21st Annual Report 2005-2006

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21st Annual Report 2005-2006

TWENTY FIRS T ANNUAL GENERAL MEETING

DAY : FRIDAY, 29TH SEPTEMBER, 2006TIME : 11.30 A.M.PLACE : REGISTERED OFFICE

P.O. PETROCHEMICAL - 391 346DIST. VADODARA

GUJARAT INDUSTRIES POWER COMPANY LIMITED

P.O. PETROCHEMICAL - 391 346, DIST. VADODARA (GUJARAT)

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Gujarat Industries Power Company Limited

CONTENTS

Board of Directors ............................................................................................................ 3

Notice............................................................................................................................... 5

Directors Report .............................................................................................................. 10

Management Discussion and Analysis Report ................................................................. 17

Report on Corporate Governance .................................................................................... 27

Auditors Report ............................................................................................................... 41

Balance Sheet ................................................................................................................... 44

Profit & Loss Account ...................................................................................................... 45

Schedules ......................................................................................................................... 46

Cash Flows Statement ...................................................................................................... 63

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Board of DirectorsShri Balwant Singh, IAS ChairmanShri P. K. Taneja, IAS DirectorShri A. K. Joti, IAS DirectorShri A. Khandual Director - IDBI NomineeProf. Shekhar Chaudhuri DirectorShri M. S. Agarwal DirectorProf. Kirankumar Joshi DirectorDr. P. K. Das DirectorShri A. N. Mandke DirectorShri L. Chuaungo, IAS Managing Director

Senior Executives Shri D. G. Naik Executive Director (Technical)Shri S. L. Bose General Manager (SLPP)Shri D. N. Bhatia General Manager (Finance)Shri R. K. Nair Addl. General Manager (O & M - SLPP)Shri S. C. Pathak Addl. General Manager (HR & A)Shri P. N. Trivedi Addl. General Manager (Commercial)Shri K. K. Shah Addl. General Manager (Finance)

Company Secretary Shri V. V. Vachhrajani

Bankers Baroda Stations Surat Lignite Power PlantCentral Bank of India Syndicate BankDena Bank State Bank of SaurashtraPunjab National Bank Oriental Bank of CommerceState Bank of India Indian Overseas bankBank of Baroda Vijaya BankOriental Bank of Commerce ING Vysya Bank

Karur Vysya Bank Ltd.

Auditors M/s. C.C. Chokshi & Co. Vadodara

Registrar & Transfer agent Intime Spectrum Registry Limited308, Jaldhara ComplexOpp. Manisha SocietyOff Old Padra Road, Vasna RoadBaroda - 390 015(Tel) (0265) 2250241, 3249857(Fax)(0265) 2250246e-mail: [email protected]

Registered Office & Works P.O. Petrochemical - 391 346, Dist.Vadodara(Tel.) (0265) 2232768, 2232213, 2230159(Fax) (0265) 2232143, 2231207. 2230473e-mail: [email protected]

Surat Lignite Power Plant At & Post Nani Naroli, Taluka - MangrolDist. Surat - 394 110(Tel.) (02629) 261063 to 261072(Fax) (02629) 261073 & 261074e-mail : [email protected]

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ATTENTION

1. Pursuant to Section 154 of the Companies Act, 1956, theRegister of Members and Share Transfer Books of theCompany shall remain closed from Monday, the 18thSeptember, 2006 to Thursday, the 28th September, 2006(both days inclusive).

2. Members are advised to address all correspondencequoting their Ledger Folio Number (LF No.) Client-ID& DP ID No. and to immediately notify their changeof address etc. details if any, to the Companys newRegistrar and Transfer Agents viz. Intime Spectrum

Registry Limited, 308, Jaldhara Complex, Opp.Manisha Society, Off Old Padra Road, Vasna Road,Baroda - 390 015, Gujarat, India. Members may alsosend in their queries etc. by e-mail [email protected].

3. Members who are holding Shares in the Company andhave not received or have not encashed their Dividend/Interest warrants are requested to write to us or to theCompanys Registrar and Transfer Agents.

4. Members are advised to hold Shares jointly to simplify theprocedure of transmission in the event of death of anyholder.

5. Members holding shares in physical form and are holdingmore than one Share Certificate in the same name underdifferent folios are requested to apply for consolidation ofsuch folios into one folio and send relevant SahreCertificates to the Company to make necessaryendorsements.

6. Members desirous of obtaining any informationconcerning the accounts and operations of the Companyare requested to send their queries to the Company atleast fifteen days before the date of the meeting so thatthe information required by the members may be madeavailable at the meeting.

7. Members attending the meeting are requested to bring

with them the Attendance Slip and hand over the sameat the entrance of the meeting hall, failing whichadmission to the meeting may be refused.

8. Individual shareholders can now avail the facility ofnomination. The nominee shall be the person to whom alrights of transfer and/or amount payable in respect of the

shares shall vest in the event of death of shareholder(s). Aminor can also be a nominee provided the name ofguardian is given in Nomination Form. The facility ofnomination is not available to non-individualshareholding such as Bodies Corporate, InstitutionalInvestors, Kartas of Hindu Undivided Families, holders ofPower of Attorney etc. In case of any assistance pleasecontact Mr. V.V. Vachhrajani, Company Secretary at theregistered office of the Company or Intime SpectrumRegistry Limited, the Registrar and Share Transfer Agentsof the Company.

9. Members may note that the Companys Securities are

listed on the following Stock Exchanges:Vadodara Stock Exchange Limited3rd Floor, Fortune Tower, Sayajigunj,Vadodara - 390 005.

Bombay Stock Exchange LimitedPhiroze Jeejeebhoy Towers, Dalal Street,Fort, Mumbai-400 001.

The Calcutta Stock Exchange Association Limited(Application for Delisting is Pending with them)7, Lyons Range,Kolkata - 700 001

National Stock Exchange of India Limited

Exchange Plaza, 5th Floor,Plot No. C/1, G Block,Bandra Kurla Complex, Bandra (East)Mumbai - 400 051.

With effect from 26-06-2000, Equity Shares of the Companyare compulsorily traded in dematerialised (demat) form asmandated by Securities and Exchange Board of India (SEBI).The Demat ISIN Numbers in NSDL & CDSIL for Equity Sharesis INE 162A01010.

Members may note that the Companys equity shares areavailable for dematerialisation with National SecuritiesDepository Ltd., Trade World, 4th Floor, Kamala Mills

Compound, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 and with Central Depository Services(India) Ltd., 28th Floor, Sir P.J. Tower, Dalal Street, Fort,Mumbai-400 001.

As a measure of economy, the Company does not distributethe copies of Annual Report at the Meeting, Memberstherefore are requested to bring their copies with them.

Members are requested to fill in the ECS (Electronic Clearing Services) Mandate Form which forms the part ofthis Annual Report and send the same duly filled in at the address of the Companys Registrars or at theregistered office of the Company. THE DISCRETION / DECISION OF THE COMPANY REGARDING ECS SHALLBE FINAL AND BINDING ON THE SHAREHOLDERS.

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NOTICE

NOTICE is hereby given that the Twenty First Annual General Meeting of the Members of Gujarat Industries Power CompanyLimited will be held on Friday, the 29th day of September, 2006 at 11.30 A.M. at the Registered Office of the Company at P.O.Petrochemical 391 346, Dist. Vadodara to transact the following business:

ORDINARY BUSINESS:

1. To receive, consider and adopt the Audited Balance Sheetas at 31st March, 2006 and Profit & Loss Account for theyear ended on that date and the reports of the Directorsand the Auditors thereon.

2. To appoint a Director in place of Prof. Shekhar Chaudhuriwho retires by rotation and being eligible offers himselffor reappointment.

3. To appoint a Director in place of Shri P K Taneja,IAS whoretires by rotation and being eligible offers himself forreappointment.

4. To declare dividend on Equity Shares for FY 2005-2006.

5. To consider, and if thought fit, to pass, with or withoutmodification(s), the following resolution as a SpecialResolution:

RESOLVEDTHAT pursuant to the provisions of Sections224A, 225 and other applicable provisions, if any, of theCompanies Act,1956, M/s. K C Mehta & Co., Chartered

Accountants, Vadodara be and are hereby appointedAuditors of the Company, in place of the retiring AuditorsM/s. C. C. Chokshi & Co., Chartered Accountants,Vadodara to hold office from the conclusion of thisMeeting until the conclusion of the next Annual GeneralMeeting of the Company, on such remuneration as maybe determined by the Board of Directors and reasonableout-of-pocket expenses actually incurred by them inconnection with the audit.

SPECIAL BUSINESS:

6. To consider, and if thought fit, to pass, with or withoutmodification(s), the following resolution as an OrdinaryResolution:

RESOLVED THAT Prof. Kirankumar Joshi who wasappointed as Additional Director of the Company underSection 260 and other applicable provisions, if any, of theCompanies Act, 1956, read with the relevant Article/s ofthe Articles of Association of the Company, if any, andwho holds such office upto the date of this AnnualGeneral Meeting and who is eligible for reappointmentand in respect of whom the Company has received anotice in writing along with a deposit of Rs. 500/- (RupeesFive Hundred Only) from a member under Section 257 ofthe Companies Act, 1956 proposing his candidature forthe office of Director, be and is hereby appointed as aDirector of the Company and shall be liable to retire byrotation.


RESOLVED THAT Dr.P K Das who was appointed asAdditional Director of the Company under Section 260and other applicable provisions, if any, of the CompaniesAct, 1956, read with the relevant Article/s of the Articles

of Association of the Company, if any, and who holdssuch office upto the date of this Annual General Meetingand who is eligible for reappointment and in respect ofwhom the Company has received a notice in writingalong with a deposit of Rs. 500/- (Rupees Five HundredOnly) from a member under Section 257 of theCompanies Act, 1956 proposing his candidature for theoffice of Director, be and is hereby appointed as aDirector of the Company and shall be liable to retire byrotation.


RESOLVED THAT A N Mandke who was appointed as

Additional Director of the Company under Section 260and other applicable provisions, if any, of the CompaniesAct, 1956, read with the relevant Article/s of the Articlesof Association of the Company, if any, and who holdssuch office upto the date of this Annual General Meetingand who is eligible for reappointment and in respect ofwhom the Company has received a notice in writingalong with a deposit of Rs. 500/- (Rupees Five HundredOnly) from a member under Section 257 of theCompanies Act, 1956 proposing his candidature for theoffice of Director, be and is hereby appointed as aDirector of the Company and shall be liable to retire byrotation.

For Gujarat Industries Power Co. Ltd.

Registered Office: sd/-P.O. Petrochemical 391 346, V. V. VachhrajaniDist. Vadodara. Company Secretary

Date: 21 / 08 / 2006

NOTES :

1. THE MEMBER ENTITLED TO ATTEND AND VOTE ATTHE MEETING IS ENTITLED TO APPOINT A PROXY TOATTEND AND VOTE INSTEAD OF HIMSELF/HERSELFAND THE PROXY NEED NOT BE A MEMBER OF THECOMPANY. PROXY IN ORDER TO BE EFFECTIVE,MUST BE RECEIVED BY THE COMPANY, NOT LESSTHAN 48 HOURS BEFORE THE MEETING.

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2. The Explanatory Statement setting out the material factsconcerning the special business mentioned under Itemnos. 05 and 08 of the notice as required under Section173 of The Companies Act, 1956 is annexed hereto.

3. With the commencement of the Companies (Amendment)Act, 1999, effective from 31st October, 1998, themembers are advised that the Companies are now notrequired to transfer its unpaid/unclaimed dividend afterthe expiry of 3 years to the General Revenue Account ofthe Central Government, but the same will be transferredafter the expiry of the 7 years from the date from whichthey become due for payment to the special fund called Investors Education and Protection Fund (Fund). Noclaims will lie for the amounts so transferred. The

shareholders may please note that the dividends declaredfor the financial year 1992-93, 1993-94, 1994-95, 1995-96, 1996-97 & 1997-1998 has been transferred to theGeneral Revenue Account of the Central Government /Investor Education and Protection Fund and the Dividenddeclared in respect of financial year 1998-1999 is due fortransfer at the expiry of 7 years to the fund on 26/10/2006. Members are requested to take note of the same.

4. Relevancy of questions and the order of the speakers atthe meeting will be decided by the Chairman.

FOR THE INFORMATION OF SHAREHOLDERS

Those shareholders who have not yet encashed/claimeddividend warrants in respect of dividends declared duringthe Financial Years 1998-99, 1999-2000, 2003-2004 &

2004-2005, are requested to note that the said dividends are /will be due for transfer to Investors Education and ProtectionFund (IEPF) on the dates as given below:

Sr. Particulars of Financial Date of No. Dividend Year Transfer to

IEPF

01. 7th Dividend 1998-1999 26/10/2006

02. 8th Dividend 1999-2000 04/11/2007

03. 9th Dividend 2003-2004 04/10/2011

04. 10th Dividend 2004-2005 04/10/2012

Shareholders are requested to lodge their claims, if any, withthe Company in order to enable us to send the necessarypayment. However, as a measure of good investor service theCompany is normally sending intimation letters to theconcerned shareholders who have not claimed their dividendbefore the amount is transferred to the said fund.

ANNEXURE TO NOTICE:

EXPLANATORY STATEMENT PURSUANT TO SECTION 173OF THE COMPANIES ACT,1956 :

In conformity with the provisions of the Section 173 of theCompanies Act, 1956, the following Explanatory Statementsets out all the material facts relating to the Special Businessmentioned in the accompanying notice and should be takenas forming the part of Notice.

ITEM NO. 02 (Brief Resume of Prof. Shekhar Chaudhuri) :

The brief resume of Prof. Chaudhuri, currently the Director,Indian Institute of Management, Kolkata reads thus He isGraduate Engineer (Mechanical Engineering) from IndianInstitute of Technology, Kharagpur and did his Doctoralprogram from Indian Institute of Management, Ahmedabad.He has to his credit rich experience of more than 34 years invarious fields of management including the corporateexperience at very senior positions. Prof. Chaudhurisexposure encompass through various key businessmanagement areas like Strategic Management, InternationalManagement and Management of Technology and Innovationetc. Besides the corporate experience he is consultant toseveral organisations including the World Bank.

Prof. Chaudhuri is also a director in the following Companies:

Name of the Company Position Held

Gontermann Pipers (India) Ltd. Director

West Bengal Electronics IndustryDevelopment Corporation Ltd. Director

GVFL Trustee Company Ltd. Director

Indian Institute of Management, Kolkata Director

Prof. Chaudhuri also holds Membership / Chairmanship of the

various committees as given below:

Sr. Name of Company Name of PositionNo. Committee Held

01. Gujarat Industries Power Audit MemberCo. Ltd. Committee

02. Gontermann Pipers (India) Audit MemberLtd. Committee

None of the Directors except Prof. Shekhar Chaudhuri, is inany manner interested or concerned in the said resolution.

ITEM NO. 03 (Brief Resume of Shri P K Taneja, IAS) :

Shri P K Taneja, IAS is retiring by rotation at the ensuingGeneral Meeting and being eligible has offered himself forreappointment. The brief resume of Shri P K Taneja, IASreads thus - Shri P K Taneja is a senior IAS officer of the1984 batch and is presently the Director (Finance) ofGujarat Urja Vikas Nigam Ltd. (erstwhile GujaratElectricity Board) and is also holding additional Charge ofManaging Director - Gujarat Alkalies & Chemicals Ltd.,Baroda. Mr. Taneja has occupied various key positionsbefore holding the present charge at the Govt. of Gujaratand Govt. of India Level. Mr. Taneja on the academicfront is an Electronics Engineer (BE Electronics). Shri P KTaneja, IAS has total experience of more than 23 years.

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Apart from this he is holding directorship in reputed Companies as follows :

Sr. Name oF The Company Nature of InterestNo.

01 Gujarat Urja Vikas Nigam Ltd. Director (Finance)

02 Gujarat Alkalies & Chemicals Ltd. Managing Director

03 Madhya Gujarat Vij Company Ltd. Chairman

04 Gujarat Energy Transmission Corporation Ltd. Director

05 Gujarat Alumina Bauxite Ltd. Director

06 Gujarat Chemical Port Terminal Company Limited Director07 Gujarat Guardian Limited Director

08 Dakshin Gujarat Vij Company Ltd. Director

09 Torrent Power AEC Ltd. Director

10 Gujarat Power Corporation Ltd. Director

11 Gujarat State Energy Generation Ltd. Director

Shri P K Taneja, IAS also holds Membership / Chairmanship of the various committees as given below:

Sr. Name of Company Name of Committee Position heldNo.

01. Gujarat Alkalies and Chemicals Ltd. 1. Share / Debenture Transfer Committee Member

2. Shareholders / Investors Grievance Committee Member

3. Personnel Committee Member

4. Project Committee Member

02. Gujarat Energy Transmission Corporation Ltd. 1. Project Committee Member

2. Remuneration Committee Member

3. Audit Committee Member


03. Gujarat Chemical Port Terminal Co. Ltd. Audit Committee Member

04. Dakshin Gujarat Vij Company Ltd. Audit Committee Chairman

05. Gujarat Urja Vikas Nigam Ltd. Audit Committee Member

06. Gujarat Power Corporation Ltd. Audit Committee Member

07. Gujarat Industries Power Co. Ltd. 1. Audit Committee Member

2. Share / Debenture Transfer and Investors MemberGrievance Committee


4. Project Committee Member

5. Fixed Deposits Committee Member

None of the Directors except Shri P K Taneja,IAS, is in any manner interested or concerned in the said resolution.

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ITEM NO. 05:

M/s. C. C. Chokshi & Co., Chartered Accountants have beenassociated with the Company as the Statutory Auditors rightfrom the inception. They were reappointed Auditors at the lastAnnual General Meeting (AGM). Your Directors have with aview to follow better corporate governance practice havehave decided to rotate the Statutory Auditors of the Companyevery five years and accordingly it is proposed to appoint M/s.K C Mehta & Co. Chartered Accountants, Vadodara as theStatutory Auditors in place of retiring auditors.

The Company has received a Notice under Section 190 of theCompanies Act, 1956 from a shareholder of the Company

proposing M/s. K C Mehta & Co. Chartered Accountants,Vadodara for appointment as Auditors at the forthcomingAnnual General Meeting.

M/s. K C Mehta & Co., Chartered Accountants is renownedfirm in Vadodara and are Statutory Auditors in number ofpublic limited and private limited companies. They haveconsented for appointment as Auditors of the Company. TheCompany has received a letter from them to the effect thattheir appointment, if made, would be within the prescribedlimit under Section 224(1-B) of the Companies Act, 1956 andalso that they are not otherwise disqualified to be appointed,within the meaning of Sub-Section (3) of Section 226 of theCompanies Act, 1956.

The holding of Gujarat Urja Vikas Nigam Ltd., a Governmentof Gujarat undertaking is more than 25% of the subscribedshare capital of the Company and hence, the appointment ofM/s. K C Mehta & Co., Chartered Accountants, Vadodara asAuditors of the Company, is required to be made by a SpecialResolution, as contemplated under Section 224A of theCompanies Act, 1956. Your Directors, therefore, commendthe resolution for your approval.

None of the Directors of the Company is, in any way,concerned or interested in the said Resolution.

ITEM NO. 06:

Prof. Kirankumar Joshi has been appointed as AdditionalDirector on the Board of the Company w.e.f. 1st July, 2006.Prof. Joshi is Professor of Business Economics, Faculty ofManagement Studies, Maharaja Sayaji Rao University,Vadodara (MS University, Vadodara).

He is a renowned academician with rich exposure in the fieldof corporate management. Prof. Joshi, when appointed shallbe an Independent Director on the Board of the Company.

His brief resume reads thus Prof. Joshi is Professor ofBusiness Economics, Faculty of Management Studies,Maharaja Sayajirao University, Vadodara.

On the academics front Prof. Joshi is a Commerce Graduate(Accountancy as a major subject), MA (Economics) from M S

University and has done his Ph.D. in Economics from GujaratUniversity in the year 1987.

Prof. Joshi is a renowned professional and academician withvaried experience. He has written various articles on thecontemporary subjects and has completed various researchprojects in different areas.

Prof. Joshi has written many books and monographs and hasbeen the regular visiting faculty on different subject at therenowned institutes and also to various companies in andaround Baroda and across Gujarat. He has also presentedvarious papers on contemporary subjects in various seminarsand workshops.

Prof. Joshi has also to his credit the following:

He is Member of the MS University Senate (2002-2007)

He is Elected Secretary of Baroda University TeachersAssociation (BUTA)

He is the Chairman of Board of Studies, Faculty ofManagement Studies, MS University Vadodara.

He is the executive member of Gujarat EconomicAssociation.

His induction on the Board will certainly contribute to thegrowth of GIPCL.

Your Directors therefore recommend the appointment of Prof.

Joshi as Rotational Director as proposed in the Resolution atitem no. 06 as an Ordinary Resolution.

None of the Directors except Prof, Kirankumar Joshi is in anymanner interested or concerned in the said resolution.

Item No. 07 :

Dr. Prafull Kumar Das, IAS (Retd.) has been appointed asAdditional Director on the Board of the Company w.e.f.1st July, 2006. Dr. Das has been inducted on the Board ofDirectors of the Company with a view of further strengthenthe Board of Directors and to avail the benefit of his versatileexpertise in diverse fields of Corporate significance.

His brief resume reads thus - He is a very senior officer ofIndian Administrative Service of 1965 batch and retired fromthe service in the year 2001.

On the academic front Dr. Das is BA (Hon.) in PoliticalScience from Utkal University of Orissa, MA (PoliticalScience) from University of Allahabad, Uttar Pradesh, Lawgraduate from Gujarat University and has done his Master ofPublic Administration and Ph.D. in Political Science from theUniversity of South California, Columbia, USA.

Dr. Das specialises in the Public Policy (Administration,Practice and Analysis) with special interest in Energy Policy,Privatization Strategies, Reform and Reinventing theGovernment, Modeling Policy Results, Policy Forecasting,

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Governance Issues of Civil Societies, e-Governance, PublicSector Management, Strategic Management and BusinessPolicy.

Dr. Das has held key positions in the Government of Gujaratright from the level of Asst. Collector to the position ofAdditional Chief Secretary and has worked with keydepartments of Government of Gujarat including the positionof Member (Finance), & Chairman of Gujarat ElectricityBoard, Addl. Chief Secretary (Energy and PetrochemicalsDept.) etc. He also had rich experience of ManagingCompanies like Gujarat Alkalies and Chemicals Ltd., GujaratState Fertilizers and Chemicals Ltd. and GSIC as Managing

Director at different point of his service.After his retirement from Government Service, Dr. P K Daswas appointed as the first Chief Information Commisioner ofGujarat State from where he retired in May 2006.

Dr. Das has made various presentations and delivered lectureson the contemporary subjects at various forums national aswell as international. He is a prolific writer and has beenregular contributor to the various journals and magazines andnewspapers.

Dr. Das has widely traveled both nationally as well asinternationally during his various assignments and he is theLife Member of Institute of Public Administration.

His induction on the Board will certainly contribute to thegrowth of GIPCL.

Your Directors therefore recommend the appointment ofDr. Das as Rotational Director as proposed in the Resolutionat item no. 07 as Ordinary Resolution.

None of the Directors except Dr. Prafull Kumar Das, is in anymanner interested or concerned in the said resolution.

Item No. 08 :

Shri Arun Narayan Mandke has been nominated by GujaratAlkalies and Chemicals Ltd. (GACL) vice Shri C S Mani on theBoard of Company in terms of Article 16A and accordingly hewas appointed as Additional Director of the Company w.e.f.22nd July, 2006.

The brief resume of Shri A N Mandke reads thus On theacademic front he is Bachelor of Engineering (BE) Mechanical of 1971. His experience has been very varied andhas held various positions in the Government and in the

Private Sector organisations. He is currently holding a veryimportant position of General Manager (Co-Generation PowerPlant) at the GACLs, Dahej plant. He has a rich experience invarious key technical areas and his induction on the Board ofthe Company will be of immense benefit to the Company.

Your Directors therefore recommend the appointment of ShriA N Mandke as Rotational Director as proposed in theResolution at item no. 08 as Ordinary Resolution.

None of the Directors except Shri Arun Narayan Mandke, is inany manner interested or concerned in the said resolution.

For Gujarat Industries Power Company Ltd.

Registered Office : sd/-P.O. Petrochemical 391 346, V V VachhrajaniDist. Vadodara. Company Secretary

Date: 21 / 08 /2006

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DIRECTORS REPORT

To,The Members

Your Directors are pleased to present the Twenty First AnnualReport together with Audited Statement of Accounts of yourCompany for the Financial Year ended 31st March, 2006:

(A) Financial Results(Rs. In Lacs)

2005-06 2004-05

1. Net Sales 75659 74467

2. Other Receipts 4262 29373. Total Expenditure 47893 43644

4. Gross Profit : (1+2-3)(before deducting any of thefollowing) 32028 33760(a) Interest 5677 9495

(b) Depreciation 9138 9435

(c) Prior Period Items (167) (138)

(d) Loan Resetting Premium(Received)/paid (148) (1454)

(e) Write back of Diminution inthe value of Investment 0 (237)

(f) Impairment of Assets 279 79(g) Provision for Deferred Tax 0 5065

(h) Provision for Current IncomeTax 5750 898

(i) Income Tax Adjustments ofEarlier Years 0 250

(j) Fringe Benefit Tax 18 0

5. Net Profit: 11481 10367Add : Balance brought forwardfrom Previous Year 13937 13585

25418 23952Add : Debenture RedemptionReserve- written back 0 1619

Balance available forappropriation 25418 25571

6. Less: Appropriations to

(i) General Reserve 2000 10000

(ii) Expansion Reserve 8000 0

(iii) Proposed Dividend(including Dividend Tax) On Equity Shares 2156 1579 On Preference Shares 0 55

(iii) Carried to Balance Sheet 13262 13937

TOTAL 25418 25571

(B) Dividend

Your Directors are happy to recommend the payment ofDividend for the year ended 31st March, 2006 @ 12.50%i.e. Rs.1.25 per Share on the expanded Equity ShareCapital of the Company consequent upon the addition ofnew 40441176 Shares under the follow-on publicoffering of equity during the month of October 2005. Theoutgo on account of Dividend shall be Rs. 2155.80 Lacsincluding corporate dividend tax. The Dividend shall bedisbursed to all those members whose name appears onthe Register of Members of the Company on the BookClosure Date i.e. from Monday, 18th September, 2006 toThursday, the 28th September, 2006 (both daysinclusive).

(C) Operations :

STATION I (145 MW CCPP) :

The station during the year under review generated1105.06 Million Units at a Plant Load Factor (PLF) of87.00 % as compared to 1127.01 million units at aPLF of 88.73% in the preceding year. Your Directorsare pleased to inform that the PLF achieved washigher than the budgeted PLF despite the PlannedMajor Shut down during the financial year underreview.

Your Directors are pleased to inform that yourCompany has been making all possible efforts to tieup adequate supply of gas for the gas based PowerStations at Vadodara. Currently out of the total gasrequirements of 1.55 to 1.60 MMSCMD for both theBaroda Station I & Station II, 1.43 MMSCMD is tiedup with GAIL (India) Ltd. and GSPC - Niko. Inaddition to these quantities your company has alsoarranged for additional quantities of 0.15 MCMD gasfrom GSPC-Niko and upto 0.10 MCMD of RLNGfrom GSPL for supply from Shell Hazira on fall backbasis.

The scheduled maintenance of the station includingmajor planned shut down of GT-3 and STG-1 wassuccessfully carried out during the financial yearunder review. The availability factor was maintainedat 90.24% during the Financial Year under review.

STATION II (160 MW CCPP) :

During the year under review the Station generated1216.06 Million Units at a PLF of 86.76% ascompared to 1133.21 million units at a PLF of80.85% in the preceding year.

Your Directors are pleased to inform that the stationhas achieved the highest yearly PLF ever since its

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commissioning similarly the availability factor hasalso been the highest at 95.95% ever sincecommissioning. The PLF of the year under review hasimproved considerably due to your company beingable to tie up more gas. The Station has operated onGas during the period under review.

Your Directors are pleased to inform that continuousefforts are being made to improve performancefurther. Scheduled maintenance of the Station hasbeen carried out successfully during the period underreview.

Safety Performance :Your Directors are happy to inform that yourcompany has achieved accident free operation of2898 days as on 30th June, 2006 at VadodaraPlant. There has been significant improvement insafety records of Surat Lignite Power Plant alsowhere accident free year was achieved for the firsttime since its commissioning. As on 30th June,2006 accident free operations of 561 days at thePower Plant and 1635 days at the Lignite Minewere achieved. Constant efforts are made tomaintain accident free operations at all thelocations.

SURAT LIGNITE POWER PLANT (SLPP):

Station improved its performance considerablyduring the year under review with generation of1874.134 million Units at the Plant Load Factor(PLF) of 85.58 % as compared to 1804.35 millionunits at a PLF of 82.39%. During the year, theStation achieved highest availability, highestloading factor, lowest auxiliary powerconsumption, lowest raw water consumption andlowest de-mineralised water consumption sincecommissioning.

Constant endeavors are being made to improve theoverall performance of the station, includingtechnology improvement and modifications, whichare yielding results as reflected in the improved PLFof the plant.

Performance of the mining division has been verygood and total requirements of Lignite and Limestonewere met from our captive Vastan Mines. TotalQuantity of Lignite mined during the year was 17.21Lakh MT. Smooth operations in mining divisionhelped the Surat Lignite Power Plant achieve thehighest ever Plant Load Factor during the year2005-06.

Expansion Plans:

Your Directors are pleased to inform that your Companyis taking up 2 x 125 MW Expansion Project includingdevelopment of a captive mine thus increasing thegenerating capacity of SLPP to 500 MW.

Your Company has awarded the Engineering,Procurement and Construction (EPC) Contract forExpansion Project to BHEL at the cost of Rs. 1199.50Lacs. The total cost of this expansion project includingdevelopment of a new captive mine, Interest DuringConstruction (IDC), contingency, capital spares, staff

colony and other components outside the scope of EPCcontract will be approximately Rs 1635 crores.

(D) Financing of SLPP Expansion Project:

The expansion project will be funded in theDebt:Equity ratio of 75:25. Your company has therequired term loan sanctions from various banks atcompetitive rate of interest and is in the process ofexecution of documents. Your company hassuccessfully raised the Equity of Rs. 275.00 Croresthrough follow on public issue of equity. The balanceequity requirements of about Rs 135 crores will bemet from internal resources.

(E) Secured Term Loans / Debentures:

During the year, the Company repaid a sum ofRs. 14392.13 Lacs as per schedule of repayment to theBanks and Financial Institutions who have extended termloan finance for the Baroda Plants and SLPP.

(F) Public Deposits

During the Financial Year, the Company accepted /renewed Fixed Deposits amounting to Rs. 00.65 Lacs onlyand repaid (Pre-mature/withdrawals / on demand bydepositors) Fixed Deposit of Rs.357.69 Lacs. An amountof Rs. 17.42 Lacs relating to 126 depositors was due butnot claimed by the depositors for repayment on 31stMarch, 2006

(G) Depositories :

Your Directors wish to state that the Equity Shares of yourCompany are compulsorily traded in the dematerializedform w.e.f. 26/06/2000. Presently 58.31% of shares areheld in electronic / dematerialised form.

(H) Insurance :

The Companys power plants and mines are coveredunder the Industrial All Risk Policy, which provides acomprehensive insurance cover for fire, earthquake, lossof profit due to fire and machinery breakdown.

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The properties and the insurable interest of the Companyincluding mines, buildings (including township at SLPP),Plant and Machinery and Stocks are also adequatelyinsured.

(I) Directors :

Shri P K Taneja, IAS, Director of the Company retires byrotation and being eligible offers himself forreappointment.

Prof. Sekhar Chaudhuri, Director of the Company retiresby rotation and being eligible offers himself forreappointment.

Shri M S Agrawal was nominated by Gujarat StateFertilizers and Chemicals Ltd. (GSFC) as Director of theCompany vice Shri A K Luke, IAS, consequent uponcasual vacancy caused due to the withdrawal ofnomination by GSFC.

Prof. Kirankumar Joshi and Dr. P K Das, IAS (Retd.) havebeen appointed as additional Directors on the Board andthey are the independent Directors and their appointmenton the Board would strengthen the Board of yourCompany further.

Shri A N Mandke has been nominated by Gujarat Alkaliesand Chemicals Ltd. (GACL) as Director of the Company

vice Shri C S Mani. Shri A N Mandke has been appointedas Additional Director of the Company.

Shri R N Singh has tendered his resignation from theDirectorship of the Company.

Your Directors place on record their deep appreciationfor the valuable services rendered by Shri A K Luke, IAS,Shri C S Mani and Shri R N Singh during their tenure asDirector of your Company. The appropriate resolutionsfor appointment/reappointment of Directors are beingplaced before the shareholders for approval.

(J) Human Resources :

The Strength of your Company lies in its team of highly

competent and highly motivated personnel at Baroda andSLPP. This has made it possible for your Company tomake significant improvement and progress in all areas ofactivities of the Company. The employees had taken onthe challenge to improve the performance of the plantsthrough efficiency, productivity and economy. The year2005-06 was an accident free year for both operations atBaroda & Surat Lignite Power Plant. Your Directors placeon record their sincere appreciation for the unstintingefforts and contribution put in by the employees of theCompany.

The Company continued in its endeavor to impartappropriate and relevant training to its employees to

equip them to meet the challenges that are ahead and toenhance their performance in the best interest of theCompany. The Company has also taken up an exerciseon career growth & planning by identifying potentials &training needs of employees by engaging professionals inthe field.

The high quality of Human capital of your company hasalso been recognized by the State Government,Department of Industrial Safety, Health & Environmentwhich selected one of the employees of your companyfor Shram Veer Award for the year 2004-2005. The awardconsists of cash reward of Rs.10,000/-, a Certificate and a

Trophy was presented to the employee by HonourableChief Minister of Gujarat.

The industrial relations during the year has been cordial.

(K) Particulars of Employees :

There are no employees in the Company who are inreceipt of the salary of Rs. 24,00,000/- p.a. orRs. 2,00,000/- p.m., if employed for part of the yearhence the Statement of particulars of employees asrequired under Section 217 (2A) of the Companies Act,1956, read with Companies (Particulars of Employees)Rules, 1975, as amended till date is not attached.

(L) Auditors :M/s C. C. Chokshi & Co., Chartered Accountants,Vadodara who are the Statutory Auditors of the Companyhold office upto the conclusion of the forthcomingAnnual General Meeting. They have been associated withthe Company as statutory auditors right from theinception. Your Directors have decided to followprinciples of Corporate Governance, and as part of thatdecision, it was also decided to rotate the statutoryauditors ones in five years. Accordingly it is proposed toappoint M/s. K C Mehta & Co., Chartered Accountants,Vadodara as the Statutory Auditors in place of retiringauditors viz. M/s C. C. Chokshi & Co.

M/s K C Mehta & Co., Chartered Accountants, Vadodarahave under Section 224 (1-B) of the Companies Act, 1956furnished a certificate of their eligibility for appointmentas such.

(M) Social Responsibility and Welfare :

Being a conscientious corporate body, your Company hasbeen actively involved in the socio-economicdevelopment and welfare of the people living around thepower plants at Baroda and SLPP through Society forVillage Development in Petrochemicals Area) (SVADES)in Baroda and Development Efforts for Rural Economyand People (DEEP) at SLPP.

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(N) Environmental Protection :

The Company recognises Environment Management as anintegral function of the operation. Towards this end theCompany installed appropriate technology for control ofpollutants at source. Circulating Fluidised BedCombustion boilers for SO2 and NOx control andElectrostatic Precipitators for control of particulateemission in the lignite based power plant at Mangrol aresome of the actions taken by the Company in thisdirection.

Though GIPCL has open cast mine to feed lignite to itspower plant, care has been taken to ensure that such

operations do not result in creation of wastelands bypreserving the fertile top soils and spreading them overthe back-filled portion of the mine. This enabledrestoration of the lands for productive agricultural use andfor development of plantations.

The Company is in process of phasing out Halon FireProtection system to CO2 system to reduce Green HouseGases (GHG) emission at Baroda Plants. All the gasturbines of Station-I are already converted on CO

2

protection system.

The Company Installed oil mist eliminator in Station-I GasTurbine #3 to reduce oil vapor discharge in atmosphere.

(O) Conservation of Energy :

Several energy conservation measures are taken atVadodara Plants and SLPP during the year, and some ofthe measures which have significant results are indicatedbelow :

At Vadodara :-

a) The Company is in process of carrying out major Plantmodifications,like putting baffle plates at chimany end inHRSG reducing heatloss going to atmospheare throughexhaust,putting sleeves on part of superheater tubesreducing system energy consumption,and other steam

losses in our stn II, to achieve better efficiency and energyconservation.

b) Subsequent to discontinuation of neptha firing In GT-4,the unused rotory equipment of Naphtha firing wereremoved saving in energy consumption of the machine.

At SLPP :-

a) Bypassing of Boiler ACW Pump., thereby saving in totalACW power consumption.

b) Inter-connection of Seal and purge air blower of Unit-Iand that of Unit-II, reducing total power consumption.

c) Variable feed device in instrument air system reducingcompressor power consumption., and hence thereduction in total auxiliary power consumption.

(P) Technology Absorption :

The disclosures of particulars as per Form B are given inthe Annexure hereto.

(Q) Foreign Exchange Earning and Outgo :

During the year there was no earning in foreignexchange. As regards outgo in foreign exchange, pleaserefer to Item No. 05 of Schedule 19 to the Notes on

Accounts which form part of the Accounts appendedhereto.

(R) Directors Responsibility Statement :

In terms of Section 217(2AA) of the Companies Act, 1956,in relation to financial statements for the year underreference, the Board of Directors state that:

1. In the preparation of the annual accounts, theapplicable accounting standards have been followedalong with proper explanation relating to materialdepartures, if any.

2. Reasonable and prudent accounting policies have

been used in the preparation of the financialstatements, that they have been consistently appliedand that reasonable and prudent judgement andestimates have been made in respect of items notconcluded by the year end, so as to give a true andfair view of the state of affairs of the Company as at31st March, 2006 and of the profit for the year endedon that date.

3. Proper and sufficient care has been taken formaintenance of adequate accounting records inaccordance with the provisions of the CompaniesAct, 1956 for safeguarding the assets of the Company

and for preventing and detecting fraud and otherirregularities, if any

4. The financial statements have been prepared on agoing concern basis.

(S) Report on Corporate Governance and ManagementDiscussion & Analysis Report :

Your Company has complied with all the mandatoryprovisions of Corporate Governance as prescribed underthe Listing Agreement with Stock Exchanges, with whichthe Company is listed. A separate report on the CorporateGovernance along with the Certificate of PracticingCompany Secretary forms the part of this Annual Report.

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The Management Discussion and Analysis report alsoforms the part of this Annual Report.

(T) Acknowledgement :

Your Directors place on record their appreciation for theoverwhelming co-operation and assistance received fromthe Government of Gujarat, Participating Units,Government of India, BHEL, IDBI, and other FinancialInstitutions, Banks and other agencies. The Directors also

wish to express their gratitude to investors for the faithreposed by them in the Company.

For and On behalf of the Board

sd/-Date : 22 / 07 /2006. Balwant Singh, IASPlace : Vadodara. Chairman

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ANNEXURE TO DIRECTORS REPORT

FORM - B

Disclosure of particulars with respect to Technology Absorption

(A) Research & Development (R & D)

1. Specific area in which R & D carried out by the company

2. Benefits derived as a result of the above R&D

3. Future plan of action

4. Capital Expenditure

5. Recurring Expenditure

(B) Technology absorption, adaptation & innovation

1. Efforts in brief, made towards technology i) Acquired fuel gas from additional source to optimize plant utilization

at Vadodara.

ii) On Line Gas Chromatograph to optimize the gas consumption and online performance monitoring

iii) Total integration of Materials Management, Plant Maintenance andFinancial Management achieved through Enterprise Resource

Planning (SAP/R3).

iv) 100% utlisation of fly ash generated from SLPP for construction ofmines roads, brick manufacturing and for back filling of lignite mines.

v) RLA Study carried out in Station-I, HRSG 1, 2.

2. Benefits derived as a result i) With installation of a modified gas mixing scheme, utilization of

natural gas from various sources to optimize plant generation madepossible, increasing profitability, benefiting the people of State ofGujarat.

ii) Accurate measurement of gas quality for monitoring of plantperformance.

iii) ERP - SAP / R3 4.6b version has been upgraded to 4.7c version withnew functionalities on the state of the art ittanium based hardwareplatform. SAP / R3 has been successfully rolled out at SLPP.

iv) Use of fly ash for construction of mines roads reduced costs andenabled use of the roads during monsoon. Use of ash for filling ofmine voids also removed problems associated with slurry disposal ofash.

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3. Imported Technologyi) CFBC Technology adopted for boilers at Surat Lignite Power Plant is

of imported origin i.e from Lurgi Energie Und Entsorgung GmBH,Germany through BHEL.

ii) HP/IP Single Casing Technology of Siemens, Germany having betterefficiency adopted for the turbines at Surat Lignite Power Plant.

iii) SLPP uses the state of the art DCS system from M/s.Siemens, Germanyfor control and instrumentation.

iv) DCS up-gradation Station-I Tata Honey Well.

v) Frame IX, GE (USA) Technology has been adopted for Station-II 160MW Baroda through BHEL.

vi) SAP/R3 is imported software originally developed in Germany.

vii) The Gas Chromatograph are from Denial Germany, which is a wellknown company in Gas Measurement.

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Caveat :

This Section of the Annual Report has been included inadherence to the Code of Corporate Governance asmandated by Securities and Exchange Board of India (SEBI)and is applicable in our case effective from the FinancialYear 2001-02. The readers Stakeholders are cautioned thatno representation made in this report based on outside dataand information, though from the sources which are believedto be most reliable, would certify their accuracy orcomprehensiveness. It may further be noted that utmost carehas been taken to ensure that the opinions expressed by themanagement herein contain their perceptions on most of theimportant trends having a material impact on the Companysoperations, no representation is made that the followingpresents an exhaustive coverage on and of all the issuesrelated to the same. The opinions herein expressed by themanagement might contain certain forward-lookingstatements in the given current scenario, which could beextremely dynamic, and increasingly fraught with risks anduncertainties. The actual results, performances,achievements or array of events may be materially differentfrom the views expressed herein. Readers are hencecautioned not to place undue reliance on these statements,and are advised to conduct their own investigation and

analysis of the information contained or referred to in thissection before making any decision or taking any action withregard to their own specific objectives. Further the discussionfollowing herein reflects the perceptions on major issues ason date and the opinions expressed here are subject tochange without notice. The Company undertakes noobligation to publicly update or revise any of the opinions orforward looking statements expressed in this report,consequent to new information, future events or otherwise.

INDIA - Power Sector Scenario :

Power is said to be the catalyst for economic development.Sustained socio-economic growth substantially hinges upon

the availability of adequate and reliable power at reasonablerates. Power is a vital building block for development andgrowth of all the sectors of the economy and is the heart ofevery walk of our day to - day life.

Power Sector, hitherto, had been funded mainly throughbudgetary support and external borrowings. But given thebudgetary support limitation, due to growing demands fromdifferent sectors, particularly social sector and the severeborrowing constraints, a new financing strategy needs to be inplace. This is well recognized by the Government and this isrightly reflected in the power policy enunciated way back inthe year 1991 which permitted private enterprise to play alarger role in the Indian Power Sector.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT 0 5 0 6

The current Indian Power Sector condition can besummarised as follows:

Power is a critical component for economic growth anddevelopment of economy.

Projected growth of Indian economy hinges heavily onthe performance and growth of the Power Sector.

In order to support a rate of growth of GDP of around 7percent per annum, the rate of growth of power supplyneeds to be over 10 percent annually.

Indian Power Sector is undergoing a change process toenable it to take on a stiff global challenge efficiently.

A tangible shift in the direction of Reform process, startedby Government of India in 1991, is targeted towards :-

Tariff rationalisation and distribution reforms

Unbundling of the sector

Reduction in T&D losses

Restructuring of State Electricity Boards

Phasing out subsidies and cross-subsidies.

INDUSTRY STRUCTURE AND DEVELOPMENTS :Historically speaking the electricity business has beenmonopolistic in nature. At the State level the State ElectricityBoards dominate as integrated utilities, covering all thehorizons of electricity industry i.e.:

Generation.

Transmission, and

Distribution

The Central public Sector companies such as NTPC, NHPC,Power Grid Corpn. etc. continue to play as major players inthe power sector. But of late, private sector companiesenlightened by the current on going reforms in the sector,have committed huge investments and have made theirpresence increasingly felt in the sector.

Role Players in the Power Sector :

There are various players at the different hierarchy levels whoare playing vital role in the Indian Power Sector; these playerscan be summed up as under:

Central Utilities: NTPC, NHPC, and Nuclear PowerCorpn. Ltd., Power Grid Corpn. of India Ltd. etc.

State Electricity Boards (SEBs). - Broadly undertakinggeneration, transmission and distribution of power. Nowwith the new Electricity Act, 2003 in place the activities

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are being / will be handled by separate entities created foreach activity.

SEB offshoots i.e. Companies formed and entrusted withthe responsibility of generation, distribution andtransmission.

Licensees Reliance Energy, CESC, Torrent AEC(erstwhile AECO), Torrent SEC, (erstwhile SEC) etc.

Independent Power Producers (IPPs) who areauthorised by the Ministry of Power, CEA & SEBs to

generate power, which is then sold to theSEBs/Central Utilities as per the existing Power PurchaseAgreements (PPAs). Your Company falls under thiscategory.

Government Hierarchy & Advent of ElectricityRegulatory Commission at Central & State Level :

Electricity is a concurrent subject at Entry 38 in List III of theSeventh Schedule of the Constitution of India. The Ministry ofPower is primarily responsible for the development ofelectrical energy in the country. The Ministry is concernedwith perspective planning, policy formulation, processing ofprojects for investment decision, monitoring of theimplementation of power projects, training and manpower

development and the administration and enactment oflegislation in regard to thermal, hydro power generation,transmission and distribution.

The Power Ministry is headed by a Cabinet Minister, whois assisted by a team comprising of Secretary, SpecialSecretary, Addl. Secretary, Joint Secretaries and variousother officials.

The Ministry is concerned with perspective planning, policyformulation, processing of projects for investment decision,monitoring of the implementation of power projects, trainingand manpower development and the administration andenactment of legislation in regard to thermal, hydro power

generation, transmission and distribution.

The govt of India has announced National Electricity Policyon 12/02/2005.The National Electricity Policy aims atachieving the following objectives:

Access to Electricity - Available for all households innext five years

Availability of Power - Demand to be fully met by2012. Energy and peaking shortages to be overcomeand adequate spinning reserve to be available.

Supply of Reliable and Quality Power of specifiedstandards in an efficient manner and at reasonablerates.

Per capita availability of electricity to be increased toover 1000 units by 2012.

Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.

Financial Turnaround and Commercial Viability ofElectricity Sector.

Protection of consumers interests.

Assessment of demand is an important pre-requisite forplanning capacity addition. Section 3 (4) of the Electricity Act,

2003 requires the Central Electricity Authority (CEA) to framea National Electricity Plan once in five years and revise thesame from time to time in accordance with the NationalElectricity Policy. Also, section 73 (a) provides thatformulation of short-term and perspective plans fordevelopment of the electricity system and coordinating theactivities of various planning agencies for the optimalutilization of resources to subserve the interests of the nationaleconomy shall be one of the functions of the CEA. The Planprepared by CEA and approved by the Central Governmentcan be used by prospective generating companies,transmission utilities and transmission/distribution licensees asreference document.

Accordingly, the CEA shall prepare short-term and perspectiveplan. The National Electricity Plan would be for a short-termframework of five years while giving a 15 year perspectiveand would include:

Short-term and long term demand forecast for differentregions;

Suggested areas/locations for capacity additions ingeneration and transmission keeping in view theeconomics of generation and transmission, losses in thesystem, load center requirements, grid stability, security ofsupply, quality of power including voltage profile etc. andenvironmental considerations including rehabilitation andresettlement;

Integration of such possible locations with transmissionsystem and development of national grid including typeof transmission systems and requirement of redundancies;

Different technologies available for efficient generation,transmission and distribution;

Fuel choices based on economy, energy security andenvironmental considerations;

The Central Electricity Authority (CEA) is the apex authority formonitoring the power sector under the Ministry of Power. In

MANAGEMENT DISCUSSION AND ANALYSIS REPORT 0 5 0 6 (Contd.)

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all technical and economic matters, Ministry of Power isassisted by the Central Electricity Authority (CEA) constitutedunder the Electricity (Supply) Act, 1948 while the CentralElectricity Regulatory Commission (CERC) is the apexauthority regulating the power industry in India and for theStates each of the States will have State Electricity RegulatoryCommission (eg. Gujarat Electricity Regulatory Commission incase of State of Gujarat).

Freedom to Private Parties to enter Field of Generation &Distribution etc.:

Ministry of Power has been emphasising time and again thatDistribution is the weakest link, and hence the presentinitiatives will have to be focussed more on the other end ofthe power sector viz. Distribution. This wave, which beganwith the unbundling of the SEBs, is now progressing and, tostart with there is a liklihood of privatisation of somedistribution circles on testing basis.

At the State level, more than 24 states have constituted theState Electricity Regulatory Commission and many of themhave initiated reforms and have issued the tariff ordersalso.

The passage of Gujarat Electricity (Reorganisation andRegulation) Act, 2003, by Govt. of Gujarat is a step takenin this direction. The main function of GERC encompassthe regulation, purchase, transmission, distribution, supplyand utilisation of electricity, the quality of service and thetariff and charges payable for the transmission, distributionor supply of electricity having regard to the interest ofboth the consumers and other persons availing theservices and the utilities and the procedure thereof fortrading of electricity.

Power Sector Scenario in India :

Generating capacity has grown manifold from 1,712 MWin 1950 to more than 124,000 MW today

The growth in the transmission lines has been from 3,708ckm in 1950 to more than 250,000 ckm today

About 84% of 587,000 villages have been electrified,balance to be electrified by 2007

With more of de-electrified villages getting identified,about 140,000 - 150,000 villages likely remaining to beelectrified

55% households have access to electricity, balance 45%to be electrified

Rural Areas : 56% of households to be electrified

PER CAPITA CONSUMPTION OF ELECTRICITY

COMPARATIVE PER CAPITA CONSUMPTION OFELECTRICITY (kWh)

INVESTMENTS IN POWER SECTORPlanwise Outlay


GROWTH OF POWER SECTOR IN INDIA ISGRAPHICALLY PRESENTED BELOW :

PLANWISE EXPENDITURE

408

238

130.583.5

34.815.6

1950 1960 1970 1980 1990 2001In 1950 Electricity consumption per capita was 15 kwhin 2012 it is projected at 932 kwh.

Growth pattern over years (kwh/year)

(2001)

7979

2642

1419 1093 549 515 408

2326

OBCDCountries

MiddleEast

LatinAmerica

China Asia Africa India WorldAverage

Power Sector against Overall (Rs. in Crores) (%)

19.02

8.89 12.6015.33

13.57 20.13 19.04 18.3314.49

18.2

I II III IV V VI VII VIII IX X

P ow er 3 93 4 27 1 ,0 20 2 ,4 48 7 ,2 94 1 9,2 65 3 4,2 73 7 9, 58 9 1 ,2 4, 52 6 2,7 0, 27 6

Overall 2,069 4,800 8,094 15.902 39,287 95,700 1,80,000 4,34,100 8,59,200 14,84,131

Power Sector against Overall (Rs. in Crores) (%)

Power 260 445 1.252 2,932 7,399 18,299 37,895 76,667 1,10,328 -

O verall 1 ,960 4,600 8,576 15, 779 39, 426 1,09, 291 2,18, 730 4,85, 457 8,08, 611 -

I II III IV V VI VII VIII IX X

13.279.68

14.60

18.58 18.77 18.74 17.33 15.78 13.80

Source : Key World Energy Statics (2003)

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SECTORAL GROWTH OVER YEARS

TRANSMISSION LINES (ckm)

Villages electrified :

Grid connected villages by year 2007

Remote villages by year 2012

needs of industry, the present availability of generatingcapacity including facilities for evacuation and the gestationtime for creation of additional generation capacity with theobjective that the industry should not suffer due to shortage ofpower in the overall interest of the economy.

KEY DEVELOPMENTS :

The Ministry of Power, Govt. of India has designed the blueprint for overall growth of the power sector in the country, thesaid Blue Print has been discussed in the foregoing

paregraphs:

Blue Print :

Power is a critical infrastructure for economicdevelopment and for improving the quality of life. Theachievement of increasing installed power capacity from1362 MW to over 100,000 MW since independence andelectrification of more than 500,000 villages is impressivein absolute terms. However, it is a matter of concern thatthe annual per capita consumption of India during theyear 2001 was 408 kWh is among the lowest in the world.Further, people in a large number of villages have noaccess to electricity. The end users of electricity like

households, farmers, commercial establishments,industries are confronted with frequent power cuts, bothscheduled and unscheduled. Power cuts, erratic voltageand low or high supply frequency have added to thepower woes of the consumer. These problems emanatefrom:

inadequate power generation capacity;

lack of optimum utilisation of the existing generationcapacity;

inadequate inter-regional transmission links;

inadequate and aging sub-transmission & distributionnetwork leading to power cuts and local failures/faults;

large scale theft and skewed tariff structure;

slow pace of rural electrification;

Inefficient use of electricity by the end consumer.

lack of grid discipline

The Union Ministry of Power has developed appropriatestrategies and a blueprint to address the above issues in a timebound manner. The outcome of these strategies hinges ontheir effective countrywide implementation. These strategies


Data as per old definition of the villages. Withmodified definition of villages, the task is multifoldi.e. likely electrification of 140,000 - 150,000 villages

Source : www.powermin.nic.in

FACILITATING CAPTIVE POWER CAPACITY :

Guidelines have been issued to all the States on Captivepower development. This has been done keeping in view the

212,000

112,000

88,00028,000

13,0004,6001,700

1950 1960 1970 1980 1990 Today2012

(Projected)

Installed capacity around end of the period (MW)

2,70057,000

172,000

250,000

350,000

2012(Projected)

Today199019701960

Transmission lines (ckm)

Villages electrified (no.)

587,000

494,000471,000

74,0003,0611,500

2012(Projected)

1990197019501947 2003

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and the blueprints are flexible and can be adjusted toaccommodate positive inputs and developments.

Power is a concurrent subject under the Constitution. TheStates have the greater share of generation and transmissionassets and almost the entire distribution under their control.They would need to play a very proactive role in effectinginstitutional and result oriented changes.

Many strategies outlined in the document are inter-linked andare mutually supportive in terms of addressing the problems.

However they have been classified subject-wise for thepurpose of this document.

Addition and creation of generation capacity to removeshortages

On account of inadequate generation capacity, the country isplagued by power shortages. The total energy deficit duringFY 2005-2006 was around 8.30 % and the peak deficit was12.30% Based on the demand projections made in the 16thElectric Power Survey, over 1,00,000 MW additionalgeneration capacity needs to be added by 2012 to bridge thegap between demand and supply of power. In plain termsthere is a need to add at least 12000 MW every year to sustainthe pace of growth of economy @ 7%-8%.

The Ministry has taken a comprehensive and realistic reviewof the various power projects to prioritise those, which can becommissioned in the Xth and XIth Plans. Based on this review,a capacity addition target of 46,500 MW has been tentativelyfixed for Central Public Sector Undertakings under theMinistry of Power. At the State level, the SEBs/State utilitiesand private sector will add about 41,800 MW. For optimaldevelopment of the electricity energy in its totality, anintegrated approach, including capacity addition throughnuclear and non-conventional energy, has been adopted. Thecapacity addition targets of 6400 MW through nuclear powerand 10,700 MW through non-conventional resources havebeen accordingly fixed for the period upto 2012.

The large coal reserves in the country provide a ready andeconomical resource and ensure energy security. Hence, coalhas been identified as the mainstay fuel for power generationtill 2012. Emphasis has been laid on setting up large pit headstations to avoid high costs associated with transportation ofhigh ash bearing Indian coal and overstraining the alreadystretched rail network.

Hydroelectricity is clean energy and its generation is notlinked to issues concerning fuel supply, especially the pricevolatility of imported fuels. It enhances our energy securityand is ideal for meeting peak demand. Less than one fourth ofthe vast hydel potential of 1,50,000 MW has been tapped so

far. Compared to the high utilisation of hydro potential incountries like Norway (58%), Canada (41%) and Brazil (31%),the utilisation of only 17% of its hydel potential by India isextremely low. In fact, the share of hydro generation in Indiahas gradually declined during the past 25 years.Consequently, thermal generation, which should generally beused for base load operation, is also being used to meetpeaking requirements

Following various programs have been introduced to makethe power sector more vibrant and growth oriented:

ACCELERATED POWER DEVELOPMENT REFORMSPROGRAM (APDRP):

Government of India approved a scheme called AcceleratedPower Development and Reforms Program (APDRP) inMarch 2003 to accelerate distribution sector reforms.

The main objectives of the program are:

Reduce Aggregate Technical & Commercial (AT&C)losses

Bring about commercial viability in the power sector

Reduce outages & interruptions

Increase consumer satisfaction

The scheme has two components as below:

a. Investment Component Government of India providesAdditional Central Assistance for strengthening and upgradation of sub-transmission and distribution network.Additional Central Assistance covers 50% of the projectcost in from of 50% grant and 50% loan. SEBs andUtilities have to arrange remaining 50% of the fund fromPower Finance Corporation (PFC) and RuralElectrification Corporation (REC) or other financialinstitutions or from their own resources as counter-part

fund.APDRP is an instrument to leverage distribution reformsin the States. Therefore, priority is being given to projectsfrom those States who have committed themselves to atime-bound program of reforms as elaborated in theMemorandum of Understanding (MoU) andMemorandum of agreement (MoA) and are progressing onthose commitments.

b. Incentive Component - An incentive equivalent to 50% ofthe actual cash loss reduction by SEBs/ Utilities, isprovided as grant. The year 2000-01 is the base year forthe calculation of loss reduction, in subsequent years. Thecash losses are calculated net of subsidy and receivables.


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The details of the cash loss reduction and incentivesreleased to various states under APDRP are as below:(As on 31/03 2006) :

Rs. in Crores

Sr.No. State Year Cash loss Incentive

reduction released

1. Gujarat 2001-02 472.76 236.38

2002-03 296.16 148.08

2. Maharashtra 2001-02 275.78 137.89

3. Haryana 2001-02 210.98 105.49

4. Rajasthan 2001-02 275.42 137.71

5. Andhra Pradesh 2002-03 530.22 265.11

6. West Bengal 2002-03 146.00 73.00

2003-04 605.52 302.76

7. Kerala 2002-03 129.88 64.94

8. Punjab 2003-04 503.88 65.28

Total 3346.26 1674.35Source : www.powermin.nic.in

Schemes undertaken under APDRP are for renovation andmodernisation of sub-stations, transmission lines & distributiontransformers, augmentation of feeders & transformers, feederand consumer meters, high voltage distribution system(HVDS), consumer indexing, SCADA, computerised billingetc.

As per the MOA signed by the States, 16 states have openedseparate APDRP accounts. Distribution Reforms committeehave been constituted by the states for review and monitoringof progress on reforms and implementation of APDRPschemes. Regular meetings of the Committees are being held.In addition, the reviews of the reforms and implementation ofthe APDRP schemes are being held at the level of APDRPSteering Committee, Secretary (Power) and Joint Secretary(Distribution). Various benchmarks parameters as agreed inthe MOAs are being monitored at different level in the statesand Ministry of Power. Remarkable implements have been reported by few states.

Accelerated Generation & Supply Program [AG&SP] Highlights :

Aims at funding such projects which yield fasterbenefits, higher returns with low investment and add

to the economy of operations of SEB and PowerSector.

Financial assistance at concessional lending rateswith interest subsidy upto 3% provided by GOI.Additional 4% subsidy for projects in N.E.States [upto31.3.2007]

Program operational during 9th Five Year Plan.Disbursement [under AG&SP] during 9th Five YearPlan of Rs. 96 billions.

Estimated physical benefits from projects 5859MW, 10.6 billion units (kWh)

ACCELERATED POWER DEVELOPMENT PROGRAMME[APDP]

APDP introduced in February, 2000.

Scheme to continue till 2012

Sole objective of initiating financial turn around inthe state owned Power sector.

APDP to finance projects for :

Renovation & Modernisation

Life Extension

Uprating of old power plants Upgradation & Strengthening of T&D network.

Amount provided in APDP is an additional CentralPlan Assistance to state governments.

Funds to be provided by PFC and REC through acombination of grant and loan in 50:50 ratio.

Priority to be given to states committing a time boundreference program with: setting up of SERC:

Creation of separate profit centers / restructuregeneration, transmission & distribution networks.

Making the system accountable and profitable.

Completion of 100% of metering for all distributioncircles in a planned manner.

Promotion of demand side management.

COMMON MINIMUM NATIONAL ACTION PLAN FORPOWER [CMNAP] :

A National consensus evolved and adopted underCMNAP to enact:

National Energy Policy.

Central Electricity Regulatory Commission [CERC] toset the bulk tariffs

For all central generating and transmission utilities.


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Setting up of State Electricity RegulatoryCommission.

SERCs to undertake tariff fixation on prioritybasis.

SERCs to rationalize Retail Tariff.

Rationalization of Retail Tariff will ensure :

Minimum overall 3% rate of return to eachutility with immediate effect

Fuel Adjustment Charges (FCA) to be

automatically incorporated in the tariff. A package of incentives and disincentives to

encourage and facilitate implementation oftariff.

No sector shall pay less than 50% of theaverage cost of supply [cost of generationplus transmission and distribution].

NATIONAL KEY POWER STATISTICS :

POWER GENERATION :

The overall generation in the country has increasedfrom 287 Billion Units (BUs) during 1991-92 to617.38 BUs during 2005-06. The year wise

generation in public utilities in the country for the lastfive years are as under:

Year Generation (BUs)

1991-92 287.00

1992-93 301.00

1993-94 324.00

1994-95 351.00

1995-96 380.00

1996-97 394.00

1997-98 420.60

1998-99 448.40

1999-00 480.70

2000-01 499.45

2001-02 515.27

2002-03 531.43

2003-04 558.13

2004-05 587.40

The generation during the FY 2005-06 has been 617.38Billion Units at an average Plant Load Factor of 74%.

National Electricity Policy :

National Electricity Policy was notified by the CentralGovernment on 12th February, 2005. The mainobjectives of the policy are :

Access to Electricity Available for all households innext five years.

Availability of Power Demand to be fully met by2012. Energy and peak shortages to overcome andadequate spinning reserve to be available.

Supply of Reliable and Quality Power of specifiedstandards in an efficient manner and at reasonablerates.

Per capita availability of electricity to be increased toover 1000 units by 2012.

Minimum lifeline consumption of one unit /household/day as a merit good by year 2012.

Financial turnaround and commercial viability of theelectricity sector.

Protection of consumers interests.

Few policy initiatives covered in the National ElectricityPolicy are:

Development of rural electrification distributionbackbone.

Creation of adequate generation capacity with a spinningreserve of at least 5% by 2012 with availability ofinstalled capacity at 85%.

Full development of hydro potential.

Development of national grid.

Cost of recovery of service for consumers (householdbelow poverty line having consumption of 30 units permonth) in terms of tariffs.

Availability based Tariff (ABT) to be extended to Statelevel for better grid discipline through economicsignaling.

Special emphasis on time bound reduction oftransmission and distribution losses.


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Measures to promote competition aimed at consumerbenefits.

Reliability and quality of power supply to be monitoredby State Electricity Regulatory Commissions.

Exploitation of non-conventional energy sources such assmall hydro, solar, biomass and wind for additionalpower generation capacity etc.

OUTLOOK, OPPORTUNITIES AND THREATS :

The per capita consumption of power in India in the year2005-06 was 606 Kwh which is very low as compared toglobal average of around 3000 Kwh and this certainly reflectsthe demand and supply gap and prospects and opportunitiesfor the growth of power sector.

The Company has full backing from the Govt. of Gujarat(GOG) even though the direct equity holding of Govt. is notvery large. The Company is managed by a team ofprofessionals headed by the Managing Director who is aSecretary level IAS officer and the Chairman of the Companyis also a Senior IAS officer of Principal Secretary level.

The outlook for the Company in the times to come will bemore focussed on :

Enhancing operational efficiencies.

Ensuring better operational flexibilities with the usage /adoption of multi fuel technology.

Further expansion of capacities based on available LigniteReserves.

Cost efficiency to enable supply of cheap and reliablepower to customers/state.

Prime concern for environment protection andimprovement.

Exploring the avenues in consultancy in O&M of gasbased and CFBC based thermal power plants.

Exploring the avenues and Diversification into the area ofdistribution

The Electricity Act, 2003, will present new opportunities forgrowth by enabling the Generation Companies like GIPCL totake up the distribution business and develop the customersbase.

The salient features of Electricity Act, 2003 would helpunderstand the pace at which reforms are taking shape in thepower sector, they are:

The Central Government to prepare a National ElectricityPolicy in consultation with State Governments.

Thrust to complete the rural electrification and provide formanagement of rural distribution by Panchayats,Cooperative Societies, non-Government organisations,franchisees etc.

Provision for license free generation and distribution inthe rural areas. Generation being delicensed and captivegeneration being freely permitted. Hydro projects would,however, need clearance from the Central ElectricityAuthority.

Transmission Utility at the Central as well as State level,to be a Government company with responsibility forplanned and coordinated development of transmissionnetwork.

Provision for private licensees in transmission and entry in

distribution through an independent network. Open access in transmission from the outset.

Open access in distribution to be introduced in phaseswith surcharge for current level of cross subsidy to begradually phased out along with cross subsidies andobligation to supply. SERCs to frame regulations withinone year regarding phasing of open access.

Distribution licensees would be free to undertakegeneration and generating companies would be free totake up distribution businesses.

The State Electricity Regulatory Commission is amandatory requirement. Provision for payment of subsidythrough budget.

Trading, a distinct activity is being recognised with thesafeguard of the Regulatory Commissions beingauthorised to fix ceilings on trading margins, if necessary.

Provision for reorganisation or continuance of SEBs.

Metering of all electricity supplied made mandatory.

An Appellate Tribunal to hear appeals against thedecision of the CERC and SERCs.


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Provisions relating to theft of electricity made morestringent.

Provisions safeguarding consumer interests. Ombudsmanscheme for consumers grievance redressal.

It is quite early to comment on the impact of the ElectricityAct, on power sector, as it is a new legislation. However,some key aspects of the possible impact of Electricity Act inthe coming decade can be discussed as below:

Entry of more players into generation, transmission,trading and distribution resulting into a competitivemarket.

Power trading shall provide a vital platform for access to awider market and tap the opportunities that have openedup with the Electricity Act, 2003.

Increase of captive generation, especially groupcaptives, set up by group of industries to meet theirpower needs. This would open new businessopportunities, especially for existing utilities formaintenance of such plants.

Consumers would be able to choose their supplier forbetter quality and price of supply.

Increased role of Central Government in policyformulation.

Generators and distribution utilities would have flexibilityin pricing within the maximum regulated price therebyhelping the market mechanism.

Tariffs would progressively adjust to reflect the cost toserve and cross subsidies would steadily reduce.

The vertically integrated Electricity Boards would beunbundled and corporatised facilitating privatisation.

The facilitating provisions of the Act will present fresh andnew opportunities for growth by making possible theCompany to take up new distribution areas and increase itscustomer base. The Company may also venture as a licensee,if given an opportunity.

RISKS & CONCERNS :

The availability of Fuel especially the natural gas is underserious strain and at number of gas fields the gas reservesare depleting.

The price of fuel viz. the gas as well as naphtha is risingand this would strain the per unit cost of power.

There are infrastructural constraints like limitation oftransmission corridor (i.e. transmission network).

The high T & D losses accross the state.

Political Will to translate the electricity reforms intorealty.

INITIATIVES OF GOVERNMENT OF GUJARAT :

The State of Gujarat had taken initiatives in power sectorreforms by passing the Gujarat Electricity Industry(Reorganisation & Regulation) Act, 2003, the key highlights ofthe act are :

Regulation of the Power industry by an independent bodycalled Gujarat Electricity Regulatory Commission (GERC).

Unbundling of erstwhile Gujarat Eletricity Board into OneTrading Utility, One Generation, one Transmission andfour Distribution Utilities.

Setting up of specific benchmarks for customers service.

Setting up of standards of system efficiency.

Deterrent measures for reduction of power theft.

The efforts of the Govt.of Gujarat has yielded results and it hasbeen one of the best performing states in the Power Sectorduring the past two years.

INTERNAL CONTROL SYSTEM & ITS ADEQUACY :

The Company has adequate internal control systems and

procedures commensurate with the size of the Company,which include pre-audit of payments and internal auditsystem. All major payments and statutory payments passthrough the strict scrutiny by pre-audit team before release ofthe same to parties. The internal control measures such asdefining the various levels of the authority through delegationof powers, well laid down purchase procedures, checks andbalances in the financial system to safeguard the Companysassets, budgetary controls and variance analysis are already inplace.

The Company is continuously endeavoring to improve andstrengthen its systems of internal controls to make the same tocommensurate with the size of the Company and complexities


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of its business activities. As a measure towards achieving thesame, the Company appointed a well reputed and leadingAudit Firm for conducting the internal audit.

The Company has also constituted an Audit Committee toperiodically review the internal control systems and theiradequacy, the details of which are specified in the CorporateGovernance section of this report.

ACCOUNTING POLICIES :

The financial statements are prepared on the accrual basis ofaccounting. The Books of Accounts also comply with themandatory Accounting Standards (AS) issued by the Instituteof Chartered Accountants of India.

FINANCIAL AND OPERATIONAL PERFORMANCE &HUMAN RESOURCE & INDUSTRIAL RELATIONS :

The members are requested to refer the Point Nos. A, B, E & Jof the Directors Report to Shareholders for details.

SEGMENT WISE GROWTH :

The Company has no separate segments and hence there is noreporting on the segment wise growth.

Data Source : Websites of Power Ministry-GOI & CentralElectricity Authority (CEA).

For and on behalf of the Board of Directors

Sd/-Place : Vadodara Balwant Singh, IAS

Date : 22/07/2006 Chairman

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REPORT ON CORPORATE GOVERNANCE

1. THE BASIC PHILOSOPHY OF CODE OF CORPORATE GOVERNANCE :

The Philosophy :

Corporate Governance is about commitment to values and ethical business conduct. It is about how to manage anorganization, that is to say, how to manage its corporate and other structures, its culture, policies and the manner in whichit deals with various stakeholders. Proper, accurate and timely disclosure of information regarding the affairs of the company,its financial position, performance, ownership and governance is an integral part of the philosophy of CorporateGovernance.

Our perspective:

The Companys corporate governance philosophy is based on following principles:

1. Follow the laws of land, not only in letter, but in spirit too.

2. Transparent, truthful and complete disclosure of information.

3. Distinguish between personal conveniences and companys resources and properties.

4. Management is not the owner, it is the trustee of its stakeholders .

The Companys Corporate Governance Policy emanates from the very basics of the Shareholders own institution (aCompany) which they own, needless to say the number of shares they hold. The apex governing body of the Company viz.the Board of Directors believes that there should be proper admixture of responsibility and accountability of the Board andit is vital for all the constituents like Consumers, Investors, Employees and regulatory authorities.

The Company firmly believes and proclaims that the shareholders are the cause of and ultimate beneficiaries of our business

and economic epicenter.

Our endeavor:

Your Board of Directors is proud to assert that much before the Code of Corporate Governance, in its present state, wasthought of, GIPCL was following it in strict as well as literal sense.

The Companys Board formally adopted the recommendations of good Governance as enunciated by CII long back. Theenhancement of the shareholders value was, is and will remain Companys topmost priority and to substantiate this, theCompanys Mission Statement contains this as one of the end results of all its economic activities.

The Company is managed and controlled through a professional Board. The Board consists as such of entirely independentDirectors, even the Chairman and Managing Directors are independent since they are nominated by the Govt. of Gujarat.The Companys Board comprises of eminent persons with considerable vision, expertise and experience in their relevantfields.

All Committees of the Board like Share/Debenture Transfer and Investors Grievance Committee, Audit Committee, etc. thatare required under the Code of Corporate Governance have

Documents

21st Annual Report 2005-2006