Center for Management Studies

Sikkim Manipal University Study Centre: 2086

IICE College
Udaipur-313001

"FINANCIAL PERFORMANCE ANALYSIS OF

AJMER ELECTRICITY DISTRIBUTION
COMPANY"

By

SUNITA JAIN
Roll No: 510922344
Project Report
Submitted in Partial Fulfillment of the Requirements for the degree of
Master of Business Administration

Sikkim - Manipal University of Health, Medical and Technological Sciences

Distance Education wing Syndicate House
Manipal-576104

1
 ACKNOWLEDGEMENT

The research on "Financial performance analysis of Ajmer

Electricity Distribution Company" has been given to me as part of

the curriculum in 2 years Master degree in business

administration.

I have tried my best to present this information as clearly as

possible using basic terms that I hope will comprehended by the

widest spectrum of researchers, analysts and students for further

studies.

I express my deep gratitude to my research supervisor Mrs.

Jaishree Jain for constant inspiration guidance for moral support

and long discussions.

I have completed this study under the able guidance and

supervision of Mr. Ashok Jain Director IICE College.

I thankful to my friend who helped me a lot in the completion

of this project. I owe to my parents and family members for their

direct/ indirect support during the entire course of this project.

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 INDEX

S. NO. PARTICULARS
1. INTRODUCTION
PRESENT SCENARIO OF ELECTRICITY

2. DISTRIBUTION COMPANIES IN

RAJASTHAN
3. COST VOLUME PROFIT ANALYSIS
4. PERFORMANCE EVALUVATION
5. FINDINGS
6. SUGGESTIONS

7. BIBLIOGRAPHY

INTRODUCTION

INDUSTRY STRUCTURE AND DEVELOPMENTS

Overview

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 Historically, state and central government entities played
the dominant roles in the development of the Indian power
industry. However, capacity growth did not keep pace with
demand due to inadequate investment and the poor financial
health of the SEBs. As at the end of fiscal 2005, the SEBs own
close to 56% of the total generating capacity in the country,
33% is owned by Central PSUs and the balance is owned by
private sector. Almost the entire distribution network barring a
few private distribution networks in the states of Orissa, Delhi
and the cities of Mumbai, Kolkata, Ahmedabad and Surat is
Owned by SEBs.
This is the age of competition and fast changes in
technologies and social innovations. Future power distribution
systems need to be highly service oriented and caring for
consumer values. The power distribution company should have
a well-drawn vision. Compelling vision, values and mission
give a sense of direction to serve the needs of the consumers
through a STRATEGIC PLAN.

4
 Industry Structure

5
The legislative/legal frame works of Indian Power sector have
also undergone a major shift after the enactment of the
Electricity Act, 2003 which supersedes the 1910, 1948 and 1998
Central Acts. The Act is a major milestone in the history of
power sector in India and it is expected to give push to
reforms, spearhead sector growth, encourage competition,
decrease controls, reduce tariffs and improve customer
satisfaction in the medium to long term.

The Act has liberalized and delicensed the Generation and

requirement of techno-economic clearance has been done away
with (except for hydro projects). Captive plants have been
freed from controls. Open access has been allowed in
transmission lines, both to distribution licensees as well as to
generating companies. Distribution licensees will be free to take
up generation and generation companies will be free to take up
distribution. Trading has been permitted as a distinct activity.
The Act also provides for multiple distribution licensees in a
single geographical area. The role of the Government has been
limited to the formulation of polices. The Regulatory
Commissions would deal with most of the issues directly which
would include activities like finalizing tariffs, granting licenses,
induce competition in the market, resolve disputes, etc.

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Recent Developments
The Government has announced the National Electricity Policy
which aims at accelerated development of Power Sector
providing supply of electricity to all areas. The Government
has also issued guidelines for Competitive Bidding for
determination of tariff for procurement of power by
distribution licensees as provided under the Electricity Act
2003. The Government is also in the process of finalizing the
National Tariff Policy for the Sector.

Industry Outlook
As per the estimates of Index of Industrial Production (IIP)
released by Central Statistical Organization, the electricity
sector has grown at 5.2% during 2004-05 over the previous
year 2003-04 as against the growth in General Index of 8.2%.

RISKS AND CONCERNS

Fuel Supply constraints
Coal
Coal mines are not being developed or expanded at
required pace in comparison to the pace at which capacities
are being added. This may lead to situations where some of the
power stations may have difficulty in operating at full capacity
due to scarcity of coal. However, the shortages in coal suppliers
7
are considered temporary and are not expected to affect
current levels of capacity utilization. Also, coal companies are
expected to put up capacities as per requirement. Further,
developing coal mining blocks and import of coal to augment
supplies are options, which have been initiated by National
Thermal Power corporation to mitigate the risk. An order has
been placed with MMTC for importing 2.1 MT of coal, against
which, coal supplies have already commenced.
put up capacities as per requirement. Further, developing
coal mining blocks and import of coal to augment supplies are
options, which have been initiated by National Thermal Power
Corporation to mitigate the risk. An order has been placed
with MMTC for importing 2.1 MT of coal, against which, coal
supplies have already commenced.

Gas
Availability of gas and its pricing is a key concern.
However, the recent gas finds in India and the prospective
supplies of gas in liquefied form from offshore fields provide
opportunities to tie-up gas for existing and upcoming gas
power projects. The sector is adopting various strategies such
as procuring gas through international competitive bidding
process, exploring the possibilities of participating in the
Gas/LNG (Liquefied Natural Gas) value chain abroad. In this
regard the MOP (Ministry of Power) has also submitted offer
8
to the Government of India for allocation of blocks for
exploration of oil and natural gas under the New Exploration
Licensing Policy which may unfold an opportunity for securing
gas at an affordable price. Besides these efforts towards long
term security in gas supplies, to augment the present
requirements, additional gas supplies have been tied up with
GAIL from Parma Muktha Tapthi gas fields and Gujarat State
Petroleum Corporation and re-gasified LNG from GAIL and
BPCL.
Risk of Returns
The tariff structure for the sector is regulated and is based
on cost - plus return regime. The returns and norms for
operational perfonnance are set by the regulator at Central
and State levels. Existing regulations which are applicable for
the period 2004-2009 provide for a return on equity @14%.
Whether the same levels of return would be maintained for the
future tariff periods is not known. However, incentives are
provided for in the tariff structure for rewarding efficiently
operating utilities which enable utilities to earn higher returns.
Risk of Realizations
State Electricity Boards of their unbundled entitles continue to
be the major customers for power. These entities are not in a
very good financial condition. Central Government through
various initiatives has been trying to bring about improvement

9
in the health of these entities. The One-Time Settlement
scheme provided for settlement of old dues by waiving off late
payment surcharge and taking over of the liabilities of these
entities by State Government. The scheme has helped many of
the electricity boards to improve their commercial
performance and has resulted in their making prompt
payments of their current dues.
Whether the State electricity Boards or unbundled entities
can sustain the prompt payment of their current dues is not
known. However, the refonns and initiatives introduced by
the Central and State Governments are expected to
improve the commercial performance of these entities and thus
improve their financial health and enable them to honour their
commitments under the Power Purchase Agreements. Some of
the important information for Rajasthan is as under:-

PARMETER RAJASTHAN

GENERAL

Population 5,64,73,122

Area (Sq.km.) 242239

Population Density (Persons/sq.km) 165

District. 33

ELECTRICAL

Total connected load (MW) 9902

33KV lines (kms) 25718

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33/11KV S/S (Nos./Capacity in MVA) 1650/6490MVA

Domestic Connected Load (MW) 2181

Agriculture Connected Load 3110

Ind. Connected Load (MW) 3382

Domestic Electrification 42%

Villages/Towns Electrified 92%

T & D losses (%) 39.17%

Revenue from sale of electricity (Rs.Crores) 24303

Energy Sold (MU) 12716

Average Tariff (Rs./unit) 4.00

CONSUMER

Total Consumers 5082743

Domestic Consumers 3703259

Agricultural Consumers 577443

Industrial Consumers 134084

HT Consumers 2505

Domestic Consumers as % of total consumers 73%

Category wise Load forecast in MU

Year Domestic Commercial Agriculture Industrial Others Total

2005 3633.29 1068.63 5689.15 5358.96 1803.90 17553.93

2010 5338.49 1570.17 8359.23 7874.08 2650.52 25792.48

2015 8285.82 2264.56 10973.55 10935.77 3894.48 36354.19

2020 13962.09 3176.17 12968.37 13957.12 5722.27 49786.02

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 Chapter - II
Present Scenario of electricity distribution companies in
Rajasthan

Power Sector Reform in Rajasthan

1. Policy Statement on Rajasthan Power Sector Reform

Programme
The GoR issued policy Statement on Rajasthan Power Sector
Reform Programme on May 1999 with the following
objectives: -
 To facilitate and attract investments
 Bring about improvements in the efficiency of the delivery
system,
 Create an environment of growth in the power sector for
the overall benefit of the people of the state.
The main components of the reform programme are
 Enactment of the reform legislation to pave the way for
reforms.
 Establish an Electricity Regulatory Commission for
licensing regulation and tariff determination electricity
transmission and distribution.
 Unbundling Rajasthan State Electricity Board (RSEB)
into separate companies for electricity Generation,
transmission and distribution functions.
 ^ Private participation in the distribution companies in a
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 phased mannet through conversion into joint venture
Companies.
Improvements in the transmission and distribution
network through World Bank assisted project.
II. Rajasthan Power Sector Reforms Act.
Rajasthan Power Sector Reforms Bill, 1999 was approved
by the State Legislature on 25.9.99 Presidential Assent on
the bill was received on 28-12-99 and the bill published in
the official gazette on January 10, 2000. The Act has been
brought in force w.e.f. June, 1,2000.
III. Rajasthan Electricity Regulatory Commission
i) The Rajasthan Electricity Regulatory Commission has
been established and the Chairperson and Members of the
Commission appointed on 2.1.2000. The Commission was
initially set up under Electricity regulatory Commissions
Act, 1998 (Central Act) and was vested with tariff
determination function only.
ii) With the coming into force of the Rajasthan Power Sector
Reforms Act, 1999, this commission has become a
commission under the State Act and is vested with all
functions under the act licensing for transmission and
distribution, regulation of the activities of the utilities and
determination of bulk & retail tariff etc.

13
 iii) The Regulatory Commission has framed various rules
and regulations for its function. The Regulatory
commission has issued orders for revised tariff for RVPN
(Transmission company) and three Discoms on April 2001
and issued license to the RVPN and three Discoms on 30 th
April 2001.
iv)The Regulatory Commission has also approved various
documents like Metering code for Rajasthan Grid,
General and Planning Code, System Operation and Load
Dispatch Code, Standard of performance, Safety
Standards, etc.
v)The Regulatory Commission has also approved Annual
Revenue Requirement (ARR) in respect of RVPN
(Transmission company) and Discoms for the year 2002-
03 and 2003-04.
IV. Financial Restructuring Plan
The final Financial Restructuring Plan has been approved
by Government of Rajasthan on 4.8.2003 incorporating
there in a provision for cash transition support of Rs. 3800
crs, retention of Electricity Duty of Rs. 3951 crs, interest
subsidy on IBRD Loan of Rs. 282 crs and subsidy under
APDRP (Accelerated Power Development Reform
Programme) schemes of Government of India of Rs. 145
crs up to 2011-12.

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V. Restructuring of the Sector
With the notification of the Rajasthan Power Sector
Reforms Transfer Scheme 2000, on 19th July 2000 the
assets, liabilities and personnel of the

RSEB have been transferred to the newly formed five

companies namely a generation company
(RVUN),transmission company (RVPN) and three distribution
companies, viz. Jaipur VVNL, Ajmer VVNL, Jodhpur VVNL.
With this, Rajasthan became the first in the country to have
completely separated all the three functions in a single stage.
These companies have been incorporated under Indian
Companies Act' 1956.
i) Power Generation
The existing Power Stations and those under
commissioning in the State sector have been transferred to a
separate generation company viz. Raj. Rajya Vidyut Utpadan
Nigam Ltd., (RVUN) registered under Indian Companies Act,
1956. This company owns and operates the thermal Power
Stations at Ramgarh, hydel power station at Mahi & Mini
hydel in the state.
ii) Power Transmission
A State owned transmission company Raj. Rajya Vidyut
Prasaran Nigam Ltd., (RVPN) incorporated under the

15
companies Act, 1956, has been entrusted with the power
transmission grid network of extra high-tension lines including
O&M of inter state tie lines, in so far as they pertain to the
state. The RVPN is the state transmission utility in the State.
RVPN has an allocation of power to the extent of 971.46 MW in
shared power projects. This combines owns and operates all
the 400 KV, 200 KV, 132 KV and 66 KV.
Electricity lines and system in the state and is responsible for
sale to different distribution companies in the state.
iii) Power Distribution
The State has been geographically divided into three
distribution companies (with headquarter at Jaipur, Jodhpur
and Ajmer) formed on considerations of viability and
operational ease. These companies operate & maintain
electricity system below 11 kV in their respective aleas. Details
of distribution companies are as under:
| Distribution Company Districts Covered O&M Circles Covered

Jaipur Vidyut Vitran Jaipur, Alwar, Dausa, Jaipur City, Jaipur

Nigam Ltd., Bharatpur, Karauli, Dist. Dausa, Bharatpur,
Headquarter at Dholpur,Sawai Madhopur, Kota, Jhalwar, Alwar,
Jaipur Tonk Kota, Jhalawar, Sawai Madhopur
Ajmer Vidyut Vitran Baran, Bundi
Ajmer, Jhunjhunu, Sikar, Ajmer,Jhunjhnu,
Nigam Ltd. Nagaur, Bhilwara, Sikar, Nagour,
Headquarter at Chittorgarh, Udaipur, Bhilwara, Chittorgarh,
Ajmer Rajsamand, Banswara, Banswara, Udaipur,

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Jodhpur Vidyut Vitran Jodhpur, Sri Jodhpur City, Jodhpur
Nigam Ltd. Ganganagar, Dist, Gangangar,
Headquarter at Hanumangarh, Churu, Hanumangarh,
Jodhpur Bikaner,Jaisalmer, Bikaner,Barmer, Pali,
Churu, Jalore, Jaisalmer..
These distribution companies, though presently owned
by the State Government, will in a phased manner be converted
into joint ventures (JVC).
Where the private partners will hold majority shares and
management control including the obligation to bring in the
required investments and to meet the performance obligations
under the license.
The entire process of forming, JVCs and transferring the
distribution business to them was schedules to be completed by the
year 2004. However, the High Court of Judicature for Rajasthan at
Jodhpur in the hearing of D.B. Civil Writ Petition No. 2146/2000
has granted stay on transfer of assets of the erst while RSEB to any
private Company.
iv) Finalization of Transfer Scheme
The Transfer scheme as notified by the GoR on 19.7.2000 was
provisional for a period of 6 months in case of personal and 1 year
in case of assets and liabilities. The provisionally period of transfer
of assets and liabilities of the erstwhile RSEB to the successor
entities was extended to 18-1-2002 by the GoR.
The GoR has issued amendments in the Transfer Scheme on
18.1.2002 and with these amendments Scheme has become final.

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VI. Implementation of Memorandum of understanding signed
between Ministry of Power, Government of India and
Government of Rajasthan on 23.3.2001 in New Delhi is as
under
S.No Issue Status
1 Increase of PLF (Plant Load Factor) of 89% PLF achieved in
KTPS and STPS beyond 85% FY 03
2 Maintain grid discipline, comply with Grid Being Complied ABT
Code and ABT. effective Dec. 2002 VII.
3 Securitization of outstanding dues of Complied
CPSUs.
E
4 Computerized billing and effective energy Complied
audit in selected towns.
5 Energy audit
100% metering of 11 KV feeders Completed for all 8411
feeders
100% metering of all consumers Being done in phases
Energy audit of loads above 1000 KVA Started
6 100% electrification of potential villages by 96% achieved in FY 03
07
7 Timely payment of subsidies Being paid as per FRP
8 Privatization of Distribution Being reviewed in light
of Electricity Act 2003
lectricity Act 2003

The Central Government has enacted Electricity Act, 2003

from 10th June 2003. In order to give effects to various
provisions of this Act, following activities are require to be
completed within the time frame specified in the Act.

Activity Estimated time of Remarks

completion
Filing Petition for ARR Jan. 04 Petition filed in December

18
and Transmission/SLDC 2003
charges
Issue of Notifications Jan. 04 Several Notifications
issued
Separation of Trading Mar. 04 Trading functions are
from TRANSCO. being done by DISCOMs
through Rajasthan Power
Procurement Centre
(RPPC) from 2004
Formulation of Rules Jan. 04

In pursuance of the Rajasthan Electricity Regulatory

Commission (Electricity Supply Code and connected matters)
Regulations-2004 issued by Rajasthan Electricity Regulatory
Commission in exercise of power conferred by Sections-43 to
48,50,55 and 56 of the Electricity Act-2003(No.36 of 2003) and
with the approval of the Rajasthan Electricity Regulatory
commission, Power Distribution Companies hereby lays down
the terms and conditions for supply of electricity to consumers
for its area of supply.

These terms and conditions supersede the “General

Conditions of Supply & Scale of Miscellaneous Charges
Relating to the Supply of Electricity” prescribed by the
erstwhile Rajasthan State Electricity Board and issued vide
notification No. A&F/F.14 (397) 63 Dt. 24th June, 1964 and
amendments thereof.

Terms and Conditions for Supply of Electricity

System of supply
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(1) The declared voltage of lternating current (AC)
supplied by the Nigam is as follows:
a) Low Tension (LT) Supply
i ) Single Phase 20 Volts between each phase and
neutral.
ii) Three Phase 400 Volts between phases.
b) High Tension (HT) supply
i ) Three Phase 11,000 Volts (11 kv) between phases.
ii) Three Phase 33,000 Volts (33 kv) between phases.
c) Extra High Tension (EHT) supply
i ) Three Phase 1,32,000 Volts (132 kv) between phases.
ii) Three Phase 2,20,000 Volts (220 kv) between phases.
(2) The frequency of supply shall be 50 Hertz.
(3) The voltage and frequency shall have permissible
variations as per the Rules.

Category of consumer and character of service

The Character of service for various categories of consumers

shall be as under

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Category of Character of Service
Consumer
a) Domestic i ) Connected Load up to 5 KW i ) LT Single phase or three
ii ) Connected Load above 5 KW phase at the option of the
iii) Contract/actual demand more consumer.
than 50 KVA ii ) LT Three phase
iii) HT 11 KV or 33 KV
whichever is feasible
b) Non- i ) Connected Load up to 5 KW i ) LT Single phase or three
Domestic ii ) Connected Load above 5 KW phase the consumer.
at the option iii) Contract/actual demand more ii ) LT Three phase
of than 50 KVA iii) HT 11 KV or 33 KV
whichever is feasible
c) Public All services LT Single phase or three
Street phase
Lighting
d) All services LT Three phase
Agriculture
e) Small i ) Connected Load up to 5 KW (6.7 i ) LT Single phase or three
Industrial HP) phase at the option of the
ii ) Connected Load above 5 KW consumer.
(6.7 HP) but up to 18.65 KW (25 HP) ii ) LT Three phase

f) Medium i ) Connected Load up to 18.65 KW i ) LT Three phase

Industrial (25 HP) and up to 112 KW (150 HP)
but contract/ actual demand remains
up to 50 KVA
ii ) ) Connected Load above 18.65 ii) HT 11 KV
KW (25 HP) and up to 112 KW (150
HP) but contract/ actual demand is
above 50 KVA and up to 125 KVA

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g) Largei) Connected Load above 112 KW i) HT 11 KV
Industrial (150HP) and/or contract/ actual/
(except demand above 125 KVA but up to
Railway 1500 KVA
Traction) ii) Contract/ actual demand is ii) HT 33 KV
above 1500 KVA but up to 5000
KVA
iii) Contract/ actual demand above iii) EHT 132 KV or 220
5000 KVA KV
h) Mixed Load i) Connected Load up to 5 KW i) LT Single phase or
ii) Connected Load above 5 KW three phase at the option
but contract/ actual demand of the consumer
remains up to 50 KVA ii) LT Three phase
iii) Connected Load above 5 KW iii) HT 11 KV
and contract/ actual demand is
more than 50 KVA but up to 1500
KVA
iv) Contract/ actual demand above iv) HT 33 KV
1500 KVA but up to 5000 KVA
v) Contract/ actual demand above v) EHT 132 KV or 220
5000 KVA KV
i) Railway Contract/ actual demand above Phase to phase supply at
Traction 5000 KVA the voltage specified for
large industrial
consumer

Supply where new substation is to be commissioned

In case where supply of electricity to premises applied for

requires commissioning of a new sub-station, the Nigam shall
take up the work on the new substation as per investment plan
approved by the Commission and intimate within two months
of receipt of application,
the date of commencement of work, to the consumer and complete the work within the time
specified below for different sub-stations, from the commencement of work:

(i) 11/0.4 KV S/S 30 days

(ii) 33/0.4 KV S/S 120 days
(iii) Extension of bay at 33/11 KV S/S 30days
(iv) 132/33 11 KV S/S 12 months
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(v) Extension of bay at 132 KV S/S 45 days

Supply Where Augmentation Of Transformer Sub-Station

Capacity Is Required

In case the augmentation in the existing capacity of

transformer sub-station is required, the Nigam shall take up
the work on the new substation as per investment plan
approved by the Commission and intimate within two months
of receipt of application, the date of commencement of work, to
the consumer and complete the work within the time specified
below for different sub-station, from the commencement of
work:

(i) 11/0.4 KV S/S 15 days

(ii) 33/11 KV S/S 60 days
(iii) 132/33/11 KV S/S 6 months

Supply through meters

(1) All supply of electricity shall be through installation of a
correct meter in accordance with the metering code
approved by the Commission or regulations made in this
behalf by the Central Electricity authority. Provided that
supply to agriculture consumers who are on the date of
23
 coming into force of these terms and conditions, being
supplied electricity otherwise than through a meter shall
not be so supplied beyond March 31,2005.
(2) Metering in each case shall be provided on ground floor
only. Metering equipment shall be near the main gate of
the premises and easily accessible.
Reading of meters
(1) On behalf of the Nigam, meter reader or a person
authorized by the Nigam in this behalf shall have access to
the consumer’s premises at all time during the day for the
purpose of reading the meter for ascertaining the amount
of electricity supplied or the electrical quantity contained
in the supply to the consumer.

(2) The meters shall be read each month or at such

intervals as the Nigam may fix with approval of the
Commission.

Assessment in case of stopped or lost or stolen or burnt meter

24
(1) If the meter stop working for any reason, or the meter is
stolen or lost, the consumption of electricity for the period
during which electricity has been consumed with stopped
meter or without a meter, shall be calculated as follows:

(i) All consumers except seasonal industrial and

agricultural consumers.

The consumption of electricity shall be assumed as

the same as recorded by correct meter for the
corresponding period of the previous year or the
average monthly consumption of the previous six
months, whichever is higher.

(ii) Seasonal industrial consumers.

The consumption of electricity shall be assumed as
the same as recorded by correct meter for the
corresponding period of preceding season or off-
season as the case may be .

(iii) Agriculture consumers.

The consumption of electricity shall be assumed on

connected load basis with 100% load factor as follows:
a) For Block supply connections:
25
 For billing months of October to April: 6 units/HP / day
for billing months of May to September: 4 units / HP /
day.
b) For others:
For billing months of October to April:12 units/HP/day
For billing months of May to September: 8 units /HP/
day
(2) In case of (i) & (ii) of Sub-clause (i) if there is no
previous period, minimum billing amount for the
consumer category may be recovered except in case of
HT connection where after installation of correct meter,
the assessment shall be reviewed on the basis of average
consumption of succeeding six months period and
charged accordingly.

Recovery of charges for supply

(1) The Nigam shall recover the charges for electricity
supplied to a Consumer on the basis of a bill served on the
consumer fortnightly/ monthly/ bi-monthly depending on
their category/ load, location i.e. rural/ urban areas and
requirement of security deposit.

(2) The bill shall contain important information relevant to

that category of consumer and its type of metering (Whole
current meter, CT-operated meter, Trivector meter etc),
interalia the followings:
26
 a) Category of consumer in clear term, such as domestic
(rural), domestic (urban), non domestic, public street light,
agriculture (metered supply/ flat rate), agriculture other
than 24 hours supply, farm-house, agriculture 24 hours
supply, Small, Medium & Large Industries, mixed load,
PHED, traction etc.
b) Date of meter reading
c) Previous meter reading
d) Present meter reading
e) Date of issue of bill,
f) Due date of payment,
g) Fixed charges,
h) Energy charges
i) Minimum billing amount,
j) Delayed payment surcharge/ Late payment surcharge
k) Other charges
l) Amount of electricity duty
m) Rentals etc.,
n) Amount of security
1. towards electricity 2. towards meter
o) Full address and telephone number of the concerned sub-
division.
p) Full address and telephone number of complaint center
and forum for redressal of grievances.

(3) The bills may be sent by the Nigam by hand or by post or

by fax or-e-mail and the date of issue of bills for different
regions shall be widely publicized by the Nigam for the
information of consumers.

27
Disconnection of supply.

(1) The Nigam shall be entitled to cut off supply of

electricity to any person after giving not less than
fifteen clear days notice in writing to such person if
such person neglects to pay charges for electricity
supplied or any other sum due from him to the Nigam.
(2) If such person produces proof of payment of deposits
under protest:
(a) An amount equal to the sum claimed from him, or
(b) The electricity charges due from him for each
month calculated on the basis of average charge for
electricity paid by him during the preceding six
months, whichever is less, pending disposal of
dispute, his supply shall not be cut off.
(3) The Nigam reserves the right to discontinue supply
to a consumer on giving 48 hours notice in writing if
there is reason to believe that the consumer is
contravening any of the provisions of the Act or of these
terms and conditions or committing breach of the
agreement with the Nigam or in the event of the consumer
going bankrupt or also in the event of compulsory or
voluntary liquidation if the consumer is a limited
company.
(4) In the event of supply being disconnected due to non-
payment of dues or for any other reason, all the money
then payable by the consumer including the amount of
minimum billing for unexpired initial period of agreement,
if any, shall become due and recoverable. In case
disconnection is made or initial agreement period expires
in middle of the month, the minimum Billing amount shall
be payable proportionately.

28
(5) A consumer other than agriculture category and
seasonal industry may seek disconnection by giving one
month’s notice in writing in that behalf after initial period
of one year including notice period. The consumer shall
pay all the charges payable up to the date of
disconnection, subject to notice-period or initial
agreement-period. In case disconnection is made or notice-
period/initial agreement-period expires in middle of the
month, the minimum billing amount shall be payable
proportionately.
The consumer may also seek disconnection on the same
day of Notice If he is ready to pay the minimum billing
amount for notice period or unexpired period of
agreement, as the case may be.
(6) After a connection is disconnected, the billing shall be
stopped forthwith.
(7) After a disconnection has been effected, the Nigam shall
inform the consumer in writing through a letter by
registered post on the address given by the consumer.
Dispatch of a registered letter shall be considered as
adequate evidence to inform the consumer.

Forum for redressal of grievance

(1) Any consumer may lodge his complaint about supply of

power, with the forum constituted by the Nigam. The
grievances of the consumers shall be attended as
prescribed in the Standards of Performance issued by the
Nigam with the approval of the Commission.
(2) The Complaints can be made by consumers orally or on
telephone or in writing to the Duty Incharge of the
specified office. Such complaints are required to be
entered in a register Prescribed for the purpose by the
Commission under the standard or Performance-2003 and
number is to be allotted to each complaint and the same is
required to be conveyed to the consumer.
29
(3) The district Level Forum shall have the following
constitutions:
(a) Superintending Engineer of O&M Circle -
Chairman
(b) TA to Superintending Engineer of (O&M) Circle -
Member Secretary
(c) Executive Engineer (O&M) of concerned Division -
Member
(d) Accounts Officer of the Circle - Member
(e) Executive Engineer (M&P) of the area In cases made by
Meter wing. - Member

(4) Case which do not fall within the financial powers

of the District Level Forum or the cases
where the consumer is not satisfied with the disposal of
complaints, are to be referred to the Corporate Level
Forum which shall have the following constitution
(a) Managing Director –
Chairman
(b) Whole Time Director-
Member
(c) Chief Engineer (O&M)- Member
Secretary
(d) Chief Engineer (Comml.)-
Member
(e) FA/CAO-
Member

30
 (Tariff structure in Rajasthan)
(A) Fixed Charge

Category of Applicable w.e.f. 1st November 1999 At present

consumers to 31st March 2001
Fixed Service Meter Rent Fixed Charge
Charges./month) (Rs/month) (Rs./month)
Rural Domestic 15 (up to 50 units) 15 (Single Phase) 80 (up to 50
units*)
30 (above 50 30 (Three phase) 105 ( above 50
units) units*)
Urban Domestic 15 (Up to 50 15 (Single Phase) 80 (up to 50
units) units*)
30 (above 50 30 (Three phase) 105 ( above 50
units) units*)
Non Domestic
LT supply- 25 (Up to 200 15 (Single Phase) 80 (up to 100
(a) SCL up to 5 units) 30-700 (Three units*)
KW 45 (above 50 phase) 120 ( above 100
units) units*)
(b) SCL above 5 -----do----- -----do----- Rs. 40/KW of
KW SCL
(c) HT Supply 750 800 Rs. 60/KVA of BD
Public Street
Lighting
Population <1 -------- 15 (Single Phase) 30/ point
Lakh
Population 1 lakh -------- 30 (Three phase) 4545/ point
& above
Agriculture 15 30 50
(Metered)
Agriculture (Flat 15 ------ 20
rate)
Small Industrial 35 15 (Single Phase) 35/HP**
Service 30 (Three Phase)

Medium Industrial Service

31
(a) LT Supply 50 30 to 700 50/ HP ** or
(b) HT Supply 750 800 80/ KVA ** of
BD”
Large Industrial Service
(a) Up to 33 KV 750 800 95 /KVA ** of BD
Supply
(b) Above 33 KV 1500 800
Supply
Mixed Load supply
(a) LT Supply 35 15 to 700 50/HP or
(b) HT Supply 750 800 80/KVA of BD

* of average monthly consumption of previous financial year

** Fixed charges for seasonal Industries will be 25% during off-
season.
“ BD= Billing Demand
Public Water Works & Traction tariff will be same as that of
Industries depending upon load

Category of Consumers Applicable w.e.f. 1st November Applicable at present

1999 to 31st March 2001
Energy Fuel Total Energy Electric Total
Charge Surcharg (Rs. / Charge* ity Duty (Rs. /
* (Rs./ e units) (Rs./ (Rs./uni units)
Unit) (Rs./unit) Unit) t)
Rural Domestic
(a) First 50 units 1.55- 0.00 1.55- 1.95-10% 0.40 2.35-
10% 10% 10%
(b) More than 50 units 2.20 0.00 2.20 3.50-10% 0.40 3.9
10% 10% 10%
Urban Domestic
(a) First 50 units 1.55 0.00 1.55 1.95 0.40 2.35
(b) More than 50 units 2.20 0.00 2.20 3.50 0.40 3.9
Non Domestic
(a) First 100 units 2.64 1.46 4.10 4.50 0.40 4.9
(b) More than 100 units 3.04 1.46 4.50 4.90 0.40 5.3
Public Street Lighting
(a) Population <1 Lakh 1.54 1.46 3.00 3.50 0.40 1.4
(b) Population 1 Lakh & 1.84 1.46 3.30 3.75 0.40 4.15
above
Agriculture (Metered )
General 0.70 0.00 0.70 1.10 0.40 1.5

32
Urban wells before 1995 & 1.10 0.00 1.10 1.10 0.40 1.5
others
Urban wells from 1995 & 1.40 0.00 1.40 2.10 0.40 2.5
nursery
Farm Houses 2.20 0.00 2.20 3.40 0.40 3.8
Agricultural (flat rate)
General 60/ HP 0.00 60/ HP 140/ HP 5% 85/ HP
Urban Wells before 1995 95/ HP 0.00 95/ HP 1.10/ HP 0.40 175/ HP
Urban Wells from 1995 & 120/ HP 0.00 120/ HP 1.10/ HP 175/ HP
others
Small Industrial 2.03 1.46 3.49 3.50 0.40 3.9
Medium Industrial 2.36 1.46 3.82 3.75 0.40 4.15
Large Industrial 2.59 1.46 4.05 4.25 0.40 4.65
Mixed Load supply 2.36 1.46 3.82 3.75 0.40 4.15
Public Water Works &
Railway Traction
(B) Energy Chargesu

CHAPTER III
Cost Volume Profit Analysis

A clear understanding of cost behavior is essential for cost

management & cost control. Cost has been classified by
authorities in different ways according to the purpose. Cost
behavior concerns how total and unit costs vary with changes
in activity or volume. To better estimate and control cost,
understanding its behavior is essential. Because of the large
investment in equipment, the importance of cost behavior
analysis increases as equipment of cost behavior analysis
increases as factories become the importance of cost behavior
33
analysis increases as factories become more automated.
Activity- based costing (ABC) questions the traditional model
using a fixed and variable costs dichotomy. ABC reports the
rate at which activities consume resources as well as why they
use the resources. Rather than assuming a single mix of cost
behavior , the cost management approach examines how to
improve profits by managing cost behavior patterns cost
interrelationships. Fixed and variable: Analyzing cost behavior
patterns is an important function of cost accountants. Total
variable costs vary indirect proportion to changes in the cost
driver. Total fixed costs remain the same despite changes in the
cost driver; depreciation, insurance premiums and rent
payments are examples. Semi variable (mixed) costs behave as
partly variable and partly fixed, that is, they vary and but less
than proportionately. Costs of indirect material, indirect
labour, and utilities may be semi variable . For instance, there
is a fixed monthly electricity cost plus a per kilowatt-hour
charge.

Finding a strictly fixed or strictly variable cost in practice is

difficult ; many costs fall into a semi variable group that
display both fixed and variable characteristics. There is usually
little difficulty in determining whether a direct material or
direct material or direct labour cost in a labour-paced
environment is fixed or variable; generally, these costs are
34
variable Direct labour in a machine-paced , automated factory
tends to be a fixed cost. However, overhead cost behavior is
harder to determine because some overhead costs vary
erratically with production. Before semi variable costs can be
used in cost estimates such as budgets , accountants segregate
them into their fixed and variable components. This chapter
discusses methods for making this distinction.
Fixed costs can be either committed or discretionary costs .
Committed costs are the result of previous managerial actions,
Depreciation and property taxes on the manufacturing
facilities are committed costs. After acquiring an asset,
committed costs are not changed unless economic
circumstances indicate a change in the depreciation method or
useful life or the asset is sold.
Other costs such as factory supervision, are discretionary costs
because management uses professional judgment each period
in deciding the amount of such costs. These costs also are
called programmed or managed costs. ,Many marketing and
administrative costs are discretionary costs. Changes in
economic conditions and technology as well as plant layout and
facilities location affect management’s decision about the level
of discretionary costs. For example, if a competitor’s product is
mote technologically advanced , management may find it
urgent to change the product design. This design change may
involve an employee training program. Such costs arise from
35
periodic appropriation decisions reflecting top management
decisions. If unfavorable conditions develop for the company
managers may drastically reduce these costs for a given year.
Even though there often no clear line between committed and
discretionary costs distinction is useful for planning and
control decisions.

Current Cost Management practice

Strategic Planning
As companies streamline operations, managers are
dismantling bureaucracies and questioning the benefits of
vertical integration . One alternative is a strategy that focuses
internal operations on a small set of critical core activities .
Nonessential services are then outsourced to external vendors
who can offer advantages, such as flexibility , cost, and access
to the latest technology. Sun Microsystems, a maker of
computer workstation has been referred to as an intellectual
holding company because it concentrators on hardware and
software design and outsource almost everything else in its
value chain . Cost accountants can help decide which activities
36
should be performed within the firm and which should be
bought externally. Understanding a firm’s value chain and the
relationship among its service activities is the beginning step in
preparing an outsourcing study.
We must distinguish between short – and long – run
periods in relation to fixed variable costs. In the long run, there
are no committed costs. Should management decide not to
operate their plant facilities , usually they can cancel the lease
agreement and avoid the rent payment. In the short run,
however , management cannot inform the lessor that
operations have ceased and they wish to terminate the lease
immediately. When a cost is fixed, it is fixed for a certain short
period a month or a year. People , machines and other
resources come in lumpy amount; not all costs are variable in
the long run,
Relevant Range
The relevant range is the specific period and designated
range of production volume or activity for defining fixed and
variable costs . If fixed costs are Rs.1,00,000 for a year , we
assume they remain the same for a certain volume range; for
example , 1000 to 3000 units . When management finds an
expansion of production facilities is necessary , it may either
move to a larger plant or use the present facilities with
additional shifts . In either case, this change in the production
facilities or the number of work shifts can cause in the relevant
37
range. This change in the relevant range can affect total fixed
costs. Although some fixed costs such as depreciation, do not
change unless a company acquires new equipment or a larger
plant , other fixed costs may increase, For example, a company
may hire more plant supervisors.
Total foxed costs are time-related than activity –or
volume related when compared to variable costs. Price changes
experienced in a different accounting period affect fixed costs.
For example , even if the same number of shifts work next
year , or the plant size remains the same, the salary level paid
to the plant supervisors or rent on present plant facilities may
increase. This increase may affect total fixed costs. Thus, total
fixed costs remains the same only if we assume the relevant
range does not change change and prices remain constant.
The top illustration in exhibit 3-1 shows the fixed costs
for activities on either side of the relevant range when
companies make major salary adjustment or changes in plant
facilities. The fixed costs function depicted often is called a step
function. Because in practice fixed costs are usually not
graphed according to this conceptual analysis, the lower
illustration shows the practical analysis ,The probability of a
company’s activity being outside the range is usually small so
Rs100,000 becomes the fixed –costs level.

Non linear Relationship

38
 The basic assumption of relevant range applies to
variable costs as shown in Exhibit 3-2. Accountants assume
variable costs are constant (represented graphically by a
straight line) while economists often assume a curve more
accurately represents the underlying variable cost relationship
as compared to volume. Economists argue quite convincingly
that at higher levels of activity, there might be overcrowding,
fatigue , or breakdowns in communications causing variable
costs to increase per activity level rather than maintain the
constant (linear) relationship that accountants usually assume
exists for cost analysis and control purposes. Also while
learning their jobs , workers may waste more raw material or
labour –hours lower activity levels.
Outside the relevant range, raw material , labour,
utilities used ,and other variable costs may not behave directly
with changes in volume. Economists plot variable costs as in
the top graph of Exhibit 3-2 , showing variable costs are not
strictly affected in direct proportion to volume outside the
relevant range . Exhibit 3-2 shows costs increase at a
decreasing rate for volumes up to 1,000 units ; production costs
increase faster than the assumed linear rate beyond 3,000
units , However between 1,000 and 3000 units , each funit
appears to contain the same amount of cost . This rang
provides linear cost behavior, in practice, we draw total
39
variable costs as shown in the bottom graph in Exhibit 3-
2Economies and diseconomies of scale can cause nonlinear cost
behavior. For example , quantity discounts could cause cost per
unit to decrease up to 1000 units in Exhibit 3-2 However, as
long as we limit decision making to the relevant range,
misleading interpretation does not result.
Unit versus Total Costs
Unit Fixed Versus Total Fixed Costs. Accountants express fixed
and variable costs either as unit costs or in total. Exhibit 3-3
illustrates these concepts but omits the relevant range , total
fixed cost for rent is Rs.100 ; if it produces two shirts, the unit
fixed cost is Rs. 50(Rs.100 total fixed cost ÷ 2 units) ;if it
produces 10 shirts, the unit fixed cost is Rs. 10 (Rs, 100 total
cost ÷ 10 unit ); and so forth,
Unit Variable versus Total Variable Costs . Exhibit 3-3 also
graphs total variable costs and unit variable costs increase in
proportion to volume increases. However , unit variable cost
remains constant Assume that a worker uses three yards of
material to make each shirt and that total material cost is Rs.
20 per shirt. Exhibit 3-3 shows the total variable costs are Rs.
20 for one shirt. Total variable costs remains Rs. 20 per shirt.
Total Cost per Unit versus Total Cost . We plot total cost by
adding the fixed and variable cost curves. Total cost increases
with output because of average cost, by dividing total cost by
the units produced. For example , the total cost to produce two
40
shirts is Rs. 140 (Rs 100 fixed cost Rs 40 variable cost ) or Rs.70
total cost per shirt (Rs. 140 2 unit ) Average unit cost decreases
with output because we spread the Rs. 100 fixed cost over more
shirts .

EXHIBIT Cost Behavior Patterns Summarized

41
Semivariable (Mixed ) costs

Semivariable or mixed costs vary with volume changes , but

the proportional relationship found in variable costs in
missing . Part of semivariable costs are costs that a company
incurs regardless of the level of work performed, such as
supervision , inspection or wages of stand by repairers . The
total cost increases as companies attain to continue higher
activity levels because more supervisors, inspectors, and
repairers are needed to support a higher production level. In
reality, therefore the costs of processing , monitoring and
expediting are often step functions (e. g fixed over a certain

42
range of activities) Semi variable costs also are called semi
fixed costs.

Semi variable Cost : one of the many forms that semi variable
costs can take. Assume that a person inspects 100 units per
month and earns Rs. 2,000 monthly . The company hires a
second inspector when volume increases beyond 100 unit and
total inspection costs become Rs. 4000. The company hires a
third inspector when volume reaches 300 units, and so forth .
The Rs. 2000 earned by the first inspector represents the fixed
portion of the semi variable cost , reflecting the minimum cost
of supplying inspection service. The difference between Rs.
2000 and the amount paid is the variable portion related to
usage.
Maintenance an repair of factory machinery and
equipment may follow the semi variable pattern shown in
Exhibit 3-5 . Management may decide a good preventive
maintenance policy is to keep one repairer at the plant an pay
the person Rs.1800 per month . As volume increases, the
company needs more repairers and additional repair supplies.
The Rs. 1,800 salary of the first repairer is the fixed
component. The remainder of the semi variable costs is the
variable portion that may increase at a constant or increasing
rate . The variable cost portion in Exhibit 3-5 increases at a
constant rate. In practice, cost behavior patterns very and
43
many cost structures are not linear. For instance a semi
variable cost such as electricity increases either at a decreasing
or increasing rate. Utility companies charge a fixed monthly fee
for service a base charge that is constant for the period and a
demand charge that varies with consumption. With increasing
amounts of energy consumed , unit variable cost may decrease.
On the other hand , a penalty for greater consumption may
increase the variable costs at an increasing rate.

Importance of Cost Behavior to Service Organizations

Even though our discussion of fixed and variable costs is

based on manufacturing companies, analysis of cost behavior is
important to all organizations, including not-for-profit and
service industries. Effectively managing universities, hospitals,
and for-profit service organizations require and understanding
of these concepts. Many of these organizations have a unique
cost mix. For example, fixed costs account for 60 to 80 percent
of total hospital costs. However, unlike many organizations of
this type, labour costs largely comprise hospital’ fixed costs.
44
Labour costs, unlike depreciation, require a cash flow out. This
is a characteristic of labour-intensive organizations. Also,
hospitals usually allocate 10 to 15 percent of their space for
standby emergency events giving hem built- in idle capacity.
This prevents hospitals from enjoying the advantage of higher
profits that a capital-intensive organization realizes at higher
volume beyond the breakeven volume. Thus, the cost structure
of health care institutions presents challenges to accountants
because of their labor-intensive and capital-intensive
characteristics.
For a successful company, cost planning and cost volume
profit analysis has become a excellent tool. Every successful
businessman wants the following calculation tabled all the
time.
1. Quantum of Fixed costs.
2. percentage of variable cost.
3. Percentage of contribution or PV Ratio.
4. Break-even chart.
Break-even chart is commonly used to answer the following
questions:-
1. Level of activity where the company having no profits
no loss.
2. what level of activity be achieve to earn a desire
profit.
3. What will be the profit at a given level of activity.
45
 4. The degree of profit generating capacity usually
express in terms of angle of incidence.

BEP represent the level of activity where the company earn no

profit & no loss below the BEP there is loss region beyond the
BEP there is always profit the relation between cost volume
profit may be express in the break-even chart.

If the revenue per unit is constant and also the average variable
cost remains the same the break-even chart will be linear chart.

The cost data of Ajmer Distribution Company are as following

Table
Statement showing the CVP Analysis of Ajmer Vidhyut Vitran
Nigam Ltd. For the last four years.
Amount in Lacs
Particulars 2005 2006 2007 2008
Rs. Rs. Rs. Rs.
Total Income 248717 269161 292557 304430
Less: Variable
cost:
Purchase of 206984 220824 231548 322326
Power
Repair & 2842 3100 3477 3450
maintenance
46
Contribution 38891 45237 57532 21346
Less: Fixed
Cost:
Employees 16306 17363 18792 24628
Cost
Adm. & other 2343 2539 2820 2799
Depreciation 7939 9653 12242 8710
Profit 12303 15682 23678 -14791

CHAPTER 4

Performance Evaluation
Concept of Performance
The word performance is indicative of the quality of
achievement of an organization or by management of an
enterprise. Performance is the degree of targets achieved by an
organization. The new Webster’s Dictionary defines it thus.
“An entertainment presents before an audience, portrayal
of a character on the stage, the act or manner of exhibiting an
art, skill or capacity, the degree to which anything , as a
machine function as intended, an action thing done, the act of
performing or condition of being performed.”
47
 Performance is used to mean the efforts extended to
achieve the targets efficiently and effectively. In achievement of
targets the use of human, financial and natural resources
utilised and targets achieved is called performance.
The chamber’s 20 Century Dictionary defines
performance as the act of performing a carrying out of
something, done, a piece of work , manner of success in
working execution especially as an exhibition or entertainment,
an act or action.
Performance is the degree or level or targets
achieved efficiently by utilizing and integrating manual ,
financial and natural resources.

Concept of Appraisal

“Appraisal is evaluation , price set by am a[[raoser.”

The word appraisal includes to examine, to review, to establish
cost of value by systematic procedures , to interpret, to weigh
critically and to draw conclusion. Hence the word appraisal is
used to mean systematic analysis and procedure of analyzing
and reporting a task.
Appraise means to establish cost or value by systematic
procedures that include physical examination, pricing and after
engineering estimates. Appraisal means the act of appraising ,
the result of appraising ,an appraisal report.
48
 Hence appraisal means to evaluate the efforts of an
organization and to integrate and coordinate them to draw
some conclusions.

Performance Appraisal

Performance appraisal is critical analysis of various

activities of an organization including social , financial
personnel and production activities .
Measurement of business performance is more
complex and difficult, since it must deal with the effectiveness
with which capital is employed , the efficiency and profitability
of operations, and the value and safety of various claims
against business.
Performance appraisal is preventive as well as diagnostic.
Just as for good health a person should have a periodical
examination of all the organs of his body likewise , for its good
and efficient running every enterprise has to appraise its
performance periodically. Just like a human body,
performance appraisal can be preventive (periodical
49
examination ) and diagnostic (at the time of illness )also. In
case of can of an already poor condition concern performance
appraisal can diagnose its situation and can indicate the areas
which need improvement and how to achieve that improvement
.
Performance appraisal is the systematic procedure of
evaluating efficiency and effectiveness by utilizing and
integrating human , financial and natural resources .

Objective of Performance Appraisal

Performance appraisal is expected to achieve various
objectives in an organization setting. Appraisal serves to
monitor the efforts of individuals , to integrate and coordinate
individual’s efforts into a co-operative endeavour to provide
protection and feedback to the individual , to provide a means
of correction or commending the eggort of individuals , and
provide an equitable and consistent basis of distributing
rewards penalities.
Appraisal objectives could be of three type , individual
objectives organizational goals and mutual goals or objectives.
All these three objectives appraise different type of activities.
These can be depicted in a diagram given on the next page .

Basis of Performance Appraisal

50
The performance of a company can be appraised by analysis of
its various activities . The various activities of a company are
production , finance, social and personnel activities which can
be analysed on the basis of financial statements of a company .

Appraisal of performance deals with past data so these

are the yardstick of appraising the performance of a company .
In the present study financial statements are the basis of
performance appraisal

51
Financial Statements

Accounting information about a business as a whole is

conveyed to investors in a set of table and explanatory notes,
referred to as its financial statement .

Financial statements basically consist of balance sheet

and profit and loss account and sometimes also include also
statement of changes in financial position.

Although any formal statement expressed in money

values might be thought of as a financial statement the term
has come to be limited by most accounting and business writers
to mean the balance sheet and profit and loss account.

52
 The major financial statements are – balance sheet ,
profit and loss account , statement of retained earnings,
statement of change in financial position , and value added
statement . Though the change in financial position , and value
statement are used as supplementary financial statement but
they are very useful financial statement . Balance sheet and
profit and loss account are the principal financial statements.

Balance sheet is a statement of financial position on a

particular day. It is also known as :statement of condition:
statement of assets and liabilities , statement of assets liabilities
and capital and statement of net worth . The balance sheet is a
mirror of the financial position of a firm.

The balance sheet is a significant financial statement of

a firm. In fact, is called a fundamental accounting report . The
balance sheet reflect the position of assets and liabilities at a
particular point of time. It reveals the assets a firm owns, the
liabilities which are to be paid to outside and the capital find of
the providers of capital.

The profit and loss account reveals the profit and loss
earned during a particular period of time . It is also called the
statement of earned surplus , Statement of earning or Income
statement . The income statement is designed to report the
53
profit performance of a business entity for a sqecific period of
time such as a year, quarter or month . An income statement
presents the results of operation ,that is , it reports , for a
specific period of time in accordance with the time period
assumptions. The income statement shows the result of
operating and non operating activities of a firm during a
particular of time . Income statement is the statement of the
during and expenses of an accounting unit or group of such
units for a specified period . profit and loss account is a
statememt of profit and loss earned during a specified period of
time.

Retained earnings statement or profit and loss

appropriation account gives detail about the disposal of
retained income. A retained earning statement is an analysis of
the retained earning account for the accounting period and is
usually presented with the other corporate financial
statement.15 . Retained earning statement is a link between the
income statement and balance sheet .

The statement of changes in working capital is also

known as the statement of changes in financial position or
sources and uses of working capital during a period of time .
The statement of changes in financial position is most
commonly used to indicate change during the year in a
54
company’s working capital position.16 The statement of change
in working capital has two parts: (1) sources of working capital
and (2) application of working capital.

Thus financial statements provide a summarized view of

the operations of an organization in an efficient manner.
Therefore, a careful examination of these statements reveals a
lot of information necessary for appraisal of performance.

“The results of financial statements reflect a combination

of recorded facts, accounting conventions and personal
judgments.”17 According to George O. May, “The account of
modern business are not entirely statement of facts, but are to a
large extent expression of opinion based partly on accounting
convention, partly on assumption, explicit or implicit, and
partly on personal judgments.”18 Though financial statements
have the appearance of completeness, exactness and finality,
however, the statements have definite limitations.

Performance Appraisal through Financial Statement Analysis

Financial statements provide a summarized view of the

operations of firm. These statements present the operating
results and financial state of a firm. Hence on the basis of
analysis and interpretation of financial statements, and analyst
55
can examine the firm’s performance. “Analysing financial
statement is a process of evaluating relationship between
component part of financial statement is a process of
evaluating relationship between component part of financial
statement to obtain a better understanding of a firm’s position
and performance,” 19

Financial statements themselves are organized summaries

of detailed data and are thus a form of analysis. But the analyst
draw all the relevant information from these statements in a
convenient form. According to Kennedy and Mc Mullen, “The
analysis and interpretation of the financial statement results in
the presentation of information that will aid in decision making
by business managers, investors and creditors as well as other
groups who are interested in the financial status and operating
results of a business.”20 To summaries, whole the financial
statements provide all the relevant information to the groups
related to the organization and present the overall performance
of a company.

The first task in performance appraisal through financial

statement analysis is to select the relevant information from the
financial statement. The second step is to arrange the relevant
information in such a manner, so that we can establish
significant relationship. The third task is to interpret the result
56
and drawing of conclusion and inferences. In brief, appraising
the performance through financial statement analysis is the
process of selection, relation and evaluation.21

According to Erich A. Helfert, “The person analyzing

business performance has clearly in mind which tests should be
applied and for what specific reason. One must define the view
points to be taken, the objectives of the analysis and possible
standards of comparison.”22

The process of performance appraisal through financial

statement analysis is summarized below:-

The basic data for performance appraisal is collected

primarily form financial from financial statement. The first
step in process of performance appraisal is the rearrangement
and reorganization of data obtained from financial statement,
in an orderly sequence in a condensed form, so that it may be
studied effectively and drawing conclusion is simplified.
According to Eugence M. Lerner, ‘Just as it is difficult even to
count the number of people in a disorganized crowd, so it
difficult to make economic sense out of jumble of unrelated
financial facts. Once the crowd is arranged in numbered rows
and files, counting is simplified.” 23 Likewise the data contained

57
in financial statement is rearranged in order to facilitate the
appraisal of business performance.

The monetary figures are approximated to the nearest

lakhs of rupees and the quantitative figures are approximated
to the nearest thousand/lakhs units wherever necessary to
simplify the appraisal. The next step is establishment of
significant relationship between the individual components of
profit and loss account and balance sheet. This is done through
various techniques of performance appraisal like ratio analysis,
common size statement analysis and through statistical
techniques.

The comparative date obtained by applying various

techniques is then evaluated, interpreted and reported in an
understandable manner to various groups interested in the
appraisal of performance of a company. It also requires
establishing the standard by which the comparative date can
be compared, evaluated and interpreted. Standard may be
based either on some authoritative Literature or on the basis of
industry data, or on the basis of personal experience. The
average ratio of the companies can also be a standard for
comparison and evaluation.

58
 Finally, the specific conclusions arrived at as a result of
performance appraisal are presented in the form of a report
which highlights the performance of the industry/unit
concerned. In brief, the process involves computation,
comparison and study of financial and operative data and
preparation, study and interpretation of measuring devices.

Objective of Performance Appraisal

Performance appraisal is a process of applying various

analytical tools and techniques to financial statements and
drawing meaningful conclusion and useful information.
Performance appraisal also establishes significant relationship
and trends. The information obtained in fact shows past
performance and current financial position but predictions can
easily be made for future on the basis of past data. According
to Roger H. Harmanson, “The information is most useful for
making predictions that may have a direct effect upon the
decision made by many users of financial statements.”24

The objective of performance appraisal is a detailed cause

and effect study of the effectiveness in the case of resources
available and evaluation of the financial position of a firm.
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“The overall objective of a business is o earn a satisfactory
return on the funds invested in it, consistent maintaining a
sound financial position.”25

“The success of an investment depends ultimately upon

future developments, and the future may never be ‘analysed’
with accuracy, but if, you have precise information as to a
company’s present financial position and its past earning
record you are better equipped to gauge its future
possibilities.”26 On the whole the appraisal of performance can
not give a correct answer to each and every doubt, but it can
throw some light on areas in which future enquiries should be
made.

Prediction models for Business failure

The following theories attempt to explain the reasons for

failure. Argenty(1976) after analyzing the factors associated
with the collapse of Rolls Royse, gave six causes of failure
which are as follows:

 Bad Management structure

 Lack of Accountancy information
 Not responding appropriately to change

60
  Over-trading
 Involvement with a big project
 High gearing
Argenty: has stressed on non-financial indicators for
assessment of symptoms of failure. According to him we must
have an intimate knowledge of the company and especially its
top management. The failure of business organization is seen as
the culmination of sequence starting with management defects
that bring mistakes, which in turn produce symptoms.

Tamari Model

Tamari Home has suggested the use of certain ratios for the
measurement of risk. In this respect he has suggested the use of
composite score of certain ratio, viz. Equity to Total Funds
Ratio, Trend of Profit over three Years, Current Ratio, Ratio of
Value of Production to Inventory, Ratio of Sales to Trade
Receivables and Ratio Value of Production to Working Capital.
The risk index is based on the composite score to the above
ratios.
Index of Risk

Ratio Maximum Points

61
 Points Scored
1- Equity to Total Funds 25 --

2- Trend Profit over three Years 25 --

3- Current Ratio 20 --

4- Ratio of Value of Production to Inventory 10 --

5- Ratio of Sales to Trade Receivables 10 --

6- Value of Production to Working Capital 10 --

Total 100

Key for calculating the Index of Risk

Basis of Index
Points

1- Equity to Total Funds

(Equity=Equity Share Capital +Reserve Funds+ Depreciation
Fund +Loan by Directors and Total Funds= Total Long Term
Funds, both Equity and Debt
>50%
41% - 50%
31% - 40%
21% - 30%
11% - 20%
< 10%
2- Trend of Profit over three Years
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 (Current year and two previous year)
Profit over all the three years and rising trend 25
Profit over all the three years and no uniform trend20
Profit every year but declining trend 15
Loss in first year but profit in following two years 15
Loss in first year and one more year of the three years 10
Loss in first year and also in second year 05
Los in all the three years 00

3- Current Ratio (Current Assets to Current Liabilities)

>2.00% 20
1.51 -2.00 15
1.11 – 1.50 10
0.91 – 1.10 05
< 0.91% 00

4- Value of Production of Total Inventory (Total Inventory

= Raw Materials + Work in Process + Finished Goods)
Firms in the Upper Quartile 10
Firms in Second Quartile 06
Firms in third Quartile 03
Firms in Lowest Quartile 00

5- Sales to Trade Receivables

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 (Trade Received = Receivables on Open Account + Bills)
Firms in Upper Quartile of the Group 10
Firms in Second Quartile of the Group 06
Firms in third Quartile 03
Firms in Lowest Quartile 00

6- Value of Production to Net Working Capital

(Net working Capital + Current Assets-Current Liabilities)
Firms in Upper Quartile of the Group 10
Firms in Second Quartile 06
Firms in third Quartile 03
Firms in Lowest Quartile 00

Tamari, M., ‘Financial Ratios as a Means of Forecasting

Bankruptcy of Israel’.

The Validity of the above index has been tested among others
by Tamari who came to three conclusions:

(i) The index can forecast bankruptcy of a different

sample of firms in the same industry group.

64
(ii) The index can be operative in other industry groups
also.
(iii) The ratios and their weights can predict bankruptcy
even of firms operating in other economies, despite
socio-economic differences. The index has been
developed for the prediction of bankruptcy. However,
this can be a useful indicator of risk in the Project also.

TAMARI RATIO

1. Equity to Total funds

ALLINLAKHS

AVVNL
2005 2006 2007 2008
Equity
Share 23700 31250 39550 51550
Capital
Reserve & 36880 41438 59684 30170
Surplus
Debt
Secured 154372 185666 226566 47749
Unsecured 34199 68862 40943 45619 427012

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 2. TREND OF PROFIT OVER OVER THREE YEARS
(CURRENT YEAR AND TWO PREVIOUS YEAR)

PROFIT BEFORE INT. & TAX

2005 2006 2007 MARKS

JDVNL 12825 17952 17380 20
JVVNL 15965 17962 18906 25
AVVNL 18312 21103 29619 20
INDUSTRY 45575 54354 53791 20

3. Value of Production to Total Inventory

AVVNL
2005 2006 2007 2008 Industry
Income 248717 269161 292557 304430 795759
Gross 12303 15682 23678 -14791 61504
Profit

5. VALUE OF PRODUCTION TO NET WORKING CAPITAL

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 AVVNL
2005 2006 2007 2008
Sales 248717 269161 292557 304430
Gross 12303 15682 23678 -14791
Profit
Current 260539 313686 158859 124651
Assets
Current 127231 168422 227480 229929
liabilities
Net 13308 145264 -68621 -105278
Working
Capital
Ratio 2.05 1.86 -0.70 -0.54

CHAPTER V

Findings

The project was basically undertaken to evaluate relative

performance of al 3 units being considered the major players in
the electricity supply industry.

In the first chapter of project we tried to evaluate the

performance of power generating unit in the state. The present
scenario of the industry in state has been vividly described in
chapter no. I.

67
In the II an effort has been made to evaluate the total system in
Rajasthan. The metamorphosis of electricity supply &
distribution system has been explained in proper shape.
Chapter III has been contributes to evaluate profit in
terms of cost profit volume analysis.
Chapter IV An administration of tamari reveal that the
score of Jaipur unit was highest & that of Ajmer was lowest .
Equity to Debt current ratio more or less close in all the units.
However there is a significant amount variation in the
remaining 3 parameters of the model. In totally the following
rank is awarded to the units.

Unit Point Score Rank

Jaipur Vidhyut Vitran 73 I
Nigam
Jodhpur Vidhyut Vitran 64 II
Nigam
Ajmer Vidhyut Vitran 55 III
Nigam

In order to assess the financial health of the units under study.

Z-score was calculated in this chapter.

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 CHAPTER VI

Suggestion

Electricity consumption in India has more than doubled in the

last decade, outpacing economic growth. The primary energy
supply in the country is coal-dominant, with the power sector
accounting for about 40% of primary energy and 70% of coal
consumer of capital, drawing over one-sixth of all the Indian
investments over the past decade.

Fuelled by high coal and investment consumption, India’s

power sector has grown 80-fold since independence to over
107,000 MW but the per capita power consumption has
remained very low, approximately 350 kWh/year. This number

69
is not precisely known, since a significant fraction of the
consumption is un-metered and there is a large proportion of
theft.

Ostensibly, transmission and distribution (T&D) losses are

about 25% but only some fraction of the losses are technical
losses; the theft is bundled together as “commercial losses.”
The fundamentals are very poor – with every kWh sold, the
utilities lose over Rs. 10 on average. This results in enormous
losses for the utilities and the government, despite billions of
rupees in explicit and implicit subsidy.

One major reason for the system’s non-viability is the

skewed retail tariffs, whereby agricultural consumers receive
virtually free power (with flat-rate pricing averaging under
0.50 Rs/kWh) and even domestic consumers receive modest
subsidies. Together, these two segments account for about half
the total consumption of power.

The remaining paying customers (primarily commercial

and industrial) cross subsidize these sectors through very high
tariffs. Worse, industry connot rely on the grid for power
supply. When not suffering from hours of blackouts or
burnouts, the supplied power is of very poor quality, with
voltage and frequency deviating well beyond the norms of 6%
70
and 3% deviation, respectively. This state of the Indian power
sector can be viewed both as a crisis and as an opportunity. It is
a crisis for the government controlled electricity generation,
transmission and distribution companies, for they have to do
something fast to improve their financial health.

The government’s perspective plan for the power sector

indicates that there is needed an incremental capacity
requirement of 1,42,000 MW during the period 1992-2007 to
meet the demand over this period. That would imply creation
of an incremental capacity of nearly 10,00 to 12,000 MW per
year. This mammoth task and the decreasing health of the state
finances have forced the central government to invite private
participation in the power sector.

The reform of the power sector began in the early ‘90s

when the government awarded “fast track” status to eight
mega projects (many with foreign participation ) . Mega
Project refers to 100 KW and above capacity projects.

The Narasimha Rao-led government invited private

participation in all the three parts of the sector-generation,
transmission and distribution. A number of policy initiatives
have ben taken since 1991for encouraging private investment n

71
power sector with the view to streamline the procedure and
delegation of power for early implementation of projects.

Suggestions

 It is suggested that takings must based on cost plus profit.

The board must charge revenue from the customers after
covering the full cost without rendering to the customer.
The selling price must be calculate as follows.

Selling price=explicit cost + implicit cost + normal cost

 It has been observed the tariffs of these companies is

monitored by RERC (Rajasthan Electricity Regulatory
commission) & Government of Rajasthan which
determines the tariffs rate taking into consideration a
social obligation and prefix subsidy. This is the
major cause of deficit between cost and revenue. It is
there for suggested that there should be no
72
 such monitoring. In the era of liberalization,
privatization, globalization, the company should be left
free to fix up tariff rate in consistency with market forces.

 It has been observed that there is high degree of

financial leverage in almost all the units understudy.
The capital structures of these units are Debt
dominated having huge amount of financial burden.
The low profitability and heavy financial charged
leads to low Debt serving capacity. In order to provide one
time relief soft loan with zero interest may be given to
these companies to redeem the Debt.

A critical appraisal of the Z- score obtained

through Altman’s MDA (multi discriminate analysis)
model reveal that all the three distribution companies are
in gray zone. The reason for there poor financial
health’s were also identified. In order to improve the
financial health X3 i.e. EBIT to total asset X4 (book value
of equity to book value of total debt) needs to be
increase. Two dimensional efforts must to be taken one to
increase the EBIT another to reduce the dependent on
that. In respect of Ajmer VVNL it is suggested that the
company should take care of X2 (retain earnings to total
assets). The company could the reach the safe zone had it
73
 manage these ratio in due course of time. It is further
suggested that turn over should also be strengthen.

 An administration of tamari model to evaluate economic

viabilities of the company. An administration of Argenty
model to identify the defects and mistake. It was
established that a companies which score lest is the best
one. Since the score of the Jaipur VVNL minimum it’s
ranked Ist & Jodhpur VVNL ranked IIIrd because its
score highest defects and mistakes. The major source of
defects was found in IInd strata. Ajmer VVNL should
take a necessary effort to rationalized it’s capital
structure to improve project management. The two
company Jodhpur & Ajmer VVNL has serious problem is
regard to control the inventory. Modern technique of
inventory control such as JIT (just in time) & ABC
analysis. Management of two companies needs to be
rationalized.

74
BIBLIOGRAPHY

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Anthony, R.N. : Management Accounting Text and

Cases, 2001
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Bidani, S.N. and Mitra,P.K:

Industrial Sickness: Identification
and Rehabilittion, vision Books,
New Delhi, 1988
75
Cooper R. (1990a) : Cost Classifications in Unit based
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Eisenbeis, Robert A. and : Discriminate Analysis and
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: “Management Accounting” Tata
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NCAER : A Study of Industrial Sickness,

1979.
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Robert Andrew : The Lesson of failure, MacDonald,
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Website : www. rajenergy.com

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