6.43

Depreciation

GRIDCO in its application for the year 2001-02 has claimed towards depreciation Rs.90.24 Crore for the year 2001-02 and Rs.123.78 Crore for the year 2002-03. The method of charging depreciation on the assets of GRIDCO for the year 2001-02 as well as for FY 2002-03 has already been dealt in detail in para 6.6.1 to para 6.6.2. Accordingly, the Commission has recalculated the depreciation on the basis of pre-92 rates prescribed by Government of India notification and approves provisionally depreciation of Rs.44.96 Crore for the year 2001-02 and Rs.61.80 Crore for the year 2002-03.

6.44

Contribution to contingency Reserve

GRIDCO has proposed Rs.7.31 Crore and Rs.9.92 Crore towards contribution to contingency reserve for the year 2001-02 and 2002-03 respectively under Para-IV of Sixth Schedule of the Act, 1948. As per provision of Para-IV of the Sixth Schedule, such contingency reserve amount should not be less than one quarter of 1% not more than one-half of 1% of the original cost of average of the fixed cost assets of the year. The amount proposed by GRIDCO is within the prescribed limit. Hence, the Commission approves an amount of Rs.7.31 Crore and Rs.9.92 Crore for the year 2001-02 and 2002-03, respectively towards contribution to contingency reserve.

6.45

Capital Base

6.45.1

Original Cost of Fixed Asset

For the purpose of calculation of original cost of fixed assets, GRIDCO has proposed a figure of Rs.1984.36 Crore and Rs.2204.06 Crore as on 31.3.2002 amd 31.3.2003, respectively (TRF-23 of ARR 02-03). GRIDCO in its submission at the time of public hearing revised the figure to Rs.1992.62 Crore and Rs.2481.22 Crore as on 31.03.2002 and 31.03.2003 respectively.

6.45.2

The gross value of assets as on 31.3.99 in the audited accounts of 1998-99 is Rs.1178.93 Crore. The addition to fixed assets in the years 1999-00, 2000-01, 2001-02 and 2002-03 are Rs.102.50 Crore, Rs.180.53 Crore. Rs.530.66 Crore and Rs.488.60 Crore respectively (TRF-23 of BST 2001-02 and ARR 2002-03). GRIDCO in TRF-23 mentioned that it began operations with transferred assets on 01.4.96. Depreciation is charged on Audited Annual Accounts of FY 97 and FY98 on the transferred value and additions/deletions thereafter. GRIDCO also stated that none of the major assets of GRIDCO could therefore be depreciated in excess of 90%. However, GRIDCO will be in a position to furnish exact details of assets only after the Asset Registers are prepared for the field units. Consumers’ contribution for deposit work is to be deducted from the original cost of fixed assets for the purpose of determination of capital base as per para XII of Sixth Schedule of the Act, 1948. As verified from Audited Accounts of the year 1998-99 under Schedule-2 Reserves Surpluses, the consumer contribution as on 31.3.99 stands at Rs.15.78 Crore. GRIDCO in its capital base calculation (TRF-7 of BST 01-02 & ARR, 02-03) did not deduct the same from original cost of fixed assets. Therefore, the original cost of fixed assets should be reduced by Rs.15.78 Crore for 2001-02 as well as for 2002-03.

6.45.3

As per the auditor’s report of 1998-99, the company has not maintain Fixed Asset register showing quantitative details and situation of the Fixed Assets. Further, the company has not carried out physical verification of Fixed Asset during the year. This issue was raised by the objectors during the course of the hearing. The inordinate delay in preparation of the Asset register by GRIDCO is viewed seriously and GRIDCO is directed to complete the asset register by August 2002 and report compliance.

6.45.4

The asset position including year to year addition as given by GRIDCO is reflected in Table : 38.

Table : 38
(Rs. in Crore)

Year

1999-00
(Prov.)

2000-01
(Prov.)

2001-02
(Estimate)

2002-03
(Estimate)

Opening balance

1178.93

1281.43

1461.96

1992.62

Asset addition

102.50

180.53

530.66

488.60

Closing balance

1281.43

1461.96

1992.62

2481.22

6.45.5

In this connection, the asset position as estimated by the Commission on the basis of submission made by GRIDCO in the tariff filing 2000-01 is reproduced below (Para 6.17.3, OERC Case No. 27 of 2000).

Table : 39
(Rs. in Crore)

Year

1997-98
(Audited)

1998-99
(Audited)

1999-00
(Proposed)

2000-01

Opening balance

1076.50

1117.60

1175.17

1276.87

Asset addition

41.10

57.57

101.70

309.90

Closing balance

1117.60

1175.17

1276.87

1586.77

6.45.6

It may be observed that for the purpose of calculation of capital base, the closing balance for the year 2000-01 was accepted as Rs.1586.77 Crore which stands revised to Rs.1461.96 Crore. This discrepancy is on account of a much lower level of asset addition i.e. Rs.180.53 Crore as compared to the projection of Rs.309.90 Crore for the year 2000-01. The effect of this has been enhancement of the capital base. Its effect is also to be felt in calculation of interest/return. Benefits availed by the licensee on account of this inflated capital base resulting in higher BST for FY 2001 need to be adjusted against the losses, if any, incurred by the company within the performance parameters fixed by the Commission. Similarly, surplus, if any determined after finalisation of accounts will be adjusted against the revenue requirement of the succeeding year. GRIDCO should report by August, 2002 the final figures of capital base after adjustments.

6.46

Original cost of work-in-progress

6.46.1

The original cost of works-in-progress projected by GRIDCO would be Rs.545.09 Crore and Rs.496.60 Crore as on 31.3.02 and 31.3.03 respectively. Subsequently, at the time of public hearing GRIDCO submitted revised figure of Rs.540.90 Crore and Rs.324.75 Crore as on 31.03.2002 and 31.03.2003 respectively (TRF-7 of BST 01-02 and ARR 02-03). Table : 40 shows the opening balance of WIP, Capital expenditure, Interest during construction, Transfer to fixed asset and closing balance of WIP as projected by GRIDCO.

Table : 40
(Rs. in Crore)

 

1998-99

1999-00

2000-01

2001-02

A. Opening balance of WIP

415.97

585.03

726.23

540.90

B. Capital expenditure during the year

226.54

260.95

268.72

206.44

C. Interest during construction

43.80

58.10

72.26

62.00

D. (A+B+C)

686.31

904.08

1067.21

809.34

E. Transfer to fixed asset

101.28

177.85

526.31

484.59

F. Closing Balance

585.03

726.23

540.90

324.75

6.46.2

The position of cost of WIP as approved in the tariff order for the FY 2000-01 vide Case No.27/2000 dtd.19.01.2001 is reproduced in Table : 41.

Table : 41
(Rs. in Crore)

 

1997-98

1998-99

1999-00

2000-01

A. Opening balance of WIP

174.64

254.63

393.04

566.17

B. Capital expenditure during the year

121.06

195.98

274.88

389.05

C. (A+B)

295.70

450.61

667.92

956.22

D. Transfer to fixed asset

41.07

57.57

101.75

309.92

E. Closing Balance

254.63

393.04

566.17

646.30

F. Advance pending allocation to Capital Works

19.37

25.72

25.72

25.72

G. Stores

 

 

 

46.30

H. Closing balance of WIP (C to F)

274.00

418.76

591.89

718.32

6.46.3

The Commission’s observation is that the original cost of WIP is on the rise from year to year and likely to reach a figure of Rs.540.90 Crore by 31.3.2002 and Rs.324.75 Crore by 31.3.2002 as projected by GRIDCO. The question of huge balance of WIP was severely criticised by the objectors during the course of the hearing. The general observation was that since there is no commensurate load growth for utilisation of the capacity addition, GRIDCO should to the extent possible restrict new investments so that its impact remains minimum on the tariff for the consumers. Even objectors questioned that this investment has not brought about any reduction in transmission loss for which the Commission was requested to examine the prudence of such expenditure and should also restrict and prevent GRIDCO in going ahead of further infructuous investment.

6.46.4

GRIDCO clarified that these works had been taken up after proper technical evaluation and scrutiny to meet the quality of supply and load growth. The material procurement and associated contracting for executing the work have since been taken up for which it is difficult to rescind and go back on the agreements already executed. Besides, the present network is not capable of meeting the operating standards prescribed by OERC at all points of supply for which it has become extremely necessary to strengthen the existing network to comply with the operating standards of OERC and to meet the load growth at a future date. It is worthwhile to mention that GRIDCO has upgraded the transformer capacity in EHT grid sub-station from 3655 MVA to 5356.5 MVA and strengthened the transmission network by 816 KM of transmission lines from the year 1996-2001, which was essential for stability of supply. GRIDCO further in its rejoinder dtd.30.3.2002 has stated that currently most of the ongoing projects are funded by the IBRD and the funds are coming through Government of Orissa. Funds are not released in time by the GoO causing delay in the execution of the projects which is beyond the control of GRIDCO. Any benefit of the investment can come only after the completion of the project and delay in completion of the project beyond date of completion is attributable to delay in release of World Bank fund, delay in getting the forest clearance, problem of right of way and problem of land acquisition. There was also impact of super cyclone in 1999 as a result of which exection of World Bank Projects got delayed.

6.47

Intangible Assets

GRIDCO proposes a sum of Rs.6.08 Crore for both years towards intangible assets (TRF-7 of BST 01-02 and ARR 02-03). GRIDCO in its application has stated that the intangible asset’s consists inter alia, of bond issue expenses incurred by the company pending amortization. While approving the BST for the year 2000-01, the Commission in para 6.19.2 of its order had approved a sum of Rs.6.12 Crore as intangible assets. In accordance with the previous year’s consideration, the Commission also approves the sum of Rs.6.08 Crore for each of the years 2001-02 and 2002-03.

6.48

Compulsory Investment under Sixth Schedule

6.48.1

In accordance with the Sixth Schedule to the Supply Act, 1948 GRIDCO in its application (BST 2001-02 & ARR 2002-03) has stated that the compulsory investment by the year 2001-02 will be Rs.18.65 Crore and Rs.28.57 Crore by 2002-03. The Commission was intimated vide GRIDCO letter No.FW-Res-CC/19484 dt.30.10.2001 that a sum of Rs.11.34 Crore had been invested in the State Government security towards special appropriation of Rs.4.96 Crore for the FY 1999-00 and Rs.6.38 Crore for FY 2000-01 as approved by the Commission in its previous tariff order. GRIDCO in its RR application of FY 2002-03 has requested for appropriation to contingency reserve of Rs.7.31 Crore for the FY 2001-02 and Rs.9.92 Crore for FY 2002-03. After taking into consideration the deposit of Rs.11.34 Crore already made and the proposed appropriation for the year FY 2002-03, the compulsory investment up to 2001-02 and 2002-03 would be Rs.18.65 Crore and Rs.28.57 Crore respectively as proposed by GRIDCO.

6.48.2

In this connection, it is pertinent to mention that as per para IV(2) of the Sixth Schedule of the Act, 1948, the sums appropriated to contingency reserve should be invested in securities authorized under the Indian Trust Act, 1882 (2 of 1882) and such investment should be made within a period of six months of the close of year of account in which appropriation is made. In other words, funds accumulated under the head Contingency Reserve upto FY 2000-01 should have been invested by September, 2001. The Licensee has produced evidence of investment of Rs.11.34 Crore in the scheduled securities as prescribed in the Sixth Schedule of the Act, 1948 and the above fact has been intimated vide GRIDCO’s letter No.19484 dt.30.10.2001 to the Commission. Therefore, while calculating the capital base, the Commission allows inclusion of the amount of compulsory investment proposed by GRIDCO for purposes of calculating capital base. Appropriate steps should be taken for making compulsory investment of balance amount of Rs.7.31 Crore appropriated for the year 2001-02 and Rs.9.92 Crore for the year 2002-03 in due time and produce proof of such investment during the next tariff hearing.

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