ObservationsSuggestions On ARR Application of CESU FY 200809

1
Observations/Suggestions OnARR Application of
CESU FY 2008-09

• 1st February, 2008
• URRC
• XIMB

2
Observations

• Financial Information
• The capital structure of the company shows a
  dismal picture with high debt equity ratio
• Increase in the Shareholders fund when the
  company is making losses

3
Observations

• What does LOSS DUE TO CYCLONE reflect?
• There has been dramatic increase of Capital
  work-in-progress from the last year, the reasons
  are not clear.

4
Observations

• 60 of the current asset is blocked in
  receivables
• Similarly in 50 of current liabilities is
  towards power purchase
• The net current asset is negative (FY 07, 08)

5
Observations

• Blocking of huge funds as cash, poor collection
  of the debtors, leading to negative net current
  assets and funds has to be financed through
  working capital is
• The schedule on Inventory shows that negligible
  purchases are made by the company for power and
  most is used for consumption. A huge amount of
  inventory has been blocked for unknown reasons.
• A huge amount has cumulated in terms of provision
  for bad and doubtful debts and necessary
  adjustment should be made. Nearly 36 of the
  provisions as a percentage on gross debtors has
  been kept.

6
Observations

• Power purchase 70 of the sales Operating cost
  22 of the sales seems to be high .
• The proposed figure of interest expenses has
  increased a lot

7
Observations

• The actual loss level is far below the desired
  loss level
• Stagnation in number of lines and transformers

8
Observations

• The Commission vide its order dated 08.09.2006
  has formulated the Central Electricity Supply
  Utility of Orissa ( Operation and management )
  Scheme,2006. The scheme came into force with
  effect from 8th September 2006 and shall remain
  in force for a period of two years from the date
  of its commencement.
• The two year period is getting over in 8th
  September 2008 which is now 6 months away What
  is the future plan for CESU?

9
Suggestions

• Energy Audit
• After repeated reminders of Commission there is
  not much of progress in the Energy Audit and loss
  calculation
• Concrete timelines/deadlines for completion of
  energy audit
• Phase wise completion of energy audit sharing
  of information with the Commission on a regular
  basis
• The Commission may appoint an independent body to
  carry/audit the energy audit of CESU

10
Suggestions

• Power Purchase cost 70 of the cost therefore
  detailed analysis of this cost is a must
• Sales forecasting LT sales forecast seems to be
  on a higher side
• Distribution Energy Loss Loss reduction target
  should follow Abraham Committee recommendations
• BST
• Savings in any one of the above head will a go
  a long way in controlling the expenditures

11
Suggestions

• Working Capital Management Balance sheet shows
  that cash formed nearly 10 of the asset can be
  gainfully invested
• Age wise analysis of the receivables and
  restructuring of the same - collection
  efficiency should be higher so that past dues can
  be collected

12
Suggestions

• The reasonable return of 16 should reflect the
  wieghted average cost of capital (WACC) 14
  instead of 16
• Return should be on Capital Employed rather than
  equity as it is not capturing the performance of
  the company
• Capital Employed Capital Profit /Loss Long
  term borrowings

13
Suggestions

• Information Sharing and statutory
• compliance
• Unavailability of financial information in the
  website
• Unaudited accounts statement
• Information provided in the website is old
  till FY 05

14
Thank You