case studies , observations and historical analysis provide the data for such

type of research.

Sources of data:

Primary data: This include the information collected mainly from the office.

 From a close observation of the functioning of various departments of the organisation.

 The knowledge , both negative and positive precipitated through informal discussions

with employees of different departments.

 Through questionnaire.

Secondary data:

 From the official document.

 From records and manuals of different departments of the organisation.

 Various web sites, news papers, magazines.

Collection of data: Primary Data is collected by forming a questionnaire and various people were

interviewed from different departments,: books section, accounting section, purchase and

procurement department, inventory management, and all others , who was involved in the process of

purchase. Because it was collected freshly, hence it was free from obsolescence. Through the

questionnaire, many people were interviewed and asked about the functionality of purchase

management system.

30
For Secondary data, Various documents like, budget manual, company journals, annual report,

consolidated balance sheet, profit and loss account, other financial statements, various websites are

used for collection of data. The obtained data was interpreted as clearly as possible.

Sample size: Total 58 person were contacted and interviewed to respond to a questionnaire.

Sampling unit: NTPC DADRI,

Sampling: Random sampling is done because all the departments involve in the purchase decision

and no one particularly can be selected for sampling, so it is done randomly. In this type of sampling

each item has an equal probability of being selected.

31
 CHAPTER-4

ANALYSIS AND FINDINGS

INTRODUCTION TO THE TOPIC;

Purchase Management is considered to be the most important part of integrated Materials

Management Services. Since Purchase Management is a service function, the performance is judged

on the basis of the satisfaction level of the end users. At the same time each and every decision in

purchase functioning basically involves financial implication and accordingly in Public Sector

Undertaking, it is very much essential to ensure the public accountability. For this purpose a

systematic approach as well as transparency in purchase functioning is the top most requirements.

OBJECTIVE AND SCOPE;

The basic objective of Purchase Management is to ensure Right Quality of material at the right place

and time from the right source at the Right Price. Each of these objectives has its own significance

and merits utmost knowledge, care, diligence, focused attention and wisdom. To avoid slippages in

external and internal lead time it needs both expertise and experience. The dynamics of the fast

changing scenario in market conditions e.g. liberalized economy, new technology/ process/ product

and fast obsolescence need to be understood and appreciated not only by purchase executives but

also by the executive of the user departments.

32
Indenting officials are the internal customers of materials department and their need and concern

demand prompt response. Proper co-ordination between purchase and indenting department ensures

enhancement of mutual confidence and effective end result. Long term planning is done so as to

avoid stock-out situation. Rolling plan for spares for the period of three years is done and is even

updated in advance by the user departments particularly for “A” class and imported items. Cash

purchases are avoided as far as possible for plant maintenance/ regular requirement item and the

quantum of cash purchase for such items are the real indicators of the purchase efficiency.

In the present scenario the buyer-seller relation plays a vital role in achieving the goal of the

organization. This is one of NTPC’s core values whish is pursued by purchase/ contracts officials for

building vendor partnership organization for the mutual benefit of both. Purchase Management also

has in-built system and procedures for timely release of EMDs & PBGs, for arranging inspections

and providing any other inputs as per Purchase Order terms.

Another important activity of the purchase department is to identify the right source of supply. The

selection of the right source will automatically eliminate the problems quality, delivery and economy

and as a result major disputes are also avoided/ resolved and vendor partnership relations can be

satisfactorily maintained.

Keeping in view the importance of the Information Technology in supply chain management,

effective use of On-line materials management system is a perquisite for a data bank of vendors and

their updated performance evaluations, quality plan, LPPs, automatic generation of indents for stock

items, follow-up with vendors, over due orders etc.

The most important activity of the purchase function is to ensure economic buying without

compromising the quality standard and the goal of the organisation. For this specialized knowledge,

all the purchase executives are updated with the market environment and trained well with

33
professional expertise e.g. negotiating skills, legal aspects of contractual terms, knowledge of

tendering, equity, ethics and strict adherence of the guidelines and purchase procedures of NTPC.

SOME LEGAL ASPECT OF PURCHASING

The most important legal aspect connected with purchase transaction is covered by Indian sales Of

Goods Act 1930 and Indian Contract Act 1872. Every purchaser should know the various legal

implication of entering into a contract with suppliers. The general practice for a company is to have

standard sets of terms and conditions of contract made out of consultation with legal advisor of the

company. Such standard terms and conditions will cover most of the purchase transactions but some

of the important and high value contracts may call for negotiations regards to such terms and

conditions. Any negotiation involving legal aspects would necessarily mean associating the company

legal advisor, but it is essential that purchaser should also have basic knowledge of commercial and

mercantile law.

Some of the main points from the Indian Contracts Act and Indian Sales of Goods Act regarding

purchase management are given below:-

1. It should be understood that an offer from a seller becomes a binding contract only when the buyer

accepts it and intimates the seller for such acceptance. Acceptance of an offer or counter offer may

not necessarily by express undertaking but may be implicit in subsequent conduct or either party.

Once you ask a tenderers for reduction of price or modification of any other terms, the original offer

is no longer is binding. However a mere enquiry whether the tenderers will modify his term may not

amount to counter proposal. An acceptance may be revoked at any time before the communication of

the acceptance comes to the knowledge of the seller, but not afterwards.

34
2. It is of utmost importance that the various stipulations in the purchase contract are free from

ambiguity and offer no scope for misinterpretation to the detriment of the purchaser. It follows

stipulations, as regard to price, discount, payment terms and delivery schedule should be clear and

unambiguous and in case of variation from the original offer, should be arrived after a suitable

negotiation with the supplier. In case any specific terms and conditions require alteration at the later

date, such a right should be reserved by a specific provision in the contract.

3. The Indian sales of Goods Act lays down that unless a specific provision is made regarding the

time of payment or any other stipulation as to time being the essence of contract the same is not

automatic, of implied. If time is to be the essence of the contract, it has to be stipulated.

4. When the supplier produces an item knowing exactly it will be used, his product carries an implied

warranty of fitness. It is therefore necessary that complete description is given in the tender papers

because the buyer is entitled to reject the material if it later proves unfit for the intended use. In the

case of contract of sale of specific item under its patent or other trade name, there is no implied

condition as to its fitness for any particular purpose. So in case, branded names are mentioned in the

contract, the purchaser has to satisfy himself regarding suitability of such branded material before

hand.

5. Legal aspects cover other important provision of law like sale by sample, passing of property in

the goods from seller to buyer, buyer’s right of examination of goods, compensation for breach of

contract, liquidated damage, patent right and arbitration etc. It would therefore, be sufficient to say

here that it desirable that the basic provisions of law concerning sale and purchase of goods are

known to the purchaser so that the differences in terms and conditions between the sellers quotation

and buyers purchase order are ironed out with the vendor before finalizing the contract. In case of

major contracts involving large sums of money or extending over long period of time, it is advisable

to avail of professional legal opinion.

35
FOR CONTROLLING THE PURCHASE WE HAVE TO CONTROL THE INVENTORY.

INVENTORY CONTROL

Inventory Means materials lying in the works. Inventory control is the technique of maintaining

stocks of different categories at adequate levels with the minimum investments. Inventory is money

but unlike money in the banks, interest on the inventory is incurred rather than being earned. Slow

inventories are, therefore a burden which eats up profits since profits accrue from goods which move

and not from those which are merely held in stock.

Inventory control is concerned not only with the money value but also with the physical quantities of

stocks in various stages, viz.

 Goods dispatch, i.e. in transit

 Received but awaiting inspection and clearance

 Raw materials and components in stores

 Work-in-progress

 Finished Products

Inventories are essential to maintain smooth and continuous production and to act as a buffer against

external stock fluctuations in demand necessitating change of production schedules, scarcities, rising

prices etc. Inventories act as a cushion to absorb the affects of ailments like bad sale forecasting,

faulty production planning and scheduling unbalanced manufacturing capacities etc.

Inventories are bad when they accumulate as they become slow or non-moving or lead to

obsolescence. Inventories are not a problem purely of materials management and should not be

viewed in isolation from production, sales and company’s over all performance. While inefficient

materials management does lead to bad inventories status of an organization when viewed in its

36
proper perspective in relation to production, sales other company activities is an indicator of the

health of the organization.

Efficient inventory control ensures whether there would be adequate materials for continuous

production or production will get held up or excessive stock will accrue, whether the company will

loose money by loss of production or locked op resources. In other words whether the company

makes profits, survives, grows efficient utilization or falls?

Inventory hold up occurs when:-

 Quantities received are more than planned

 Arrivals are earlier than scheduled

 Consumption is less than planned

 Rejection are less than provided for

Stock out occur when:-

 Quantities received are less than planned

 Arrivals are delayed

 Consumption is more than planned

 Rejections are higher than anticipated, and so on.

NTPC being a producer of electricity does not have the conventional inventory – raw materials,

semi-finished goods or finished goods because electricity is the final product and it cannot be stored,

it has to be immediately transmitted. And when electricity is the final product then there cannot be

any raw material or semi-finished goods. So the main inventory maintained here in NTPC is fuel –

coal, gas and oil. Other than these NTPC also maintains the inventory of spares, construction

37
 material, electrical equipments, stationary items etc. To manage all this NTPC-Dadri has two

sections – PSL & Store Bills and Commercial Section. PSL & Store Bills Section manages the

records of all type of inventories apart from fuel and Commercial Section maintains the records of

fuel. Both these sections maintain the records (opening stock, closing stock, purchase price,

payments made, issued amount, received amount, etc) of the respective kind of inventories. They

both maintain a Yearly Price Store Ledger of the inventories, and thedocuments used are almost of

the similar type, i.e., their formats are same but their data is different. There are five types of basic

documents maintained for inventory control in NTPC, they are:

1. STORES RECIEPT VOUCHER (SRV)

2. STORES ISSUE VOUCHER (SIV)

3. MATERIALS RETURN NOTE (MRN)

4. MATERIALS TRANSFER NOTE (MTN)

5. ADJUSTMENT VOUCHER (ADJ)

Excess found on Physical Verification

(Issues within the

project – different
PO SRV SIV departments.)
RE
I
CE
SS
I
LOA U ADJ ADJ (for rectification
PT
ES of value &
.
quantity shortages
etc.)
MTN MTN
MRN

Departmental return Erection Surplus Return from Contracts

38
 Figure-5

Stores Receipt Voucher (SRV)

SRV is that document which gives the proof that the material is received, inspected and stored at

NTPC’s store house. When NTPC wants to buy something it brings out a purchase order, which

contains the details of the kind and the quantity of the material required along with the terms and

conditions of the purchase. Once the supplier is finalized and the material is sent by the supplier to

NTPC, NTPC inspects the material before storing it in its storehouse and on inspection a SRV is

generated containing the details of the kind and quantity of the material received. On the basis of the

SRV NTPC makes the required payments and even adjustments if advance payment is made and

passes further journal entries in its account books.

While valuing the SRV landed cost of the material is taken into account i.e. basic price, excise duty,

sales tax, freight and other incidental expenses, these costs are absorbed in the material cost at the

pre-determined rate. But the amount payable for the freight and other incidental expenses is debited

to the freight control account after the payment of freight bills. The balance in the freight control

account is reviewed at the end of each quarter and any nominal balance which remains unadjusted is

charged to the Profit & Loss account. The following table shows the kind of accounting entries

passed during different conditions under which SRV is generated.

S. No. Conditions Basis of Valuation Accounting Entries

1 When SRV is raised Valuation on the basis of Dr. Purchases/ Fixed Assets

against PO items. PO Cr. Respective adv/Control a/c

etc

2 When SRV is raised Valuation on the basis of

against LOA items LOA Dr. WIP

39
 Cr. Respective adv/Control a/c

3 When SRV is raised Valuation on the basis of etc

against MTN items transfer price

Dr. Inventory

4 When SRV is raised Valuation on the basis of Cr. Respective inter unit code

against excess items PSL rate

Dr. Inventory

Cr. Excess on physical

verification

Table-5

Stores Issue Voucher (SIV)

SIV is generated when the material is issued to some department or some other party. Store issues

are of following types:

 Issues to the internal department against work order/expense head.

 Issues to the contractor on Free of Cost/Loan basis. A contractor PSL for these issues is

maintained.

While issuing any material from the store concerned officers ensure that the correct account heads

are allotted and all relevant details for proper accounting of the issue are available in the SIV. And

the pricing of the issue is based on the weighted average rate. The following table shows the kind of

accounting entries passed during different conditions under which SIV is generated.

40
 S. No. Conditions Basis of Valuation Accounting Entries
1 When SIV is raised Valuation by the system Dr. expenditure/ capital/

against (based revenue

departmental issues. on weighted average Cr. Inventory (respective)

2 method)

When SIV is raised Dr. FOC/ Material issue on

against Valuation by the system loan basis/ returnable basis

3 contractual issues. PSL Cr. Inventory (respective)

rate Dr. I/U Code

When SIV is raised Cr. Inventory (respective)

against Valuation by the system

inter unit issues. PSL

Rate

Table-6

Material Transfer Note (MTN)

MTN is prepared in the situation where the sub-store issues that material which was previously

issued to it by the main store for the final work to be done. Valuation of MTN is very much similar

to the valuation of any SIV as it is also a kind of issue. The quantity records are maintained for both

the material transferred by the main store to the sub-store and material issued by the sub-store to the

final work. The priced stores ledger is updated only on final issue by sub-store. The physical stock at

sub-stores forms a part of the total stock at the station/ project. The following table shows the kind of

accounting entries passed during different conditions under which MTN is generated.

41
 S. Conditions Basis of Valuation Accounting Entries

No.
1 Transfer of material from Valued by the system (based Dr. Inter Unit/

one unit to another unit or on weighted average method) Government Agencies

government agencies etc i.e. PSL Rate. Cr. Respective Inventory

Table-7

Material Return Note (MRN)

MRN maintains the records of that material which is returned back to the main store. Suppose a

building is being constructed and for that some cement is issued to the contractor free of cost by

NTPC from its store and after the work is finished the unused cement bags are returned back to the

store. MRN comes into picture when such kind of transaction takes place. In case the material was

issued to some department of NTPC itself then the stock returned is valued on the basis of the

prevailing PSL rate but if material is issued to contractor on free of cost basis then the SIV rate is

considered after considering consumption on FIFO basis and if the material is issued on the loan

basis then SIV rate is taken. The following table shows the kind of accounting entries passed during

different conditions under which MRN is generated.

S. No. Conditions Basis of Valuation Accounting Entries

1 When MRN is raised Valuation on the basis of SIV Dr. Inventory (Respective)

against departmental concerned. Cr. Expenditure

issues. Dr. Inventory (Respective)

2 When SIV is raised Valuation on the basis of SIV Cr. FOC/ issued on loan

against concerned. basis/ recoverable basis

42
 Contractors.. Dr. Inventory (respective)

3 Valuation on the basis of Cr. WIP of the respective

When SIV is raised LOA or at the rate of Rupee package.

against One

Erection surplus.

Table-8

Adjustment Voucher (ADJ)

Adjustment vouchers are passed whenever adjustments are to be made either in the payments

schedule, or the quantity received or issued. When payments are made in advance and the material

received is either more than the ordered material or less in those conditions adjustment vouchers are

to be passed and even when during physical verification some discrepancies are found in the value

feeded in the records of PSL and the material physically available in the stores adjustment vouchers

are to be passed. The following table shows the kind of accounting entries passed during different

conditions under which ADJ is generated.

S. No. Conditions Basis of Valuation Accounting Entries Remarks

For issue of ADJ Valuation on the basis In case of value adj: In case of qty

1. (may be of PSL rate of the Dr. Expenditure adj., no

for qty ADJ or period when the error Cr. Inventory accounting entry

for value ADJ occurred

only) In case of value adj: In case of qty

For Receipt of Valuation on the basis Dr. Inventory adj., no

43
 2. ADJ (may of PSL rate of the Cr. Expenditure/ accounting entry

be for qty ADJ period when the error WIP (concerned)

or for value ADJ occurred Reversal of

only) provisions

3. Valuation on the basis Dr. Inventory

For excess of qty of PSL rate after Cr. Excess on

(found on approval from CA physical verification

physical Reversal of

4 verification) Valuation on the basis provisions

of PSL rate after Dr. Shortage oin the

approval from CA stores written off

For shortage qty Cr. Respective

(found on inventory

physical

verification

Table-9

Provision for Shortages/ Excess Accounting

IN CASE OF SHORTAGES IN STORES IN CASE OF EXCESS IN STORES

Dr. Shortages on Physical Verification Dr. Stock Adjustment/ Difference

44
 Cr. Stock Difference/ Adjustment Cr. Excess on Physical Verification pending

Investigation

Dr. Provision for Shortages in Stores

Cr. Shortage in Stores

PSL & STORE BILLS SECTION

PSL & Store Bills section is one of the most important sections of Finance department in NTPC. It

basically maintains the records of inventory maintained by NTPC apart from Coal and Oil and even

looks after the conditions on which the materials are purchased and the conditions on which

payments are made by NTPC, Store Bills section sanctions the payment to be made to the vendor

after it get the SRV of the respective material and then only payments are made and required journal

entries are passed. This section maintains the records of spares, electrical equipments, stationary

items, cement, chemicals, etc which are used in the plant, office building and township. The records

of the inventory maintained in the form of a Price Store Ledger in which inventories are recorded on

the basis of the codes allotted to them and it contains individually the amount received , issued,

transferred of the particular material and finally its closing balance.

By observing the working of PSL & Store Bills section we can say in brief that PSL departments

work starts when the SRV is sent to this department by the inspection officers after inspecting the

material purchased and storing it in the main store. Once the material is stored in the main store, it is

issued to the various other departments of NTPS and to some contractors as per their requirements.

SIV’s and MTN’s are generated when the material is issued. And whenever any unused material is

returned back to the stores MRN is generated so that it is known how much material is back in the

stores. SRV, SIV, MTN and MRN are the major ingredients of Price Store Ledger which shows the

45
exact position of the inventory in the stores at the end of each month. As it can be seen in the format

of Price Store Ledger, it contains the opening balance of the inventory, amount of material received

and issued during that period and finally the remaining balance of the inventory in the stores. Price

Store Ledgers are prepared on monthly basis. At the ends of the financial year (in the beginning of

March) a physical verification is done so that it can be verified that the value of the inventory shown

by the ledgers is same as the inventory physically existing in the stores.

COMMERCIAL SECTION

At the operating stage of the power plant, commercial which mainly involves selling of electricity to

various SEB’s, is the main activity of the station. The NCPS occupies a unique position among all

the power station of NTPC. For, it has got twin projects of Gas and Coal based units. The Gas plant

has got duel fuel capacity of using High Speed Diesel (HSD) as well as Gas for Power generation.

The total installed capacity of the twin projects is 1669 MW. The sheer size and complexity of

operations make it imperative that an effective system of internal controls is in place to ensure

accuracy of record and also reduce the scope of the interests of the corporation being compromised

in any manner. To achieve this end, a comprehensive internal control system has been devised for all

aspects of corporation working in commercial section. The system of fuel accounting is summarized

below:-

1. Coal:-

The supply of coal is linked up with Piperwar Coal Mines at Jharkhand. The coal is mainly

washed coal in nature. Total quantity of coal supplies in a year/quarter/month is done the basis of

linkage committee of the ministry of coal. The price of washed and terms and conditions are

46
 determined by the various MOMs between NTPC and CCL (Central Coal Limited), while that of

raw coal is based on the various price notifications. The various steps in coal accounting are

enumerated below:-

a. Quantity:-

Coal is dispatched from the mines by the railway wagons after weighing it at loading point with

the help weight meter. The latter are kept under joint seal and have to be recalibrated in the

presence of representatives of both the parties as and when desired by either of the parties. For

accounting purpose a SRV is made out for entry into PSL for quantity determine as above. There

is adjustment on account of moisture content.

b. Grade Variance:-

Both supplier and third party conduct chemical analysis of their respective samples in order to

ascertain the actual grade of coal received. Credit/Debit adjustments are passed on by the supplier

based on the grade determined.

c. Billing and Payment:-

Bills are initially raised by the coal company on the basis of declared grade. Payment to the local

company is released after making adjustments for grade difference, moisture content etc.

d. Consumption:-

As the coal reached from mines to station it passes through various chemical processes before

actually being used at the plant. First they get stored in a specific container made especially for

coal and after weighing them, they issued to the plant according to their requirements. A store

47
 issue voucher (SIV) is prepared and entry made in Price Store Ledger (PSL) as the quantity

consumed.

e. Periodic Stock Verification

Stock Verification of coal is done on sis monthly/annually basis as per the guidelines issued by

the corporate centre. Actual quantity of stock is compared with book stocks and adjustments are

made in the books of account after the approval of the competent authority.

Recovery of Coal Cost through Tariff

Coal cost is received through tariff under two heads: Basic cost recovery and fuel price adjustment.

Basic coal recovery is built into notified tariff on the basis of coal price and Gross Calorific value

(GCV) on fired basis at the time of

calculation of basic tariff. Fuel price adjustments are billed on monthly basis by taking into account

the weighted average cost of coal and actual GCV in that particular month. In the consumption of the

weighted average cost of coal for a particular month, all cost that are attributable to the purchase of

coal are taken into account in the price store ledger (PSL). Such cost includes basic price, royalty,

excise duty, surface transportation charge, sales tax, railway freight, debit, credit note etc.

Gas:-

Similar to the case of coal, gas linkage are also linked up with the source at the time of project

identification itself. Daily availability of gas is intimated in advance. Gas Price is fixed by the Govt.

48
of India whereas the Commercial terms and conditions of supplies are laid down in the Gas supply

agreement entered into with GAIL. However, if the actual calorific value of the Gas supplied is less

than the specified GCV in the agreement, a rebate proportionate to the difference between the actual

and standard calorific value is given to NTPC. In the same fashion, a premium proportionate to the

difference between the actual & standard calorific value is payable by NTPC.

Billing & Payment:-

In accordance with the terms of the Gas supply agreement, billing for gas is fortnightly and payments

are to be made within three working days of presentation of invoice. In case of discrepancy/dispute, a

claim is to the lodged with the seller within fourteen days of receipt of the invoice under question.

Recovery of Gas cost through Tariff:-

Gas cost is recovered thru tariff under two heads:

Basic Gas Recovery and Fuel Price Adjustment. Basic Gas Recovery is built into notified tariff on

the basis of Gas Price and Gross calorific value (GCV) at the time of computation of basic tariff.

Fuel Price Adjustments are billed on a monthly basis by taking into account the weighted average

cost of gas and actual GCV in that particular month. In the computation of weighted average cost of

gas for a particular month all costs that can be attributed to the purchase of gas are taken into

account.

LIQUID FUEL:-

Fuel is the single largest item of expenditure for NTPC as a whole, as well as individually for the

stations. Fuel is presently procured from Government Companies / Undertakings. The prices of some

49
fuels are already decontrolled. It is essential to implement the provisions of Fuel Supply Agreements

entered with the Fuel suppliers in their entirety.

The following types of fuel are used in a coal fired power plant:

 HFO (as secondary fuel)

 LDO (as secondary fuel)

 HSD (as secondary fuel)

In a gas fired power plant, the following types of fuel are used:

 Naphtha (as primary fuel)

 HSD (as primary fuel, in the absence of gas)

NTPC coal fired stations are classified as pit-head and non pit-head based on their proximity to the

coal mines.At pit-head stations, the bulk of the coal is transported by NTPC owned rakes on its own

MGR system from the mines to the stations. In case of non pit-head stations, coal is transported by

Railway owned rakes from the mines to the power stations. In the former case, accounting is simpler

(because of no inward/ outward diversion of rakes, demurrage, adjustments due to wagon

replacement policy of the Railways etc.)

ACCOUNTING GUIDELINES

50
 The fuel cost to include all elements of expenditure that are directly related in bringing it to its

present location and condition. The cost of fuel should include the following (as applicable):

 Cost of fuel / other costs as per the provisions of Fuel Supply Agreements

(FSA) / Invoice raised by the suppliers

 Adjustments on accounts of grade variations, moisture content, ash content etc

 Freight (in case of transportation by owned rakes through MGR, diesel used in locos)

 Operating and handling charges, commission charges paid to agencies

 Customs duty, port handling charges, ocean freight and insurance in case of imports

 Siding and Demurrage charges

 Differences on account of settlement of diverted rakes

 Labour deployed for unloading of coal

 Normal transit and handling losses

 Payment to outside agencies for sampling of coal

 Any other operating expenditure incurred in connection with transportation and handling of

coal.

Interface with suppliers of various fuels viz.

- IOCL

- BPCL

- HPCL

- GAIL

- CCL

Eastern

Railways: Eastern Central,

51
 Northern Railway

 Interface with other departments at NCPS, Dadri

- C&M

- O&M: Thermal & Gas

- P&S

- HR

- TS

- EDP & Communication

- TA

 Preparation of various MIS Reports as per the requirement of Site/Regional HQ/Corporate

Office:

- ED Report

- FFR Report

- QFR Report Etc.

 Reconciliation of Accounts with Coal Companies/Oil Companies/Railways

 Sales Reconciliation with Regional Office/Corporate Office for Sale of Electricity to different

SEBs.

 Interaction with various auditors viz. Internal/Statutory/Government.

PAYMENT AGAINST PURCHASES

52
Whenever purchases are made payments are to be released against them. And the modes adopted by

NTPC for the payments are:

1. Payments through cheque/draft.

2. Payments through Letter of Short Credit (LSC)

3. Payments through Letter of Credit (LC).

While discharging the function of payment it is to be ensured that:

 All the pre-requisites as per the terms of the PO are met prior to release of payment

 Vendor’s account is credited only at the time of actual bill processing and not at the time of

creation of provision. The stores liability account is credited till such time.

 The relevant sales tax forms are issued and the sales tax register is updated for the same.

 Provisions for entry/purchase tax /other municipal taxes etc., wherever applicable, are made and

discharged

 The bill is processed for the actual quantity received.

 Security deposit as applicable is released on completion / compliance of all prerequisites as per

the PO, on certification by the Purchase Department.

 At the time of releasing Security Deposit the amounts due from the same vendor in respect of any

other transaction is ascertained and approval is taken from the HOD (Finance) for making

adjustments, if any.

 A separate LC is opened for each PO.

 For payments through LCs, deviations, if any, in the documents vis-à-vis the terms of the LC, the

same are attended to in time to avoid any demurrage/interest claims.

 Un-adjusted advances are reviewed periodically and age analysis is prepared, to ascertain action

required for adjustment of advances.

53
 Confirmation of balances is obtained from the vendors periodically.

 Once LC is opened all payments are made through LC only unless the LC is closed with the

approval of the competent authority.

Departments/ sections involved in the process

 Finance and Accounts Department

 Cash and bank

 Stores Bill

 Purchase department

Accounting Entries:

1. For payment of advance to suppliers/LSC payments

Advance to suppliers-GOI/Others/MIT Dr.

To Bank A/ c Cr.

(Advance type wise break up to be maintained in the system)

2. Processing of supplier bill and adjustment of advance

Purchases-Foreign/ Indigenous Dr.

To Suppliers control A/c Cr.

To Advance to Suppliers-GOI/Others/MIT Cr

To Retention money/SD Cr

To Freight control A/c Cr

54
 To Entry tax/Purchase tax payable A/c Cr

3. Payment to suppliers

Suppliers Control A/c Dr.

To Bank A/C Cr.

4. Release of Security Deposit

Security Deposit A/c Dr.

To Bank A/c Cr.

5. For accounting of claim on supplier/insurer

Claim on supplier A/c Dr

Claim on insurer A/c Dr

To Advances to supplier/MIT A/c Cr

CONCLUSION

Inventory control and maintenance has always been a crucial part of any firms productivity as it

helps to maintain an adequate level of inventory so that the operations at the plant level don’t get

affected.

At NTPC there is no inventory management as NTPC does not have the conventional inventory, i.e.

raw material, semi-finished goods or finished goods. NTPC’s finished product is electricity which

cannot be stored, it has to be transmitted immediately. But at NTPC one can find an effective and

efficient inventory control, this is because maintaining adequate level of inventory is very crucial as

55
lack of inventory will hamper generation of electricity and excess of inventory will unnecessarily

block the cash available.

Main fuel used at NTPC-Dadri is coal and as the station is very far from the coal pit head it has to

maintain an adequate level of inventory, and hence inventory control becomes very important and its

two sections – PSL & Store Bills and Commercial control inventory very efficiently.

PROCEDURE FOR INDENTING

For the purpose of indenting materials planning is done on the basis of the following groups:-

1. Stock item (Automatic Recoupment items) (AR)

2. Insurance items (I)

3. Unit Replacement items (UR)

4. Capital items (P)

5. Other non-stock items (Not falling under any of the above ref\erred category) (O)

Format of Purchase Indent for Non-Stock Items

Ref. No. : Department Code:- Budget Head:- Indent No.

Date:-

Currency Code:- Urgency:- Estimated Value

Indent Type:-

Brief Description:-

56
 SL. Material Material UM Qty Reqd. Estimated Delivery Schedule

No. Code Description/ /Qty in Rate/ Date Quantity

Area Stock Population

1 2 3 4 5 6 7 8

Reason for Urgent/Emergency Rating:

FAQ Remarks :

Table-10

Signature:

Date:

57
Name:

Designation:

Indenting Officer HOD Approving Finance FAQ

Authority (Budget)

List of Enclosures

1. List of Vouchers

2. Quantity Plan

3. Details of Technical Data Sheet

ABC Classification of the items:-

ABC analysis is a technique by which selective control can be exercised on all Materials

Management Activities.

A – Class Items: Items having Annual Consumption over Rs. 1 lakh are classified as ‘A’ Class.

B – Class Items: Items having Annual Consumption over Rs. 10,000/- and up to Rs. 1 lakh are

classified as ‘B’ Class.

C – Class Items: Items have Annual Consumption up to Rs. 10,000 are classified as ‘C’ Class.

Mode of Indenting:-

A) For ‘A’ Class items of spares in nature, indenting is done equipment wise and ‘A’ Class

consumables are clubbed in similar type of items. For ‘B’ & ‘C’ Class of items, indenting is

done on the basis of the main group and each indent contains items of same main group. The

58
 list of such items is generated by EDP/ MIS Department at the beginning of each financial

year.

B) The indent as per prescribed format is complete in all respects with the following

information:

I. Description of the item with detailed specifications including the relevant IS/ BS

standard or any other acceptable standard drawing details etc. so that the calling of

sample may be avoided as far as possible.

II. Quantities indented item wise depend on past consumption, anticipated consumption in

future, nature of the item including shelf life & classification of items as above.

Moreover indent is raised atleast one lead time in advance of the expected date of use.

III. Estimated Value of the indent. Last purchase price with escalation or market trend or

technical specifications become the basis of estimates.

IV. Indent encloses the following documents:

 Standardization Certificate

 Inspection procedures where pre-dispatch inspection is involved.

 Detailed Analysis sheet for spares.

 Qualification requirement if any, in case of open tenders.

 Delivery period details.

 Detailed specification sheet.

V. Indent is raised only when the budget is allocated to that particular section/ group. But

in case of extremes emergencies indent is raised even when the budget is not allocated

with the written approval of Head of Project.

VI. Approval of the Indents is done as per the existing Delegation of Power issued from

time to time and in accordance with the provision of works and procurement policy.

VII. Rating of Indent

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VIII. Scrutiny of Indents by Purchase: Before registration of indent, purchase section

scrutinizes the indents with regard to various points like completeness of specification,

realistic delivery period, proprietary article/ standardization certificate, approval of

competent authority or any other deficiencies in the drawing etc.

IX. Registration of the Indents: The indent is registered in purchase section through

computer and a 6 digit number is given to it. (The first 2 digits are for the Main Group/

Cell Number & the balance 4 are the running serial numbers).

X. Regulation of Indents by Stores: All indents (other than the capital items and those

raised by Stores Wing for items on automatic recoupment) are forwarded by the

indenter to stores for achieving the following objectives.

1. Verification of the adequacy of material specifications/ quality plan/ inspection

procedure.

2. Stock availability and expected deliveries, if any, consumption user wise if needed

in the last 3 years; last purchase price with Purchase Order details and other relevant

details and review of detailed analysis sheet, if any furnished by indenter.

3. Substitution of near identical materials for indented items, if available.

4. Review of quantity of item if required to achieve economic/ optimum procurement.

5. Correctness of the data furnished in the indent, which is essentially required (as per

past requirements) for tender finalization without resorting to another reference after

tenders are opened.

XI. Review of Indent by Screening Committee: In view of Managements concern

towards the rising inventory, the review of indents by higher authorities is envisaged

and accordingly the following are implemented strictly:

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  Wherever the indent estimated value is more than Rs. 2 lacs and up to Rs. 5 lacs, a

committee at the level of E6(Executive grade 6) consisting of Materials, Finance and

indenting department reviews the indented quantity on the basis of the past data as

mentioned below.

 In cases where the indent estimated value is Rs. 5 lacs or more the indent is reviewed

by screening committee consisting of Head of Department (Materials).

Format of Purchase Order

Fax :

Purchase Order No. : Phone :

Dated : E-mail :

State S.T. No. :

Our Enquiry No. : Your Reference no. :

Dated : Dated :

Phone No. : Indentor :

Fax No. : Budget :

Vendor Code :

To:

M/s.____________

________________

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 Brief Description:

Dear Sirs,

Please arrange to deliver the materials specified subject to conditions specified herein and our

General Purchase Conditions and other specification and requirements. Duplicate copy may please

be signed and returned back to us within 10 days of its receipt as token of acceptance of the same.

Total Value :

Price Basis :

Excise Duty :

Sales Tax :

Inspection :

Place of Despatch :

Mode of Transport :

P&F Charges :

Payment Terms :

Insurance :

Bank Charges :

Warantee/ Guarantee :

62
PBG :

LD Clause :

Price Variation :

Octroi :

Special Instruction :

(Signature)

(Vendor/Duplicate/Finance/Purchase/Stores/FAQ/Indentor/Master)

MODE OF TENDERING AND PROCEDURES

The following are the modes of tendering which are adopted for the purpose of procurement:

1) Open tender: Through public advertisement in the most open manner as per Works and

Procurement Policy (normally for indent value of Rs. 5 lacs and above)

63
 2) Limited tender: By invitation to sources already registered with NTPC or having proven

performance in past or any reference documents as per Works and Procurement Policy (for

indent value below Rs. 5 lacs)

3) Single tender: By invitation to single source who may be OEM/ OES or on the basis of

proprietary article certificate or on the grounds of urgency or any other grounds as per Works

and Procurement Policy .

4) Spot tender: By visiting market and issue of spot enquiry through representatives to the

vendors who are dealing with the desired item.

Selection of mode of tendering

The mode of tendering shall be selected depending upon:

i) Total estimated cost of purchase to be made.

ii) Type of materials (proprietary or otherwise).

iii) Number of proven sources known and available.

iv) Urgency of requirement.

Tender Documents

In case of open tenders the tender documents contain the following:

i) Reference to detailed specification and drawing wherever necessary.

ii) Qualifying requirements carefully designed to permit entry only to tenderers who posses

the technical, financial and managerial capability to perform.

iii) Reference to the General Purchase Condition (GPC) applicable to the transaction.

iv) Special terms and conditions.

v) Quantity schedule.

vi) Delivery period.

vii) Instruction to bidders.

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 viii) Proforma and guidelines for submission of EMD in the form of BG.

In case of single and limited tendering where tender enquiries are required to be issued regularly to

registered vendors or vendors having proven performance in the past, qualifying requirements and

general purchase conditions are not required to be included in each of the invitations of the tenders,

but reference to GPC/ & Instructions to bidders are required in each and every invitations to the

tender.

Tender Committee

As per delegation of Powers, beyond certain value of procurement, a tender committee consisting of

representatives of Indenting department, Materials department and Finance department is formed to

finalize recommendation of the procurement action which is approved by a competent authority.

The Tender Committee considers and recommends all the terms and conditions, prices, QAP and

inspection procedures, phasing delivery, if any required.

Qualifying Requirement

The Qualifying Requirement (QR) is required for open tenders only and is prepared on case to case

basis depending on various factors like cost of package, technical importance, time frame for

implementation and quality plan requirements etc. The primary purpose of QR is to access the

financial and technical capability of the bidders who can deliver goods and services as per the

requirement.

A committee is constituted at the projects with the representatives of the site Materials, Finance and

Indenting departments at the appropriate level for the formulation of the QR and the QR is approved

by the Head of the Project. QR once stipulated is not allowed to be altered but in the case of poor or

no response The QR committee is authorized to review the same.

Cost of Tender Documents

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In case of the open tenders the tender document fees is decided on the basis of the estimated value of

the indent before going for advertisement. Cost of tender documents is fixed on the basis of the

following guidelines:

Sl. Estimated Value of the Indent Cost of the tender documents

No.
1 Up to Rs 10 lacs Rs. 200/-
2 Above Rs. 10 lacs and up to Rs. 25 lacs Rs. 300/-
3 Above Rs. 25 lacs and up to Rs. 50 lacs Rs. 500/-
4 Above Rs. 50 lacs and up to Rs. 100 lacs Rs. 750/-
5 Above Rs. 100 lacs and up to Rs. 500 lacs Rs. 1500/-
6 Above Rs. 500 lacs Rs. 3000/-

Table-11

ORDER PROCESSING

Preparation of comparative statement

Comparative statement is prepared as per proforma and the loading factors used for loading are

mentioned below (if not mentioned specifically in the offer).

P & F Charges 2%

Freight within 300 kms 2%

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300 kms to 500 kms 3%

500 kms to 1000 kms 4%

Above 1000 kms 5%

Insurance 0.15%

Payment terms loading:-

1.5% per month (whenever parties have quoted 100% through bank/ advance against NTPC’s

standards and payment terms of 100% after receipt and acceptance of materials within 30 days)

In case of payment through bank loading for a period of 30 days and in case of advance payment

along with Purchase Order the loading for the period of delivery period plus 30 days is taken.

In case of 90% through bank & 10% within 30 days after receipt and acceptance of the materials, the

loading factor is:- 1.5 * 0.9 = 1.05%

Accordingly for other payments loading factor is calculated.

LOADING PROCEDURES

The entire cost of the material purchased or we can say the loading cost of the material consists of

the following components:

1. Basic Price

2. Packaging & Forwarding Charges (on basic price only)

3. Excise Duty on (Basic + P & F)

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4. Sales Tax on (Basic + P & F + ED)

5. Freight on (Basic + P & F)

6. Insurance on (Basic + P & F + ED + ST)

7. Payment Terms loading on (Basic + P & F + ED + ST)

In case of variable prices, variable excise duty etc. the following norms/ systems are taken into

consideration:

a) In case of price variation clause (without specific mention of quantum), 10% price escalation per

annum is presumed and accordingly on the basis of delivery period the same is proportionately

loaded.

b) In case the bidder stipulate the Excise Duty as applicable at the time of dispatch and specifies the

present rate of Excise Duty (a numeric percentage or nil), in such case the offer is evaluated

considering the maximum rate of Excise Duty applicable for the product as per Excise Tariff of

Government of India.

However the liability of NTPC is as per actual Excise Duty applicable at the time of dispatch, subject

to production of Excise invoice. Further the rate of Excise Duty is restricted to as applicable within

the contractual delivery period. In case bidders quote with ‘Fixed Rate’ of Excise Duty or specify

Excise Duty as NIL then the offer is evaluated accordingly and even the payment is restricted

accordingly. Increase in Excise Duty rate due to delay in supply beyond the contractual delivery

period is not payable by NTPC , however NTPC gets the benefit of any decrease in Excise Duty.

Comparative statement is prepared and checked by material (Purchase Section) and is subsequently

vetted by Finance.

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NEGOTIATION

Negotiation must be placed high on the accomplishment list for the success of management. Some of

the matters which purchasing staff may have to negotiate are:-

 Terms and condition of contract.

 Initial price for complex new items which has to be manufactured specially.

 Price change on long term contracts, or for regular work.

 Price and terms when there is little choice of contractors and completion is not sufficient.

 Special arrangement of all kinds, for example transport, tooling, scrap disposal and inspection

arrangement.

There are three basic parts of negotiation:-

1. An introductory part during which issue is presented. Here the Factors, where agreement exists

are defined and those around which the negotiation is to take place are clarified.

2. The second stage involves the discussion/arrangement and the movements by both

the parties towards same area of compromise.

3. The third stage is stating the agreement which has arrived by the parties to the negotiation.

Most important of all these phases of negotiation is time; careful consideration of time scales of

the right moment to make a particular move or to bring in a new proposal, of the time to draw the

discussion to a close.“Negotiation should not be normally taken wherever adequate competition

exists. However if it is found that the prices are unreasonably high/low as compare to last

purchase price/estimate or in case of some technical/commercial clarification, negotiation can be

done with the approval of competent authority as per document of purchase.”

69
 Negotiation should be held with technically and commercially evaluated lowest (L1) vendor

only.

However if situation warrants, the negotiation may also be carried out with more than one party

with the approval of competent authority provided there is an stipulation in the bid documents for

keeping one or more sources to ensure reliability/uninterrupted supply for critical item/services.

Successful negotiation depends on advance planning and analysis. How much of these are worth

doing depends of course how important negotiation is. Much less time will be spent on

preliminary work for a minor deal than for a big contract.

EARNEST MONEY AND SECURITY DEPOSIT

Each and every tender contains a certain amount of security deposit which guarantees vendors

performance and credibility. For the process of registration of supplier apart from cost of documents

and registration fees, a security deposit of Rs. 10,000 is furnished by the vendor on being registered.

By sending enquiry to the parties the clause of earnest money (earned by the vendor himself) may

not be insisted in case of limited tender/ single tender, for the package of estimated value up to Rs. 2

lacs.

However in such case for orders up to Rs. 50,000, security deposit clause is not stipulated and

may be (is usually) waived. For orders above Rs. 50,000 security deposit is specified mainly

depending upon proven merits of the parties.

Earnest money deposit is regulated as follows:

70
For cases of estimated value 2% of estimated value

up to Rs. 500 lacs

For cases of estimated value 1% subject to minimum

above Rs. 500 lacs of 10 lacs

EMD is furnished in any of the form given below :-

a) Call deposit receipt fully pledged in favour of NTPC or Par Order or Demand Draft.

b) Bank Guarantee from a Nationalized Bank/ Foreign Banks (as per the approved list)

irrevocable and operative till the validity of the offer as per standard performa.

c) Post Office/ National Saving Scheme/ National Defense Deposit Certificate duly endorsed in

favor of NTPC.

d) Fixed deposit receipt issued by Nationalized Bank endorsed ion the favour of NTPC.

e) Certified Cheque in favour of NTPC duly endorsed by the Bank on whom it has been drawn.

f) NTPC bond duly endorsed in favour of NTPC

No bank guarantee is accepted for EMD amount up to Rs. 10,000, however EMD amount

exceeding Rs. 10,000 is accepted in all the above forms.

Security deposit is furnished by the vendors at the rate of 5% of the order value in the form of

Demand Draft or in the form of Bank Guarantee as per standard performa. EMD (other than

Bank Deposits) of successful bidders is converted into initial security deposit and balance

amount is returned to them. EMD of unsuccessful bidders is immediately returned to them after

the release of Purchase Order/ Letter of Award.

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STANDING EARNEST MONEY DEPOSIT

It comes under the scheme of lump-sum deposit which will be treated as Standing Deposit of

Earnest Money. It is allowed to registered suppliers only and the quantum of such EMD is based

on the monetary limit for which they are registered with NTPC. The schedule of such deposit is

as follows:

Estimated value of suppliers Standing EMD

a) Up to Rs. 1 lakh Rs. 5,000/-

b) Over Rs. 1 lakh & up to Rs. 5 lacs Rs. 10,000/-

c) Over Rs. 5 lacs& up to Rs. 25 lacs Rs. 25,000/-

d) Over Rs. 25 lacs& up to Rs. 50 lacs Rs. 50,000/-

For cases valuing more than Rs. 50 lacs, the scheme of depositing Standing Earnest Money is not

applicable.

The supplier/ tenderers who deposit the Standing Earnest Money are usually allowed to quote

against as many tenders as they desire, provided that the aggregate value of such tenders offered

does not exceed the monetary limit for which they have been registered. Few conditions related

to Standing EMD are as follow:

1) Standing Earnest Money deposited by the contractor cannot be adjusted against the Security

Deposit. The Standing Earnest Money can be forfeited in case the contractor

a) Revokes the tender or increases the rates after opening the tender, but before the expiry of

the validity of the tender.

b) Refuses to enter into a contract or accept the work order, after the award of contract/ work.

72
 c) Does not commence the supply/ work after award in due time.

2) Standing Earnest Money can be refunded if so desired by the depositor, in which case the

contractor shall be required to deposit the requisite earnest money with each tender.

3) Standing Earnest Money deposited with NTPC does not entitle the supplier/ contractor to any

interest on such deposit.

4) List of approved firms/ suppliers/ contractors, should be circulated in April every year to all

departments including Finance Money deposited, if any, and the value of the works/ supplies

for which they have been registered. At any time a new supplier or contractor is enlisted the

same shall be circulated to all concerned.

5) As soon as the name of any firm/ supplier/ contractor is removed from the approved list,

intimation to all concerned should be send immediately.

In case of purchase made on spot by a purchase committee and when payments are made after taking

the delivery of the materials, depositing of the Earnest Money is not called for.

PERFORMANCE BANK GUARANTEE

There are many contract works which need to have regular inspection until they finished.

Procurement of plant/equipment are the example of such kind of job. Thus these kinds of works

requires bank guarantee of certain % of the total contract price. Contract up to Rs. 5 lacs and other

than procurement of plant/equipmentsare exempt from bank guarantee with the approval of

competent authority otherwise requires a bank guarantee @ 10%.

73
FOLLOW UP & EXPEDITING OF ORDERS

after dispatching the purchase order the executive officers of the store bill section take care of timely

follow up and expediting with the vendors till the material is received and accepted as per purchase

order and payment is release to the vendor. The executive officer is responsible for taking any short

of action regarding the payment to the vendor until he satisfied with the quality and quantity of the

material ordered.

Generally supplier’s delivers exact quantity as per purchase order but sometimes quantities dispatch

by the vendors are either in the excess or short. In such cases the variation up to +5% and -5% or Rs.

25000 which ever is less is automatically treated as amended quantity. In case of short supply the

executive officer ask to the vendor to dispatch supply but in the case of excess supply beyond 5% the

executive officer ask the indenting department whether the material is consumable within a one lead

time period and if they are the executive accepts the delivery and the vendor paid accordingly.

In case the material is not consumable within one lead time period, the purchase department ensures

that the holding cost of the inventory of the excess material should be less than combined ordering

cost of that particular purchase order. To ascertain the above the purchase section of the NTPC

works out the ordering cost against each mode of tendering( Open, Limited & Short tender on year to

year basis) as well as the inventory holding cost for the purpose of these estimates.

The inventory holding cost is 20% on an average based on the data of various sites. Similarly the

cost of placing order at present is around Rs.50000 for Open tender, Rs.10000 for Limited tender and

Rs.5000 for Short tender respectively.

The purchase order is finally closed after the receipt and acceptance of the material. Immediately

when advice is received either in store receipt or in purchase section does not intend to make any

further supply.

74
PAYMENT AGAINST PURCHASES

This process deals with the release of payments to the vendors as per the Purchase Order. There are

various methods or we can say modes adopted by NTPC to make the payments to its vendors. The

most important thing about their payment system is that they maintain a credit period of 30 days i.e.

they make their payments to the vendors within 30 days of receiving the materials. The reason for

having a margin of 30 days for making the payments is that the processing of the bills and the release

of the payment takes approximately 30 days, so NTPC takes the margin of 30 days but usually it

makes the payment within 15 to 20 days. But within this period the vendor can always take the

purchase documents to his bank and get the payment, and in return his bank charges him some

commission (usually of 5% to 10%), which is the banks income. And to get its money back the bank

contacts NTPC’s bank which makes the payment in the form of demand draft. The vendor can even

contact NTPC’s bank directly instead of his bank for the payment. And there are times when NTPC

has to make the payment immediately after purchasing the materials; in this case the purchase officer

who goes to purchase the material carries an Advance Cheque with himself so that he can

immediately make the payment to the vendor. The payment made by NTPC to the vendors usually

contains the freight charges (for material supply) also. Though there are three options for freight

payments and any one can be chosen and accordingly the burden of freight cost shifts to that party.

These three options are:

 FOR Basis

 Ex-works Basis

 Door Delivery Basis

According to FOR basis the freight cost is borne by both the parties, according to Ex-Works the

Freight cost is entirely borne by NTPC and according to Door Delivery Basis the entire cost is borne

75
by the vendor. But whatever be the condition the entire cost of freight is borne by NTPC because

when the freight charges are borne by the vendor he includes the charges in the price of the material.

So in the end NTPC bears the cost of freight and that’s the reason why they can tell the vendors to

send the material through the transporters hired by NTPC.

While discharging the function of payment it is ensured that:

 All the pre-requisites as per the terms of the PO have been met prior to release of payment

 Vendor’s account is credited only at the time of actual bill processing and not at the time of

creation of provision. The stores liability account is credited till such time.

 The relevant sales tax forms are issued and the sales tax register is updated for the same.

 Provisions for entry/purchase tax /other municipal taxes etc., wherever applicable, are made and

discharged.

 The SRVs are linked to the Store purchase account head based on the nature of store

(construction / O&M stores), nature of item (stores, consumables, spares, etc.), material main

group (steel, cement, etc), rotational / other stores items etc. as per the chart of accounts. The bill

processing section confirms the account head.

 The bill is processed for the actual quantity received.

 Security deposit as applicable is released on completion / compliance of all pre-requisites as per

the PO, on certification by the Purchase Department.

 At the time of releasing Security Deposit the amounts due from the same vendor in respect of any

other transaction is ascertained and approval is taken from the HOD (Finance) for making

adjustments, if any.

 A separate LC is opened for each Purchase Order.

 For payments through LCs, deviations, if any, in the documents vis-à-vis the terms of the LC, the

same are attended to in time to avoid any demurrage/interest claims.

76
 Deductions for freight or any other incidental charges paid by NTPC on behalf of the supplier are

noted on the SRV by the stores department.

 The details of deductions made from the vendor’s invoice are intimated to the vendor and

Purchase department.

 Un-adjusted advances are reviewed periodically and age analysis is prepared, to ascertain action

required for adjustment of advances.

 Confirmation of balances is obtained from the vendors periodically.

 A quarterly report on payments due to SSI units is sent to Corporate Centre

 Once LC is opened all payments are made through LC only unless the LC is closed with the

approval of the competent authority.

Departments/ sections involved in the process

•Finance and Accounts Department

•Cash and bank

•Stores Bill

•Purchase department

PROCESS OF STANDARDIZATION

For all its projects and plant related works NTPC requires various equipments and being an ISO

certified company NTPC requires good quality equipments with proven standards. For this process

they standardize various materials and also provide rating to supplier of that particular material.

The standardization of sources of different items is done on the basis past experience/data or

reference. The open tender response can also be utilized for this purpose:

77
  First of all a committee of executives review the performance of different reputed venders

and can consult the other projects if requires.

 After review the committee done assessment of the vendor’s works for technical capability,

financial parameters and turnover based on NTPC’s annual requirement.

 If the sources are more then multi-source standardization is to be done and if there is only one

source is available then single source standardization is to be done.

 All the standardization is valid for only the period of three years from the date of approval.

The standardization will be renewed after every 3 year.

PROCEDURE FOR RATE CONTRACT

Rate contracts are finalized for those items whose requirements are continuous throughout the year

and holding of high inventory level for a longer period.

After standardization of sources a tender committee (materials, finance and user deptt.

representative) decides the items for which rate contract to be finalized.

In case of multi-source rate contract tenders may be invited on the basis of expected annual

consumption. Negotiation can also be done with the vendor and then rate contract is finalized.

In case of single source contract offer is asked from the party itself and after the process of

negotiation and finalization of terms and conditions the rate contract is finalized.

Rate contract may be finalized for not more than TWO years. Approval and other guidelines of rate

contract is issued by Department of Purchase from time to time.

CASH PURCHASE

78
Every company irrespective of its working has to do some cash purchase for emergency

requirements, that’s why despite of having organized purchase management system, plant may

requires some emergency/spot cash purchase. For this process the purchase department has some

provisions and guidelines.

 Each cash purchase goes through the route of stores except all cash purchase up to

Rs. 10000 but subject to item wise cost not exceeding Rs.2000. All these cash transactions

are mentioned in the cash purchase register.

 All cash purchase valuing more than Rs. 10000/- case wise and Rs. 2000/- item wise is routed

through stores as per their existing practice i.e. receipt through SRV, issue against SIV and

item wise index in the cardex . Similarly posting is done in the PSL.

 All the cash purchase is done by material management department but in case of extreme

urgency Heads of Departments can arrange cash for themselves

 Cash purchase based on single source based on standardization certificate is carried out as per

Department of purchase guidelines.

All the purchase done by concern department is requires the approval of finance department for the

payment to the vendor.

EVALUATION OF PURCHASE PERFORMANCE

The various activities in the purchase function are evaluated and monitored periodically for

economy, efficiency and effectively. The parameters for such evaluation are:

1. Adherence to lead time

2. Extent of rejection

3. Budget compliance

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Adherence to Lead Time

Against each purchase order the supplies are affected as per the declared lead time with a cushion of

(+) 10%. Incase the actual lead time differs by more than 10% from the declared lead time then the

total lead time slippage is taken into account for rating calculation.

RATING = Declared Lead Time – Slippage

Declared Lead Time

Extent of Rejection

Ratings are also provided to the vendors if their material is rejected and for how many times the

rejection has occurred. The rating is given as under:

RATING = Value of Materials Supplied – Value of Materials Rejected

Value of Material Supplied

Budget Compliance

The purchase executive is responsible for keeping all the procurements within the allocated budget.

The rating for budget compliances is given as under:

RATING = Budget allocation – Excess over Budget

Budget Allocation

And overall percentage rating is calculated as under:

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OVERALL PERCENTAGE RATING = Sum of Above Three Ratings x 100

PURCHASE ACCOUNTING SYSTEM

This sub-system includes recording and submission of all expected future liabilities during current

financial year, the next (second) financial year, and the liabilities expected after the close of second

financial year. The submission is separately made and reported by:

a) Each Main Group of the NTPC Material Codification.

b) Above separately for each “A” items and for other than “A” items.

c) Both (a) and (b) above shall be separately broken down into

Revenue Indigenous

Imported

Capital Works Indigenous

Imported

“Revenue” covers all orders placed for:

1. Spares

2. Chemicals, Gases & Explosives

3. Oil & Lubricants

4. Fuels (excluding coal)

5. Consumable & General Stores

To meet estimated requirements for maintenance and operation of assets under each investment

centre.

81
“Capital Works” covers all orders placed for:

1. Loose Tools

2. Construction

Orders are also released against specific sanctions for plant betterment scheme, renovation schemes,

acquisition and installation and commissioning of balance equipments and similar works.

Purchase Accounting System includes accounting of all monetary transactions from the point of

placement of Purchase Order/ Contract on the vendors till completion of delivery

and final settlement of vendor’s bill and closure of Purchase Order/ Contracts. The following output

report is generated:

S. No. Report Sequence Frequency

1. Purchase Journal In SRV Sequence Monthly

2. Purchase Day Book In Chronological Daily and Monthly

Sequence with Totals

3. Suppliers Purchase For Each Vendor Monthly

Ledger

FREIGHT ACCOUNTING

This account enables the reconciliation of payments made for local transportation from the railway

siding to project’s stores premises and from the posts of entry of inland dispatch to the point of

82
loading to the various agencies for rail and transport with its allocation on the various Store Receipt

Vouchers that covers the stores and equipments so received and accepted. The freight liability

control account is maintained party wise. Following document serves as input documents for

purchase accounting system.

 Freight Payment Certificate

 Shortage/ Damage Report

 Claim Voucher

 Freight Payment Advice/ Freight Accounting Report from financial accounting system

 Store Receipt Voucher

The cumulative figures of the values of the orders placed are compared with:-

a) Payments made

b) Cumulative issues from stock or used during each half year

Deviation by more than 20% is investigated by Purchase Section and remedial action is taken into

following forms:

a) Cancel orders against requirements that have since ceased to exist.

b) Cancel of differed commitments not yet covered by Purchase Orders

c) Revival of existing lead times

PURCHASE BUDGETING

Like all other departments purchase department also has an effective Budgeting control system

where it plan out all its requirements by receiving the indents from various departments and form a

83
consolidated budget for all those purchase requirements. In purchase management system budgeting

has following role to play:-

1. An effective coordination between activities essential to meet the future expected usage and the

corresponding and consequent needs to make present commitment (allowing for appropriate lead

time) in the background of commitment already existing with a view to make optimum of use of

funds planning for and sanctioned through the budgeting exercise.

2. The basic objective of material management function is high service level concurrent with the

conflicting concern to minimize inventory is fully achieved with appropriate function of storage

forecasting, recoupment and control. The participation for individual “A” class items involves

frequent review vis-à-vis latest expectation of physical uses during the succeeding two to three

months. Any stiff fall in expected future uses is met by corresponding request to suppliers to

reduce the scale and

quantum of supply keeping in view the stock available on the date of review. Such regulations

are not possible for large number “B” and “C” items.

3. A continuous regulation on the quantum of supply helps to maintain constant supply level so that

payments are kept within the sanctioned limit. While at the same time it is also assured that these

sanctioned limits or budgetary regulations wont affect the users planned material requirement.

Format of inventory budget estimate at station level

INVENTORY BE

STATION :

RESPONCIBILITY:

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Sl. Material Unit Opening Material Material Closing Closing

No. Description Stock Received Consumed stock Stock In no.

during during of days

the year the year Consumption

1 2 3 4 5 6 7 8
A. Coal/Napth 000’

a MT

Rs/L

B. akh

Oil

KL

Rs/L

akh
Total 1 Rs/L

akhs
A. Chemicals Rs/L

B. Consumable akhs

C. s Rs/L

D. Spares akhs

E. Lubricants Rs/L

Any Other akhs

Rs/L

akhs

Rs/L

akhs
Total 2 Rs/Lakhs
Total 1+2 Rs/L

akhs

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 table-12

VENDOR REGISTRATION AND EVALUATION

NTPC as whole believes in quality at all stage of activities. During construction as well as in

operation/ maintenance phase of NTPC power station, a large number of items ranging from 50,000

to 60,000 are required. For quality procurement the services of reliable and quality source of supplies

are needed. This necessitates enlistment of suppliers called as “Vendor Registration”.

NTPC follows certain policies and guidelines for the process of registration of quality vendors or

suppliers. These are:

1. Identification of items and registration

The identification and categorization of items is done as follows:

a. Vendors for items falling under class “A” by annual usage value is to be enlisted item

wise.

b. Vendors for items falling under class “B” and “C” is to be listed trade group wise.

c. The parties who had responded against earlier open tender and advertisement for

procurement of specific items can also be recommended for registration after evaluating

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 their credentials. NTPC has provided special clause in all its open tender advertisements

so that the vendor could use this tender notice for future enlistments.

2. Screening of Applications

Preliminary screening of applications is undertaken by materials management with reference to the

information provided in the prescribed formats. All applications are grouped on the basis of

following criteria:

1. a. leading public sector manufacturing organizations

b. Manufacturers

c. Small Scale industrial units registered with the state authorities.

2. Suppliers

a. Agent/ Dealers

b. Local Suppliers

c. Others.

3. Approval and Renewal of Registration

As soon as the vendor ulfils all the conditions for investment he is awarded with the registration

certificate. It is valid for the period of three years from the date of approval. The renewal of

registration can be done for a further period of three years based on the performance of the vendor

during the last three years but it also requires submission of fresh application.

4. Suspension, Premature Termination & Banning of Registered Vendors

Business dealings with registered vendors can be suspended for a particular period if prima-facie it is

found on the basis of evidence that the firm is involved in offence or unethical business dealings

which raises doubtful loyalty to the country. Moreover, if any

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intimation of banning of vendor is received from other PSUs/ Government departments and NTPC is

investigating the matter then the vendor can be suspended for a specific period.

The revocation order is issued to the vendor after the expiry of suspension/ banning period or

completion of investigation period (in which vendor is not proved to be guilty) whichever is earlier.

Vendor Performance Evaluation System

The following major parameters are considered for the purpose of vendor performance evaluation

system and vendor ratings are calculated on the basis of the following weightage:

PARAMETER MEASURE WEIGHTAGE

a) Quality Performance Rejection 4

b) Delivery Performance

1. Time Schedule Ratio of Cont. 2

Delivery in Performance delivery to actual

Delivery in weeks

2. Quantity Schedule Deviation in Quantity 2

Performance

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d) Commercial and Contractual Pre-post Award 2

Performance Performance

Calculation of vendor ratings will be done as follows:-

a) Quality Performance = 1 – Rejected Quantity x Weightage

Quantity Supplied

b) (1) Time Schedule Performance = 1 – Contracted Delivery in weeks x Weightage

Actual Delivery in Weeks

(2) Quantity Schedule = Quantity received (acceptable) x Weightage

Performance Quantity ordered

(Under supply case)

Over supply case = Quantity Ordered x Weightage

Quantity Received (acceptable)

On the basis of score against each parameter vendor rating is calculated and percentage is as

follows:-

Parameter Minimum Percentage

Quality 70%

Delivery 50%

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Commercial/ Contractual terms 50%

On the basis of points scored against each parameter categorization of the vendors is done as given

below:-

Vendor Rating Points Scored

a) Outstanding 8 and above

b) Very Good/ Good 6–8

c) Unacceptable Less than 6

BOOKS SECTION:

Introduction:

Unlike all other sections book section has unique importance as it is responsible for preparation of

periodic and annual accounts at the unit level.The main jobs of Books section are generation and

updation of the JVs by the concerned sections through the sectional day books and online updation of

the General/Subsidiary ledgers and the Trial Balance. Monthly reconciliation of inter unit balances

and closing of accounts is also comes under their functions. All the provisions at the month end are

passed through Memorandum JVs (MJV) and no changes are made to the MJVs after the closing of

accounts.In the process of making the final accounts the Books section follows following

procedures:-

Preparation and Updation of Sectional JVs:

The process deals with the procedures adopted for preparation, verification and updation of the JVs

in the day books, journal, sub-ledgers and general ledger.The concerned sections generate the JVs

through the section day books. (Non-day book JVs is prepared only in exceptional cases).The

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concerned sections update and retain custody of the JVs and the supporting documents. The

subsidiary and the general ledgers are automatically updated with each transaction.

While updating the JVs the concerned sections follow following regulations:-

 All JVs are adequately supported and authorized as per the Internal Working

arrangement of Finance (IWA).

 The subsidiary, general ledger and Trial balance are updated simultaneously after

authorizations of the JV

Monthly Accounts:

Monthly accounts include the following:

 Trial balance (TB)

 Profit and Loss account (P&L account)

 Balance Sheet

The Monthly accounts closing ensure that:

 PSL for the month has been processed and reconciled with the GL

 All the inter unit transactions have been accounted for.

 The GL is closed by the 7th of each month so before that all the entries are completed

 The provision entries (on an estimated basis) have been processed through Memorandum JVs

(final JV for reconciliation purpose).

 Review the TB to ensure that there are no prima-facie abnormalities.

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Books section completes all its entries carefully as no changes are made in the Memorandum entries

after the monthly closing of accounts.

Quarterly Accounts

Quarterly accounts are prepared for the quarter ending June, September, December and March.

Quarterly accounts include the following:

 Trial balance

 Profit and Loss account

 Balance Sheet

The quarterly accounts are consolidated at Corporate Centre.

The procedure for preparation, review and approvals of the accounts are same as the procedure

followed for monthly accounts. However, the entries for provisions are made in the books of account

and not through memorandum entries. Variance analysis is also carried out for all Profit and loss

account heads. The accounts at the unit level and consolidated accounts are also audited. The

procedure for consolidation and audit is same as the procedure for consolidation of final accounts.

Consolidation of accounts:

This process provides the procedure for consolidation of the accounts for the company at the year-

end. The consolidated accounts include the following:

 Trial Balance

 Profit and Loss Account

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  Balance Sheet

 Notes to Accounts and

 Additional Information

The consolidation is carried out at the Trial Balance (TB) level.

On receiving the accounts from the units the following steps are taken:-

 Accounts are duly approved and audited

 All appendices/certificates/documents as required are enclosed

 Prima-facie there is no deficiencies/abnormalities in the accounts

 Accounts have been prepared in accordance with the accounts closing circular/guidelines.

Amendments of charts of accounts:

This process provides the procedure followed for any amendment to the chart of accounts. Though

no amendments (additions/deletions) to the Charts of Account is carried out by any unit without due

approvals from Corporate Centre. Further, any amendment in the system is effected by the Books

Section of the units only. Any amendment to the chart of accounts is effected by all units. The dates

from which the account codes (as amended are operational) is specified by CC. Further, the

treatment of the balance in the existing account code is provided (in case of deletion of an account

code) by Corporate Centre.The chart of accounts must be linked with the P&L account and the

Balance Sheet

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Certain facts about individual stations as well as NTPC’s consolidated balance

sheet

 The Reserves & Surpluses shown in the consolidated balance sheet of NTPC is reached at by

combining the reserves & surpluses of individual stations in a certain proportion.

 The Stations balance sheet does not have any loan funds, this is so because they get a certain

budgeted amount of funds from the Corporate Office and all the loans taken are only shown in

the consolidated balance sheet. But still the interest which has to be paid on the loan taken by the

Corporate Office is born by the stations in the proportion of the amount taken by them for their

functioning. That’s the reason why the stations balance sheets have an item called Interest and

Finance Charges which depicts the amount of interest paid on the funds taken by the station.

 Cash Credit Fund Account shows the amount which is sanctioned to the station and which can

be withdraw any time as per the needs of the station. Hence this amount is also a Current Asset

for the station and is debited in the current assets.

 Another important fact about the electricity generating units is that they can charge back the tax

payable by them from their customers, so it can be said that the tax paid by the stations is almost

nil. As it can be seen in the individual stations balance sheet that PBT and PAT are always the

same, provision for current tax is deducted from PBT but the Income Tax Recoverable is same as

the provision for the current tax, so the effect is nil.

INSURANCE CLAIM SYSTEM

Insurance plays a very vital role in any manufacturing firm, insurance provides a cushion against any

kind of mishappenings, it helps in the prevention of losses of any kind which might happen during

loading or transportation or unloading of the material. The Insurance Claim System followed by

NTPC is given below:

94
1. Claim Lodging

2. Settlement Details Updation

3. Policy Details feeding

4. Reports

5. Queries

Claim Lodging

This option provides facility for printing letter for lodging claims for following types of claim with

Insurance Companies/ Vendors/ Railways:

 Initial Claim

 Marine Claim

 Motor Claim

 Machinery claim

 Fire Claim Lodging

Settlement Details Updation

After lodging claim, the Insurance Company allots a registration number and date to the claim. When

the claim is settled either fully or partially, settlement details are updated . If

the claim is not settled fully in the first instance then there is a provision for feeding second, third

settlement details.

Policy Details Feeding

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Main purpose of this option is to store details of insurance policies, which NTPC is taking from

insurance companies to cover various types of risks and also details of adhoc/ final premium paid to

the insurance company against the policy.

Reports

This option provides facility for generation of below mentioned reports:

1. Unlodged Marine Claims

2. Premium price

3. aid Insurance Companies

4. Insurance Claim Register

5. Pending Claims age wise analysis

6. Pending Claims

7. Settled Claims

8. Policies Expiry details

9. Insurance Declaration Register

Queries

Following queries are possible in this system:

1. Unlodged Marine Claims

2. Policies Expiry Details

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INSURANCE/ RISK MANAGEMENT GROUP

Insurance/ Risk Management Group is a part of Receipt Section and looks into the areas of risk

involved in materials in transit and of fixed assets of the corporation. It even deals with all types of

rejection cases and strives for repair/ replacement and final settlement of disputes with underwriters,

suppliers & carriers. The main activities of Insurance/ Risk Management Group are given below:-

1. Procurement of Appropriate Insurance Policies:

This group procures insurance policies for material in transit and fixed assets of the corporation

so as to cover the risks as per guidelines given by corporate materials (Insurance Group) from

time to time.

2. Payment of Premium:

This group is responsible for arranging payment of premium on due dates to the insurance

companies, so as to keep the insurance policy valid for its tenure such that all the claims are

entertained by the underwriters.

3. Negotiating for Discounts with Insurance Companies:

The Risk Management Group of respective power station negotiates with the insurance

companies for availing discounts like Fire Extinguishing Appliance (FEA) discounts, Good

Feature Discounts, etc., in line with the latest fire tariff.

4. Performance Evaluation of the Underwriters:

Performance of the underwriters is evaluated by the Risk Management Group with respect to the

following:

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 a. Claims settled/ Premium paid (in a particular period)

This fact helps the company in evaluating the performance of insurance company to some

extent and for negotiating better terms and conditions for the succeeding years.

b. Number & amount of claims settled/ No. & amount of claims lodged

This factor has direct bearing on the performance of the insurance company. Better the

realization of the claims better will be the performance of the company.

c. Time Factor

Time factor is an important criterion for judging the performance of the insurance company.

The respective site Risk Management Group checks whether the claims lodged by the

company are settled in the reasonable time period.

5. Interaction with Risk Management Group at Corporate Materials:

The Risk Management Group at site interacts with the Risk Management Group at the Corporate

Material for any clarification of policies, tariff rates and discounts as and when required. Any

disputes arising with the insurance company are referred to the Corporate Materials by this group

for expeditious resolution of the dispute. Whenever any advantageous terms and conditions other

than the one currently existing are offered for Site Risk Management Group, then the same is

communicated to the Corporate Materials (Insurance Cell) so as to enable them to deal directly

with the other insurance companies.

6. Preferring & Settlement of Claims and Underwriters:

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 The Risk Management Group is responsible for lodging the claims in time and in a manner

prescribed by respective insurance companies and follow up for settlement of claims at the

earliest possible.

a. Preparation of Claim Bills:

Claims arise on account of shortages/ damages to the materials in transit and loss/ damage of

fixed asset of the company falling under the scope of the insurance policy taken.

In case of shortages/ damages, on request of open delivery, shortage/ damage certificate is

obtained by clearance and dispatch group and passed o to the Insurance/ Risk Management

Group and in turn on the basis of these documents this group lodges the claim on the

underwriters as per the guidelines of the respective Insurer/ Underwriters.

b. Duration of Risk for Lodging the Claims:

c. In case of loss/ damages of the consignment which is covered by the insurance and that

comes to the notice, claims are lodged on insurance company and the details of the

registration are obtained.

7. Preferring and Settlement of Claims with Carriers.

These claims arise on account of non-delivery, in full or part of any consignment booked under a

particular consignment note. Usually a consignment is expected to arrive at the destination

between 15-60 days but when it doesn’t, it becomes the responsibility of the Risk Management

Group to lodge a claim to the insurance company.

8. Custody and Accounting of Rejected Materials:

This cell is responsible for the safe custody of rejected material till the time of dispatch/ auction.

9. Handing over of Salvage to Underwriters:

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 This cell is responsible for handing over of salvage if any to the underwriters and entering the

salvage details in the claim registers and/ or register for rejected materials.

After the formalities for the realization of the claims are fulfilled the case file is closed under the

approval of the competent authority. In case the claims are paid short or repudiated, the Insurance/

Risk Management Group obtains specific orders from the authority before accepting the repudiation

as per the relevant delegation of power and closing of the case. And in case if it is finally decided to

close the case the Insurance/ Bank Management Group informs all concerned and initiate write off

for the loss involved.

Chapter – 5

Recommendations And Suggestions

When i completed the analysis, i found every mechanism related to purchase management is quite

satisfactory except some minor problems. These can be removed by making certain improvements.

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 What i suggest for PURCHASE MANAGMENT in NTPC DADRI is-

 In NTPC, payment tenure is of 30 days, that i think should be reduced because due to

growing competition to focus on efficiency is a vital requirement. This is only

possible by timely payment to vendors.

 A proper system for the evaluation of vendor’s performance must be there in the

organization.

 There is a urgent need of effective co-ordination among the related department to

avoid the problem of over stocking and stock outs. Supply of goods is something that

affect the production capability of any organization.

 A purchase budget should be made before making any purchase and it should be made

by keeping in mind inventory level, other expenses.

Chapter - 6

LIMITATIONS OF THE RESEARCH

 All the secondary data which is required is not available.

101
 Sample size is small , so the exploration of full information can not be done, the overall

information can not be collected.

 The terminology used in the subject is technical in nature and creates a lot of ambiguity.

 Some respondents are hesitant in revealing their opinion, so there is a biasness in the

information.

Chapter - 7

CONCLUSION

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Each and every organization requires a proper purchase management system to ensure two basic

things – first is right material at right place on right time and second is adequate payment to the

vendor without any useless expenditure. The responsibility of the purchase department does not end

with the buying of the right material but it also has to take care of timely payment to the vendor,

evaluation of vendor performance and other delivery related issues. NTPC has a well furnished

purchase management system, having proper regulations and guidelines according to current market

needs and requirements. But their payment tenure of 30 days should be reduced because in the phase

of growing competition among the companies they need to be very focused in terms of the efficiency

of their suppliers and that can be achieved by quick and timely payment to the vendors. It is supply

of goods which ultimately affect the production capability of any organization and it should be

watched out carefully.

BIBLIOGRAPHY

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BOOKS:

Ehap H. Sabri/Arun P. Gupta/Michel A. Beitlar (2007) Purchase Order Management

Peter Baily/David Former/David Jassop/David Jones (2005) Purchasing Principles And Management

Michael Harding/Marylu Harding (2001) Purchasing

WEBSITES:

www.wikipedia.org

www.timesofindia.com

www.economictimes.com

www.businessstandard.com

www.ntpc.com

ANNEXURE

Questionnaire:

Q.1 – Is the purchasing process meeting its objective?

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  Yes

 No

 Don’t know

Q.2 – What is the mode of payment against purchase?

 By cheque/draft

 Through letter of short credit

 Through letter of credit

 All of the above

Q.3 – Whether the company makes inventory to control the purchase?

 Yes

 No

 Can’t say

Q.4 – What is the level of inventory?

 Low level

 High level

 Adequate level with minimum investment

 No inventory

Q.5 – The accounts are analysed:-

 Monthly

 Quarterly

105
  Two of the above

 Annually

Q.6 – How the items have been classified?

 According to their price

 ABC classification ( Annual consumption)

 Basis on their quality

Q.7 - What mode of tendering is adopted mostly for the procurement?

 Open tender

 Limied tender

 Single tender

 Spot tender

Q.8 – What is the credit period allowed?

 30 days

 60 days

 90 days

Q.9 – Cash purchase is done:

 Oftenly

 Only in emergency

 Sometimes

Q.10 – The parameters for Evaluation of purchase performance are:-

106
  Adherence to lead time

 Extent of rejection

 Budget compliance

 All of the above

Q.11 – What is the mode of indenting?

 Equipment wise

 On the basis of the main group

 Both of the above

Q.12 –What is the inventory holding cost?

 10%

 20%

 30%

Q.13 – Rate contract are made for the items whose requirement are:-

 Continuous

 Intermittent

 Very rare

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 Q.14 –In a multi-source rate contract tenders are invited on the basis of:-

 Price

 Consulting with the party

 Annual consumption

Q.15 – Cash purchase is done by :-

 Purchase management department

 Finance department

 Material management department

Q.16 –Vendor rating is done on the basis of :-

 Extent of rejection

 Adherence to lead time

 Budget compliance

 All of the above

Q.17 –Purchase accounting system includes :-

 Revenues

 Capital works

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  Both of these

Q.18 –Vendor listing and registration is done by :-

 Items classification “A”, “B”, “C”

 By annual usage

 Trade group wise

Q.19 – Renewal of registration is required after every :-

 2 years

 3 years

 5 years

Case study:-

109
The most important thing about their payment system is that they maintain a credit period of 30 days

i.e. they make their payments to the vendors within 30 days of receiving the materials. The reason for

having a margin of 30 days for making the payments is that the processing of the bills and the release

of the payment takes approximately 30 days, so NTPC takes the margin of 30 days but usually it

makes the payment within 15 to 20 days.

Within this period the vendor can always take the purchase documents to his bank and get the

payment, and in return his bank charges him some commission (usually of 5% to 10%), which is the

banks income. And to get its money back the bank contacts NTPC’s bank which makes the payment

in the form of demand draft. The vendor can even contact NTPC’s bank directly instead of his bank

for the payment.

The payment made by NTPC to the vendors usually contains the freight charges (for material supply)

also. Though there are three options for freight payments and any one can be chosen and accordingly

the burden of freight cost shifts to that party. These three options are:

 FOR Basis

 Ex-works Basis

 Door Delivery Basis

According to FOR basis the freight cost is borne by both the parties, according to Ex-Works the

Freight cost is entirely borne by NTPC and according to Door Delivery Basis the entire cost is borne

by the vendor. But whatever be the condition the entire cost of freight is borne by NTPC because

when the freight charges are borne by the vendor he includes the charges in the price of the material.

1. All the pre-requisites as per the terms of the PO have been met prior to release of payment

110
2. Provisions for entry/purchase tax /other municipal taxes etc., wherever applicable, are made and

discharged.

3. Vendor’s account is credited only at the time of actual bill processing and not at the time of

creation ofprovision. The stores liability account is credited till such time.

4. The bill is processed for the actual quantity received.

5. The relevant sales tax forms are issued and the sales tax register is updated for the same.

6. Security deposit as applicable is released on completion / compliance of all pre-requisites as per

the PO, on certification by the Purchase Department.

7. At the time of releasing Security Deposit the amounts due from the same vendor in respect of any

other transaction is ascertained and approval is taken from the HOD (Finance) for making

adjustments, if any.

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