Annual Report - Power Grid - 2008-2009

POWER GRID CORPORATION OF INDIA LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Dear Members,

On behalf of the Board of Directors, it is my privilege to present the 20th
Annual Report on the performance of your Company during the financial year
ended on March 31, 2009 along with audited Statement of Accounts, Auditors'
Report, comments on the Accounts by the Comptroller and Auditor General of
India for the reporting period.

Your Company is playing a key role in Indian Power Sector directly
contributing to economic development of the country through the commendable
job it has done in establishing huge and complex transmission network and
as grid operator despite working in tough terrains, hostile weather
conditions etc.; In the process, your Company has developed strong
expertise in various facets of power transmission business including
development, operation & maintenance of large transmission networks and
presently owns & operates around 71,500 ckt. kms. of transmission lines
along with 120 Sub-stations and transformation capacity of about 79,500
MVA. In a short span of only 17 years of commercial operations, your
Company has grown by leaps and bounds and has carved a niche for itself
amongst the largest transmission utilities in the world.

With excellent progress made on all fronts during the year, your Company
has once again exceeded the performance targets set forth under Memorandum
of Understanding (MoU) with Ministry of Power (MoP), Government of India
and is poised to achieve 'Excellent' rating, under MoU 2008-09, continuing
the track record of achieving 'Excellent' rating since signing of its first
MoU for 1993-94 with MoP.

Highlights of achievements of your Company during F.Y. 2008-09 are briefly
mentioned here to give an overview of success achieved in all fronts. The
Company made an investment of Rs. 8,095 Crore during F.Y. 2008-09 exceeding
Budget Estimates (BE) target of Rs. 8,040 Crore set for the Company, an
increase of about 22% of investment made last year (Rs. 6,656 Crore). The
inter-regional power transfer capacity of National Grid was enhanced to
about 20,800 MW from 17,000 MW in F.Y. 2007-08. National Load Despatch
Centre (NLDC), the apex body to ensure integrated operation of the national
power system at national level has been commissioned in Feb., 2009. Our
prestigious consultancy assignment of construction of Transmission line
from Pul-e-Khumri to Kabul in Afghanistan has been completed in Jan., 2009,
within the schedule despite hostile working conditions (passing over Hindu
Kush region at a height of 4000 mtrs above sea level, which is covered with
snow for 9 months in a year).

Your Company has received Three National Awards for meritorious performance
in the field of Transmission Sector for system availability and early
completion of project for the year 2007-08. One gold and one silver medal
was received by NorthEastern Region and Western Region-I Transmission
Systems of POWERGRID for achieving high availability of transmission system
respectively and another Silver medal was conferred to Southern Region-I
for early completion of Gooty-Raichur 400kV D/C line. Her Excellency, the
President of India Smt. Pratibha Devisingh Patil gave away the awards.

POWERGRID has also received IEEMA Power Awards 2009 for 'Excellence in
Power Transmission' & All India Organization of Employers Industrial
Relations Award 2007-08. POWERGRID has also been chosen for the prestigious
'Star' Public Sector Company Award for 2007-08 for its game-changing role
in the industry by Business Standard, a leading financial daily of the
country. Further, POWERGRID has been conferred the 'The First DSIJ PSU
Awards 2009' by Dalai Street Group of Publications for being 'one of the
largest transmission utilities in the world'.



FINANCIAL RESULTS:
Rs. Crore
2008-09 2007-08

Turnover 7029 5082

Gross Margin 5927 4217

Less:

Depreciation 1094 960

Prior period Adjustment 70 182

Deferred Revenue Expenses written off 2 5

PBIT 4761 3070

PBT 2229 1730

PAT 1691 1448

APPROPRIATIONS:

Transfer to Bonds Redemption Reserve 491 400

Interim Dividend 210 210

Proposed final Dividend 295 295

Tax on Interim Dividend 36 36

Provision for Dividend Tax 50 50
on proposed final dividend

Transfer to General Reserve 700 550

Transfer to Self Insurance Reserve 35 30

OPERATIONAL EXCELLENCE:

By 31st March, 2009, POWERGRID owns & operates a transmission network of
around 71,500 ckt. kms. of transmission lines along with 120 Sub-stations
and transformation capacity of about 79,500 MVA, spread over the length and
breadth of the country.

During the year, availability of our gigantic transmission network was
maintained at 99.55%. POWERGRID's transmission network wheels about 45% of
total power generated in the country.

Your Company has been able to display its capability in consistently
maintaining the availability of this gigantic transmission network over
99%, which is comparable with the best international standards. To maintain
high availability, POWERGRID employs state-of-the-art technology in
operation & maintenance of its Assets. Equipment health is being assessed
periodically using 'Condition Assessment Techniques' with sophisticated
tools. All shut down and non shut down maintenance activities are planned
in advance and an 'Annual Maintenance Plan' is worked out for each and
every asset. We have well defined levels for approval of test results
depending on their importance and criticality.

POWERGRID has also introduced On line monitoring' of equipment in addition
to off line techniques. Hot Line Maintenance is being carried out up to
400kV transmission lines. POWERGRID also employ state-of-the-art 'Emergency
Restoration System' for restoration of collapsed transmission lines in
minimum possible time.

For the first time in India, for further enhancing the availability of
transmission lines, your Company has introduced helicopter for hotline
washing of Insulators in 12 critical transmission lines in polluted
stretches in Northern Region. Insulator cleaning at about 1800 towers was
completed from 1st November 2008 to 20th March, 2009. Replacement of
conventional insulators with polymer insulators on around 1700 towers in
critically polluted stretches of 14 transmission lines in Northern Region
was also undertaken. These efforts have contributed significantly in smooth
operation of Northern Grid during foggy weather conditions. Further,
Renovation & Modernisation (R&M) initiatives have been taken up to replace
ageing transmission assets as per prevalent CERC tariff regulations.

Operation and Maintenance (O&M) methodology has been standardized
throughout POWERGRID. Standard documents in this regard have already been
developed. Documents of maintenance schedule, procedures and formats have
been standardized for all assets. All substations and line offices can
access these documents through the Portal apart from hard copies provided
to them.

POWERGRID's O&M activities are ISO certified and systems and procedures are
revised periodically to keep abreast with the latest technology. Periodical
reviews are conducted at Substations and Line offices to evaluate
implementation of the systems and procedures.

Presently, about 16 sub-stations of POWERGRID are remotely operated from
other sub-stations and more such initiatives are in the pipe line.This
leads to optimum deployment of manpower & establishments in Sub-stations
leading to reduced maintenance expenditure.

Residual Life Assessment (RLA) initiative has been taken for the first time
which will provide the actual condition of substation equipment for taking
necessary preventive maintenance/ refurbishment, thus avoiding pre-mature
failures. Moving ahead, detailed RLA studies for Hyderabad substation, one
of the oldest sub-station of POWERGRID, is being carried out in association
with CESI, Italy and CPRI, Bangalore.

Considering the present business needs and the fast pace of growth your
Company has been experiencing in the last 5 years and which is only
expected to grow exponentially, POWERGRID is taking steps to integrate
parts of its various systems, like financial and physical monitoring and
control, internally through the use of Enterprise Resource Planning (ERP).
In this direction, POWERGRID is contemplating to have state-of-the-art
'Enterprise Asset Management System' to track its increasing asset base for
monitoring their health. This is expected to help in creation of
centralized asset base, helping to analyse pattern of failures,
optimization of inventory and paperless maintenance activities.

QUALITY MANAGEMENT:

Electric power is one of the most important infrastructure sector of the
national economy and is essential for economic development, human welfare
and higher standard of living.Your Company, in all its endeavours, is
committed to provide cost effective & quality services to its valued
customers thereby deriving high customer satisfaction. To achieve this,
quality improvement measures/ techniques are being adopted at every stage
from conceptualisation of project till commissioning and subsequently
during operation phase to identify the areas of improvement and develop
action plans for continuous quality improvement in all of its activities.

Your Company is already certified with Integrated Management System (IMS)
as per Publicly Available Specification, PAS 99:2006 integrating
requirement of ISO 9001:2000 (Quality), ISO 14001:2004 (Environment) and
OHSAS 18001:2007 (Occupational Health & Safety Management System).
POWERGRID also stands audited for Social Accountability System, SA
8000:2001 for ail its establishments. This year, with accreditation of ISO
9001:2000 for all Regional Load Dispatch Centres (RLDCs), the Quality
Management System (QMS) certification for all establishments of POWERGRID
is now complete.

GRID MANAGEMENT AND OPEN ACCESS:

Optimum utilization of generation resources requires development of a
strong transmission network and its implementation has been taken up by
your Company in a phased manner. Planned rapid expansion of regional grids
and their integration to form National Grid poses great challenges in Grid

Operation & Management. Central Sector Generating Stations have not faced
any generation evacuation problem on account of transmission constraints
during the year, as a strong and robust transmission network set up by your
Company is there to take care of evacuation related issues.

Further, the state-of-the-art Unified Load Despatch & Communication (ULDC)
schemes are in place to bring quality and economy in operation of power
system besides improving data availability, visibility and transparency.
Modernization of Regional Load Despatch Centres along with State/ sub-State
Load Despatch Centres and dedicated communication schemes in all the
regions viz. Northern, Southern, North-Eastern, Eastern and Western Regions
have been successfully completed. Efforts made by POWERGRID in modernizing
the RLDCs, implementation of ABT, power transfer through inter-regional
links, effective Operation & Maintenance practices using cutting edge
technologies and round the clock vigil of the grid have led to overall
improvement in power supply situation in all parts of the country. For
overall co-ordination at national level, National Load Despatch Centre
(NLDC) has been commissioned in Feb '09. NLDC is the apex body to ensure
integrated operation of the national power system. Through four tier
hierarchical system, these RLDCs have become epitome of technological
excellence in grid operation.These are world's one of the largest and most
complex projects involving the state-of-the-art technology that has
resulted in real time monitoring and control of the grid enhancing safety,
security, reliability and stability in all regions of the country.As a
result of all these initiatives, we have successfully managed to arrest
occurrence of any major grid disturbance in the country during last more
than six and half years. Minor grid disturbances in regional grids also
came down significantly.

POWERGRID, in its efforts to ensure delivery of quality power and to
maintain grid discipline, facilitated implementation of 'Availability Based
Tariff (ABT)' in ail the five regions.This has stabilized the frequency to
the prescribed band as per IEGC, i.e. 49.0 Hz to 50.5 Hz for large
percentage of time in all the five regions. ABT has also encouraged inter-
State and inter-regional bilateral trading resulting in meeting higher
demand from the existing sources. Merit order operation of generating units
is gaining importance and many States are utilizing this facility to
utilize the system commercially.

On behalf of various State Power utilities and other players in the
regional pool, POWERGRID, through its RLDCs, facilitated settlement of UI
charges to the tune of around Rs. 14,000 Crore in F.Y. 2008-09 (as against
Rs. 10,685 Crore in F.Y. 2007-08) as regional pool settlement.

With the development of various inter-regional transmission links, our
strong transmission network and modernised Regional Load Despatch Centers
(RLDCs) have also facilitated manifold growth in inter-regional power
exchanges across the country on real-time basis. During F.Y. 2008-09, about
46,000 MUs of inter-regional energy transfer was facilitated across the
country. The increased inter-regional power exchanges have helped in
meeting more demand in energy deficit regions besides achieving overall
economy. Under open access, more than 11,780 transactions were approved
during the year involving 30,500 MUs of energy. Thus, POWERGRID is
facilitating flow of power across the country effectively utilising the
available transmission capacities, thus bringing much needed open access to
reality.

Your Company also incorporated Power System Operation Corporation Limited,
a 100% subsidiary of POWERGRID, in March, 2009 to look after Grid
Management function in line with Gol directive. Pending determination and
transfer of assets, Grid management function continued to be operated by
your Company.

PROJECT IMPLEMENTATION:

During the year, your Company continued to implement its projects with
economy and within stipulated time frame to derive maximum economic
benefits. POWERGRID's advanced and cost effective Integrated Project
Management and Control System (IPMCS) for total project review and
monitoring has been contributing significantly. Project implementation
activities involves total project review and monitoring including
Standardisation of Designs, Project Review Meetings (PRMs) at regular
intervals through video conferencing, pre-emptive measures and advance
actions on various project linked activities such as land acquisition,
survey and soil investigations, tender activities, funding tie-up, etc.; in
parallel with project investment approval process.

On project implementation front, your Company displayed excellent
performance during F.Y. 2008-09 and commissioned about 4,642 ckm of
transmission lines, 09 nos of new sub-stations and added transformation
capacity of about 6,400 MVA. Transmission projects worth about Rs. 3,734
Crore were commissioned during the year. These additions to the Company's
network have helped in improving power supply situation in various regional
grids, facilitating enhanced inter-regional power transfer capacity and
reliability of the system. Major projects commissioned during FY 2008-09
include Transmission System associated with Kahalgaon-II (Phase-II), Sipat-
/Transmission System, System Strengthening in South-West part of Northern
Grid, RAPP 5&6 Transmission System, Western Region System Strengthening
Scheme-I and Western Region System Strengthening Scheme-III, etc.;

During the year 2008-09, 26 new projects with an estimated cost of more
than Rs. 40,000 Crore involving about 21,178 ckm of transmission lines and
19 no. sub-stations with transformation capacity of about 52565 MVA and
HVDC terminals of 6000 MW were approved by Board of Directors of POWERGRID
and taken up for implementation. Major projects include Transmission System
associated with DVC and Maithon RB generation projects, Transmission System
associated with Sasan & Mundra Ultra Mega Power Projects, North East-
Northern/ Western Region Interconnector-I, etc.; Your Company is making all
out efforts for meeting the targets for completing the transmission
elements identified to facilitate transfer of more power to Delhi on
priority as a part of preparedness for Commonwealth Games 2010. Further,
during the year implementation activities have also commenced on the
prestigious +800kV, 6000 MW HVDC Bi-pole line from North Eastern Region to
Northern Region (Agra).

At the end of March, 2009, transmission projects at a cost of about
Rs.62,000 Crore involving about 38,000 ckm of transmission lines, 44 new
sub-stations and transformation capacity of about 67,000 MVA are under
various stages of implementation.

Major ongoing projects include:

* Generation Linked:

Transmission System associated with Kudankulam Atomic Power Project, Kaiga-
3&4, Barh, Uri-II, NLC-II Expansion Project, Farakka-III, Parbati-III HEP,
Chamera-III, Koldam HEP Koteshwar HEP Sewa-II HEP, Mundra UMPh Sasan UMPP,
etc.;

* Grid Strengthening Schemes:

East-West & North-West Transmission Corridor Strengthening Schemes
alongwith many System Strengthening Schemes in Northern, Western, Southern
and Eastern Region.

In addition, 14 new projects with an estimated cost of more than Rs. 18,000
Crore, involving about 6,850 ckm of 765/400/220/132 kV transmission lines
and 13 new sub-stations with transformation capacity of 38,150 MVA and HVDC
terminals of 4,000 MW capacity have been conceptualized and are presently
under process of investment approval. Your Company has also been entrusted
by Govt. of India to develop associated transmission systems for evacuation
of power from four Ultra Mega Power Projects (UMPPs) viz. Mundra, Sasan,
Krishnapatnam and Tilaiyya UMPF Since these are the projects of national
importance, necessary advance actions have been taken for implementation of
these projects matching with the generation projects. Accordingly,
associated transmission systems for Mundra and Sasan UMPPs were approved
and implementation has commenced while transmission system for
Krishnapatnam UMPP is under investment approval & that forTillaiyya UMPP is
under finalisation.

FINANCIAL MANAGEMENT:

The year 2008-09 has been another year of impressive financial performance
for your Company. The company has achieved a Turnover of Rs. 7,029 Crore
and Net Profit of Rs. 1,691 Crore as compared to Rs. 5,082 Crore and
Rs.1,448 Crore respectively during F.Y. 2007-08, an increase of 38% and 17%
respectively. With the addition of huge transmission network, Gross Asset
Base of the Company has been enhanced to Rs. 40,319 Crore in 2008-09 from
Rs. 35,417 Crore in 2007-08. POWERGRID is taking all possible steps to
further improve its financial performance by taking up other kind of
synergetic business such ac rnnsultanrv acciunmentc at National and
International level in transmission, distribution, telecom etc.; to remain
a financially progressive organisation in emerging market conditions and to
enhance value for our shareholders.

Capital investment and fund mobilisation:

During F.Y. 2008-09, your Company made an investment of Rs. 8,095 Crore for
implementation of various projects exceeding Budget Estimate target of
Rs.8,040 Crore set for the Company. The requisite funds were mobilised from
domestic market and proceeds of ongoing loans from multilateral funding
agencies, namely. The World Bank (WB) and Asian Development Bank (ADB) were
utilised for the above investment, besides internal resources of POWERGRID.

Your Company is placed in a comfortable position in terms of resource
mobilisation, as it enjoys an excellent credit rating with financial
institutions. In this direction, loan agreement for USD 400 Million from
The World Bank has been signed in Jan'09 and loan became effective from
30th March '09. Further, loan agreement for USD 200 Million from ADB has
been signed in March '09. In addition,The World Bank has also agreed for
another loan of USD 1 Billion to POWERGRID, for which preparatory and
appraisal missions were deputed by the Bank in Feb '09 and May'09
respectively. Loan negotiation is expected to take place in 2nd quarter of
F.Y. 2009-10. Thus till date, around 70% of total loan requirement for XI
Plan has already been tied-up or identified and balance shall be raised on
year to year basis as per requirement. Besides, a proposal for loan
assistance of USD 1 Billion from ADB has been submitted to Ministry of
Finance in Feb '09. ADB has agreed to consider this assistance under ADB
lending programme for 2010-11.

Dividend Payout:

For F.Y. 2008-09, your company has proposed a final dividend of Rs. 0.70
per share, which shall be paid after your approval at the Annual General
Meeting. This is in addition to Rs. 0.50 per share of interim dividend paid
in February, 2009. Thus total dividend pay out for the year amounts to
Rs.505.08 Crore (including an interim dividend of Rs. 210.46 Crore), same
as dividend paid during the previous year. It may be noticed that total
dividend pay out including dividend tax, accounts for 35% of Profit after
Tax of the Company.

Directors' Responsibility Statement:

As required u/s 217 (2AA) of the Companies Act, 1956, your Directors
confirm that:

* In the preparation of the Annual Accounts, the applicable accounting
standards have been followed.

* The Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit or loss of the
Company for that period.

* The Directors have taken proper and sufficient care in accordance with
the provisions of the Act for safeguarding the assets of the Company and
for preventing and detecting fraud and other irregularities; and

* The Directors have prepared the annual accounts on a going concern basis.

XI Plan Investment programme:

Towards achieving the targeted investment programme of Rs. 55,000 Crore for
XI Plan for providing matching transmission system for generation capacity
addition in Central sector and other generation projects for which
transmission system is required to be built by POWERGRID, significant
progress has been made during F.Y. 2008-09. Out of this, investment of
about Rs. 15,000 Crore has already been made during the initial 2 years
period of the Plan, an achievement of about 27% of plan outlay. For the
year 2009-10, an outlay of about Rs. 11,500 Crore has been kept for
POWERGRID and balance about Rs. 28,500 Crore shall be utilised in the last
2 years period of XI Plan.

COMMERCIAL PERFORMANCE:

On commercial front, in terms of realisation of transmission charges, your
Company's performance has been highly satisfactory. Current realisation of
about Rs. 5,877 Crore stood at about 100% of billed amount during the year
2008-09. POWERGRID is continuously realising 100% of its current payable
dues for the last five years. Post-securitisation, outstanding dues (beyond
90 days of billing) stands at Rs. 3.92 crore as on March 31, 2009. The
present LC coverage of about Rs. 372 Crore is equivalent to more than 100%
of average monthly billing.

DEVELOPMENT OF NATIONAL GRID:

Company is playing an important role for development of National Grid, for
meeting power demand in various parts of the country and for optimum
utilisation of generation resources, implementation of which has been taken
up in a phased manner matching with generation capacity addition in the
country. Towards this, a perspective transmission plan has been evolved for
strengthening the regional grids and enhancing the inter-regional power
transfer capacity of National Grid. In line with this plan, various inter-
regional transmission schemes have been implemented/ are under
implementation/ planned in the country to enhance the inter-regional power
transfer capacity of National Grid to more than 37,000 MW by the year 2012.

During the year 2008-09, POWERGRID has commissioned Ranchi-Sipat 400 kV D/C
transmission line, Agra-Gwalior 2nd S/C 765 kV line (initially charged at
400 kV), Zerda-Kankroli 400 kV D/C line and utilized inherent capability of
Biharshariff-Sasaram-Allahabad link. Commissioning of these links have not
only provided additional power transfer capacity between Eastern. Northern
and Western Regions but also improved reliability and security of the grid.
With this, total inter-regional power transfer capacity of National Grid
has been enhanced to 20,800 MW from 17,000 MW at the end of FY 2007-08 and
substantial amount of power is being exchanged across the country utilizing
inter-regional links established by POWERGRID. In fact establishment of
National Grid by POWERGRID is also facilitating transfer of short term
surplus power from any where to any where in the country from generation
under State and Private sector as well.

TECHNOLOGY UP-GRADATION, RESEARCH & DEVELOPMENT:

The Company has undertaken several technological innovations aimed at
conserving Right-of-Way (RoW), minimizing impact on natural resources &
human habitat and cost effectiveness in evacuation of power from the future
generation projects. The Company has developed and adopted State-of-the-art
technology in Transmission System Development as well as for Grid Operation
& Management and has also successfully implementing its program for
standardization of transmission tower, which has helped in cutting down the
construction time of projects.

POWERGRID has upgraded and uprated its existing transmission lines on case
to case basis to optimally utilise the Right of Way. 400 kV EHV AC lines
with triple/ quad conductor and/ or application of series compensation have
been implemented to handle bulk transfer of power over short distances.
POWERGRID has taken initiative for development of major transmission
highways using higher transmission voltage levels, i.e. 765 kV EHV AC and
1500 kV HVDC as a viable alternatives to achieve efficient utilisation of
RoW and increased power transfer capability for transfer of bulk power over
long distances.

Besides, a JointVenture amongst POWERGRID, NTPC Limited, NHPC Limited and
Damodar Valley Corporation has been formed during the year for creation of
'On Line High Power Test laboratory' for providing short circuit test
facility in India, in a phased manner.

1200 kV UHVAC Transmission System:

765kV Extra High Voltage level has already been introduced in the country
in Oct '2007. In order to further meet the long-term power transfer
requirement and to take care of environmental considerations, development
of an overlaying Super Grid comprising 1200kV UHVAC system is being
envisaged.At present, there are no standardized parameters available for
1200kV AC system and equipment at this voltage level are also not available
commercially worldwide. POWERGRID has taken leadership initiative to carry
out R&D in this area to develop the 1200kV system indigenously. A 1200kV
UHVAC Test Station along with a 1200kV test line is being established at
Bina substation in Madhya Pradesh (Western Region) of POWERGRID, as a
collaborative effort with equipment manufacturers, for indigenous
development of 1200kV equipment in India.

+/- 800 kV HVDC BI-pole line:

The Company is also implementing 1800kV, 6000 MW HVDC BI-pole line from
North Eastern Region to Northern Region (Agra). This shall be the first of
its kind (1800kV HVDC line) having the largest power carrying capacity and
transmitting power over distance more than 2000 Kms.
International Exhibition cum Conference:

For providing a platform for demonstrating and discussing the emerging
technologies in power transmission and distribution sector and also in
synergic areas of load dispatch, telecommunications, application software
etc., GRIDTECH 2009 was successfully organized on 29th & 30th January, 2009
at Pragati Maidan, New Delhi, which gave opportunity to bring
manufacturers, vendors and experts in the field of Transmission &
distribution and related synergic areas to display the emerging
technologies and share their experience/expertise.

INITIATIVE FOR STRATEGIC ALLIANCES:

POWERGRID did its bit and has been successful in facilitating private
investment in transmission sector. The first Public-Private Partnership
project with M/sTata Power Limited for the Transmission system associated
with Tala HEP is under successful operation.

Based on the success achieved, your Company had already established four
joint Venture Companies (JVCs) namely, ParbatiKoldam Transmission Company
Limited (PKTCL), Torrent POWERGRID Limited, Jaypee POWERGRID Limited and
POWERGRID IL&FS Transmission Company Private Limited till previous
financial year. It may be noted that PKTCL was established as a JV company
with Reliance Energy Limited through international competitive bidding
process for implementation of specific transmission lines associated with
Parbati-II (800 MW) HEP and Koldam (800 MW) HER POWERGRID IL&FS
Transmission Company Private Limited, a JV with IL&FS was established on
50:50 basis to undertake project development of intra-State transmission
and subtransmission works for State power utilities. The other two JVCs
were established as a result of converting the MoUs signed with IPPs for
development of their dedicated transmission systems into JVs. POWERGRID's
stake in these JVCs would be 26%. Continuing this process further, your
Company established two more JV companies during the year, namely, Teesta
Valley Power Transmission Company Limited and North-East Transmission
Company Limited (NETCL). NETCL, a JV with ONGCTripura Power Company Private
Ltd. (OTPCL) & Tripura Govt., was established for implementation of
transmission system associated with Gas based power project at Pallatana in
Tripura (726.6 MW) being developing by OTPCL.

PERFORMANCE IN TELECOM:

At the end of FY 2008-09, your Company owns and operates more than 20,000
Kms of telecom network connecting all metros, major cities & towns.Your
Company's telecom network provides a robust highway of telecommunication at
affordable cost with ultra modern and eco-friendly implementation
techniques. The Company is one of the few telecom players with a marked
presence in remote areas and has acquired IP-II, ISP Category A & NLDO
licenses to provide a variety of services. Besides prime telecom companies,
prestigious Government organizations such as ERNET, STPI, NIC and various
Government Ministries are our customers. Company is also planning to
attract customers from entertainment and broadcasting industry.

POWERGRID's total Capacity Sold rose by 28% to 45.25 Gbps in 2008-09 versus
35.36 Gbps in the year 2007-08. Availability of the Telecom Network has
been improved to 99.9% during 2008-09 from 99.87% in 2007-08.

In telecom business, the Company has earned revenue of about Rs.150 Crore
during F.Y. 2008-09, growth of about 20% as compared to Rs. 125.5 Crore for
F.Y. 2007-08. Income from telecom business is expected to grow
substantially in the coming years.

Her Excellency,the President of India, Smt. Pratibha Devisingh Patil
inaugurated initial phase of the prestigious National Knowledge Network
(NKN) project on April 9, 2009, wherein POWERGRID has been selected as a
consortium member for implementing this telecom infrastructure project of
national importance, which envisages a gigantic 3 layer Telecom network of
all knowledge centres across the country such as IITs, IISc, etc.; on high
speed connectivity at an estimated project cost of about Rs. 2,000 Crore.

BUSINESS DEVELOPMENT & CONSULTANCY:

POWERGRID with its strong in-house expertise in various facets of
Transmission, Sub-transmission, Distribution and Telecom sectors is already
offering consultancy services at national & international level. During the
year 2008-09, business development opportunities continued to receive
focussed attention and thrust across the entire value chain of the power
sector. Your Company has realised revenue of about Rs. 216 Crore during
F.Y. 2008-09 as a consultancy fee from its various ongoing assignments.The
year 2008-09 witnessed some major achievements.

On domestic front, major consultancy assignments secured during FY 2008-09
includes:

* Turnkey execution of Power evacuation system for Talwandi Sabo and
Rajpura Power Project in Punjab for Punjab State Electricity Project.

* An agreement has been signed for Turnkey execution of Six Nos. 132/33 kV
new sub-station, 4 Nos. 132 kV bays and associated transmission lines for
Orissa Power Transmission Corporation Ltd. (OPTCL).

* An agreement has been signed forTurnkey execution of Pallatana-Silchar
400 kV D/C and Silchar-Bongaigaon transmission lines with ONGC-Tripura
Power Company Private Limited.

In the international arena, POWERGRID has emerged as a strong player in
transmission sector in South Asia. Our most prestigious assignment, i.e.
execution of transmission project in Afghanistan, costing about Rs. 420
Crore to lay a 200 Km long 220 kV transmission line passing over Hindu Kush
region at a height of 4000 mtrs above sea level, which is covered with snow
for 9 months in a year, has been completed in January 2009,within the
schedule. POWERGRID has also secured consultancy assignments in Nepal,
Bhutan, Nigeria and Dubai against stiff competition from international
consultants. Besides, for a proposed under-sea interconnection with Sri
Lanka, a pre-feasibility report has been prepared and submitted.

POWERGRID has also been identified as the implementing agency for 230kV
transmission project in Myanmar to be funded by Govt. of India by providing
soft loan. The project involves the construction of approx. 300 miles of
230kV transmission network, 50 miles of 66kV transmission line besides
construction of 3 nos. new 230/66/11 kV new substations, one no. 230kV
substation extension and one no. 66/11 kV new substation.

Further, keeping in view our expertise in transmission, distribution and
telecom sectors and the prospects available in international business
arena, POWERGRID, has established a dedicated International Business
Division to strategically exploit promising potential & opportunities
abroad. POWERGRID has been keenly participating in tenders floated by
ADB,The World Bank, and other foreign organizations and submitting
Expression of Interest and Prequalification documents to clients in various
countries IikeVietnam, China, Kenya, Ethiopia, Uzbekistan, Afghanistan &
Bangladesh for participating in international competitive biddings.

CONTRIBUTION IN DISTRIBUTION REFORMS:

Your Company is playing a significant role in carrying forward the
distribution reforms through centrally sponsored Accelerated Power
Development & Reforms Programme (APDRP) and Rajeev Gandhi Grameen
Vidyutikaran Yojna (RGGVY) in various parts of the country.

Under APDRP POWERGRID is acting as Advisor-cum-Consultant (AcC) to lend its
managerial and technical expertise for improvement of distribution system
in 177 distribution circles/ towns/ schemes spread over 18 States at an
estimated cost of about Rs. 6,600 Crore. Most of these schemes have been
commissioned. Further, POWERGRID is also implementing some of these schemes
on deposit work basis under bilateral arrangement in the States of Bihar,
Goa, Meghalaya, Uttar Pradesh,Tripura and Gujarat at a cost of about
Rs. 1,100 Crore, most of these are nearing completion.

Under RGGVY, POWERGRID had entered into a quadripartite agreement with
Rural Electrification Corporation (REC), State Government and State Power
utility, for undertaking rural electrification works in the country.
POWERGRID has been assigned the job for execution of rural electrification
works in 68 districts in the country covering around 74,000 villages at an
estimated cost of about Rs. 6,400 Crore. As part of this, POWERGRID has
already established infrastructure for electrification of about 30,000
villages till Mar'09 out of 31,566 villages sanctioned during X Plan.
Balance are expected to be completed by March, 2010. For 43,670 villages,
spread over 33 districts, sanctioned recently for XI Plan, implementation
of projects in most of the districts has already commenced.

E-GOVERNANCE:

POWERGRID is committed to fulfilment of the expectations of stakeholders
through continual enhancement of Effectiveness, Efficiency and Transparency
in its functions. In order to meet the above objective POWERGRID leverages
the potential of Information technology as an enabler in its pursuit to
achieve operational excellence.

Major IT endeavours during the year include the following:

* POWERGRID has revamped its website to provide more online information to
its entire stakeholders in a user friendly, interactive and effective
manner. Modules like sub-vendor information, bill tracking system, monthly
contract information etc.; have been integrated with the website to achieve
the objective of bringing transparency.

* POWERGRID has taken decision for implementation of ERP on fast track
basis to migrate its critical processes to integrated information system
(IS) platform.

* After success of Facility Management service at Corporate office through
single vendor, your Company is in the process of deploying Integrated
Facility Management service for the entire organisation.

* Company has identified the technology partner for accomplishing e-
procurement in phased manner.

ENVIRONMENTAL AND SOCIAL SAFEGUARDS MANAGEMENT:

Transmission projects are environmentally clean and non-polluting in nature
and don't generate solid waste. The developmental activities carry certain
environmental and social impacts, mostly minor in nature. Your Company,with
a goal of achieving sustainable development of the power sector in the
country has taken proactive measures for improvements in the areas of
Environment Management.

In order to address such issues, POWERGRID had developed Environmental and
Social Policy and Procedures (ESPP) in 1998 and subsequently upgraded the
same in 2005, in line with trends and international best practices, to pre-
empt all possible environmental issues.The ESPP outlines POWERGRID's
approach and commitment to deal with environmental and social issues,
relating to its transmission projects and lays its management procedures
and protocol to mitigate the same. ESPP is dedicated to the commitment of
POWERGRID to paradigm of sustainable development and appropriate supporting
processes. The World Bank has selected POWERGRID's ESPP as the 1st
candidate for Use of Country Systems (UCS) in India as POWERGRID's ESPP
meets legal requirement of Indian law and other multilateral funding
agencies. Process of review & analysis of POWERGRID's ESPP and The World
Bank safeguard policies is in progress.

ESPP implementation in last 11 years has drawn many appreciations/awards
from various stakeholders. The World Bank has awarded 'Green Award 2006' on
the commendable work done in the field of sustainability and has also
recognized POWERGRID's 'Corporate Leadership in sustainability' in its
report 'Strengthening Institutions for Sustainable Growth-Country
Environment Analysis for India': August, 2007.

Towards conservation of natural resources particularly forest, POWERGRID
has achieved tremendous success after implementation of ESPP The forest
involvement, which was about 6% in about 27,000 ckt. kms. of transmission
network constructed till 1998, has come down to 1.35% in about 40,000 ckt.
kms. constructed during last 11 years, after implementation of ESPP

CORPORATE SOCIAL RESPONSIBILITY:

POWERGRID has been undertaking various projects/ schemes as a part of its
Corporate Social Responsibility in different locations across India either
on its own or through external agencies on a continuous basis primarily to
ensure Socio-Economic development of weaker sections of Society and for
overall conservation of Environment and improvement of Ecological
imbalance.

POWERGRID's commitment towards social responsibility is also amply
reflected in its already adopted Integrated Management Policy, ESPP,
Rehabilitation Action Plan (RAP), Corporate objectives, OSHAS 18001-2007
and Social Accounting SA 18000-2001, Corporate Social Responsibility is
primarily to showcase POWERGRID's abiding commitment and concern to pay
back to the society and environment for the benefits it has reaped so far.

Further, POWERGRID has formulated its 'Corporate Social Responsibility
Policy' which addresses the issue of Community Development in the
neighbourhood areas around its offices/ sub-stations where the Resettlement
and Rehabilitation (R&R) activities under ESPP have been completed and
closed. It also addresses the Socio-Economic issues at National level like
employment, conservation and environment etc.;

EMPLOYEE, OUR ASSESTS FOR SUCCESS:

Human Resource Development:

Your Company's Human Resources function took a number of initiatives during
the year in response to intensifying competition for trained manpower.
During the year, to nurture and develop the existing manpower, a series of
long-duration training & development interventions both functional and
developmental were carried out with focus on building leadership
capabilities, strategic orientation and skills to suit new businesses.

HRD activities are planned in advance based on Training Need Assessment
(TNA) conducted for all employees across the organization, levels &
departments and is enlisted for the year in Human Resource Development
Action Planner. Around 5922 employees have undergone classroom, in-house

and external training programs this year.

Training is being imparted in all functional areas including programs on
Sub-station Automation, Latest Survey Techniques, Developing Marketing
Skills for Telecom Business, Advanced Features in IT, Networking
Administration and Security, Power System Analysis, etc.

To improve the character and personality, attitude and behaviour as also to
bring about a paradigm shift in thinking of employees; several programs on
soft skills have also been conducted across levels and regions.
Additionally, employees have been deputed for conferences & seminars for
sharing of experience. Employees working at the grass-root level have been
exposed to hands on training at manufacturer sites. All newly recruited
employees are made to undergo an induction program. 137 Executive Trainees
have been put through a one year induction training program during 3 the
year, which included class-room training, industry visits and on the job
training. Employees promoted across categories are subjected to programs to
enhance their skills. As a step towards integrated development of
employees, we encourage employees to take aP membership of professional
bodies through reimbursement of the professional fees.

Our Employee Development Centres at Kishenpur, Itarsi, Hyderabad & Misa are
accredited by the central organizations. We sponsor employees for long
duration professional courses in Energy Management and MBA programs of the
leading management institutions. POWERGRID has also taken up training of
employees of State Electricity Boards and other power utilities within the
country and overseas.

Employee welfare:

POWERGRID believes that its human resource consisting of about 8,200
employees is the most important asset and accordingly, its policies are
focused on development of human potential through skill upgradation, career
enhancement and job rotation to achieve organizational objectives. An
effective work culture has been established in the organization through
empowerment, transparency, decentralization, practice of participative
management etc.

We are first Company in Indian Power Sector to get our entire
establishments certified under Social Accountability 8000:2001. The
Cafeteria in the Corporate Office and Food Lounge of Multi Purpose hall of
your Company is conferred with ISO 22000:2005 where quality food is being
served to employees. POWERGRID has also been certified compliant under
OHSAS 18001:1999 for providing a healthy working environment for employees
by ensuring norms for occupational health and safety in the workplace.
Cultural programmes are conducted periodically for promoting healthy
community living and entertainment on various occasions like, Diwali get-
together, Holi Milan, New Year, Raising Day, etc.; Apart from the social
gatherings on National festivals, to promote awareness amongst employees
and their families about benefits of classical and traditional art forms
like dance, drama, music etc., various cultural events are organised round
the year on regular basis wherein various renowned artists are roped in to
perform live.

The Company has also been organizing Intra-Regional Sports Competitions for
Kabbaddi, Cricket, Volleyball, Chess, Badminton etc.; and regularly been
participating in the Inter-PSU Sports Meet. POWERGRID players in Kabbaddi,
Table-Tennis and Lawn-Tennis have stood meritorious and bagged awards in
the Inter-PSU tournaments.

Citizen's charter:

POWERGRID formulated its Citizen's Charters providing a visible front of
its objectives, mission, commitments, terms of service and its obligation
to various stakeholders. Information about its schemes, policies, project
plans of the Corporation and issues of general interest to stakeholders is
available in POWERGRID offices. This information is also available on
POWERGRID web site and is updated from time-to-time. This is intended tee
provide all information on schemes, plans and practices to users outside
the organisation as well as information about accessing the services.

Implementation of official language:

Your Company continued its thrust on official langLiage implementation in-
line with Govt. of India's Policy. Several steps were taken to increase the
use of Rajbhasha in the Company and the Company has proved its commitment
to ensure the implementation of Rajbhasha policy.

The Company has made all efforts to increase the use of the official
language and for its continued propagation, various activities like
organising workshops; to give training, meetings, poetry session, culture
activities, Publication of Hindi magazines/papers and lectures from eminent
personalities are regularly organized. Hindi library of POWERGRID is one of
the best libraries in Public Sector Units. All records of Hindi books &
magazines are kept in computer for easy access through internet. All
computers of POWERGRID are bilingual & phonetic key board is made available
in all computers. For outstanding and noteworthy contributions in Hindi,
number of incentives and reward schemes are in force. Efforts made by
POWERGRID in promoting the implementation of Rajbhasha have been applauded
in many forums.

Renewed commitment to transparency:

Bringing the practices in POWERGRID up to the internarionally acclaimed
best practices for raising integrity levels in procurement of works and
services, POWERGRID is implementing the Integrity Pact program in line with
the recommendation of Central Vigilance Commission (CVC).

POWERGRID has been taken a number of steps to improve vigilance functioning
in the organization as well as for effective implementation of the CVC's
directives through leveraging technology. Publication of NITS and contract
documents on website, Bill tracking system & E-payments, etc.; have already
been implemented and E-procurement is being implemented.

Besides above, to improve transparency in our working, Information about
sub-vendor approval, publication of HR Rules and policies, details of
Contracts awarded (Rs. 1 Crore) as well as evaluation criteria are made
available on the website for various stakeholders. Further, Rules and
Regulations of the Company are also periodically uploaded on the website as
per the requirements of the RTI Act.

In accordance with the CVC directives, the Company is striving to intensify
the preventive aspect and minimising the punitive aspect. This new
dimension is to plan online inspections in such a manner that critical
activities of pre-award and post-award functions are inspected while they
are being performed and at the critical time.

Several procedural improvements were carried out during the year including
amendment to Rule 13 of the CDA Rules regarding furnishing of information
by employees. Apart frorn this, a module for Document Tracking in the form
of Vigilance Information System (VINS) has also been developed for use in
the Vigilance Department.

During the year, 19 complaints were received arid a total of 42 complaints
were taken up for investigation. Out of these 19 complaints, 5 cases were
taken up for investigation on the basis c,fAudit Paras and 4 cases were
referred by Central Vigilance Commission for investigation. Investigation
into complaints has resulted in the issue of Advisory Memos to 16 employees
and minor penalties have been imposed on 6 employees and 3 employees were
exonerated of the charges.

The Vigilance Department of POWERGRID has, laid special emphasis on
inspections, both at the Corporate as well as the regional level. During
the year, 113 inspections including 98 site inspections were conducted.
Besides, the CTE's organization conducted 4 inspections in POWERGRID and
128 nos. CTE paras have been settled during the year. In POWERGRID, high
priority has been placed on training and as part of these trainings,
various workshops were organized at the regions. 109 executives were
imparted training on vigilance matters during the year.

Besides, all reports, charge-sheets as well as property returns of
employees are being furnished on-line. Web Based Complaint Handling System
is already functioning at Corporate Centre, ERLDC, NERLDC, SRLDC and NRLDC.

MANAGEMENT DISCUSSION AND ANALYSIS:

The Report on Management Discussion and Analysis is placed at Annexure-I to
this Report.

PARTICULARS OF EMPLOYEES:

The particulars of employees of the Corporation who were in receipt of
rernuneration in excess of the limit prescribed under Section 217 (2A) of
the Companies Act, 1956 is given in Annexure-II to this Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ARID FOREIGN EXCHANGE
EARNINGS AND OUTGO:

As per requirements of disclosures under Section 217(1) (e) of Companies
Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in
the Report of Board of Directors) Rules, 1988 information relating to
conservation of energy, technology absorption and foreign exchange earnings
and outgo, is given in Annexure-III to this Report.

COMPTROLLER AND AUDITOR GENERAL'S COMMENTS:

Comments on the accounts for the year ended 31st March, 2009 by the
Comptroller and Auditor General of India under Section 619(4) of the
Companies Act, 1956 are given in Annexure-IV to this Report.

CORPORATE GOVERNANCE:

A report on the Corporate Governance, forming part of this report, is given
in Annexure-V The Certificate on Corporate Governance obtained from the
joint Statutory Auditors is given in Anilexure -VI to this Report.

BOARD OF DIRECTORS

Shri. S.K. Chaturvedi assumed the charge of the post of Chairman & Managing
Director, Power Grid Corporation of India Ltd. with effect from 1st August,
2008 vide Office Order No. 11/24/2007-Pty dated 8th July, 2008 of Ministry
of Power, Govt. of India. The Board extends a very warm welcome to Shri.
Chaturvedi on assn mption of post of CMD. During the year, Sh. S. Majumdar,
Director (Projects) who had assumed the additional charge of the post of
CMD on 30th May, 2008, relinquished the same on 1st August, 2008.

Earlier during the year, Dr. R.F. Singh relinquished the charge of post of
CMD, POWERGRID w.e.f. 30th May, 2008 on acceptance of his resignation by
President of India vide Ministry of Power, Office Order dated 30th May,
2008.The Board wishes to place on record its deep appreciation and
gratitude for invaluable contribution and support to the Company made by
Dr. R.P. Singh during his tenure as the CMD.

Shri. I.C.F. Keshari, Joint Secretary, MoP joined the Board on 6th March,
2009 in place of Shri. G.B. Pradhan, who ceased to be the Director of the
company w.e.f. 6th March, 2009. The Board wishes to place on record its
deep appreciation for the valuable services rendered by Shri. G.B. Pradhan
during his association as Director with POWERGRID.

Shri. Rajesh Verma, Joint Secretary & Financial Advisor, Ministry cof
Power, ceased to be the Director of the Company w.e.f. the afternoon of
26th March, 2009, in terms of the provisions of Article 31 (c)(iv) of the
Articles of Association of the Company. Shri. Rakesh Jain assumed the
charge of joint Secretary & Financial Advisor, Ministry of Power, w.e.f.
9th June, 2009. Shri. Sudhir Kumar, MoP joined the Board of the company
w.e.f. 22nd May, 2009 in place of Shri. I.C.P. Keshari, who ceased to be on
Board of the company w.e.f. 22nd May, 2009.The Board wishes to place on
record its deep appreciation for the valuable services rendered by Shri.
Rajesh Verma and Shri. I.C.P. Keshari during their association with
POWERGRID.

During the year, Shri. V M. Kaul assumed charge as Director (personnel) on
16th March, 2009. Shri. R.N. Nayak assumed charge as Director (Operations)
on 16th May, 2009.

In addition to the four Non-official Part-time Directors viz. Dr. P.K.
Shetty, Dr. A.S. Narag, Shri. Anil K. Agarwal and Shri. F.A. Vandrevala
existing on the Board of POWERGRID further, two Non-official Part-time
Directors viz. Shri. S.C. Tripathi, former Secretary to the Govt. of India
and Shri Ashok Khanna were appointed on the Board of POWERGRID on 25th
April 2008. In terms of Ministry of Power Order dt. 23rd July, 2008, Smt.
Sarita Prasad, IAS (Retd.) took charge as part-time non-official Director
on the Board of POWERGRID w.e.f. 4th August, 2008.The Board extends a very
warm welcome to them.

In accordance with the provisions of Section 255 and 256 of the Companies
Act, 1956 read with Article 31 (iii) of the Articles of Association of the
Company four directors Dr. A.S. Narag, Shri. Anil K. Agarwal, Shri.
F.A. Vandrevala and Shri. S.C. Tripathi, shall retire by rotation at the
Annual General/Meeting of your Company and being eligible, offer themselves
for re-appointment.

ACKNOWLEDGEMENT:

The Board of Directors place on record their grateful thanks for the
guidance and cooperation extended all through by Ministry of Power, Central
Electricity Regulatory c-ommission, Appellate Tribunal for Electricity,
Central Electricity Authority, Ministry of Home Affairs, Ministry of
Finance, Ministry of Statistics and Programme Implementation, Ministry of
Environment & Forests, Planning Commission, Department of Public
Enterprises, Regional Power Committees, other concerned Govt. departments/
agencies at the Central and State level as well as from Securities and
Exchange Board of India, National Stock Exchange of India Ltd., and Bombay
Stock Exchange Ltd., Mumbai without whose active support the achievements
by the Corporation during the year under review would not have been
possible.

Board's special appreciation and thanks ar-e due to our valued customers,
various State power utilities as also to valued consultancy clients, who
have awarded various consultancy works to POWERGRID and reposing faith in
POWERGRID's capability to handle them. The Board also appreciates the
contribution of contractors, vendors and consultants in implementation of
various projects of the Company.

The Board also conveys its gratitude to the shareholders, various
International and Indian Banks/ Multilaterar Agencies/ Financial
Institutions/ Credit rating agencies for the continued trust and for the
confidence reposed by them in POWERGRID. Board's special appreciation and
thanks are due to the valued customers, the purchasers of power as also to
valued consultancy clients, who have reposed confidence in POWERGRID.

The Board also appreciates the contribution of contractors, vendors and
consultants in the implementation of various projects of the Company. The
Board acknowledges with thanks the constructive suggestions received from
C&AG and the Statutory Auditors.

Last but not the least, the Board wishes to place on record its
appreciation for the untiring efforts and contributions made by the
employees at all levels and the various Employee unions across POWERGRID,
to ensure that the company continues to grow and excel.

For and on behalf of the Board of Directors

Place: New Delhi (S.K. Chaturvedi)
Date : 29th July, 2009 Chairman & Managing Director

Annexure-I to the Directors' Report

MANAGEMENT DISCUSSION AND AKALYSIS

Economic outlook:

The Growth rate of the country's Gross Domestic Product dipped from an
average of over 9 per cent in the previous three fiscal years to 6.7 per
cent during 2008-09. Like other infrastructure, investments in Power Sector
directly impact the growth and development of a country. The current
economic slowdown provides an opportunity for countries like India that
have a substantial infrastructure requirements. This is reinforced by the
fact that spending on infrastructure has large multiplier effects. It not
only mitigates the supply side bottlenecks to growth, but also provides the
requisite demand side stimulus to growth. One of the key challenges facing
the Country is to lead the economy to high GDP growth rate of 9 per cent
per annum at the earliest and electricity certainly is a key driver for
that.

Sectoral outlook:

In terms of capacity addition, the target of Centre and States for the
Eleventh Plan are as under:

Type/Sector Central State Private Total

Thermal 24840 23301 11552 59693
Hydro 8654 3482 3491 15627
Nuclear 3380 0 0 3380
Total 36874 26783 15043 78700

Source: CEA website-www.cea.nic.in

Out of the above targets, the commissioned capacity addition as on
26.03.2009 is as under:

Capacity addition during the Eleventh Five Year Plan (MW):

Status Central State Private Total

Plan Target 36874 26783 15043 78700
Commissioned
(as on 26.3.2009) 3990 7094 1383 12467

Under construction 29540 18269 19734 67543

Source: Economic Survey 2008-09. Table 9.7.

The power sector exhibited considerable shortfall in capacity creation in
2008-09 when compared to the recent past.

Item 2006-07 2007-08 2008-09

Power capacity addition (MW) 6853 9263 3454

Source: Economic Survey 2008-09. Excerpts from Table 9.1.

The Installed Generation Capacity as on 30-04-09 is as under:

All Thermal
India Coal Gas Diesel Total

MW 77948.88 14876.61 1199.75 94025.24
% age 52.6 10.0 0.8 63.41


All Nuclear Hydro RES@ Grand
India (Renewable) (MNRE) Total

MW 4120.00 36877.76 13242.41 148265.41
% age 2.8 24.9 8.9 100.0


@ Based on data as on 30.09.2008.

Source: CEA website-www.cea.nic.in.

The growth in electricity generation by power utilities during 2008-09 at
2.7 per cent fell much short of the targeted 9.1 per cent. The scenario of
power generation in the thermal, nuclear, and hydro for 2008-09 has been as
under:

Power Generation (*) by utilities (billion kWh):

Sector 2007-08 2008-09 Growth
(Per Cent)

Thermal Central 240.36 245.96 2.3
State 261.78 280.48 7.1
Private 56.67 63.66 12.1
Total 558.82 590.10 5.6
Hydro Central 41.81 43.36 3.7
State 76.27 64.50 -15.3
Private 5.49 5.22 -4.8
Total 123.57 113.08 -8.4
Nuclear Central
Total 16.78 14.71 -12.3
Bhutan IMP 5.90 11.80
All India Central 298.95 304.03 1.7
State 338.05 344.97 2.1
Private 62.16 68.89 10.6
Total 704.45 723.80 2.7

* Excludes generation from captive and non conventional plants and thermal
plants below 20 MW units and hydro plants below 2 MW.

Source: Economic Survey 2008-09 Table 9.3.

The negative growth in power generation from hydro stations during 2008-09
has been stated to be mainly due to less inflow into reservoirs, due to low
rainfall during the monsoon. Power generation from nuclear power stations
also registered negative growth, mainly due to fuel supply constrains.
Other reasons for the lower growth in power generation during the year
2008-09 stated include shortage of coal and gas, shortfall in capacity
addition, delay in achieving commercial operation/ commencement of full
generation from some newly commissioned units due to non-completion of
balance of plant works and initial stabilization problems in some of the
new thermal units.

Under the coal-based Ultra Mega Power Projects (UMPPs), each with a
capacity of 4,000MW, which include Mundra Project awarded to Tata Power
Company and the Sasan and Krishapatnam UMPPs awarded to the Reliance Power
Ltd., POWERGRID is establishing the associated transmission systems of
Mundra and Sasan UMPPs and investment approval for establishing the
associated transmission systems of Krishapatnam UMPP will be obtained from
the POWERGRID Board.

The concept of merchant sale of power is part of the new 'Hydel Policy
2008'.

The Capacity Addition target and Electricity Generation Target for the year
2009- 10 are as under:

Capacity Addition Target (2009-10):

Hydro Thermal Nuclear Total

Target (MW) 845.0 13002.0 660.0 14507.0

Electricity Generation Target (2009-10):

Hydro Thermal Nuclear Bhutan Total
(Imp)

Target (MU) 115468 648479.58 19000 6564 789511.58

Source: CEA website-www.cea.nic.in.

The All India Annual per Capita consumption of Electricity figures are as
under:

Year Per Capital Consumption (kWh)
(As per U.N. methodology)

2002-03 566.7
2003-04 592.0
2004-05 612.5
2005-06 631.5
2006-07 671.9
2007-08 704.2

Source: CEA website-www.cea.nic.in.

The All India Village Electrification as on 31.03.2009 is 489532 (82.4%)*

Power supply position 2009-10 (APRIL, 09)*

Region Energy (MU) Deficit% Peak Demand Deficit %
Requirement (MW)

Northern 15,877 -6.8 32,054 -12.4
Western 22,303 -14.9 35,316 -15.0
Southern 18,696 -9.0 29,376 -10.2
Eastern 7,548 -7.4 12,740 -8.6
North Eastern 701 -13.1 1,460 -13.0
All India 65,125 -10.4 110,946 12.21

Source: *CEA website-www.cea.nic.in.

POWERGRID-the company:

The Government of India has conferred 'Navratna' status to POWERGRID on 1st
May, 2008 which provides us with powers to undertake new transmission
projects of any amount without Government approval. Earlier, POWERGRID was
a Mini-Ratna Category-I public sector undertaking since October 1998.

Growth in Transmission:

Keeping in view the large incremental capacity addition requirements of the
current Plan and to fulfill the macro objective of Power sector i.e. power
to all by 2012, POWERGRID is oriented towards implementation of generation
evacuation schemes, strengthening of regional grids, development of an
integrated National Grid with flexibility for power transfer from one
region to another and has in place the requisite Load Despatch facilities
for real time grid operation. POWERGRID has, till 31st March, 2009:

> Transmission Network of 71,500 Circuit kms of Extra High Voltage
transmission lines (an increase of 6.7% over Transmission Network of 67,000
Circuit kms as on 31st March, 2008) with 120 nos. of EHVAC & HVDC sub-
stations.

> Inter-regional power transfer capacity of about 20,800MW.

> Maintained the transmission system availability at 99.55% during 2008-09,
at par with the International utilities.

> Wheeled about 45% of the total power generated in the Country during
2008-09.

During the year, the Company has added transmission network of 4642 Circuit
Kms. 9 EHV AC sub-stations and transformation capacity of 6,400 MVA. The
target and achievement of POWERGRID in project implementation during the
year 2008-09 have been as under:

Works Target to achieve Achievement Percentage
excellent rating
as per MOU

Foundation (Nos.) 12000 12029 100%

Tower Erection (Nos.) 12000 12042 100%

Stringing (in cKms.) 7500 7207 96%

Transformation 6285 6400 102%
Capacity
addition (MVA)

* POWERGRID being the primary agency to establish the requisite
transmission capacity in the Central sector to match the generation
capacity addition and facilitate inter-state/ inter-regional exchange of
power is focusing on creation of a reliable and strong National Grid by
2012. This would require capital investment of around Rs. 55,000 crore
during XI Five Year Plan for supporting Central sector generation capacity
addition programme of XI plan.

* POWERGRID is also entrusted with role of Central Transmission Utility
('CTU') by Gov. In this role, the tompany operates as one of the chief
agencies responsible for the planning and development of the country's
nationwide power transmission network, including interstate networks.

The company has taken the initiative to develop certain new transmission
lines and systems with private parties, in publicprivate joint ventures.
The detail in this regard has been provided later in the discussion.

* Leveraging on our strengths, we have diversified into the consultancy
business. Since Fiscal 1995, our consultancy division has provided
transmission-related consultancy services to more than 90 clients in around
250 domestic and international projects. In our consultancy role, we have
also facilitated the implementation of various Gol-funded projects for the
distribution of electricity to end-users, such as the Accelerated Power
Development and Reform Programme ('APDRP') in urban and semi-urban areas
and the Rajiv Gandhi Grameen Vidhyutikaran Yojana (the 'RGGVY') in rural
areas.

* Your company has also diversified into the telecommunication business, by
creating a telecommunication network mainly using our overhead transmission
infrastructure. As on 31st March, 2009 your company owns and operate a
fibre-optic cable network of around 20500 kilometres long and connected
over 60 Indian cities, including all major metropolitan areas. We have been
leasing bandwidth on this network to more than 60 customers, including
major telecom operators such as Bharat Sanchar Nigam Limited, Videsh
Sanchar Nigam Limited, Tata Teleservices Limited, Reliance Communications
Limited and Bharti Airtel Limited.

* On the commercial front, under the Securitization Scheme, out of the
total securitization dues of Rs. 211 crore, Bonds of Rs. 93.51 crore (for
DESU period), are pending for issuance. During 2008-09, bonds worth
Rs.195.86 crore have been redeemed by the SEBs. In addition, Rs. 15.43
crore has been received against long term advances from Delhi (against
Delhi Vidut Board).

POWERGRID has realized about 1000/ of its Transmission Charges during the
Year 2008-09, against the actual billing of Rs. 5877 crore. Post
securitization, dues of (from 01.10.01 to 31.03.09) Rs. 3.92 crore are
outstanding and these dues are from Meghalaya. Further, during the year
2008-09, the LC Coverage went upto Rs. 371.83 crore as against Rs.280.03
crore during the year 2007-08.

* The Regional Load Despatch Centres (RLDCs) of Central Electricity
Authority were transferred to the Company (along with associated manpower)
during the earlier years as per orders of Ministry of Power, Government of
India. From 1994 to 1996, POWERGRID took over the operation of all five of
the country's existing RLDCs in a phased manner. The Assets of RLDCs are
being used by the Company pending transfer of ownership and determination
of cost of assets so taken over. Keeping in view the necessity of load
despatch in real time with reliability and security on an economical basis,
POWERGRID modernised the existing five RLDCs and state load despatch
centres and their communication networks, down to the level of individual
sub-stations. It undertook and completed this work under ('Unified Load
Despatch and Communication) ULDC Project POWERGRID has also during the year
established National Load Despatch Centre (NLDC).

The Ministry of Power had in July, 2008 with the approval of Competent
Authority advised your Company to set up a wholly owned subsidiary Company
of POWERGRID responsible for independent system operation with separate
accounting and Board structure. In line with the advice of GOI received by
POWERGRID, this Company has been incorporated by POWERGRID on 20th
March,2009 under the name 'Power System Operation Corporation Limited'.
Further steps and action in this regard are being taken up by your Company.
This subsidiary company will be gradually made independent from Power Grid
Corporation of India Ltd., at the appropriate time.

Overcoming Construction Challenges:

POWERGRID would be implementing major quantum of works towards transmission
development in the next 5-6 years. In addition, many projects under
consultancy assignments are being executed. These entail multi dimensional
challenges relating mainly to accessibility, construction feasibility,
technical restrictions, conservation of environment and right of way etc.
POWERGRID has taken following measures to meet the massive task:

Route Alignment & Detailed Survey Using Modern Techniques:

The route alignment and detailed survey of transmission lines is being
carried out after examining various alternatives with the help of latest
GIS techniques using Satellite imagery obtained from NRSA (National Remote
Sensing Agency) and topographic maps from Survey of India. As a result of
the updated/latest information, details available through Satellite images,
optimal selection of transmission line route involving minimal
environmental impact is possible.

Further, various details, constraints related to the line route like
topographical and geotechnical details, forest & environmental constraints
etc. are obtained in advance so that a secure and reliable system is
designed and necessary engineering aspects are taken care of before
execution. Elaborate definition of the project through surveys in advance
also facilitate preparation of realistic bill of quantities for tendering,
identification of appropriate strategies for project execution, scheduling
& cost optimization.

Land availability for Sub-stations:

Land availability is becoming an issue in suburbs of cities where large
EHV/UHV Sub-stations are proposed. Gas Insulated Sub-stations (GIS) are
considered as an option to overcome the problem.

Vendor Development Programme:

Considering the large number of transmission system planned for XI and XII
Five Year Plans, activities for development of additional indigenous
manufacturers for various components having long production cycle such as
conductor, transformer, reactor etc. and more erection contractors for
substations, have been initiated. The various contracts awarded under this
programme are already under execution.

Towards Standardisation:

POWERGRID has given thrust on standardisation of the repetitive and
package-wise post award engineering activities viz. finalisation and
approval of design/drawing/testing of various equipment/items
standardisation of designs/drawings and incorporating the same in the
technical specifications or through finalising manufacturer specific
designs/drawings applicable for all future packages. The standardisation of
designs/drawings/type testing has helped in minimizing post award
engineering activities for regular packages.

Forest Clearances:

Forest clearance under Forest (Conservation) Act 1980 is a prerequisite for
starting construction in forest area. Such clearances are issued after
Forest advisory Committee (FAC) of Ministry of Environment & Forests (MOEF)
review & recommend proposal for approval of Hon'ble Minister of Environment
and Forests. However in Oct.'06 Hon'ble Supreme Court had stayed the
constitution of Forest Advisory Committee (FAC). Supreme Court after
detailed deliberation during 3 hearings on POWERGRID application for
vacation of stay had vacated the stay vide its order dated 27.04.07 but put
an extra condition that all recommendations of FAC shall be put up to
Supreme Court through Central Empowered Committee (CEC) and only after
permission of Supreme Court forest clearance shall be processed/issued by
the MOEF. However, order of Supreme Court dt. 2.5.08 on the subject has
changed this process to earlier position, after reconstitution of Forest
Advisory Committee (FAC) by MOEF. FAC has been reconstituted in May, 2008
by MOEF. With this modification, now except for cases involving protected
areas like National Parks, Wild Life Sanctuaries etc.; forest clearance
cases are not referred to CEC or Supreme Court.

Through our relentless efforts we were able to get the in-principle forest
clearance for 490.41 Ha. of forest involved in our projects like Seoni-Bina
765kV S/C; Brisinghpur-Damon 400kV D/C; Damon-Bhopal 400kV D/C; Ballia-
Bhiwadi 400KV D/ C; Jamshedpur-Baripada 400KV D/C; Agra-Bhiwadi 400 KV D/C;
Birsinghpur- Korba 400kV D/C,etc.

* Preventive Maintenance:

Live line washing using Helicopter:

For the first time in India, live line washing of insulators using
Helicopter was carried out by POWERGRID. This highly sophisticated
technique was implemented by deploying helicopter on 12 transmission lines
in heavy polluted stretches for a period of five months (Nov '08 to
March '09). The results are encouraging as the trippings reduced on above
mentioned transmission lines.

Usage of Polymer insulator:

To ensure smooth operation of transmission lines during foggy weather
condition in and around NCR in combination with pollution causes large
trippings, conventional porcelain insulators were replaced with polymer
insulators (with higher creepage of 31mm/kV) in these stretches.
Hydrophobicity is one of the features which make polymer insulators optimum
choice for heavy pollution and foggy areas.

Efforts on IPTC Route:

POWERGRID initiated bid invitation of Projects B and C of the Western
Region System Strengthening Scheme-II (WRSSS-II) through IPTC Route,
comprising of transmission lines in the State of Maharashtra and Gujarat,
respectively. The projects are under execution by Western Region
Transmission (Maharashtra) Private Limited for Project B, and Western
Region Transmission (Gujarat) Private Limited for Project C, wholly owned
companies of Reliance Energy Transmission Limited (now known as Reliance
Power Transmission Ltd.). These two Companies have got the Transmission
Licence from CERC on 30/12/2008. In case these companies fail to execute
the project as per Implementation Agreement the obligation shall be met out
by Reliance Power Transmission Ltd.

Integrates Management Policy:

POWERGRID is committed to:

* Establish and maintain an efficient and effective 'National Grid' with
due regard to time, cost, technology and value addition,

* Sustainable development through conservation of natural resources and
adopting environment friendly technology on principles of Avoidance,
Minimization and Mitigation.

* Ensure safe, occupational hazard free and healthy work environment, to
the satisfaction of stakeholders in all areas of its activities and shall
endeavor to improve continually its management systems and practices in
conformity to legal and regulatory provisions.

Integrity Pact:

Bringing the practices in POWERGRID up to the internationally acclaimed
best practices for raising integrity levels in procurement of works and
services, POWERGRID is implementing the Integrity Pact Program in line with
the recommendation of Central Vigilance Commission (CVC). The Integrity
Pact Program envisages an Integrity Pact', an agreement between the
prospective Bidders/Contractors and POWERGRID, committing the
persons/officials of both parties, not to exercise any influence on any
aspect of the contract. Only those Bidders who have entered into such an
Integrity Pact with POWERGRID would be competent to participate in the
bidding.

Grid Management and Performance:

There has been no major grid disturbance in any part of the Country during
the last 6% years. In fact, tripping of lines and partial grid disturbances
of minor nature in regional grids have come down significantly, as to be
reckoned to be a benchmark achievement. During the year, the frequency
remained within the prescribed Indian Electricity Grid Code (IEGC) band
(i.e. 49.0 to 50.3 Hz) for the most of the period (NEW Grid-91.65% and SR
Grid-90.55%) in the year 2008-09. The frequency profile of the system is a
clear indicator of the load generation balance in the Regions. System
availability has been maintained at 99.55% during Fiscal 2009.

Open Access and Power Exchange:

Inter-regional power transmission capacity, together with open access in
transmission, facilitates increased real-time transfer and trading of
electricity thus meeting more consumer demand and thereby ultimately
benefitting the consumer.

The CERC has issued Open Access Regulations, 2008 which categorized the
short term transactions as Bilateral and Collective (through Power
Exchange). The Procedure for Scheduling of Collective Transactions was
issued by POWERGRID, as Grid Operator and CTU, approved by CERC vide Order
dated 13th June '08. NLDC, as the Nodal Agency for Scheduling of Collective
Transactions, has utilized its in-house expertise for development of the
software for processing of Collective Transactions through Power Exchanges.
Operation of first power exchange in India commences from 27th June '08 and
within a short span of time second power exchange became operational w.e.f.
22nd Oct '08. Some of the salient features of power exchange implementation
are multiple exchanges envisaged, voluntary participation, double sided
bidding, uniform pricing, day-ahead exchange, hourly bids and congestion
management by market splitting.

About 31 Billion Units (BU), an average of about 2.6 BU per month, of
energy approved during the year 2008-09 under STOA (bilateral & collective)
as compared to about 30 BU of energy (average of about 2.5 BU per month)
was approved in 2007-08. Internal Control

POWERGRID has a comprehensive Internal control to verify the Accounting and
Financial Management System, adequacy of controls, material checks,
financial propriety aspects and compliance implementation mechanism.
Keeping in view the time schedule of conducting internal Audit and the
increase in the number of Audit Units, the internal audit for the year
2009-10 has been finalized with in-house Audit Department and experienced
firms of Chartered Accountants. Steps have also been taken in regard to
strengthening of the compliance mechanism. Adhering to the Corporate
Governance norms, the company has an Audit Committee in place as per clause
49 of Listing Agreement, which has three independent Directors and one Non
Executive Director.

Risk Management Procedure:

POWERGRID is in the process of establishing Enterprise Risk Management
Framework and a consultant for the purpose will be selected. The Consultant
would examine the prevalent systems and procedure, organizational
structure, functional responsibilities, processes, market, customers, and
environment in the business activities of the Company for assessment of
business risks and their mitigation and would prepare Documentation for the
purpose.

Comparison of Fiscal 2009 to Fiscal 2008:

Your company's total income in Fiscal 2009 was Rs.7028.54 crore, which
represented an increase of 38.32% over the total income of Rs. 5081.53
crore in Fiscal 2008. In Fiscal 2009, transmission and transmission-related
activities constituted 88.41% of our total income, with the balance coming
from our consultancy, telecommunication businesses and other incomes.

Income:

Revenue from Operations:
(Rs. in crore)
Revenue from Operations Fiscal 2009 Fiscal 2008

Revenue from transmission charges 6172.66 4188.52
Transmission income from short term open access 41.42 52.73
Consultancy fees 215.90 250.04
Revenue from telecom 149.83 123.53
Total 6579.81 4614.82

The revenue was higher in Fiscal 2009 as compared to Fiscal 2008 mainly on
account of the commissioning of new transmission assets worth Rs. 3733.74
crore and full year impact of transmission assets worth Rs. 5958.19 crore
commissioned during fiscal 2008 including the major projects Bina-Nagda;
Kahalgaon 2 Phase I; Vindhyachal III, System Stengthening-III of SR; RAPP
5&6; SIPAT-I; SIPAT-II; Kahalgaon 2 Phasell; System Strengthening in South
West of Northern Grid (PART-A). The projects commissioned in Fiscal 2009
have generated revenue from the date of commercial operation during the
year.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS:

Tariff norms:

Our charges for transmission customers are governed by tariff norms
determined by the Central Electricity Regulatory Commission 'CERC')
pursuant to central government tariff policy and legislation. Under the
tariff regulations applicable for the year 2008-09, we are permitted to
charge our customers fixed annual transmission charges ('ATC') which
include components for return on equity, interest on outstanding debt,
depreciation, advance against depreciation, operation and maintenance
expenditure and interest on working capital. In addition, tariffs allow us
to recover income tax we pay with respect to our transmission business and
foreign exchange rate variation ('FERV') in respect of our foreign currency
loans. We are also provided with an incentive if the availability of our
transmission network is above 98% in respect of alternating current systems
and above 95% in respect of HVDC systems, and penalized if the availability
of our network is below 98% or 95%, respectively. These tariff norms
prescribed by CERC are applicable to all the tariffs we are awarded during
the period from April 1, 2004 until March 31, 2009.

As per Section 61 of the Electricity Act, 2003 Central Electricity
Regulatory Commission (CERC) shall be guided by the Electricity Policy
issued on 12.02.2005 and Tariff Policy issued on 06.01.2006 while
specifying the terms and conditions for the determination of tariff. The
tariff policy inter alia states that the rates of depreciation notified by
CERC would be applicable for the purpose of tariff as well as accounting.
There would be no need for any Advance Against Depreciation. Foreign
Exchange Rate Variation will not be a 'pass through'. Appropriate cost of
hedging and swapping for management of FERV will be allowed.

CERC has vide its notification dated 19th January, 2009 notified the tariff
regulations for the tariff Block 2009-14. Under the tariff regulations
applicable for the tariff Block 2009-14, we are permitted to charge our
customers transmission charges for recovery of annual fixed cost ('AFC')
consisting of components-return on equity, interest on outstanding debt,
depreciation, operation and maintenance expenditure, interest on working
capital. in case of projects commissioned on or after 1st April, 2009, an
additional return on Equity of 0.5% will be allowed if such projects are
completed within the timeline specified under the CERC tariff regulations
for the Block 2009-14.

Earlier, tariffs allowed us to recover income tax and this was in addition
to the return on equity. From the tariff Block 2009-2014, the Return on
equity shall be computed on pre-tax basis, at the base rate of 15.5% to be
grossed up by grossing up the base rate with the normal tax rate for the
year 2008-09 applicable to the transmission licensee. However, return on
equity with respect to the actual tax rate applicable to the transmission
licensee, in line with the provisions of the relevant Finance Acts of the
respective year during the tariff period shall be trued up separately for
each year of the tariff period along with the tariff petition filed for the
next tariff period.

As regards interest on debt, under the CERC tariff regulations for the
Block 2009-14, the normative loan outstanding as on 1.4.2009 shall be
worked out by deducting the cumulative repayment as admitted by the
Commission up to 31.3.2009 from the gross normative loan.

The repayment for the year of the tariff period 2009-14 shall be deemed to
be equal to the depreciation allowed for that year. The advance against
depreciation has been done away with. Despite any moratorium period availed
by your company, the repayment of loan shall be considered from the first
year of commercial operation of the project and shall be equal to the
annual depreciation allowed.The rate of interest shall be the weighted
average rate of interest calculated on the basis of the actual loan
portfolio at the beginning of each year applicable to the project.

For interest on working capital, the working capital amount is (i)
calculated as consisting of receivables equivalent to two months of fixed
cost; (ii) maintenance spares @15% of operation and maintenance expenses;
and (iii) operation and maintenance expenses for one month. Rate of
interest on working capital shall be on normative basis and shall be equal
to the short-term Prime Lending Rate of State Bank of India as on 1.4.2009
or on 1st April of the year in which the transmission system, is declared
under commercial operation, whichever is later.

The transmission charge (inclusive of incentive) payable for a calendar
month for a transmission system or part thereof shall be:

AFC x (NDM/NDY) x (TAFM/NATAF)

Where,

AFC = Annual fixed cost specified for the year, in Rupees
NATAF = Normative annual transmission availability factor, in per cent
NDM = Number of days in the month
NDY = Number of days in the year
TAFM = Transmission system availability factor for the month, in per cent

Recovery of transmission charge and incentive by the transmission licensee
shall be based on the achievement of the operational norms as under:

Under the tariff norms prescribed by CERC for the tariff Block 2009-2014 we
are also provided with an incentive if the availability of our transmission
network is above 98% in respect of alternating current systems, above 95%
in respect of HVDC back-to-back Stations systems and above 92% in respect
of HVDC bi-pole links and penalized if the availability of our network is
below 98%, 95% or 92%, respectively. The Availability Incentives will be
linked with monthly transmission charges instead of being linked to equity
in the block of 2004-09.

Transmission charges corresponding to any plant capacity for which a
beneficiary has not been identified and contracted shall be paid by the
concerned generating company.

The tariff regulations for the Block 2009-14 allow us to share the proceeds
of carbon credit from approved CDM projects in the manner that 100% of the
gross proceeds on account of CDM to be retained by the company in the first
year after the date of commercial operation of the transmission system; and
in the second year, the share of the beneficiaries shall be 100/ which
shall be progressively increased by 10% every year till it reaches 50%,
whereafter the proceeds shall be shared in equal proportion, by the
company, and the beneficiaries.

Foreign Exchange Rate Variation:

Your company under the tariff regulations for the block 2009-14 is
permitted to hedge foreign exchange exposure in respect of the interest on
foreign currency loan and repayment of foreign loan acquired for the
transmission system, in part or full in the discretion of the transmission
licensee. Recovery of the cost of hedging of foreign exchange rate
variation corresponding to the normative foreign debt can be made by the
company, in the relevant year on year-to-year basis as expense in the
period in which it arises.

To the extent the company is not able to hedge the foreign exchange
exposure, the extra rupee liability towards interest payment and loan
repayment corresponding to the normative foreign currency loan in the
relevant year shall be permissible provided it is not attributable to the
generating company or the transmission licensee or its suppliers or
contractors.The company shall recover the cost of hedging and foreign
exchange rate variation on year-to-year basis as income or expense in the
period in which it arises.

Short Term Open Access:

One of the goals of the Electricity Act, 2003 is to provide electricity
generators and users with open access to electric power transmission
systems on a non-discriminatory basis, when capacity is available and such
access will not disrupt regular fixed charge access or network operation.
Our portion of revenue from the short term open access charge is accounted
for as revenue from operations. As RLDC, we also charge short term open
access customers a separate fee for the scheduling of their access through
the relevant load dispatch centres. Your company's Transmission income from
short term open access was Rs. 41.42 crore in Fiscal 2009, a decrease of
21.45% over Transmission income from short-term open access of Rs.52.73
crore in Fiscal 2008. Despite increase in transactions, the decrease in
STOA income is due to change in charging methodology of Open Access as per
the regulatory order of CERC w.e.f. 01.04.2008.

Revenue from Other Services:

Your company also earns revenue from consultancy (including for project
management and supervision services) and from our telecommunication
business. Our consultancy income mainly consists of fees from work under
the APDRP and the RGGVY, the execution of transmission and communication
system related projects on a turnkey basis and technical consulting
assignments for Indian State utilities and utilities in other countries.
There has been a decrease in consultancy revenue from Rs. 250.04 crore in
Fiscal 2008 to Rs. 215.90 crore in Fiscal 2009, a decrease of 13.65%. The
Telecom revenue grew by 21.29% over Fiscal 2008.

The revenue from our telecommunication business is mainly on account of
leasing bandwidth of our fibre-optic lines.

Provisions Written Back:

The provisions written back were Rs. 0.04 crore in Fiscal 2009, as against
Rs. 8.39 crore in Fiscal 2008.

Other Income:

Your company's other income was Rs. 448.69 crore in Fiscal 2009, a decrease
of 2.10% over the other income of Rs. 458.32 crore in Fiscal 2008.

(Rs. in crore)
Other Income Fiscal 2009 Fiscal 2008

Dividend on trade investments 19.54 5.39

Interest income-bonds and long term advances 132.99 149.99

Interest income - banks/others 176.69 108.59

Profit on sale of fixed assets 0.08 6.14

Deferred income (transfers from grants in aid) 18.42 17.65

Operational charges in respect 20.19 21.11
of short term open access

Transfer from insurance reserves 0.04 1.65
on a/c of loss of fixed assets

Lease income from state sector ULDC upgrades 75.85 66.54

Surcharge on late payment from customers 1.00 0.24

Hire charges for equipment 0.30 0.39

FERV gain - 42.96

Miscellaneous income 57.48 56.09

Total Other Income 502.58 476.74

Less: Transfer to incidental 53.89 18.42
expenditure during construction

Total Net Other Income 448.69 458.3

The other income decreased mainly because there had been an FERV gain of
Rs. 42.96 crore in Fiscal 2008, which was accounted for as per the
accounting policy applicable in Fiscal 2008. The above gain of Rs. 42.96
crore along with FERV gain of Fiscal 2007 was written off in Fiscal 2009 as
prior period expenditure.

Expenditures:

Your company's total expenditures were Rs. 4729.61 crore in Fiscal 2009, an
increase of 49.25% over the total expenditures of Rs. 3168.94 crore in
Fiscal 2008. The total expenditures as a percentage of total income were
67.29% in Fiscal 2009 compared to 62.36% in Fiscal 2008.

Employees' Remuneration and Benefits:

Employees' remuneration and benefits expenses include salaries and wages,
incentives, allowances, benefits, contributions to provident and other
funds and welfare expenses.

Your company had 8214 employees on payroll as of March 31, 2009, compared
to 7,645 employees as of March 31, 2008. Employees' remuneration and other
benefits increased by 24.05% to Rs. 643.88 crore in Fiscal 2009 from
Rs. 519.06 crore in Fiscal 2008. The increase is due to an increase in the
number of employees, increase in Dearness allowance, higher incentives paid
to employees, provisions of Rs. 202.13 crore (including amount transferred
to Incidental Expenditure During Construction IEDC) made for wage and
salary revision which will be backdated to January 1, 2007 when it is
finally implemented, Provision for Performance Related Pay (PRP) of
Rs.76.78 crore (including amount transferred to IEDC) has been made as per
DPE guidelines, as part of wage revision. The increase is also partially
the result of the capitalization of transmission assets worth Rs. 3733.74
crore in Fiscal 2009 because employees' remuneration that was earlier
capitalized during the construction of the project is now treated as an
operating expense subsequent to the commissioning of the project.
Employees' remuneration and benefits represented 9.16% of our total income
in Fiscal 2009.

Transmission, Administration and Other Expenses:

Transmission, administration and other expenses consist primarily of costs
of the repair and maintenance of buildings, plant and machinery and power
charges. Other items in this category include expenditures for travel,
security, vehicle hire charges, insurance, rent rates and taxes on our
properties.

Transmission, administration and other expenses increased by 20.56% to
Rs.411.61 crore in Fiscal 2009 from Rs. 341.42 crore in Fiscal 2008. The
increase is on account of the capitalization of transmission assets worth
Rs. 3733.74 crore in Fiscal 2009 as certain expenses that were earlier
being capitalized during the construction of the project are now treated as
an operating expense subsequent to the commissioning of the project.

Depreciation:

During the year, the company has provided depreciation at the rates
notified for the purpose of recovery of tariff for the tariff block 2004-09
by Central Electricity Regulatory Commission empowered under The
Electricity Act, 2003 which are different from the rates specified under
Companies Act, 1956. Currently, the technical life of each depreciable
asset class as prescribed by CERC is as follows:

* Transmission lines - 35 years
* Substations - 25 years
* Buildings and civil works - 50 years
* Power line carrier communications (PLCC) - 15 years.

We depreciate the assets of our consultancy and telecom businesses on the
straight line method as per rates specified in Schedule XIV of the
Companies Act, 1956.

The issue of charging depreciation at rates different from the rates
specified under Companies Act had been referred by C & AG to the Ministry
of Power (MOP). MOP has issued Tariff Policy on 6th January, 2006 which
provides that rates of depreciation notified by CERC would be applicable
for the purpose of tariffs as well as for accounting. Accordingly, the
rates notified under present tariff norms are considered appropriate for
charging depreciation for the year. By charging depreciation at the
aforesaid rates the depreciation charge for the year is lower by Rs.781.29
crore (previous year Rs. 625.88 crore) as compared to the depreciation as
per rates provided in the Schedule XIV of the Companies Act, 1956 [refer
Notes on Accounts No. 15(a)].

Your company's depreciation increased by about 14% to Rs. 1093.97 crore in
Fiscal 2009 from Rs. 959.65 crore in Fiscal 2008. The increase was mainly
because of the commissioning of new transmission assets worth Rs. 3733.74
crore and full-year impact in Fiscal 2009 of transmission assets Rs.5958.19
crore which were commissioned during Fiscal 2008.

The CERC norms notified on 19.01.2009 for the block year 2009-14, in
accordance with the Tariff Policy 2006, specify depreciation @5.28%(T/L &
S/s) in first 12 years and there after recovery based on residual value
over the residual life will be allowed in place of average 2.91% in the
block of 2004-09. However, useful life of assets has been kept unchanged.
In case of the existing projects, the balance depreciable value as on
1.4.2009 shall be worked out by deducting the cumulative depreciation as
admitted by the Commission upto 3 1.3.2009 from the gross depreciable value
of the assets.

Interest and Finance Charges:

Interest and finance charges increased by 89.03% to Rs. 2532.09 crore in
Fiscal 2009 from Rs. 1339.55 crore in Fiscal 2008. The increase was mainly
because of increase in FERV expenditure to Rs. 943.34 crore from Rs. 469.95
crore in fiscal 2008 mainly due to depreciation of rupee against US Dollar.
This has been compensated by increase in transmission income-FERV as per
accounting policy of the company. The increase was also because of the
commissioning of new transmission assets worth Rs. 3733.74 crore in 2009
and full-year impact in Fiscal 2009 of transmission assets 5958.19 crore
which were commissioned during Fiscal 2008.

These charges include rebates to state power utilities amounting to
Rs. 86.31 crore on account of prompt payment and guarantee fees of
Rs.106.28 crore payable to the Gol for giving guarantees to the lenders of
our foreign currency loans.

Deferred Revenue Expenditure Written Off:

Deferred revenue expenditure written off decreased by 66.30% to Rs. 1.83
crore in Fiscal 2009 from Rs. 5.43 crore in Fiscal 2008. This decrease was
on account that it was the last year (fifth year) of amortization of
expenditure for certain projects (refer Accounting Policy 12).

Profit before Tax:

Your company's profit before tax in Fiscal 2009 was Rs. 2228.57 crore, an
increase of 28.78% over our profit before tax of Rs. 1730.53 crore in
Fiscal 2008.

Provision for Tax:

In Fiscal 2009, we provided for Rs. 478.60 crore of Minimum Alternate Tax,
compared to Rs.197.11 crore in Fiscal 2008. The increase was primarily due
to the increase in our profit. Further, provision of MAT has been made on
advance against depreciation (AAD) for the current year as well as for the
earlier years due to decisions of Appellate Tribunal in this regard.
Similar amount has been included under transmission income on account of
tax recoverable on AAD. Fringe benefit tax provided in Fiscal 2009 was
Rs. 14.60 crore against Rs.10.50 crore in Fiscal 2008. Fringe benefit tax
and the Minimum Alternate Tax paid in respect of our transmission business
is recovered through our tariffs and such amounts are accounted for as
transmission income.

Provision for deferred tax is made net of amounts recoverable through our
tariffs and is affected by revenues from consultancy services and Telecom.

Profit after Tax:

Your company's profit after tax in Fiscal 2009 was Rs. 1690. 61 crore, an
increase of 16.72% over our profit after tax of Rs. 1448.47 crore in Fiscal
2008.

LIQUIDITY AND CAPITAL RESOURCES:

Your company depends on both internal and external sources of liquidity to
provide working capital and to fund capital requirements. Historically, the
capital expenditures have been funded with internally generated funds,
grants and equity contributions by the Government and debt financing. As at
March 31, 2009, your company had cash and cash equivalents of Rs. 2428.88
crore. As at March 31, 2009, we also had committed and undrawn letter of
credit facilities of approximately Rs. 4.25 crore and unitized Bank
Guarantees Rs. 229.41 crore for capital requirements and committed and
undrawn cash credit facilities of approximately Rs. 300 crore ('cash
credit') towards our working capital facilities.

Cash Flows:
(Rs. in crore)
Year ended March 31
2009 2008

Net cash from operating activities 6641.09 2,990.83
Net cash (used in) investment activities (9156.75) (5,343.31)
Net cash from (used in) financing activities 3078.95 3,021.25
Cash and cash equivalents at the end of the year 2428.88 1,865.59

Net Cash from Operating Activities:

Your company's net cash flows from operating activities are principally
used to service long-term debt, for capital expenditures, for investments
and for dividends.

The net cash from operating activities was Rs. 6641.09 crore in Fiscal
2009. Changes in current assets and liabilities that had a current period
cash flow impact of decrease in working capital of Rs. 894.27 crore,
primarily from an increase in trade payables and other liabilities and
increase in inventories, loans and advances, trade and other receivables,
and other current assets.

Net Cash (Used in) Investment Activities:

Your company's net cash used in investing activities was Rs. 9156.75 crore
in Fiscal 2009. This reflected expenditures on fixed assets and capital
work-in-progress as well as construction stores and advances paid to
contractors for capital expenditure of Rs. 9423.60 crore, investment in
joint ventures/subsidiaries of Rs. 39.50 crore and receipt of interest and
dividend income of Rs.152.53 crore.

Your company's net cash used in investing activities was Rs. 5343.31 crore
in Fiscal 2008.

Net Cash from (Used in) Financing Activities:

In Fiscal 2009, your company's net cash flow from financing activities was
Rs. 3078.95 crore. Your company raised Rs. 5717.09 crore of new borrowings.
These borrowings included principally Rupee denominated bonds and foreign
currency borrowings. The company repaid Rs. 2177.89 crore of borrowings and
paid interest and finance charges of Rs. 2532.09 crore. In the Fiscal 2009,
we paid dividends of Rs. 505.08 crore comprising final dividend for Fiscal
2008 and an interim dividend for Fiscal 2009. Under Gol guidelines
applicable to government companies generally, dividend is payable at a rate
of 20% of profit after tax or 20% of share capital, whichever is higher.
The minimum dividend payout in respect of infrastructure sector companies
is 30% of profit after tax. The dividend payout this year has been 29.88%.

In Fiscal 2008, our net cash flow from financing activities was
Rs. 3021.25 crore.

Capital Expenditures:

Your company's capital expenditures are primarily for the installation of
new transmission capacity and the expansion of existing capacity. Our
capital expenditure in Fiscal 2009 and Fiscal 2008, were Rs. 8095 crore and
Rs. 6656 crore, respectively. Capital expenditure budget for Fiscal 2010
has been approved for Rs. 11,510 crore. Your company's capital expenditure
budgets are subject to modification as a result of a variety of factors,
changes to expansion plans and similar other factors.

Return on Equity:

The return on equity that we were generally permitted in Fiscal 2009 on
transmission assets under our tariffs has been 14%. Our actual return on
equity from period to period across our entire business is 11.57%, for a
number of reasons. For instance, we have significant equity funds locked up
in capital work-in-progress, which do not earn return until the associated
transmission projects commence operations. During the year, an amount of
Rs. 880 crore, being the unutilized amount outstanding as 31st March, 2008
out of Initial Public Offer (IPO), has been fully utilized for the capital
expenditure on the projects specified in the offer document. With this, the
IPO proceeds, raised during Fiscal 2007, have been fully deployed in 15
identified construction projects. In addition, the SEB bonds that we hold
under the One Time Settlement earn a maximum tax free return of 8.5% per
annum.

Selected Balance Sheet Items:

Fixed Assets:

Your company's total fixed assets after depreciation were Rs.31128.44 crore
and Rs. 27,355.20 crore as at March 31, 2009 and 2008 respectively. Our
fixed assets consist of plant and machinery such as transmission lines,
substations, HVDC and ULDC equipment and other transmission equipment;
buildings; land; office equipment; fixtures; and motor vehicles. Fixed
assets value (Net Block) increased by 13.79% in Fiscal 2009 as compared to
Fiscal 2008. These increases are mainly due to the commissioning of new
transmission assets.

Capital Work-in-Progress and Construction Stores and Advances

Your company's capital work-in-progress was Rs. 6533.43 crore and
Rs.5305.41 crore, as at March 31, 2009 and 2008, respectively. The cost of
materials consumed, erection charges and other expenses incurred for the
implementation of projects are shown on the balance sheet as capital work-
in-progress, pending capitalization of the completed project. The change in
this amount is due to capitalization of a number of transmission projects
on commissioning of these projects and due to undertaking of new
transmission projects. Construction stores and advances were Rs. 6752.57
crore and Rs. 3452.68 crore as at March 31, 2009 and 2008, respectively.
These amounts represent the new as well as ongoing capital expenditure on
transmission assets. The increase in these amounts is mainly due to the
undertaking of new transmission projects.

Investments

Your company's investments mainly consist of bonds issued by the SEBs as
part of the One Time Settlement. We have also invested Rs. 12 crore in
equity shares of PTC India Limited, the power trading company, and
Rs.229.32 crore in Powerlinks Transmission Limited, the joint venture
between us and The Tata Power Company Limited through which the Tala
Transmission Project was constructed.; Rs.15.60 crore in Torrent Power Grid
Limited; Rs. 32.50 crore in Jaypee Powergrid Limited; Rs.1.83 crore in
Parbati Koldam Transmission Company Limited; Rs. 0.01 crore in Teestavalley
Power Transmission Limited; Rs. 0.03 crore in Powergrid IL&FS Transmission
Pvt. Ltd. Our total investments were Rs. 1592.83 crore and Rs. 1736.22
crore as at March 31, 2009 and 2008, respectively.

Loans and Advances:

Your company's total loans and advances as at March 31, 2009 and 2008,
respectively, were Rs. 2766.63 crore and Rs. 1767.30 crore. Loans and
advances include advances under the One Time Settlement amounting to
Rs.115.69 crore in respect of DESU/DVB, a Delhi utility, loans to
employees, lease receivables (representing certain capital expenditures
made by the company in respect of the state sector ULDCs of all five
regions, for which the constituents of those regions are reimbursing the
company on a finance lease basis), loans and advances to contractors,
advance income tax, TDS and other deposits with tax authorities. The
increase in loans and advances from Fiscal 2008 to Fiscal 2009 was
principally due to increase in advances to employees, advance tax, amount
recoverable from constituents, etc.; and TDS. In respect of outstanding
advance tax and tax deducted at source, the assessment for the previous
years are under process and wherever additional demand has been raised by
the income tax authorities, the company has gone on appeal before
Commissioner of Income Tax (Appeal), Income Tax Appellate Tribunal etc. and
decisions are awaited.

Other Current Assets:

Our other current assets as at March 31, 2009 and 2008 respectively, were
Rs.1446.28 crore and Rs.395.17 crore. Other current assets mainly include
interest accrued on investments under the One Time Settlement and interest
accrued on employee loans.

Other current assets increased by 265.98% in Fiscal 2009 as compared to
Fiscal 2008 due to accounting as per accounting policy of FERV of deferred
Foreign Currency Fluctuation Asset of Rs.1314.96 crore in other current
assets in view of depreciation of rupee against US dollar.

Inventories:

Inventories are valued at lower of the cost, determined on weighted average
basis, and net realizable value. The costs of inventories were Rs.297.57
crore, as at March 31, 2009. Our inventories consists of transmission line
items such as tower parts, conductors, insulators and other items, and
substation items such as transformers, circuit breakers, ICTs and other
items. The cost of our inventories increased in Fiscal 2009 as compared
with Fiscal 2008, on account of your company continuing to expand the
transmission network and capitalization of new projects.

Sundry Debtors:

Sundry debtors consist mainly of receivables relating to transmission
services, and also receivables from consultancy services and telecom
services. Our sundry debtors amounts as on March 31, 2009 and 2008 were
Rs.1373.56 crore and Rs. 1100.50 crore, respectively. Sundry debtors
increased by 24.81% in Fiscal 2009 as compared to Fiscal 2008. The increase
from Fiscal 2008 to Fiscal 2009 was mainly due to time lags between the
provision and accounting of transmission services on certain new projects
on accrual basis and the formal notification by CERC of the tariffs
relating to those projects in Fiscal 2009 and to some extent due to
accounting of certain items of incremented income on account of income tax
and other taxes on an accrual basis.

We can recognize certain tariff components that are chargeable on a pass-
through/recoverable basis as income, such as income tax and foreign
exchange rate variations, without waiting for final tariff notifications.
However, other tariff components, such as incentive amounts, are booked as
income on a provisional basis based on certification of availability by the
relevant Regional Power Committee until final tariff notification is
received from CERC.

Substantially, all of our receivables are covered by letters of credit
pursuant to the One Time Settlement Scheme, following which we have no
material debt collection problems.

The comparison of actuals with Financial MOU targets is given below:

MOU Parameters MOU 2008-09 Actual 2008-09

Gross Sales (Rs. crore) 5400.00 7028.54
Gross Margin (Rs. crore) 4500.00 5926.82
Net Profit/Net worth (%) 10.50% 11.57%
Gross Margin/Gross Block 11.04% 14.70%
Gross Profit/Capital Employed (%) 12.00% 16.75%
PBDIT/Total employment (Rs. in lakhs) 53.57 72.16
Inventory/Gross Block (%) 1.00% 0.74%
Added value/Gross Sales (%) 31.82% 43.88%

Indebtedness:

We rely on both Rupee and foreign currency denominated borrowings. A
significant part of our external funding has been through long-term foreign
currency loans from multilateral agencies such as the World Bank and the
Asian Development Bank, with our performance under such loans guaranteed by
the Gol. The following table sets forth, by currency, our outstanding debt
and the periods during which debt amounts mature or payment is otherwise
due. Currency conversions are as of 31st March, 2009.

(Rs. in Crore)
2009-10 2010-11 2011-12 2012-13 BEYOND
2012-13 TOTAL

RUPEES 844.32 1193.54 1424.29 1722.42 12282.04 17466.61
US$ 399.91 463.71 601.62 647.13 7,048.80 9,161.17
EUR 23.92 24.82 25.77 26.79 123.27 224.56
SEK 16.51 16.51 16.51 16.51 66.06 132.11
CHF 124.09 124.09 124.09 124.09 62.04 558.40
JPY 9.59 9.59 9.59 19.59 134.24 172.59

Secured Loans:

Your company's secured loans as at March 31, 2009 and 2008 were Rs.25288.25
crore and Rs. 17552.13 crore, respectively. Secured loans include amounts
raised from our private placement of bonds, term loans from banks, loans
from the International Bank for Reconstruction and Development, Asian
Development Bank and Bank of India. Due to the increased investment in new
projects during the last year, our borrowings have increased substantially.
Most of the secured loans have been secured by floating charges on the
moveable and immoveable properties of the Company. The following table
presents the secured debt as at 31st March, 2009.

Amount % of total
(Rs. in crore) Secured debt

Bonds denominated in Rupees 15112.07 59.76

Other Loans and Advances From
Banks and Financial Institutions:

Denominated in Foreign Currency* 9154.15 36.20

Denominated in Rupees 1022.03 4.04

Total 25288.25 100.00

* Loans guaranteed by the Government were Rs. 8774.31 crore.

Unsecured Loans:

Our unsecured loans as at March 31, 2009 and 2008 were Rs. 3177.18 crore
and Rs. 471 1.35 crore. Unsecured loans mainly include loans from foreign
financial institutions such as the European Investment Bank, Kreditanstalt
fur Wiederaufbau in Germany and Scandinavia Enskilda Bank in Sweden and
term loans from the Power Finance Corporation and short term loans from
Banks.

The following table presents our unsecured debt as at March 31, 2009:

Amount % of total
(Rs. in crore) Secured debt

Bonds denominated in Rupees 1297.50 40.84

Other Loans and Advances From
Banks and Financial Institutions:

Denominated in Foreign Currency* 1094.68 34.45

Denominated in Rupees 785.00 24.71

Total 3177.18 100.00

* Loans guaranteed by the Government were Rs. 404.17 crore.

Advance Against Depreciation (AAD):

Advance against depreciation is a component of tariff that we are permitted
to charge under CERC regulations. Our loans are generally of shorter
duration compared to the technical life of our assets. Amounts paid to us
in respect of depreciation on such assets are generally insufficient to
cover our repayment of debts in respect of such assets. Therefore, advances
against depreciation allow us to cover such shortfall. AAD is restricted
considering a 10-year loan repayment schedule. AAD is accounted for as an
advance until the tenure of the loan. Subsequent to repayment of the loan,
AAD is transferred to income on a pro-rata basis for the remaining useful
life of the asset. Definition of useful life of the asset is governed by
CERC regulations. AAD has been done away with in the tariff block 2009-
2014.

Current Liabilities

Your company's current liabilities as at 31st March, 2009 were Rs. 6123.37
crore. The current liabilities include sundry creditors, advances from
customers, security deposits, retention money withheld by us and other
liabilities.

Current liabilities were 66.74% higher at March 31, 2009 compared to March
31, 2008. The increase is partly due to liabilities to some of the
beneficiaries on account of UI dues which have been accounted for on
accrual basis. Similar amount has been accounted for as receivable from the
beneficiaries and included under loans and advances. These fluctuations are
also due to the commissioning of particular projects at different times of
the year in different fiscal years. When projects are commissioned, the
liabilities relating to them are capitalized. If commissioning occurs in
the early part of a fiscal year, the related liabilities are usually paid
before the end of the fiscal year. In fiscal years when current liabilities
are higher, there tends to be more projects commissioned toward the end of
the fiscal year, whose related liabilities have not been paid by the end of
the fiscal year. Variations in the amounts of advances received under
consultancy contracts also result in current liability fluctuations.
Accounting of deferred income from FERV has also contributed in increase in
current liabilities.

Contingent Liabilities:

The following table sets forth the principal components of our contingent
liabilities as at March 31, 2009 and 2008:

(Rs. in crore)
March 31, March 31,
2009 2008

Claims against the Company Not Acknowledged 1930.27 1117.31
as Debt in respect of Arbitration/
Court Cases

Land/Crop/Tree Compensation Cases 480.89 545.24
Service Tax 2041.00 -
Others 125.66 34.74
Disputed Tax Demands -Income Tax 12.22 69.36
Disputed Tax Demands - Others 160.47 189.67
Continuity Bonds with Custom Authorities 809.42 837.50
Others 114.61 113.50
Total 5674.54 2907.32

Contingent liabilities increased by 95.18% in Fiscal 2009 compared to
Fiscal 2008.

The increase was mainly due to inclusion of an amount of Rs.812.96 crore in
the Contingent Liability for the Fiscal 2009 in respect of
arbitration/court cases and Service Tax liability of Rs. 2,041 crore
(including interest of Rs. 308 Crore) for the period from 1st May, 2006 to
31st March, 2009 for the company as a whole.

The Service Tax is leviable on 114 services as per the list of services
notified under section 65 of the Finance Act, 1994. 'Transmission of Power'
is not a specified service in this list. However, The Service Tax
Authorities are interpreting Transmission of Power' as taxable service
under the head 'Business Support Service' w.e.f 1st May 2006 given in the
list of taxable services. Accordingly, the company has received Show Cause
Notices from Service Tax / Central Excise Department at New Delhi and
Shillong amounting to Rs.413 crores and Rs.66 Crores respectively plus
interest and penalties. In addition, the Service Tax Authorities are
gathering information from other regional offices of the company. The
company has sought legal opinion in the matter and is in the process of
submitting its replies with the concerned authorities.

Based on the legal opinion and the fact that transmission of power is not
covered in the list of taxable services under section 65 of the Finance
Act, the company has not provided for the liability on account of Service
Tax on transmission charges.

The estimated amount of Service Tax liability of Rs. 2,041 crore (including
interest of Rs. 308 Crore) for the period from 1st May, 2006 to 31st March,
2009 is shown as contingent liability for the company as a whole. Moreover,
petition has been filed with the Central Electricity Regulatory Commission
(CERC) for reimbursement of service tax if levied by revenue authorities,
since service tax is an Indirect Tax and is a pass through item in
transmission tariff.

BUSINESS AND FINANCIAL REVIEW OF JOINT VENTURE COMPANIES:

A) PTC India Limited (PTC):

* Main Objective and Capital Structure:

The main objective of the Company includes trading of power, import/export
of power and purchase of power from identified private power projects and
sell to identified SEBs/others.

As on 31.03.2009, PTC has Authorized share capital of Rs. 750,00,00,000 and
paid-up capital of Rs. 2,27,41,90,000. The promoters i.e. POWERGRID, NTPC,
PFC Limited NHPC Ltd. individually hold 5.28% each or 21.11% collectively
of the paid-up equity and subscribed share capital of the Company and the
balance of 78.89% of the equity paid-up and subscribed share capital is
held by Power Entities, Financial Institutions, Insurance Companies,
Banking Institutions, Corporations, Investment Companies, Foreign
Institutional Investors, Private Utilities and others including general
public at large. The equity shares of the Company are listed on Bombay
Stock Exchange Limited' (BSE) and The National Stock Exchange of India
Ltd.' (NSE).

* Financial Highlights of the Company:

(Rs. in crore)
Particulars Fiscal 2009 Fiscal 2008

POWERGRID's investment in Equity 12.00 12.0
Gross Income* 6624.93 3949.02
Net Profit* 90.80 48.7
* Earning per Share** (in Rs.) 3.99 2.93

* Unaudited results for fiscal 2009.

** Face value per Share is Rs. 10/- each.

B) Powerlinks Transmission Limited (POWERLINKS):

Main Objective and Capital Structure:

The Company was incorporated to undertake the implementation of
Transmission Lines associated with Tala HEP, East North interconnector and
Northern Region Transmission System. This was POWERGRID's first public-
private partnership in Power Transmission. POWERGRID and TATA POWER are the
Joint Venture Partners in this Joint Venture Company and hold 49% and 51%
equity, respectively. As on 31.03.2009, POWERLINKS has Authorized share
capital of Rs.4,83,60,00,000/- and paid-up capital of Rs.4,68,00,00,000/-
out of which POWERGRID holds Shares of Rs. 229.32 crore and TATA POWER hold
shares of Rs.238.68 crore.

POWERLINKS successfully commissioned the project in August, 2006.
POWERLINKS has given a dividend of 10% for Fiscal 2009.

* Financial Highlights of the Company:

(Rs. in crore)
Particulars Fiscal 2009 Fiscal 2008

POWERGRID's investment in Equity 229.32 229.32
Gross Income 268.89 255.29
Profit after Tax 65.34 58.41
Earning per Share* 1.40 1.25

* Face value per Share is Rs.10/- each.

C) JAYPEE POWERGRID Limited (JPL):

* Main Objective and Capital Structure:

The main objective of the Company is to implement a transmission system to
evacuate power to be generated by 1000 MW Karcham Wangtoo Hydro Electric
Power Project in Kinnaur District in Himachal Pradesh. The power under the
system is to be evacuated from Wangtoo to Abdullapur. As on 31.03.2009, JPL
has Authorized share capital of Rs. 300 crores and paid-up capital of
Rs.125 crore divided into 12,50,00,000 equity shares of Rs.10/- each.
Jaiprakash Hydro Power Limited,Jaiprakash Power Ventures Limited and
POWERGRID individually holds 60.2%, 13.8% and 26%, respectively as on
31.03.2009. The Company has got the Transmission Licence in Oct. 2007.
Since the project is under implementation, the income statement is not
prepared.

D) Torrent POWERGRID Limited (TPL):

Main Objective and Capital Structure:

The main objective of the Company is to establish transmission system
associated with 1100MW Gas Based project being implemented by Torrent Power
Generation Ltd. (TPGL) at Akhakhol in Surat District of Gujarat. POWERGRID
and Torrent Power Transmission Private Ltd. are the joint Venture Partners
in this Company and hold 26% and 74% equity, respectively. As on 3
1.03.2009, TPL has Authorized share capital of Rs. 125 crore and paid-up
capital of Rs.60 crores. The Company has got the Transmission Licence in
May 2007. Since the project is under implementation, the income statement
is not prepared.

E) Parbati Koldam Transmission Company Limited (PKTCL):

POWERGRID entered into a joint Venture Agreement on 23rd November, 2007
with Reliance Energy Limited (REL) now Reliance Infra, for implementation
of transmission lines associated with Parbati-II (800 MW) HEP and Koldam
(800 MW) HER The Company named 'Parbati Koldam Transmission Company
Limited' existing with POWERGRID to take up implementation of Parbati and
Koldam Transmission systems through joint venture route was converted to
JVC. As on 31.03.2009, PKTL has Authorized share capital of Rs.198 crore
and paid-up capital of Rs.7.05 crores. The Company has got the Transmission
Licence in September, 2008. Since the project is under implementation, the
income statement is not prepared.

F) POWERGRID IL&FS Transmission Pvt. Limited:

POWERGRID entered into a Joint Venture Agreement in January, 2008 with IL &
FS for development of Intra state Transmission/ Sub-transmission projects
indifferent states of the Country and outside India. The joint Venture
Company is named 'POWERGRID IL&FS Transmission Private Limited' with
shareholding pattern of 50:50 basis. The company is exploring taking up of
Projects for development. The Company was incorporated on 27.11.2007.

G) Teestavalley Power Transmission Company Limited (TPTCL):

POWERGRID entered into a joint Venture Agreement on 23rd November, 2007
with Teesta Urja Limited (TUL) for implementation of transmission lines (i)
Teesta-III to Mangan pooling station 400kV D/C line; and (ii) Mangan
pooling station to New pooling station at Kishanganj 400k/V D/C line
associated with 1200 MW Teesta-III Hydro Electric Power Project. POWERGRID
holds equity of 260/and TUL holds the balance 74%. The Company has got the
Transmission Licence in Fiscal 2009. As on 31.03.2009. Teestavelly Power
Transmission Limited has Authorized and paid-up share capital of Rs.5 Lacs.
Since the project is under implementation, the income statement is not
prepared.

H) North East Transmission Company Limited (NETCL):

POWERGRID entered into a Joint Venture Agreement in February, 2009 with
ONGC Tripura Power Project Company Ltd. (OPTC) and Government of Tripura
for establishment of Transmission Line of 400kV D/C Palatana Bongaigoan
Transmission Project associated with 740 MW Palatana Gas base Power Project
in the state of Tripura. The Joint Venture Company is named North East
Transmission Company Limited'. OTPC, the generating Company is a joint
venture of ONGC Ltd., Government of Tripura and Infrastructure Leasing &
Finance Services Ltd., (IL&FS Ltd.). The grant of Transmission Licence to
the joint venture Company has been communicated by the CERC in July, 2009.

I) Byrnihat Transmission Company Limited (BTCL):

POWERGRID has one subsidiary viz. Byrnihat Transmission Company Limited
(BTCL). The Company was incorporated on 23.03.2006 to take up
implementation of Misa Byrnihat Transmission line on JV route. The said
Transmission line has been executed by POWERGRID as a consultancy work.
Presently, Byrnihat Transmission Company Limited is not doing any business.

Cautionary Statement:

Statement in the Management Discussion and Analysis and Directors' Report
describing the Company's objectives, projections and estimates, are
forward-looking statements and progressive within the meaning of applicable
laws and regulations. Actual results may vary from those expressed or
implied, depending upon economic conditions, Government Policies and other
incidental factors. Readers are cautioned not to place undue reliance on
the forward looking statements.

For and on behalf of the Board of Directors


Place: New Delhi (S.K. Chaturvedi)
Date : 29th July, 2009 Chairman & Managing Director

Annexure-III to the Directors' Report

PARTICULARS REQUIRED UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE
REPORT OF BOARD OF DIRECTORS) RULES, 1999 READ WITH SECTION 217 (1) (e) OF
THE COMPANIES ACT, 1956:

A. CONSERVATION OF ENERGY:

(a) Energy conservation measures taken and on hand:

It has been the endeavour of POWERGRID to make all out efforts for
conservation of energy in all its projects right from the planning stage,
to the execution stage and throughout the O&M period. Before finalizing the
transmission schemes, various alternatives/ technologies for power transfer
are examined and one of the major criteria for selection of transmission
system/ technology is lower losses. In fact, POWERGRID has adopted new
technologies like 765kV AC, +/-500kV HVDC, +/-800kV HVDC and +/-1200kV AC
in its transmission systems for power transfer across various regions which
result in lower losses in the system.

At design stage of the transmission system, optimization of various
parameters is done so that losses in the transmission system are optimized.
The conductors are selected after detailed optimization studies which
consider reduction of line losses as one of the primary criteria. The bus
bar materials and the clamps and connectors are chosen meeting stringent

international requirements so that losses are optimised. During evaluation
of transformer & shunt reactor packages, equipment with minimum losses is
given weightage. Further, in case of transmission hardware, the material
with lower losses is specified. Parameters and types of various other
equipments are also chosen in a manner that the losses are optimized. Thus,
energy conservation measures are taken by POWERGRID at every step so as to
develop an efficient and low-loss transmission network.

(b) Additional investment and proposals, if any, being implemented for
reduction of consumption of Energy:

As stated above, POWERGRID undertakes energy conservation measures by means
of reduction of losses in its transmission schemes right from planning to
execution stage.

B. RESEARCH AND DEVELOPMENT:

1 & 2 It has been POWERGRID's endeavour to pursue the research and
development efforts in the field of new technologies in transmission system
to remain at par with international standards. Also, realizing the need for
conservation of Right-of-Way and future requirement of development of high
capacity transmission system to meet the future power requirement,
POWERGRID is actively pursuing seamless integration of new and efficient
technologies in Indian power Grid to create environment-friendly
transmission system. POWERGRID has been according special emphasis on
adoption of new technologies available around the globe for improving the
quality of power supply, reduction of losses, optimum utilization of the
available transmission assets, conservation of environment and optimizing
upon the cost of delivered power. The company is working in collaboration
with International/National research institutions, academic institutions
and manufacturers, and is thus enhancing its in-house capabilities for
design and engineering of state-of-the-art transmission systems.

Specific Areas in which R&D has been carried out by the company and
benefits derived thereby are given below:

Completed Projects:

1. Enhancement of power transfer capacity of existing transmission lines
through implementation of series compensation on 1 no. transmission
corridors of 400kV lines.

2. Completed in-house design of 15 no. towers for transmission lines which
included 800 kV HVDC towers with Y string (1 No.) and 1200kV AC tower (1
No.) and tested successfully 8 nos of towers.

3. Completed in-house design of approx. 500 nos. tower foundations for
transmission lines upto 765kV including special foundations.

4. Indigenous development and type testing of extra high strength 320KN &
420 KN insulators for 400kV/765 kV/1200 kV AC transmission lines.

5. Performance evaluation of Polymer composite insulators which were in
service for more than 6 years in POWERGRID lines.

6. Indigenous development and type testing of extra high strength 420KN
HVDC insulators for +/-800kV HVDC transmission lines.

7. Indigenous development and type testing of Polymer long Rod 120KN &
160KN AC insulators for 400kV AC transmission lines in heavily polluted
areas (Two manufacturers).

8. Corona cage studies, Air Gap Insulation studies for 1200 kV transmission
system.

9. Interference measurements (Electric field, Magnetic field, Audible Noise
& RIV) for 765kV AC Sipat-Seoni transmission line.

10. Study of EMI effect on Co-axial and Control Cables in association with
CPRI & LRDE, Bangalore.

11. Online condition monitoring systems for transformers at Mandola
substation and Rihand HVDC station were installed to facilitate real time
data to detect faults at incipient stage and provide alarms in advance in
case of fault in the transformers. The system will also provide the dynamic
over load capacity of the transformers.

12. Uprating of short circuit current capacity of existing equipments e.g.
circuit breakers etc.; from 40 kA to 50 kA.

Ongoing projects:

1. For development of 1200kV UHVAC Super grid, 1200 kV UHVAC test station
is being established at POWERGRID substation at Bina, M.P. with joint
efforts of POWERGRID, Indian Equipment Manufacturers and CPRI. This will
facilitate the Indian Equipment Manufacturers to test their 1200 kV class
equipment being developed by them. Successful testing will lead to
indigenization of 1200 kV class equipment resulting in reduction in project
costs.

2. High Capacity, +/-800kV, 6000 MW HVDC multi terminal system for long
distance power transfer over 2000 kms. from NER/ER to NR.

3. 2500 MW, +/-500kV Balia-Bhiwadi HVDC Bipole with Lapwing conductor under
implementation.

4. Re-conductoring of existing 400kV D/c Purnea-Siliguri line with high
temperature endurance conductor to enhance the capacity of the transmission
corridor by about two times.

5. Development of in-house foundation and tower designs for use in on-going
transmission line projects.

6. Implementation of High Surge Impedance Loading (HSIL) line.

7. Line Design & Optimization studies including experimental tests for
1200kV AC transmission lines.

8. For efficient Grid management, continuous upgradation of the load
dispatch centres through technologies like Intelligent Grid comprising Wide
area monitoring, adoptive is landing, Voltage Security Assessment, Dynamic
Security Assessment.

9. Several existing Substations in different Regions are being augmented
for remote operation from nearby Substations so as to reduce the operation
cost.

10. Development of GIS in association with Indian manufacturers.

11. Residual Life Assessment testing of substation equipment at very old
POWERGRID 400kV substations at Hyderabad and Bangalore in association with
CPRI/CESI.

12. Measurement of synchro phasors for wide area monitoring and protection
of National Grid.

13. Indigenous Development of SF6 gas filled Current Transformer with BHEL.

14. Implementation of Controlled Switching schemes of circuit breakers for
400kV transmission lines.

15. Development of Optical Instrument Transformers with CPRI/ERDA.

16. Engineering Data Integration on GIS Platform.

Technology Absorption:

1. For route selection, length optimisation and estimation of BOQ for
transmission lines, POWERGRID is employing modern Survey techniques.

2. Substation Automation with IEC 61850 protocol is being adopted for all
new Substations of POWERGRID. This would result in savings in operational
cost and increased operational and maintenance efficiency.

3. As a step towards National grid, 765kV AC and +500kV HVDC technology has
been implemented in our country. Now, +/-800kV HVDC and 1200kV UHVAC
technologies are being planned for bulk power transfer across the country.

4. For maximum utilization of existing infrastructure, application of
Series compensation including TCSC has been adopted on EHV lines.

5. In special areas, compact towers like pole towers, delta configuration
towers and narrow based towers which reduce the space occupied by the tower
base, are being used. Also tall towers and multi-circuit towers are being
used for conservation of scarce right-of-way.

6. Shallow and deep resistivity measurements using magneto telluric
techniques for locating ground electrode stations for HVDC system has been
adopted.

7. Special insulators like polymer composite insulators have been adopted
in transmission lines in polluted areas.

8. High temperature conductors like INVAR have been adopted for increasing
the transfer capacity of transmission corridors.

9. GIS technology has been adopted in substations where severe space
constraints exist.

FOREIGN EXCHANGE EARNINGS AND OUTGO:

Foreign Exchange Earnings:

(Rupees in crore)

i. Interest 0.29
ii. Consultancy Fee 0.72
1.01

Foreign Exchange outgo:

(i) Capital goods and Space Parts 1127.18
(ii) Professional and Consultancy Fee 3.14
(iii) Interest 341.92
(iv) Others 19.16
1491.40

For and on behalf of the Board of Directors

Place: New Delhi (S.K. Chaturvedi)
Date : 29th July, 2009 Chairman & Managing Director