PROJECT REPORT

ON

“COMPARATIVE ANALYSIS OF ANNUAL

CASHFLOW STATEMENT OF MPSEB”

Submitted By

ANUJA DIXIT

[ Finance + Marketing]

Suryadatta Institute of Management

and

Mass Communication

[Academic Session 2009-2011]

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DECLARATION

I undersign hereby that the project entitled “CASH FLOW STATEMENT of MPSEB Jabalpur” in Madhya Pradesh State Electricity Board [Shakti Bhawan, Jabalpur] has been developed by as a part of my Major Project for my PGDM course for the year 2009-2011.

The development of the project and its developments is completely undertaken by me and is not been part of any other project.

I have undertaken this project in MPSEB [Shakti Bhawan] Jabalpur for the duration of 8 weeks,3rd June 2010 to 29th July 2010.

Anuja Dixit

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PREFACE

“Trying is the touchstone of accomplishment”

A project forms an integral part of our two-year degree course.It evokes thinking amongst the students & urges them to shape their knowledge by doing some experimentation on the subject, which is taught during of their studies.

Prior to embarking upon this project my mind was flooded with the notion that a project is a tedious affair. But I always had a belief that “persistence is what makes the impossible”. Thanks to our learned guide who streamlined & coordinated my efforts. Ultimately all the factors appear pygmies considering the knowledge that we derived out of this project.

Finally I find pleasure in declaring that it was the constant support of my project guides, well-wishers & friends which turned each stumbling block into a stepping-stone & made this project possible.

Anuja Dixit

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ACKNOWLEDGEMENT

This project was a formidable task but from the active guidance and help within and outside the organization and institution the task was performed by me.

I offer my sincere gratitude to the management of “MPSEB” for giving me an opportunity to complete my Project Report in the esteemed organization without there help and valuable advice, my Project Report would not be possible.I would like to pay my sincere thanks to Mr. Jaideep Chate for allowing me to work and undergo the project training at MPSEB, Shakti Bhawan. I want to give my heartily thank to Mrs. Naidu for their guidance.

I am also thankful to Mr. A. Rajeshwar & Mr. Rajeev Shrivastava for their valuable support, suggestion, motivation and guidance. I am thankful to Brid. Toley Sir and Mr. Mahesh Sir for their valuable support, motivation and guidance in preparation of the project.

Last but not the least, I wish to remember with the deep sense of gratitude the encouragement given to me by my parents and colleagues, which has been indispensable for my project.

DATE: 20/08/10 Anuja Dixit

PLACE: Jabalpur

CONTENTS

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CHAPTER 1

INTRODUCTION Page No.

Explanation of the topic………………………………………………7 Reasons for selection of this topic…………………………………….8 Importance of the topic to the company……………………………....9 What did I learn from the study……………………………………….9

CHAPTER 2

ORGANIZATION PROFILE

Formation of the Company……………………………………………10 Scope of the Products and Services…………………………………....11 Milestones in the history……………………………………………….13 Head office and branches…………………………………………….....14 Summary statistics……………………………………………………...15 Quality Policy and Objective…………………………………………..16 Organizational Chart…………………………………………………...17

CHAPTER 3

RESEARCH OBJECTIVES AND SCOPE OF RESEARCH PROJECT

Problem Defination…………………………………………………..19 Objectives of the Research Project…………………………………...19 Geographical………………………………………………………….20 Product Scope………………………………………………………...21

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CHAPTER 4

RESEARCH METHODOLOGY AND LIMITATIONS

Research Design……………………………………………………..24 Hypothesis…………………………………………………………...24 Research Limitations………………………………………………....25

CHAPTER 5

ANALYSIS, INTERPRETATION AND PRESENT………………………25

CHAPTER 6

CONCLUSION AND SUGGESTIONS

Conclusion…………………………………………………………..52 Suggestions………………………………………………………….52

Annexure…………………………………………………………………..55

Bibliography……………………………………………………………….57

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1] INTRODUCTION

1.1] EXPLANATION OF THE TOPIC

TOPIC:-COMPARATIVE ANALYSIS OF ANNUAL CASH FLOW STATEMENT OF MPSEB

At MPSEB I was assigned with the topic as “Comparative Analysis of Annual Cash Flow Statement of MPSEB” for my project work. I joined the organization as summer trainee to understand the process of cash inflow and outflow of the company.

The Cash Flow Statement (CFS) or “statement of cash flows” is a financial statement that records the cash and cash equivalents entering and leaving a company. The “cash inflow” is the money coming into the business, while the “cash outflow” is the money going out. Cash is the lifeblood of any business since, without it, no business can function. The CFS provides investors with the opportunity to better understand a company’s operations, its cash flow sources and how the business is spending its money. As a tool for fundamental analysis, the cash flow statement can help determine the viability of a company, particularly its ability to meet short-term liabilities.

Classification of Cash Flows  

Operating Activities o Cash effects of transactions on Net Income

Investing Activities o Capital investment o Salvage value o Working capital investment or recovery

Financing Activities o Debt and repayment of principal

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Operating Activities  

Sales revenue (inflow) Cost savings (inflow) Manufacturing expenses (outflow) O & M cost (outflow) Interest payments (outflow) Lease expenses (outflow) Income taxes (outflow)

Investing Activities  

Capital investment (outflow) Salvage value (inflow) Working  capital (outflow) Working capital recovery (inflow) Gains taxes (outflow)

  Financing Activities  

Borrowed Amount (inflow) Principal repayments (outflow)

Net cash flow = Cash inflow - cash outflow

1.2] REASON FOR SELECTION OF THIS TOPIC

When planning the short- or long-term funding requirements of a business, it is more important to forecast the likely cash requirements than to project profitability etc. The generation of a profit does not necessarily guarantee its development, or even the survival. More businesses fail for lack of cash flow than for want of profit.The Statement of Cash Flows is the final document prepared in the Financial Report set, and provides information that is a direct flow of information from the Income Statement, Owner Equity Statement and Balance Sheet; therefore, this report adds validity and accountability to the Financial Statements.I found it really interesting to understand the cashflow system of a company like MPSEB.

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1.3] HOW IMPORTANT IS THIS TOPIC TO THE   COMPANY

The ultimate purpose of giving me this topic was to know about the efficiency of cash flow management system of MPSEB because effective cash flow management is vital for any organization; it is a key element in planning and in the efficient functioning of all aspects of operations. Earning income is a primary concern (or should be) for both nonprofit and for profit entities. When cash inflows and outflows—money received and money paid out—are not successfully planned and monitored, organizations may not be able to pay employees and vendors in a timely manner. Thus, without good cash flow management, an organization may be “profitable” based on its financial statements yet unable to pay bills when they are due. My project report will serve the way for more effective cash flow management.

1.4] WHAT DID I LEARN FROM THE STUDY

Relative importance of different components of financial position.

Reasons for change in working capital.

Information about MPSEB’s capital resources and current financial position of MPSEB.

Cash flow statements shows more economic solvency, and is more attractive to investors. This will allow a business owner to compare past periods with the current financial standing and determine whether your receivables have increased or decreased.

How can assess the short term as well as long term liquidity position of organization.

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2] ORGANIZATION PROFILE

2.1] FORMATION OF THE COMPANY

The Electricity[supply] Act,1948 is a landmark in the history of power development in our country.Conceived in the background of post development, it aimed at the coordinated development of electricity on a regional basis to enable centralized generation, bulk supply, and systematic distribution in an efficient and economical manner under the control and direction of authority.This laid down the basis for the formation of state electricity boards.

The Madhya Pradesh Electricity Board was the first board to be formed in the country, on 9 Dec 1950.At that time the jurisdiction of the board covered the Mahakaushal region of the present state of Madhya Pradesh and Vidarbha region of the present Maharashtra State.

MPEB was started on 1.04.1952 at Nagpur[Vidarbha].In 1.04.1957 it was shifted at Jabalpur[Headquarter].

MPSEB

Generation Co. Transmission Co. Distribution Co.

Poorv K.V.V. Co. Madhya K.V.V. Co. Paschim K.V.V. Co JBP Bhopal Indore

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FLOW OF ELECTRICITY:-

Electricity Generation by Generating company[also called as GENCo]

Electricity purchased in bulk by Treading company[also called as TRADECo]

Transmission of electricity for a charge by companies[also called as TRANSCo]

Buying of electricity from TRADECO and supply to retail customers by companies called DISCOM

The board in its present form was constituted with effect from the 01 April 1957 in pursuance of the state, Re-organization Act, 1956. Thus its jurisdiction extends to the whole of the state of Madhya Pradesh. Establish in 1950, by the covenant of government, the Madhya Pradesh Electricity Board for the MPSEB has successfully shouldered the awesome responsibility of making the power reach to millions in the gigantic of Madhya Pradesh.Responsible for the generation, transmission and distribution of electricity,the MPSEB has recorded significant and consistent success in providing vitally needed power to the industrial,agricultural,commercial and domestic sectors.One of the oldest Electricity Boards in the country, the MPSEB has truly grown in every dimension over the last four decades.

2.2] SCOPE OF THE PRODUCTS AND SERVICES

The installed capacity of MPSEB is 2990.45 MW comprising of 2,147.5 MW Thermal and 842.95 MW Hydel capacity.Further, State has share of 1,665.85 MW in the Central Sector Projects and additional allocation of 50 MW is available from EREB. Apart from the above, 1000 MW from Indira Sagar HEP and 712.5 MW share from Sardar Sarovar HEP (Inter State) from NVDA has become available. In all, 1,836.5 MW power generation is anticipated from NVDA by the end of the tenth plan.

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Year-wise capacity addition programme from various sectors for 2006-07 to 2011-12 is indicated as below:

Based on the above capacity addition programme, Peak availability has been assessed. Peak requirement, peak availability from 2006-07 to 2011-12 have been worked out as indicated below:

For the year 2006-07, the peak availability has been assessed as 5,668 MW against the estimated peak demand of 6,881 MW resulting in peak shortage of about 1,213

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MW (17.63%) has been envisaged. For the year 2007-08, peak availability has been assessed as 6,639 MW against the peak demand of 7,457 MW resulting in peak shortage of 818 MW (10.97%). The peak availability at the end of the 11th Plan (2011-12) has been assessed as 10,505 MW against the peak demand of 10,491 MW. It may, therefore, be seen that the power supply position of the State will improve by the end of 11th Plan.

2.3 ] MILESTONES IN THE HISTORY

MPSEB has got gold shield from ministry of energy,Govt. of India in the yr. 2006-07.

MPSEB has got silver shield by the Prime minister of India for completing Indira Sagar Hydal Project.

Asian power award :-AESIEAP has given two important awards:-1] Utility of the year-20062] Tea and Project of the year-2006

India Tech Excellence Award-MPSEB has got India Tech Excellence Award-2007 by India Tech Fondation, Mumbai.

MPSEB awarded by Governor of Goa on behalf Indian Govt. for Automated Meter Reading Project.

MPSEB has got E-Governance award by M.P. State Government for development of a software which shows location of HT lines.

2.4] HEAD OFFICE AND BRANCHES

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MPSEB has 3 zones:-

1] Jabalpur [East Zone]

2] Bhopal [Central Zone]

3]Indore[West Zone]

*HEAD QUARTER – Jabalpur

Regional Head Quarter [7]

Jabalpur Sagar Rewa Gwalior Bhopal Ujjain Indore

SUB REGIONAL HEAD QUARTER [4]

Guna Hosangabad Mandsaur Khandwa

Besides these Regional and Sub Reginal Headquartes there are 39 Circle Headquarter and 45 District headquarters.

Upon restructured , MPSEB has been unbundled and currently six different successor companies are undertaking various activities.These companies are independent entities w.e.f. 1.06.2005.

For allocated functions M.P. Power Generation Co. Ltd. JBP[GENCo] entrusted for generation of power.

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M.P. Power Transmission Co. Ltd. JBP[TRANSCo] for intrastate transmission of power .

3 distribution companies namely M.P. Poorv K.V.V. Co. Jabalpur, M.P. Paschim K.V.V. Co. Indore and M.P. Madhya K.V.V. Co. Ltd. Bhopal for distribution of electricity in their respective geographical area.

In addition to above, M.P. Power Treading Co. Ltd.[TRADECo] JBP,caters to bulk purchase of power from GENCo and external agencies and bulk supply of power to 3 distribution companies:-

1] MPSEB as residual Board

2] MP Power Generating Company

3] MP Power Transmission Company

2.5] SUMMARY STATISTICS

31-3-05 31-3-06 31-3-07 31-3-08 31-3-09

57,346

55,945

54,231

52,819

51,368

WORKING STRENGTH(NUMBER)WORKING STRENGTH(NUMBER)

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WORKING STRENGTH (NUMBER)

Including MPSEB,MPPGCL,MPPTCL,DISCOM(EZ,WZ & CZ) and M.P. Power Tradeco

WORKING EMPLOYEES (Regular)Class 31.3.2008 31.3.2009Class-1 1,188 1,171

Class-2 1,544 1,575

Class-3 21,625 20,806

Class-4 28,462 27,816Total 52,819 51,368

2.6] QUALITY POLICY AND OBJECTIVE

Under these two plans MPSEB is trying to improve quality of its product and services. These plan comes under the New Distribution schemes of 11th Plan:-

I] APDRP-II

To strengthen the distribution network of District Headquarter, to achieve the goal of 0% transformer failure, reduction in losses by 15% and to improve the consumer satisfaction by way of ensuring quality supply, a distribution project has been prepared and posed under APDRP – II scheme. Under this project, new 33KV Lines, 11KV lines, Distribution Transformers, 33/11 KV Sub-stations, consumer care centers and e-billing are proposed.

II] PFC-II

To improve the rural network for quality supply to the agriculture sector and increase hours of supply, improvement in the distribution network with the objective to reduce the losses and improvement in the revenue collection efficiency

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a distribution scheme has been posed to PFC. Under this project, new 33KV Lines, 11KV lines, Distribution Transformers, 33/11 KV Substations and HVDS (High Voltage Distribution System are proposed.

Approximately 25% of total electricity sale in the state is consumed by rural sector. Demand from rural sector is mainly for agriculture, residential, water supply and small-scale industry and commercial establishments.MPSEB adopt a more focused approach for rural electrification and improving supply of quality power to rural areas. The Board should come up with an action plan to achieve these objectives in a time bound manner. Board shall take up the matter with the Government of India and Coal India Ltd. for supply of adequate quantity of coal to its various thermal power stations. Matter regarding quality of coal wherever it is not upto the desired value shall also be taken up with the Coal India for improvement. Entering into Fuel Supply Agreement with coal companies will be a right step in this direction.

2.8] ORGANIZATIONAL CHART

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3] RESEARCH OBJECTIVES AND SCOPE OF RESEARCH PROJECT:-

3.1] PROBLEM DEFINITION

cash management is concerned with the management of cash inflow and cash outflow of the business concern, cash flows within the business concern and cash balance held by the business concern at any point of time. Management of cash is of paramount importance for the overall activities of a business concern to survive and for smooth running. High cash turnover ratio indicates that board has better utilization of cash resources and better financial management of cash but this table indicates that only for few years it had high ratio and during most of the study period it had low ratio which is not worthwhile for the board. The average annual growth of the total cash payment was 79.55% while the average cash growth was -17.22% which indicates dangerous cash management by the board. The cash management position of MPSEB is not satisfactory because it has not maintained adequate amount of cash in hand and cash at bank.The main and obvious problem, namely, the interruption of the cash flow through leakage, theft, and inefficiency.

3.2] OBJECTIVES OF THE RESEARCH PROJECT

To know the financial position of MPSEB

To find out different components of the financial position of MPSEB

To check the efficiency in the cash inflow and outflow of the company

To assess the short term as well as long term liquidity position of MPSEB

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3.3] GEOGRAPHICAL

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Later in July 2002, five companies were formed to unbundle and corporatize MPSEB. Of these, one is a generation company (MPPGCL), one a transmission company (MPPTCL) and remaining three are distribution companies covering three separate geographical areas.

3.4] PRODUCT SCOPE

The demand of electricity is increasing everyday owing to better life style and consumption attitude.The energy sector is most important sector in the progress of any nation. The Govt. of India has very well understood its importance and has adopted the open economic policy for fast and sustained development. The state of M.P. has been well bestowed by the nature and this fact has been contributed a lot in building up the confidence of state in taking bold decisions, which are consistent with uprising life style and economic balance. Every next day, therefore bring a new host of problem as well as expectations and we in energy sector being aware of these, welcome these challenges.

OUR CONSUMERS:-

MPSEB's objectives of developing a transmission and distribution network in the state capable of evacuating the power to the ultimate consumers efficiently and reliably.Once the vested interests are isolated and most of the other consumers, who are honest, begin to accept the rational and value enhancing approach of the company, others will quickly, fall in line. In other words, when consumers begin to perceive that it pays to be honest, and there are no other choices (deterrents being strong and effective) bulk of the consumers will avoid imitating the dishonest consumers. On the other hand, when dishonest consumers can get away easily, the others would imitate them to create non-adherence or lawless behaviour. In changing the balance so that vested interests are isolated, political will of the state and cooperation from the enforcement agencies are necessary. Deterrents such as detention, treating electricity dues as land revenue in arrears, are effective and worthy of emulation.

MPSEB recognize that   for the success of reforms the support from Consumers remains vital. MPSEB therefore   focus on providing the best services to the

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consumers that include quality & reliable supply, quicker attention to fuse-off calls and billing related problems.

MPSEB and it's companies is also setting certain targets in respect of consumer care to ensure optimum consumer satisfaction.

Rectify Fuse Off Call Within 3 Hrs (in Cities & Towns).

Billing Related Problems (Cities) Redressal in 3 days.

Billing Related Problems (Rural D/C) Redressal in 7 days.

Receipt of money in the Electricity Board

[1] Sale of power to L.T. consumers

[2] Sale of power to H.T. consumers

[3] Sale of steam to H.T. consumers

[4] Hire purchase and hire receipts

[5] All other receipts, such as deposits, receipt for testing, reconditioning oil ,meter testing, service connections , rents, damages for losses, sale of Materials/Obsolete/Scrap, sale of coal ash etc.

CONSUMER BENEFITS:-

MPSEB initiatives towards consumer protection and improvement in services:-

Consumer complaint redressal.

Establishment of Consumer Redressal Forums

Intervention of Electricity Ombudsman

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Online review of status of complaints lodged with the Forums from 1.1.08

Establishment of Central Call Centers

Online registration of complaints at Call Centers

Spot Billing at select cities

Facility of 24 hours bill payment at select cities

Involvement of NGO's on consumer issues

120 NGOs registered with MPERC

Workshops for NGOs to create awareness amongst consumers

Performance standards

Fuse off calls to be attended within 4 hrs and 24 hrs in urban and rural area respectively.

DTR replacement within 12, 24 and 72 hrs at Revenue Division, Towns other than division and rural area respectively.

Defective meters to be replaced within 15 & 30 days in urban & rural area respectively.

New connections:- Within 30 days in cases no extension work involved. Within 103 days in case of extension work involved but connection is other

than agricultural. Within 133 days for agricultural connections subject to availability of

approach road respectively. Compensation to be given, if standard not met.

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Own your transformer scheme available to farmers at a lower rate:- few farmers together can avail a connection through owned transformer and

pay the bill on the basis of DTR meter and share the bill amongst themselves.

Tariff categories brought down to 12 from 21 & complexities reduced. Energy efficiency incentives upto 30 paise per unit given to farmers for

installation of ISI motor, friction less PVC pipe, foot valve and shunt capacitors.

4]RESEARCH METHODOLOGY AND LIMITATIONS:-

4.1] RESEARCH DESIGN

Data Analysis:-Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making. Data analysis has multiple facets and approaches, encompassing diverse techniques under a variety of names, in different business, science, and social science domains.Data analysis is closely linked to data visualization and data dissemination.

The data of MPSEB for the years (2006-07 to 2009-10) used in this study have been taken from secondary sources e.g., Published annual reports of the company. Editing, classification and tabulation of the financial data, which has been collected from the above-mentioned sources, have been done as per the requirement of the study. For evaluating the performance and position of cash in this study the technique of ratio analysis has been used.

4.2] HYPOTHESIS

This study has following null hypothesis:Cash management position of MPSEB is not satisfactory during the study period.

4.3] RESEARCH LIMITATIONS

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The study is limited to last years performance of the company.

The data used in this study have been taken from published annual reports only. As the requirement and necessity some data are grouped and sub grouped.

5] ANALYSIS, INTERPRETATION & PRESENTATION:

EAST ZONE26

26.5

27

27.5

28

28.5

29

26.93

28.46

31.3.08 31.3.09

TOTAL NUMBER OF CONSUMERS (IN LAC)

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CENTRAL ZONE18.5

19

19.5

20

20.5

21

21.5

19.45

20.99

31.3.08 31.3.09

TOTAL NUMBER OF CONSUMERS (IN LAC)

WEST ZONE26.8

27

27.2

27.4

27.6

27.8

28

28.2

27.28

28.01

31.3.08 31.3.09

TOTAL NUMBER OF CONSUMERS (IN LAC)

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2004-05 2005-06 2006-07 2007-08 2008-09

50495588

59296501

7019

MAXIMUM DEMAND MET(MW)MAXIMUM DEMAND MET(MW)

DEMAND OF ELECTRICITY

2004-05 2005-06 2006-07 2007-08 2008-09

2990.5 2990.5 3050.5

3570.53780.5

Installed Capacity(mw)Installed Capacity(mw)

INSTALLED CAPACITY (MW) [MP’s Share]

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PROJECTS IN PIPELINE:-

Amarkantak Taap Vidhyut Grah (2012) Shri Singa Ji –First Phase (2012) Satpura Vistar Ikai (2012) Bansagar Taap Vidhyut Pariyojana (2015) Shri Singa Ji –Second Phase (2015)

INSTALLED CAPACITY ,as on 31 st March , 2009

Item Capacity(MW)

MP’s ShareThermal Power StationHydel Power StationMini/Micro Hydro

2,857.5917.55.455

Total 3,780.455Joint Venture ProjectIndira SagarSardar SarovarOmkareshwar

1,000826.50520

Total 2,346.5

Central SectorWR(Western Region)ER(Eastern Region)

2,084.1376.32

Total 2160.45

NVDA-BargiOther StatesRihand HEP (UP)Matatila HEP(UP)

4510

Total 55

Grand Total(all sectors) 8,352.405

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There are 4 types of voucher which MPSEB is using for maintaining the record of payment and receipt.

1] Journal Voucher :- For correction in a/c code.

2] Credit Slip :- It is used for amount deposit in company’s account .

3] Debit Slip :- For payment use.

4] Transfer Voucher :- For fund transfer from one a/c unit to another a/c Unit.

Apart from this daily cash position is also maintained in separate account.

DISTRIBUTION COMPANIES

Item Poorv-Jabalpur Madhya-Bhopal Pashchim-IndoreArea(Sq. K.M.) 1,35,162 96,069 77,021Population(Thousands)

24,518 18,395 17,472

Consumers per Distribution Center

7,374 6,974 7,410

H.T. Lines- Total33KV11KV

77,62013,60564,015

68,12210,25357,869

67,16211,97155,191

L.T.Lines 1,08,278 99,701 1,32,667Units Sold Total(Mkwh)Area wise-Rural -Urban

6,0162,8853,131

6,6042,8623,742

8,3314,0314,300

Consumption Per Consumer Total(Kwh) -Rural -Urban

2,1141,5493,182

3,1462,6583,659

2,9742,4623,694

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COMPARISION OF REVENUE RECEIPT AND REVENUE EXPENDITURE

Rs. Crore 2008-09

M.P. PowerGenerati-ng Co. Ltd.

M.P. PowerTransmissi-on Co. Ltd.

M.P. Poorv Distribution Co. Ltd.Jabalpur

M.P.MadhyaDistribution Co. Ltd.Bhopal

M.P. Pashchim Distribution Co.Ltd.Indore

Revenue Receipt

2300.76 804.85 2291.00 2664.62 3204.23

Revenue Expenditure

2295.59 844.79 3301.00 3395.71 4343.18

As we can clearly see that except M.P. Power Generating Co. in all other cases revenue expenditure is more than revenue receipt. It means cash outflow is more than cash inflow and main reasons behind this are following:-

Cash Losses SignificantMPSEB, like other SEBs over the years, has also been incurring cash losses in its operations. The Government of Madhya Pradesh has accepted that even though MPSEB was making notional profits after accounting for subsidy receivable from the government, in reality the subsidies were not received from the state government. After setting up of the state regulatory commission, viz., MPERC in FY2000, the practice of booking subsidy, not yet received, as income, has been stopped. According to the white paper, the MPSEB had excess of expenditure over revenue to the order of Rs 80–90 crore per month or about Rs 1000 crore per year on the eve of bifurcation of the state of Madhya Pradesh into Madhya Pradesh and Chattisgarh in 2000.

Free Power to AgriculturistsThe Government of Madhya Pradesh, which came into power in 1993, implemented its electoral promise of providing free power to agriculturists owning a pump of less than 5 HP. In addition, it decided to provide free power to single light connection to people below the poverty line. The resultant demand and natural growth increased the peak unrestricted demand from 4314 MW in 1993 to

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6638 MW in 2000. The generation capacity, however, increased only to 4261 MW from 3484 MW during the period leaving a wide gap. Even after buying power from outside, the peak demand met on the eve of bifurcation of state was only 5566 MW.

MPSEB After ChattisgarhAfter carving out a new state, Chattisgarh, from Madhya Pradesh, the latter was left with only 2900 MW capacity, 68 per cent of the original capacity despite utilizing 78 per cent of the energy consumption of the undivided state. Since the remaining parts of Madhya Pradesh dominated in terms of connected agricultural pumps (94 per cent of the total) and population (73.28 per cent of the total), the revenue collection was only 64 per cent of the total revenue collection. It also retained 78 per cent of the total employees. As a result of free unmetered power to agriculture and single light connections, the T&D losses were assessed to be of the order of 32 per cent on the eve of the bifurcation as against reported T&D losses of 22.68 per cent in 1993. Both these were gross underestimates. Earlier, the agricultural consumption was estimated on a load factor of 21 per cent, equivalent of 16 hours daily supply to the pump sets during Rabi season. Later it was revised by MPERC in 2000 to 12 per cent, equivalent of 9 hours of supply during the rabi season. On the eve of the carving out of Chattisgarh, the T&D losses for the remaining parts of Madhya Pradesh were assessed to be of the order of 51 per cent.

Purchased Power Goes UpWith the carving out of Chattisgarh, Madhya Pradesh had to rely more on purchased power on one hand and increased (as a proportion) commercial and technical losses in distribution on the other. Its problems were further compounded by allocation of 78 per cent of the total liabilities of the undivided SEB to the MPSEB by the Government of India. The excess of expenditure over revenue on the eve of bifurcation was assessed at around Rs 140 crore per month (Rs 1600–1700 crore per year), almost double that of the undivided state. Madhya Pradesh government initiated the reforms in the power sector in the state in 2000 by enacting the reforms act and setting up an independent regulator. The reforms act stipulated that tariff to any class of consumers would be at least 75 per cent of cost to serve that class of consumer in a timeframe of five years.

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SOURCES AND APPLICATION OF FUNDS

Particulars 2007 2008 2009Sources of Funds 32,330,347,249 67,252,530,417 35,011,720,126Application of Funds

32,330,347,249 67,242,530,417 35,011,720.126

Total Current Asset

11,877,341,305 4,569,720,053 9,829,923,139

Total Current Liabilities

3,382,496,763 1,150,607,663 2,938.071.529

CASH FLOW MECHANISM 2006

The main objective of the Cash Flow Mechanism (CFM) is the centralization of the cash management function across all the six companies namely Madhya Pradesh Power Generating Co. Ltd. (GENCO) , Madhya Pradesh Power Transmission Co. Ltd. (TRANSCO), Madhya Pradesh Paschim Kshetra Vidyut Vitran Co. Ltd., Madhya Pradesh Poorv Kshetra Vidyut Vitran Co. Ltd., Madhya Pradesh Madhya Kshetra Vidyut Vitran Co. Ltd. (Collectively called as DISCOM) and M.P. Power Trading Co. Ltd. (TRADECO) with the MPSEB. The details of the arrangements worked out for various aspects of the CFM are set out hereunder :

1. BASIC PRINCIPLES OF CASH FLOW MECHANISM : i. TRADECO shall have first charge over entire generation of the GENCO

from the stations and projects listed in schedule-1 of the inter-se agreement and shall purchase entire power from the GENCO at the tariff to be determined / approved by the MPERC.

ii. TRADECO shall receive power from all other suppliers, viz. Central Sector Stations JVs , Inter State Projects etc. in accordance with the

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existing/ongoing PPAs with MPSEB now stood transferred to the TRADECO.

iii. All the three DISCOMs shall buy power of their requirement from the single source i.e. from TRADECO as per the inter se bulk supply agreement and the tariff as determined by the MPERC.

iv. DISCOMS may advise TRADECO to buy short term power for their immediate need. The cost of such power shall be a pass through to the respective DISCOM.

v. TRANSCO shall transmit the power to the DISCOMS at the interface points received through TRADECO as supplied by GENCO and form other sources as defined in the para 2 above as per the bulk power transmission agreement to be entered between TRADECO, TRANSCO and DISCOMS.

vi. All the six companies namely TRANSCO, GENCO,DISCOM EAST, DISCOM WEST, DISCOM CENTRAL and TRADECO shall issue a power of attorney in favour of MPSEB inter authorizing it to “own, collect and distribute cash on behalf of the companies.

vii. All the cash collected by DISCOMS RAOs shall be transferred to MPSEB a/c as per the existing arrangement as also discussed in point 3 cash transactions.

viii. All letter of credits, Escrow comforts and working capital shall continue to be maintained by MPSEB on behalf of the companies as MPSEB has first charge over entire revenue of DISCOM from sale of power subject to escrow agreements as per the existing arrangements enforced duly supported by the authorization from companies.

ix. MPSEB shall allocate cash among companies based on a predetermined priority for payment of expenses as per existing arrangements.

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x. The companies shall authorize MPSEB to decide priority of payment as per availability of cash.

xi. MPSEB shall continue to service the debt liabilities including generic loans on behalf of all companies.

xii. Payments made by MPSEB to be adjusted against the bills raised by the companies among themselves as per the inter se commercial agreements.

a. GENCO to raise invoice on TRADECOb. Other power suppliers to raise bills on TRADECO c. PGCIL and other transmission licenses facilitating power supply to

MP to raise invoice on TRADECO.d. TRANSCO to raise invoice for transmission charges on DISCOMS

routed through the TRADECO.e. TRADECO to raise invoice on DISCOM for power/energy supplied.f. MPSEB to raise debit note on all companies for servicing of

liabilities which include generic loans.

xiii. Subsidy from GoMP if any shall be received by MPSEB and respective credit to be passed on to the DISCOM to the extent of their eligibility to obtain subsidy and payment made thereof by the state government.

xiv. MPSEB needs to maintain and account each in the name of the respective companies to record and reconcile such transactions and adjustments.

xv. Adequate cash comfort for opening of LC shall be provided by MPSEB to the companies as and when required against various purchase and woks orders , on marit basis and on availability of limit.

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2. BILLING PROCEDURE

i. GENCO will issue monthly bills to TRADECO on or before 7 th day of the month for the units sent out during preceding month at the interface points between GENCO and TRANSCO on the basis of joint meter readings.

ii. TRADECO, will receive periodic bills for the power purchased from Central Generating Stations including from other sources and also for its transmission/wheeling charges.

iii. TRANSCO will prepare separate monthly bills for each DISCOM on the basis of the inter face meter readings adjusted to input level of the MP grid at the approved tariff on or before 7th day of succeeding month and deliver these bills to the TRADECO.

iv. The TRANSCO will issue monthly bills to the respective DISCOMs for the units consumed by them adjusted at MP grid input level including UI charge by 10th of every months. For this purpose bills issued by the TRANSCO or the energy account statement issued by the SLDC shall be the basis for determining the energy consumption by the respective DISCOMs.

v. TRANSCO will forward the bills of GENCO and other power suppliers duly passed to MPSEB. Similarly DISCOMS will also forward the bills of power supplied by TRADECO duly passed to MPSEB. MPSEB will arrange to make payments within the given time schedule. The respective companies will make debit/credit entries in their books of accounts.

vi. DISCOMs will send directly to the state government the claims for payment of subsidy towards free and subsidized supply of power under intimation to MPSEB.

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vii. MPSEB shall issue the “debit advise” to each company for all the debt servicing made on behalf of companies giving details of repayments and interest payments made, which shall be accounted for by the companies in their books.

3. CASH TRANSACTIONS i. Revenue collected from all HT/LT consumers of the DISCOMs will be

deposited in the respective RAO’s Revenue Collection Account as already being done prior to issue of this notification.

ii. As per standing instructions to the banks, entire revenue collected in DISCOMs collection account of respective RAOs shall be transferred immediately in the existing MPSEB’s Account maintained by B & CM at Jabalpur H.Q. on daily and immediate basis , routed through the “ Revenue Collection Account” of the respective DISCOMs H.Q. except those RAOs that are escrowed in favour of PFC/REF, revenue of which shall be transferred directly in the existing MPSEB’s account at Jabalpur H.Q. The revenue transfer from the escrowed RAOs will be treated as deemed remittance done by the company head quarters and accordingly accounted for the company books.

iii. By 10th of each month the companies will submit to MPSEB the monthly fund requirement on weekly basis regarding their essential requirement their essential requirements towords statutory payments. Fuel, A&G, O&M, Capex, debt charges etc. based on the approved ARR and employee cost per actual stating head wise details.

iv. MPSEB will remit the funds into the expenditure account of the respective companies on normal due dates and subject to availability of funds towards statuary payments , employee cost fuel charges, A&G, O&M & Capex etc. While releasing the funds Directir (Finance) will ensure to maintain the company wise percentages under the head A&G, O&M & Capex as per

Page 36

compaany’s respective approved ARRs so that equitable treatment to all companies is meted out.

v. MPSEB will make payments towords statutory requirements including those arising out of various court orders, power purchase and including wheeling charges and debt servicing.

vi. MPSEB will ensure honouring timely payments through L/Cs and Escrows and also ensure to restrict overdraft to the extent possible while releasing payments to the companies.

vii. The revenue received from the DISCOMs will be treated as adhoe payment against power supply bills issued by TRADECO and wheeling charges bills issued by TRANSCO. The payment made by MPSEB to the DISCOMs through various heads and against ad-hoc revenue receipts from the DISCOMs and net of receipts and payments shall be treated as actual payments shall be treated as actual payments made by DISCOMs against the energy as well as Transmission/ wheeling charges bills . Accordingly necessary entries will be made in the books of account of MPSEB as well as respective DISCOMs as illustrated in para 4(Accounting). MPSEB shall maintain a separate account for each company for recording and reconciliation of such adjustments and provide the companies with the detailed statement of the net adjustment to the bills and net payments effected by the companies on a monthly basis.

viii. MPSEB will receive subsidy from the state government against the claims/bills raised by the DISCOMs and the amount shall be treated as ad-hoe payment against energy bills issued to the concerned DISCOMs by TRADECO and necessary entries will be made in the books of account of MPSEB as well as respective DISCOMs.

ix. The payment made by MPSEB to the TRANSCO/GENCO through various heads and against their debt liabilities shall be deemed to be ad-hoe

Page 37

payments made to them against their bills to TRANSCO towards supply of power/wheeling charges respectively. Accordingly necessary entries will be made in the books of account of MPSEB as well as TRANSCO/GENCO/TRANSCO as illustrated in para 4( Accounting).

x. ED & Cess collected by the DISCOMs and remitted to MPSEB along with the transfer of entire revenue collected by DISCOMs will in turn be remitted by MPSEB to the state government or adjusted against subsidy receivables based on the directives of the state government.

xi. The amount received by MPSEB against any capital grant/loan, deposits and reimbursement against claims from any agency will be remitted to the respective companies in full and shall not form part of the revenue for the purpose of these arrangements.

xii. Companies will maintain minimum required balance in their expenditure account to avoid overdraft charges. The overdraft charges paid by MPSEB shall be booked proportionately to all six companies generally in the ratio of their respective expenditure on establishment A&G and O&M.

xiii. Payment of employee cost for those employees who are not assigned to any of the companies and working I common services in MPSEB will be charged prpportionately to all six generally in the ration their respective employee cost as per ARR. MPSEB shall issue bills periodically towards employee cost.

xiv. Expenses on account of common service facilities shall be proportionately charged to the beneficiary companies and will be treated as deemed payment towards A&G of the concerned company generally in the ratio of their respective employee cost as per ARR. MPSEB shall issue bills periodically towards these expenses.

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xv. At the end of the month MPSEB and the companies will reconcile their accounts and make a statement of default/outstanding payments towards each other.

xvi. At the end of the month, MPSEB will furnish to the TRADECO consolidated statement of account for the transactions made towards sale and purchase of power company wise and utility/agency wise and will also remit the cash balance if any to TRADECO towards trading of power.

4. CASH FLOW ACCOUNTING

A)For the “DISCOMS”

i. To enable the billing & collection from all consumers & to receive funds to meet out various expenses the DISCOMSs will maintain two bank accounts in their names in each Regional Accounting Unit (RAOs) one Revenue Collection Account & other “Expenditure Account” Each RAO will operate these two bank accounts. At the HQs DISCOMSs will also maintain a Revenue Collection Account for receiving revenue collection and Expenditure Account for funds received from MPSEB to meet out their expenses.

ii. All revenue collection will be received & accounted in the revenue collection account. Accounting entries as currently passed will be continued in the books of the DISCOMs.

iii. The DISCOMs will keep maintaining standing instruction to the banks to remit all collections received on a daily basis to a designated central account in the name of MPSEB (already maintained by B&CM). Thus all cash received shall be immediately transferred to the control of the MPSEB. Revenues received in the escrowed accounts meant for the debt repayment for PFC / REC loans. In the eventuality of default, if PFC / REC draws their

Page 39

over dues directly from these RAO’s accounts, it will be treated as remittance to MPSEB in the books of the said DISCOM & in turn discharge of debt liability of PFC / REC as the case may be.

iv. On all such such remittance made to MPSEB account the DISCOMs will account the payment as an “Ad – hoc payment made to MPSEB” which will be reconciled at the end of the month. Thus in the books of the DISCOMs revenue will be accounted against bills raised & collected from the consumers & the cash remittances will be shown as an advance adhoc payment made to MPSEB against purchase of power from TRANSCO.

v. TRANSCO shall on a monthly basis raise invoices in the name of the DISCOMs for the power purchased by them. These invoices shall be passed shall be passed by the DISCOMs & accounted as expenditure in their books. Invoices raised by TRADECO for power purchase should be credited to the “TRADECO creditor” account to reflect settlement of specific power purchase bills of TRANSCO. The liabilities so created shall be set off against the “Ad – hoc” payment made to MPSEB account after due confirmations with MPSEB. On such liability set off, the DISCOMs shall pass a book entry transferring the amount from the “Ad - hoc” account to the creditor account created in the name of “TRANSCO creditor” towards all power purchases.

vi. MPSEB shall also remit in the expenditure account at DISCOM’s HQ. Funds on a regular basis for the DISCOMs to meet the A&G routine or essential O&M & establishment expenditure. Such remittance shall be set off against the “Ad – hoc or advance payment made of MPSEB” the DISCOMs will continue the remittance against the above account. Expenditure accounting in the DISCOMs will continue to happen as usual. The expenditure bills will be booked in the DISCOMs books & liabilities so created will be settled from the remittance received from MPSEB.

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vii. The bills received from TRANSCO through TRANSCO will be accounted in the books of the DISCOMs as expenditure. MPSEB will settle the TRANSCO bills under the advice to the DISCOMs. The liabilities in DISCOM books will be settled against the Ad – hoc payment made to MPSEB on the basis of the advice received from MPSEB.

viii. Loan liabilities transferred to the DISCOMs through opening balance sheets, as a part of the Transfer Scheme will continue to be in the books of the DISCOMs MPSEB will settle these liabilities on a case – to – case basis depending upon availability repayment. MPSEB will advice the DISCOMs of having made payments on their behalf DISCOMs will account for such liability reduction by crediting the “Ad – hoc payment made to MPSEB” account.

ix. Under the normal circumstances the debit balance in the “Ad – hoc” account in the books of the DISCOMs should represent surplus cash generated from operations & ideally should be remitted back to the DISCOMs by MPSEB. However, given the cash shortfall in the sector this account in the DISCOM books will have a credit balance i.e. reflecting an accounts payable situation in their books against power purchase bills directly paid out by MPSEB on their behalf.

x. This credit balance may be analyzed & reduced based on the subsidies received from the State Government.

(b) For the “GENCO”

i. In the case of GENCO each flow management will be based on the cash paid out against their bulk supplies of power to their single buyer i.e. TRANSCO.

ii. From an accounting perspective GENCO will account for revenues on the basis of the bulk supply invoices raised on TRANSCO. These receivables will be settles based on payments made by MPSEB.

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c) For the “TRANSCO”

i. TRANSCO will raise invoices for transmission / wheeling charges on the Distribution companies through TRADEO & account for the revenues. These receivables will be settled against remittances received from MPSEB on behalf of the DISCOMs.

d) For the “MPSEB”

i. MPSEB will have the accounting perspective as a temporary holder of cash on behalf of all the sector entities.

ii. For this MPSEB will maintain 3 separate accounts for the 3 DISCOMs as “Ad – hoc remittances received from DISCOM East / Central / West”. These accounts shall be mirror accounts of the similar accounts maintained by the DISCOMs.

iii. MPSEB will have its own separate accounts for the power purchase & trading functions for & on behalf of TRANSCO.

iv. Depending on the utilization of funds. MPSEB shall carry out the following

Bills raised by TRADECO for power sales on DISCOMs shall be accounted in MPSEB accounts as revenues of TRADECO. Amounts settled by MPSEB against these bills will be transferred through a book entry from the relevant DISCOM debtor accounts to reflect the settlement of specific bills for power sales.

v. Amount remitted back to DISCOMs for meeting their respective expenditure & amounts paid against TRANSCO invoices raised on the DISCOMs will be directly debited to the “Ad – hoc remittances …” accounts relevant to the specific DISCOMs

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(a) The same as in (b) shall apply in the case of loan liability payment made by MPSEB on behalf of the DISCOMs.

(b)Copy of bills received from TRADECO for power purchase from GENCO & other bulk suppliers shall be accounted as expenditure of TRADECO in the books. Payments made to GENCO & the other bulk suppliers shall be settled against such liabilities.

vi. On the monthly basis the DISCOMs & MPSEB shall be reconcile their respective Ad – hoc remittances / payments accounts & ensure that the balances reflect the correct position in each other books MPSEB will also reconcile the accounts with the accounts with GENCO TRANSCO & TRADECO on monthly basis.

e) For the “TRADECO”

i. On the monthly basis MPSEB shall furnish a single a single entry statement to TRADECO the net & the final amount received & paid towards trading of power company Utility Agency wise.

5. OTHER TRADING BUSINESS BY TRADECO:

In addition to meeting the demand of the 3 DISCOMs the TRADECO will also trade the power to the other utilities within or outside the state in that Cash Flow arrangement shall be as under:

i. Any surplus power of the state power sector can be sold by the TRADECO to other buyers & proceedings from the Sale of power shall be deposited in a separate bank account (Trading account) maintained by the TRADECO. However the cost of energy at the rate being billed to the DISCOMs (Pooled

Page 43

rate) shall be transferred in MPSEB account for making payments to the power suppliers.

ii. The transaction from other trading of power i.e. purchase & sale of power other than the pooled power of the sector shall be made from the TRADECO’s Trading account which shall not be part of the Cash Flow Mechanism.

6. DISPUTE RESOLUTION COMMITTEE:

i. Disputed relating to financial matters if any shall be resolved in the monthly meetings between heads of F &A department in respective companies & F&A head of MPSEB / TRADECO. They will take guidance & directives from & directives from the financial Advisor MPSEB as and when necessary.

ii. Disputes relating to commercial matters shall be resolved in the monthly meetings between commercial head of TRADECO & counter parts in respective companies. If required they will take guidance & directives from the Financial Advisor / Secretary MPSEB.

iii. In the event any dispute either financial or commercial remains unresolved the same shall be referred to the Apex Redressal Committee comprising of CMDs / MD of the companies on quarterly basis or as and when required.

iv. If the Apex Committee is unable to arrive at a consensus then the matter will be referred to the GoMP for adjudication. Decision of the GoMP shall be final & binding on all the parties.

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7. CASH FLOW MANAGEMENT DURING TRANSIT PERIOD:

Process for issuing power purchase bills in the name of TRADECO may take some time. Similarly for banking arrangements for fund transfer between MPSEB & companies under the changed scenario, negotiations with bankers are to be initiated & finalized. For switching over into the new arrangement the companies would also require approval of their BoD. As such during the transition period settlement of bulk power energy bills by MPSEB shall be treated as settled with the TRADECO. The transit period will however be not more than 2 months.

8. RIGHT TO AMEND THE CASH FLOW MECHANISM:

i. The state government by issue of separate order(s) from time to time may amend the CFM & make such provision as may appear to be necessary for removing the difficulties arising in implementation of this mechanism.

ii. The Financial Advisor of MPSEB may make changes in the CFM from time to time necessary from smooth operation of the cash flow mechanism to the extent not disagreed by any of the Company under intimation of the state government.

9. VALIDITY OF THE CASH FLOW MECHANISM:

The CFM will be valid till:

(a) The cash deficit in the revenue earnings & expenditure requirements is resolved to the satisfaction of all the companies.OR

(b) Issue of further directives from the state government.

One DISCOMs are in position to meet all their expenses including power purchase pooling of the revenue earnings with MPSEB will not be required & the state government by an order will terminate this mechanism.

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Specific Account Heads of Annual Statement of Accounts of MPSEB (Rs. In Lakh)

S. No.

Particulars 2007-08 2008-09

1234a.b.c.d.e.5

6789101112

Net profit and loss for the period Depreciation for this yearSubsidy receivable from govt.Current AssetsStocksReceivables against supply of powerCash and Bank BalancesLoans and AdvancesSundry receivablesCurrent LiabiltiesSecurity Deposits from consumersPower purchase payablesStaff related liabilities Liabilities towards suppliersDeposits-Elect. Sevice connectInterest accrued but not due of this year Other liabilities

Fixed AssetsCapital work in progressInvestmentsEquity Consumer’s contributionLoansReserves & Reserve funds

5548.0147620.19

146333.59

13010.0145832.71

8602 1444.9 48526

17753.6919085.776286.17859.67

4768.2632832.08

72679.121440.167210.47

2952.434847.793062.24

26800.7751876.4742189.99

14190.16100651.44

29192.0131504.08

6055.01193595.1525083.051281.95

30125652.74

14395.01

16108.932707.71

150342.722516.38

285733.673543.4

Page 46

Increase/Decrease in specific account heads of annual statement of accounts of MPSEB for Cash Flow Statement

2007-08 2007-08 2008-09 2008-09S. NO.

PARTICULARS Increase Decrease Increase Decrease

1

23

Net profit and loss for the periodDepriciation for this yearSubsidy receivable from govt.

5548.01

47620.19146333.59

51876.47

26800.77

42189.99

4 Current Assets

ab

cde

StocksReceivables against supply of powerCash and Bank BalancesLoans and AdvancesSundry receivables

13010.01

8602

45832.71

1444.9

14190.16100651.44

29192.0131504.08

5 Current Liabilities

a

bcde

f

g

6789101112

Security Deposits from consumersPower purchase payablesStaff related liabilities Liabilities towards suppliersDeposits-Elect. Sevice connectInterest accrued but not due of this year Other liabilities

Fixed AssetsCapital work in progressInvestmentsEquity Consumer’s contributionLoansReserves & Reserve funds

48526

17753.6919085.776286.17859.67

4768.26

32832.08

72679.121440.167210.47

2952.434847.793062.24

6055.01

25083.05

3012

5652.74

16108.932707.71

150342.722516.38

285733.673543.4

193595.15

1281.95

143395.01

15965.94

Page 47

13 Total Increase/ Decrease 473418.1

14 Net Increase/Decrease in cash and cash equivalent

12607.53

CASH FLOW STATEMENT (For the year ended 31 st March -2008 & 2009)

(Rs. In lakh )

2007-08 2007-08 2008-09 2008-09A

1

2a

Cash flow from Operating ActivitiesNet profit and loss for the periodDepriciation for this yearSubsidy receivable from govt.

5548.01

47620.19-146333.59

53168.2

-26800.77

51876.47 42189.99

25075.7

ab

cde(A)

Current AssetStocksReceivables against supply of powerCash and Bank BalancesLoans and AdvancesSundry receivablesNet change in current asset(a+b+c+d+e)

-13010.0145832.71

-86021444.9

-120668.47

-14190.16-100651.44

-29192.01-31504.08-133347.7

f

ghij

k

l(B)

Current LiabilitiesSecurity Deposits from consumersPower purchase payablesStaff related liabilities Liabilities towards suppliersDeposits-Elect. Sevice connectInterest accrued but not due of this year Other liabilitiesNet change in current

-48526

-17753.69-19085.77-6286.17-859.67

4768.26

-32832.08

-6055.01

193595.15-25083.05

1281.95-3012

5652.74

143395.01

Page 48

3

B

abc4

C

abcd5

6

7

8

liabilities(f+g+h+i+j+k+l) Net cash flow from operating activities[(A)+(B)]

Cash flow from Invetsing Activities

Fixed AssetsCapital work in progressInvestmentsNet Cash flow from investing activities

Cash flow from Financing ActivitiesEquity Consumer’s contributionLoansReserves & Reserve fundsNet cash flow from Financing Activities Net Increase/Decrease in cash and cash equivalent (2+3+4+5)Cash and cash equivalent at the beginning of the periodCash and Cash equivalent at the end of the period

-120575.12

-72679.12-1440.16-7210.47

0 2952.4

34847.793062.24

-93.35

-81329.75

40862.43

12607.53

2914.24

15521.77

309774.79

-16108.9-32707.71

15965.94

150342.722516.38

285733.673543.4

-443122.49

-32850.67

442136.17

-8761.29

15521.77

6760.48

Page 49

MAJOR FACTORS THAT CONTRIBUTE TOWARDS NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENT

1. For the year ended 31 st March 2008 :- Net increase in Cash and Cash Equivalent for Rs. 12607.53 Lakh are as following:-

I. Decrease in Sundry Receivables for Rs. 1444.90 Lakh II. Interest accrued but not due of this year for Rs. 4768.26 Lakh

III. Increase in Consumers Contribution for Rs. 2952.40 LakhIV. Increase in reserve and Reserves funds for Rs. 3062.24 Lakh

All these major factors which simultaneously contributes towards net increase in cash and cash equivalent for the year ended 31st March 2008.

2. For the year ended 31 st March 2009:- Net decrease in cash and cash equivalent for Rs. 8761.29 lakh are as following :-

I. Increase in stocks for Rs. -6055.01lakhII. Increase in deposits- Elect. , service connection for Rs. -3012 lakh

These two major factors which simultaneously contributes towards net decrease in cash and cash equivalent for the year ended 31st March 2009.

LINK BETWEEN CASH AND BANK BALANCE AND

NET PROFIT & LOSS

For the year ended 31 st March 2008 :- Net increase in cash and bank balance from Rs. 2914.24 lakh to Rs. 15521.77 lakh due to increase in net profit for Rs. 5548.01 lakh.

For the year ended 31 st March 2009 :- Net decrease in cash and bank balance from Rs. 15521.77 lakh to Rs. 6760.48 lakh due to increase in net losses for Rs. 26800.77 lakh.

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WORKING CAPITAL

(1) For the year 2007-08:- There was decrease in working capital for Rs. 93.35 lakh , which means that it was cash inflow in the organization.

(2)For the year 2008-09:- There was decrease in working capital for Rs. 443122.49 lakh, which means that it was cash inflow in the organization.

CONCLUSION FROM CASH FLOW STATEMENT

(1)The difference between Net profit and loss for year 2007 and 2008 i.e. for Rs. -16682.54 lakh and Rs.5548.01 lakh are Rs. -22230.59 lakh. This margin cash and cash equivalent comes from the year 2008 for the following activities:-

i. Increase in loans and advances for Rs.-8602.48 Lakhii. Increase in liabilities towards suppliers for Rs.-6286.17 Lakh

iii. Increase in Investment for Rs.-7210.47 Lakh

(2) The difference between Net Profit & Loss for year 2008 & 2009 i.e. For Rs.5548.01 Lakh & Rs. -26800.77 Lakh are Rs. 32348.78 Lakh. This margin cash & cash equivalent comes from the year 2009 for the following activities:-

i. Decrease in subsidy Receivables from govt. for Rs. 42189.99 lakhii. Increase in Fixed Assets for Rs. -16108.90 lakh

iii. Increase in Consumer contribution for Rs. 2516.38 lakhiv. Increase in Reserve & Reserve funds for Rs. 3543.40 lakh

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6] CONCLUSION AND SUGGESTIONS:-

6.1]CONCLUSION

1] A very big problem with MPSEB is that it has less cash income from consumers but more expenses on generating and purchasing of power.

2] Company increasing loans every year for working capital from state govt. and central govt. but not able to pay the interest on loan and make repayments of loan principal amounts.

3] Company increasing loans every year for working capital from state govt. and central govt. but not able to pay the interest on loan and make repayments of laon principal amounts.

4] Increase in debtors shows that cash collection is less than sales figure which is showing in revenue account.

5] The company is not getting full recovery against the bills receivables.It is reducing company’s cash flow.

6] The company is able to recover only about 85% out of 100% of its bills for power distribution.

6.2] SUGGESTIONS

On the basis of findings we offer following suggestions:

1] MPSEB should curtail their cash expenditure and increase their cash in hand, cash at bank, and marketable securities.

2] Board should try to increase their liquid assets and decrease current liabilities so that firm can easily meet out the current liabilities. At present the current liabilities or short term liabilities are not secured.

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3] Board should not only increase cash in hand, cash at bank, and marketable securities but also increase other current assets for payment of short term liability.

4] Board should curtail their long term borrowings from short term funds so that financial obligation may be managed properly.

5] MPSEB should try to maintain adequate amount of cash in hand and cash at bank among total current assets so that liquidity could be maintained.

6] Spot Billing: Spot billing using handheld computers was introduced in November 2001 in Hyderabad, and now it has been introduced throughout the state. A meter reader reads the meter and produces a bill immediately using the handheld computer. According to APCPDCL, there has been a remarkable increase in billing demand and in customer satisfaction. The company has been able to reduce the time from when the meter is read until the company receives the payment from the customer by half (from 90 days to 45days). This has resulted in better cash flow for the company. As a result, the bills are not bunched, which is better monitoring and reduction of billing complaints. MPSEB can also adapt this technique.

7] The Company should re-appraise its investment options to achieve the stated growth objective.

8] The Board has to reduce its current liabilities.

9] The Board is not making full recovery against the bill of electricity issued to consumers for which company has to make strict policy rules. They can outsource people for the bill collection purpose.

10] The Board should estimate funds requirement and then consider best alternative option.

11] The Board should first compare and then choose the growth plan and the relevant financing option from various alternatives.

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12] Board should control line loss and losses through theft.

13] Board should charge government because government provides free electricity to farmers and free electricity in rural areas.

14] Remove power shortage in the State by setting up new generating power projects to meet the ever increasing power demand.It will increase the cash inflow ultimately.

15] Strengthening and system improvement of Sub-Transmission and Distribution system, Energy Audit, 100% meterisation and prevention of theft will increase profits and then cashinflow.

16] To bridge the Rural – Urban gap by extending the electricity to all the villages of the State and habitation and provide access to electricity to all rural households also help in making long term profits and increasing cashinflow.

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ANNEXURE- 1

RULES AND REGULATIONS

I. The Electricity Supply Act, 1948.

II. Fundamental Rules.

III. M.P.Civil Services(Classification, Control & Appeal)Rules.1966

IV. M.P.Civil Services (Conduct)Rules,1965.

V. M.P.Civil Services(Medical Attendance)Rules,1958.

VI. M.P.Civil Services(Leave)Rules, 1977

VII. General Service Regulations.

VIII. M.P. Reforms Act. 2000.

IX. M.P. Reorganization Act.2000.

X. M.P.Electricity Act. 2003.

XI. ESSAR 1985.

XII. Commercial Accounting Mannual.

XIII. Cash Accounting Mannual.

XIV. Standard standing orders

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ANNEXURE- 2

BIBLIOGRAPHY:-

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I M Pandey (Financial Management)

Prasanna Chandra (Financial Management Theory and Practice)

Audit Reports

Shashi K. Gupta and R.K.Sharma(Financial Management)

Company Account & Cost & Management Accounting Paper-2 (Part-B) [The institute of company secretaries of India]

Management Accounting (King’s Books)

www.mpseb.co.in

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