ACKNOWLEDGEMENT

I am thankful to Mr. Richard.S.V.Muthumani, DGM (finance) for giving me an

opportunity to undergo two months summer training in the Finance Department of NTPC
Limited and for providing me support in the project

PERFORMANCE BUDGET IN NTPC

I was able to learn the intricacies involved in the preparation of the budgets for the
various projects and also to have first hand experience of working for the Finance
Department of this esteemed organization.
Being assigned to the budget section of the finance department, I was supervised by Mr.
Sunil Gulati, Deputy Manager (Finance) who provided me with very valuable insights
into the working of the budget section. As I was assigned a project concerning the
budgeting of the projects, his exposure in this field and his in depth knowledge proved to
be very enriching for me. I am very thankful to him for his sparing valuable time from his
busy schedule to guide me and clear my doubts and problems. I thank him for assisting
and guiding me throughout the working of the project and provided valuable assistance in
completing the project.
I am also deeply indebted to the other officials of the finance department Mr. P.K Jha, Mr.
P.P Gandhi, Mr. Kapil Singla, Mr. V.K Gupta, Mr. R Gobi, Mr. A.K Pandey, and Mrs.
Sunita Kwatra for their kind and appreciative gestures that helped me complete my
assignment on time.
Last but not the least; I thank all our faculty members for their valuable support for this
project.

Performance Budgeting

CONTENTS
INDUSTRY OVERVIEW
COMPANY ANLYSIS
1. BACKGROUND
2. CORPORATE VISION
3. CORPORATE MISSION
4. CORPORATE OBJECTIVES
5. CORPORATE CORE VALUES
6. PROJECTS OF NTPC
7. SERVICES OF NTPC
8. GROUP COMPANIES
9. FINANCIAL PERFORMANCE
10. OPERATIONAL PERFORMANCE
11. STRATEGIES ADOPTED BY NTPC
PROJECT
1.
2.
3.
4.
5.
6.
7.
8.

CONCEPT
OBJECTIVES
SCOPE OF CAPITAL BUGETING
FORMULATION AND APPROVAL
REVIEW AND MONITORING
COMPILATION OF ANNUAL PLAN
FINANCIAL ANLYSIS OF SELECTED PROJECTS
ANNUAL PLAN ANALYSIS

Performance Budgeting

Industry overview
The Indian electricity sector has grown manifold over last 50 years and India
is the third largest producer of power in Asia today.
Initially the growth in the power sector was achieved through state
electricity board, which was constituted by the state government. About 58%
of the generation capacity and the bulk of the distribution take place through
various SEB system. The efforts of the SEBs were further supplemented by
the advent of central sector power generating companies (viz. NTPC Limited
and National Hydroelectric power corporation Limited) in the public sector.
Contribution of central sector has been growing steadily since MID 70s.
Despite the massive growth in power generation, India is still facing an acute
power shortage.
Hitherto, development of the Electricity sector has been primarily the
responsibility of the state and central government, with relatively small
contribution from the private sector. As on March 2006, Indias power
system had an installed generation capacity of 124,287 MW. During the year
2005-06 the total power generated in the country in the country was 617.38
billion. As far as the ownership of the power generating capacities are
concerned, the state government owned generating utilities accounted for
55% of the capacities, while the central government owned power utilities
accounted of approximately 32% and private players accounted for
approximately 13%. The strategies adopted in the short term to meet the
demand of electricity include acquiring capability to achieve inter regional
exchange of electricity, minimizing transmission and other distribution
losses and improving the capacity utilization of existing operating plants. In
this background, GOI has resolved to mobilize additional resources to help
bridge the gap in supply by encouraging greater participation by the private
sector in electricity generation and distribution field. To give further
encouragement to attracting investment in the power sector, the electricity
act 2003 has been enacted by Govt. in India.

Performance Budgeting

NTPC LTD
BACKGOUND
NTPC limited was incorporated on 7th November 1975 in the central sector as a thermal
power generating company, with the objective of planning, promoting and organizing an
integrated development of thermal power in the country. NTPC has since diversified its
activities and is now going for hydropower, coal mining, nuclear power, oil exploration,
wind power and other non-conventional sources of energy. Within the span of 28 years,
NTPC has emerged as a leading national power generating facilities in all the major
regions of the country.
NTPCs core business is1. Engineering, construction and operation of power generating plants
2. Provides consultancy to power utilities in India and abroad.
With a total installed capacity of 227404 MW, NTPC during the year 2006-2007
generated 188.67 Bus of electricity resulting in an increase of 10.46% over the previous
years generation. With 20.18% of total installed capacity in the country NTPC has
contributed 28.50% of all India thermal Generation. During the year 2006-2007 NTPC
coal station achieved a PLF of 89.43%.
NTPC was among the first public sector enterprises to enter into memorandum of
understanding (MOU) with the government in 1987-88. NTPC has been placed under the
EXCELLENT CATEGORY every year since the MOU system became operative. In
recognition of its excellent performance and vast potential, Government of India has
identified NTPC as one of the jewels of Public sector Navratnas- a potential global
giant.
NTPC Ltd is marching ahead from strength to strength. During the year 2005-06, its
stations performed at the highest ever plant load factor of 87.54% and generated 170.88
billion units of electricity which was 7.40% higher than the previous years generation of
159.11 billion units and accounted for almost 28% of power generated units in India.

Performance Budgeting

VISION
A WORLD CLASS INTEGRATED POWER MAJOR,
POWERING INDIAS GROWTH,
WITH INCREASING GLOBAL PRESENCE

CORE VALUES
(B-COMIT)
BUSINESS ETHICS
CUSTOMER FOCUS
ORGANISATIONAL & PROFESSIONAL PRIDE
MUTUAL RESPECT & TRUST
INNOVATION & SPEED
TOTAL QUALITY FOR EXCELLENCE

CORPORATE MISSION
DEVELOP AND PROVISE RELIABLE POWER, RELATED PRODUCTS
AND SERVICES AT COMPETITIVE PRICES, INTEGRATING MULTIPLE
ENERGY SOURCES WITH INNOVATIVE AND ECO-FRIENDLY
TECHNOLOGIES AND CONTRIBUTE TO SOCIETY

Performance Budgeting

CORPORATE OBJECTIVES
To realize the vision and mission, different key corporate objectives have been identified.
These objectives would provide the link between the defined mission and the functional
strategies:
Business portfolio growth

To further consolidate NTPCs position as the leading thermal power Generation

Company in India and establish a presence in hydropower segment.
To broad base the generation mix by evaluating conventional and nonconventional sources if energy to ensure long run competitiveness and mitigate
fuel risks.
To develop a portfolio of generation assets in international markets.
To establish a strong service brand in the domestic and international markets.

Customer focus

To foster a collaborative style of working with customers. Growing to be a

preferred brand for supply if quality power.
To expand relationship with existing customers by offering a bouquet of services
in addition to supply of power e.g., trading, energy consulting, distribution,
consulting, management practices.
To ensure the future customer portfolio through profitable diversification into
downstream businesses, inter alia retail distribution and direct supply.
To ensure rapid commercial decision making, using customer specific
information, with adequate concern for the interests of the customer.

Agile Corporation

To ensure effectiveness in business decisions and responsiveness to changes in the

business environment by:
-Adopting a portfolio approach to new business development.
-Continuous and coordinated assessment of the business environment to
identify and respond to opportunities and threats.
To develop
a
learning
organization
having
knowledge
based
competitive edge in current and future businesses.
To effectively leverage information technology to ensure speedy decision-making
across the organization.

Performance Budgeting

Performance leadership

To continuously improve on project execution time and cost in order to sustain

long run competitiveness in generation.
To operate & maintain NTPC stations at par with the best-run utilities in the world
with respect to availability, reliability, efficiency, productivity and costs.
To effectively leverage information technology to drive process efficiencies.
To aim for performance excellence in the diversification businesses.
To embed quality in all systems and processes.

Performance Budgeting

Completed projects
S.No

Name of the project

1
2
3
4
5
6
7
8

Singrauli
Korba
Ramagundam
Farakka
Vindhyanchal-I
Rihand
Talcher-I
Kahalgaon

2000
2100
2100
1600
1260
1000
1000
840

Uttar Pradesh
Chhattisgarh
Andhra Pradesh
West Bengal
Madhya Pradesh
Uttar pradesh
Orissa
Bihar

Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal

9
10
11
12
13
14
15
16

NCTPP, Dadri
Talcher (TRS)
Unchahar-I
Dadri Gas
Auriya
Jhanor-Gandhar
Kawas
Anta

840
460
420
817
652
648
645
413

Uttar pradesh
Orissa
Uttar pradesh
Uttar pradesh
Uttar pradesh
Gujarat
Gujarat
Rajasthan

Coal
Coal
Coal
Gas
Gas
Gas
Gas
Gas

17
18
19
20
21
22
23

Kayamkulam
Tanda
Vindhyanchal-II
Unchahar-II
Faridabad
Simhadri - I
Talcher-II

350
440
1000
420
430
1000
2000

Kerala
Uttar pradesh
Madhya pradesh
Uttar pradesh
Haryana
Andhra pradesh
Orissa

Naphtha
Coal
Coal
Coal
Gas
Coal
Coal

Performance Budgeting

Capacity
(MW)

Location
(State)

Primary
fuel

24

Vindhyanchal III

1000

Madhya Pradesh

Coal

25

Unchahar III

210

Uttar Pradesh

coal

ONGOING PROJECTS
S.NO

Name of projects

Kahalgaon-II,Phase-I & 1500

II

Sipat-II

1000

Sipat-I

1980

1980

Barh

1980

1980

Korba-III

500

500

500

Bhilai Power Expansion 500

(JV)
Koldam HEPP
800

Loharinag Pala HEPP

600

600

Farakka-III

500

500

10

NCTPP-II, Dadri

980

980

11

Simhadri

1000

1000

12

Tapovan Vishnugarh

520

Sub-total

11860

Performance Budgeting

Capacity By
march 2007-12
20007
500

800

500

11360

NTPC offer consultancy services related to infrastructure sector

business
1.
2.
3.
4.
5.
6.
7.
8.

Fossil fuel based thermal power generation

Combined cycle power generation
Cogeneration
Non-conventional energy
Water supply and treatment
Environment engineering and management
Surface transport (roads, bridges, and fuel transportation)
Town planning and development

An entire Gamut of services is offered, they are in various areas:

1. Owners Engineer services
2. Lenders Engineer services
3. Environment Engineering and Management
4. Procurement services
5. Project services
6. Quality assurance and Inspection services
7. Materials Management
8. Construction Management, Erection and Commissioning
9. Financial systems and modeling
10. Operation and Maintenance
11. Restoration, efficiency Improvement and Renovation and modernization
12. HRD and Training
13. Research and development
14. Information Technology
15. Management consultancy

Performance Budgeting

10

FINANCIAL PERFORMANCE
The net worth of the company at the end of fiscal year 2006 was Rs. 449,587
million an increase of Rs. 31,824 million over the previous year mainly due
to retained earnings.
The gross revenue for the year 2005-06 were Rs. 287 billion and grew by
more than 15% over the previous year. The reported profit after tax for the
year was almost the same as in the previous year at Rs. 58 billion. However,
on an adjusted basis the profits grew by almost 18%.
OPERATIONAL PERFORMANCE
With a total installed capacity of 24249 MW, NTPC during the year 2005-06
generated 170.88 Bus of electricity resulting in an increase pf 7.40% over
the previous years generation. With 19.51% of total installed capacity in the
country NTPC has contributed 27.68% of all India Thermal Generation.
STRATEGIES
While maintaining its thrust on getting maximum out of the existing
capacities NTPC is also giving utmost priority to its future. The strategy is to
increase its already substantial (nearly 20%) market share in the Indian
power sector through rapid capacity expansion. NTPC is planning to be a 51
GW company by the year 2012 and 70 GW plus company by 2017.
Currently NTPC LTD is a 26 GW company.
MULTI PRONGED GROWTH APPROACH
NTPC is adopting a multipronged strategy for capacity addition through
green fields projects, expansion of existing stations, acquitions and takeover
and joint ventures and subsidiary to accomplish its growth plans.

Performance Budgeting

11

GROUP COMPANIES
SUBSIDIARIES
Name of the company

Proportion of ownership
interest (%)

NTPC Electric supply Ltd

NTPC vidyut vyapar nigam Ltd
Pipavav power development company Ltd
NTPC Hydro Ltd
Vaishali power Generating Company LTD

100
100
100
100
51% to 74%

JOINT VENTURE
NTPC has envisaged joint venture as growth engines for future, which will help NTPC in
its foray into setting up of power plants and related areas like consulting, power trading
etc. the short descriptions of existing JVs are as follows:

PTC India Ltd (8% share)

The main objective of this JV formed by NTPC, power Grid corporation
of India ltd,.power finance ltd and NHPC includes trading of power,
import/export of power and purchase of power from identified private power
projects and sell it to SEBs/others

NTPC Tamil Nadu Energy Company LtdA 50:50 JV between Tamil Nadu Electricity board and NTPC was formed
to establish and operate a 1000 MW thermal power project in Tamil Nadu

Utility Powertech Ltd (UPL)This 50:50 JV of NTPC and of NTPC and Reliance Energy takes up
projects in construction, erection and supervision of power sector and other sector
in India and abroad.

NTPC-AISTOM power services private ltd (NASL)(50%)

This JV between Alstom power generation AG, Germany and NTPC
undertakes project renovations and modernization of under performing power
stations in India and abroad.

NTPC SAIL Power Co. Private Ltd (50% share)This JV owns and operates the captive power plants of Durgapur and
Rourkela and Bhilai steel plants of SAIL.

Performance Budgeting

12

Ratnagiri Gas and Power Private ltd(50%)Ratnagiri Gas and Power Ltd has been formed as joint venture between
NTPC, GAIL, MSEB holding company Ltd. And Indian Financial Institutions
with NTPC having a stake of 28.33% for taking over and operating erstwhile
Dabhol Power Project. The company has invested Rs. 5000 million as equity.

PERFORMANCE BUDGETING
Performance budgeting presents the budget in terms of functions programme and corelation the physical and financial aspects of the individual schemes in order to facilitate
a better understanding and fuller review of the budgetary allocations and the department
working. It provides a review of the relationship between the estimated input and
expected output acts as a tool for management and serves as an instrument for evaluation
of performance.
The success of budgeting process depends on the following essential elements:

Accurate forecasting of budgeting activities:

Forecasting future activities is a pre-requisite for the success of a budget.

Co-ordinating business activities and communicating the budgeted plans to

concerned parties:
There must be good coordination among various departments budgets. As
a part of the co-ordination, proper communication of the individual budgets must
be done. Managers responsible for the departments functioning must be well
aware of the budgeted activities.

Acceptance and cooperation:

All concerned to ensure its proper implementation and success must
accept a budget.

Reasonable flexibility:
The budget must have a certain degree of flexibility in order to adapt to
varying situations. It must be neither too rigid nor too flexible, as too much
flexibility will weaken the cost control and he budget will become inoperative.
Similarly too much rigidity in not permitting reasonable deviations will create
problems and restrictions in the implementation of the budget.

Performance Budgeting

13

OBJECTIVES OF PERFORMANCE BUDGETING

To prepare annual budget in such manner so as to facilitate managers of planning

and target across each the hierarchy the periodical exercises for identification of
physical targets in each respect of each contract or responsibility centers and
matching the resources broken up accordingly into monthly targets or programme
and cash flows.

To introduce and operate responsibility accounting by which managers are aware

and the responsible for achievement of specified targets with the resources
allocated for the purpose.

To co-ordinate all activities of the organization and gear up service deviations to

meet effectively the requirement of the projects.

To bring about cost control mechanisms whereby the cost overruns and other
contributory factors for deviations and cost escalations are contained and checked.

To bring coherence between physical progress and monetary outlay and to

inculcate the culture of planning and target setting and phasing at the grass-root
level.

To provide the basis for central plan allocation and budgetary support by GOI.

To provide a basis for assessing international assistance by international financing

bodies, for financing of capital outlays.

To assess long-term requirement of funds and plan for application of the

international resources and debt servicing.

SOURCE DOCUMENTS
The corporate plan and master network (L-1) schedules for the projects, which are
finalized in conjunction with national plan, are the key factors for formulation of the
budget and annual plan.
The L-2 network indicates the major areas constituting each work, the physical
target and monthly phasing of schedules. The first step in the preparation of budgets is
drawing up of L-2 networks or updating of L-2 networks for works within the timeframe
of the master network schedules and should be drawn up by the field managers with due
regard to firm contract schedules. The field managers are also responsible for drawing up
Performance Budgeting

14

the detailed budgets, indicting physical progress and monetary outlay, in the following
manner:

A. ONGOING/ CONTINUING SCHEMES:

- Where contracts for worked have been awarded, the provision is to be based on L-2
networks or contracts schedules, the contracts value and terms of payment with due
provision for known deviations and escalations.
- Where contracts remain to be awarded, the provision is to be calculated from project
schedules and latest available estimates of the contract value from the following
documents whichever is latest:
1.
2.
3.
4.

Project estimates as sanctioned

Tender estimates
Bids received
Evaluation report and pre-awarded negotiations.

B. NEW SCHEMES
In the case of the new schemes, yet to be approved by the Board, budget provision should
be based on project estimates in the feasibility report. Schedules and payments terms for
similar contracts for continuing schemes should also be taken in account.

Performance Budgeting

15

SCOPE OF CAPITAL BUDGETING

Performance budget in NTPC covers a wide gamut of capital outlays, they as given
below:
1.A

Approved and on-going project

It covers number of schemes incl. Green Fields for which Board has
extended the approval before the start of current five years plan (XIIth Plan)
Out of approved project, on same schemes the construction activities have been started
after the earmark of fund for them.
1.B

New but approved project

These comprise the schemes, which are approved by Board during the
course of current financial year whose construction has also been started.
1.C

New yet to approved

These include projects for which the feasibility reports are under
preparation or prepared and yet to submitted to Board for their approval. These also
include the projects for which BOD has given GO-GO sign u/Navaratna power to incur
the fund required to carry out the survey and investigation, pending the preparation of the
feasibility report.
2. Commissioned power scheme
All capital schemes for commissioned and existing power stations like
construction, raising of ash dyke, installation of additional plant and systems,
adding facilities township,, administrative office, environmental action plan
schemes, and energy conservation schemes, ash utilization, balancing equipments
etc.
3.

Other capital addition works

These include the left out works though approved in FR/ subsequent
approval stages but the execution of which may continue even after the
commissioning of the units. They may be Ash Dyke raising, Ash handling plant, EAP
or administrative building, part of township etc.

Performance Budgeting

16

4. Power stations renovations and modernizations

Schemes for renovation and modernization undertaken for NTPCs own
stations as well as stations taken over by NTPC
5. MBOA
These include the assets, which are out of mainstream core activities
power plant and most of them generally meant for the well being of employees, their
comfortable working conditions and services to the society. These include a wide
array of equipment such as office equipment, EDP equipments etc.
6. R & D budgets
Capital expenditure for establishments or construction of R&D
laboratories and facilities thereto are normally financed from the plan outlay from
S&I budget.

TYPES OF A BUDGET UNDER PERFORMANCE BUDGET IN

NTPC
a.

MBOA BUDGET

The following items are included in MBOA budget:

1. All items of furniture, office equipments, hospital equipments, misc capital assets
of the township.
2. Employees advances (net)
The MBOA budget also includes the provision for advance to employee. The details of
employee advances budget and number of employees is to be given under actual and
proposed RE and BE should be arrived after adjusting for recoveries proposed to be made
i.e., the net outflow of the funds should actually be taken in the proposed RE and BE.
Heads of department of Medical and EDP in corporate are requested to ensure approval
of the site proposal in a time abound manner so that sites MBOA proposal will get
approved as per schedule given above.
It may be mentioned that in view of restrictions being imposed by CERC for return on the
expenditure incurred under MBOA in the form if inclusion in tariff, all items of MBOA
should be reviewed in detail at station and regional office before forwarding the same to
corporate office. An MBOA budget proposal so sent by the station with all details as
prescribed to ED of the region will be reviewed him. After that, the same will forwarded
to the D(F), before availing the approval to the CMD.

Performance Budgeting

17

b.

OTHER CAPITAL ADDITION WORKS

The policy and procedures proposed for consideration, processing and approval of
OCAW proposals is as follows:
DEFINITION:
The work under the above head shall include:
I. Works not covered in approved FR/RCE but arising due to policy decisions and
site-specific requirements.
II. Left out works though approved as FR/ subsequent approval stages such as
administrative building, part of township works etc. execution of which may
continue after commissioning if units.
III. EAP and other related packages.
This is in addition to the packages budget to be submitted by those
projects in the prescribed formats. Adequate care must be taken that no new items
are included in the budget proposal except for:
i.
ii.
iii.
iv.
v.
vi.

New ash dyke & raising of ash dyke.

Payment of liabilities for remaining works.
Provision for EAP schemes.
Capital addition
Ash utilization
Energy conservation

The provision in the budget proposal for items except (i & ii) should made only
after technical/administrative approval of the items. And the status of remarks column if
the proposal wherever proposals are not approved at the time of preparation of budget
proposals but are likely to be approved in due course. Copies of the competent should be
enclosed.
The expenditure on other capital addition works should be incurred within one
years of the start of commercial operation of the last unit, to get back those costs in the
form of tariff. Accordingly, after the commercial start of the project, shall have to be
completed within the stipulated time period of One year. However, for expenditure
related to construction of ash dyke works, a separate proposal is under approval.

c.

R&M BUDGET
R&M scheme comprises of various works of renovation and
modernization, up gradation of the plant/equipment in main plants and auxiliaries
that have been rendered obsolete, unusable or are not as productive is as to sustain
the expected production level. Additions to update those systems in which rate if
obsolescence is fast, shall also be covered under R&M schemes.

Performance Budgeting

18

i.
ii.
iii.
iv.
v.
vi.

Implementation of R&M schemes should result in any one or more of the

followings:
Achievement of the targeted availability of units/stations.
Sustenance and improvements in generation.
Saving the plant/equipment from obsolescence.
Increased plant efficiency of land capacity up gradation if possible.
Improvement in operational flexibility.
Life extension of the equipment or plant.

These covers most of the power plants which are of more than 10 years old and have
clocked 70000 operating hours, needs to be renovated and modernized so as to set aside
the obsolescence and achieve more efficiency and life of the plant.
Schemes covered under this, should also be included in the capital budgets both in the
annual plan as well as in the long term capital budget and they should be submitted to the
board for their approval to the outlay as a part of annual plan.

d.

R&D EXPENDITURE BUDGET

i.
ii.
iii.

R&D capital expenditure may be of the following nature:

Procurement of equipment/ laboratory instrument.
Purchase/construction of land/building.
Procurement of furniture, fixtures and other office equipments for R&D wing

e. LONG TERM CAPITAL BUDGET

Long-term budget foundation lies with the approved project schedule by
govt. of India. Long-term capital budget should be prepared with annual phasing in
form No. IV by planning and systems as far as On-going projects are concerned.
In case of new projects, phasing should be done in form No. IV in
concurrence with the phasing in feasibility report by the cost cell in the system
engineering. The annual phasing for the budget period should correspond with RE
and BE and projections for remaining years should be done keeping in view the
project schedule and payment terms stipulated in con tracts.
Corporate budget should fill in forms indicating scheme wise requirements
of fund and net internal generation or additional resources requirement of budgetary
support based on data from O&M budget. The above exercise is done in the month of
October every year at the time of compilation of annual plan.

Performance Budgeting

19

BUDGET PERIOD AND QUARTERLY/MONTHLY PHASING

OF BE AND RE
The budget period for annual budgets corresponds with the financial year. In the
month of September/October every year, the budget is to be drawn up/compiled for the
ensuing financial year in the form of budget estimates. At the same, the budget estimates
earlier framed for the current year are reviewed thoroughly and updated in the form of
revised estimates.
In addition, budget is to be reviewed on monthly and quarterly basis by PERTs in
the light of actual expenditure and projections in the budget period. Budget estimates also
indicate monthly phasing of expenditure and targets for the first half of the year and
quarterly phasing for the second half of the year. At the time of review of BE to frame
RE, the funds requirement for the balance period is broken up into monthly phasing.
While drawing up the annual budget in October every year, long-term capital
budget for ongoing and new schemes is to be formulated as part of the exercises for the
preparation of annual plan. The long-term capital budgets indicates annual phasing of
capital expenditure and physical schedules, resources based network, internal generation
and physical schedules, support required till the completion of each project.

UNITS OF MEASUREMENT
BUDGET PHYSICAL PROGRESS MEASUREMENT
ITEMS PARTICULARS
UNITS OF MEASUREMENT
Mechanical Items
-TG
-SG
-ESP
------ON TONNAGE BASIS------CHP
-Ash handling plant
CIVIL WORKS
-Brick works
-RCC
-Plastering
-Site leveling
-Foundation
-Painting
-Door/window
-Finishing work

Performance Budgeting

-Cum
-Cum
-Sq. Mt
-Cum
-Cum
-Sq. Mt
-Lump sum contract
-% Of completion

20

MAIN HEADS OF PERFORMANCE BUDGET

Plan schemes of Govt of India
- Direct capital outlay
- Commissioning expenses
- Construction materials
- Technical consultancy
- Training and recruitment cost
- IEDC
Employee cost
Other establishments
- MBOA
- Interest during construction
- Working capital margin

1. DIRECT CAPITAL OUTLAY

It represents all cost directly identifiable with capital works and incl. the
following:
-

Cost of land
Infrastructure facilities
Civil/mechanical/electrical works
Township
MGR and constructional facilities.

2. COMMISSIONING EXPENSES
All direct expenses for running of individual units up to the date of
commercial operation since the date of synchronization of units incl. Fuel cost, start
up power, chemical and lubricants, consumption and anticipated sale of energy during
the trial run are to be indicated.
3. CONSTRUCTION MATERIALS
Provision to be made for accretion/decretion of stock, construction
materials such as structural steel,, reinforcement cement and other materials.
Performance Budgeting

21

Escalation in respect of construction material is to be indicated in the

DCO.
Consumption of materials cost be valued at budgeted cost for calculating
accretion/ decretion of consumption stores.

4. TECHNICAL CONSULTANCY
Payment t technical identifiable with systems such as MGR, coal handling,
C&I, prime consultants, retainer consultant are to be incl.under this head.
5. TRAINING AND RECRUITEMENT COST
Expenses for training of executive and non-executive and trainees incl.
Stipends, faculty fees, course materials, TA for trainees rent for training hall and
expenses on management development courses.
6. IEDC (incidental expenditure during construction)
-Employees cost: c.7.1
These comprise of salaries, DA incentives, wages, allowances,
contribution to Pf and other welfare and expense such as LTC, medical
reimbursement, canteen subsidy etc. the provision for arrears of salary should be
shown separately.
-Other establishment expenses: c.8
Expenses incidental to construction and capital works not traceable
directly to any capital activity are chargeable to incidental expenses during
construction, RM for building, construction equipment, vehicle running expenses,
office rent, LC charges, cost of drawing, traveling expenses, printing & stationary,
communication expenses, advertisement for tenders are major items falling in
this category.
All miscellaneous expenses remaining are to be shown under this head
7. MBOA (Misc. Bought Put Assets)
It covers expenses on vehicles, furniture and fixtures, office/ other
equipment, hospital and other medical equipment, cable T.V. equipment, canteen eqpt,
township eqpt, fire fighting eqpt, EDP-PC/printer/LAN, communication eqpt, safety
eqpt, substation eqpt, DG set, conference hall and project system.

Performance Budgeting

22

8. Borrowings Cost
Interest on loans and bonds, upfront fee, agency commission, guarantee
commission, commitment charges and any other charges and expenses payable
towards raising of loans which are accrued and to be capitalized during the
construction period has to be estimated and included in this budget.
9. WORKING CAPITAL MARGIN: C.11
Increase in working capital forms the base for calculating working capital
margin component.
10. CAPITAL EXPENDTURE NOT REPRESENTED BY ASSETS:
It includes of construction of approach roads, canal lining, property
belonging to the local community/ SEBs. These items should icl. U/ this budget heads
in DCO and these should also be presented separately in the format for capital
expenses not represented by assets.
The budget proposal for these be supported by specific approval from
competent authority and write-up giving detailed justification.

BUDGET FORMATS
Standard budget formats are systematic preparation of budget and its
meaningful analysis. It brings correlation between budgets prepared by different projects/
entities making its final consolidation a lot easier. Without the standard formats,
uniformity in the presentation of the budget cannot be ensured and thereby causing
distortions in consolidations of budgets at CC level. They are in different series:

S.NO

FORMATS
SERIES

DESCRIPTION OF FORMATS MEANT FOR:

A-series

Budget summary of approved/new schemes & its financing

pattern.

2
3

B-series
C-series

Physical progress of main equipment and project milestone.

Yearly targets and cost estimates-system wise, budget head wise
and package wise.

4
5

D-series
E-series

Monthly phasing of revised estimates(RE).

Monthly and quarterly phasing of budget estimates (BE) targets

Performance Budgeting

23

F-series

Reconciliation of actual CAPEX with balance sheet.

S.NO FORMAT NO.

DESCRIPTION

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

PROJECT BUDGET SUMMARY

MILESTONE CHART
PHYSICAL PROGRESS
STAGE BUDGET SUMMARY
SYSTEM WISE SUMMARY
DCO-BUDGET HEAD SUMMARY
PACKAGE SUMMARY SHEET-CIVIL WORKS
PACKAGE SUMMARY SHEET-MECH AND ELEC
PRE-COMMISSIONING EXPENSES
CONSTRUCTION MATERIALS
CONSTRUCTION MATERIALBUDGET HEAD WISE
TECHNICAL CONSULTANCY
TRAINING AND RECRUITEMENT
IEDC-EMPLOYEE COST
MANPOWER BUDGET
IEDC-OTHER ESTT COST
MBOA
WCM
MONTHLY PHASING RE
MONTHLY PHASING RE

A-2
B-1
B-4
C-1.1
C-1.2
C-2.1
C-2.2
C-2.3
C-3
C-4.1
C-4.2
C-5
C-6
C-7.1
C-7.2
C-8
C-9
C-11
D-2
E-2

The above budget formats are most commonly used forms and are generally used by the
almost every project/budget center without default.
RESPONSIBILITY CENTRES
The responsibility for utilization of budgets of respective rest with the head of
divisions/ budget centers. In case of generation project budgets- even though contracts
and expediting in the task force and corporate contracts are responsible for supply of
equipment, GMs of the project and ED of the region are equally responsible for the
utilization pf their respect budgets. However, for monitoring purposes, responsibility is to
be identifies for anticipated payments relating corporate center, task force and site
separately.
In performance budget of various New and approved/ongoing/completed
schemes, for each CAPEX the outlay, the allocation is done between the CC/projects
based on payments made by contract awarding authorities.

Performance Budgeting

24

FORMULATION AND APPROVAL OF CAPEX BUDGET

BUDGET COMMITTEE
The CAPEX budget of any project/ budget center runs through a series of
meticulous analysis and consideration by different department before its finalization, of
which the budget committee is the Apex decision-making authority. The budget
committee of the project and corporate consist of various experts of different department
who are responsible as per DOP of NTPC to finalize and adopt the budget proposals.
Through this a transparency is bought in the budget making exercise.
PROJECT BUDGET COMMITTEE
The project budget committee consisting of finalizes budget proposals of the
generation projects:
GM (project)
Manager (P&S)
CEM
CMM
CCM
CFM/DGM
In charge budget

chairman
member
member
member
member
member
secretary

Budget proposals of regional divisions are finalized by the chief (F&A) of the region in
consultation with HODs.
CORPORATE BUDGET COMMITTEE
After finalization of budget proposals of generation projects and subsequently
discussed in full strength by the ED of the Region, the same shall be sent to corporate
divisions corporate contracts who will in turn will forward the same to after their
remarks to corporate budget committee by latest 15th August of each year for final
approval.
Budget proposals of regional divisions are finalized by the chief (F&A) of the
region in consultation with HODs.

Performance Budgeting

25

BUDGET CIRCULARS
Corporate budget issues budget circulars indicating the compliance aspects of
methodology of preparation, formulation and approval of budget. The budget circulars
are issued in line with the notification issued by the planning commission in
consultation with the department of expenditure and department of programme
implementation. So in a way they are the month of management as well as government of
India.
The budget circulars issued in month of May each year indicating an array of
compliance aspects to be adhered by the budget centers/ project. Some of such list is
given below:
-

The time limit of submission of RE of the current year and BE

for the next year and a mandating for strict adherences to budget
formats.
Reporting of shortfall and surplus in budget provisions.
Reporting of spill over/ variation/ actual expenditures
Reconciliation aspects.
Any revised budget formats.
Budget time schedules for completing the major activity.
Guidelines for overall budget formulation, etc.

APPROACH TO TARGET SETTINGS

BASIS OF ESTIMATION
FORMULATION AND APPROVAL OF CAPEX BUDGET
One of the objectives of this system is to involve managers at various levels in the
process of developing performance budget to introduce the concept of responsibility
accounting and participative management. Accordingly, the grass root approach has been
adopted for formulation of performance CAPEX budget.
The scheme for formulation of budget by responsibility center for project budget
is illustrated in the flow chart no.1 and for establishment expenses budget in flow chart
no. 2. the time table for submission of budget data/ final budget proposal for each
responsibility center/ department, formats to be adopted and flow of data are illustrated in
annexure-IV. The salient features of the budget exercise are as under:

Performance Budgeting

26

INITIAL EXERCISE
1. Site finance of all the projects will furnish budget head wise actual expenditure up
to the end of previous year reconciled with the balance sheet in format No. F-6
and actual expenditure up to the end of June of the current year in Format No. F-1
to the concerned agencies responsible for formulation of budgets.
2. This being the starting point for formulation of budget, site finance of all projects
office, regional finance and the corporate budget should ensure that above
information reaches concerned agencies by 15th July.
3. DGM (CS), corporate center and CTFs will furnish data regarding initial/
mobilization advances, equipment supply and other payment against A
contracts and payments against technical consultancy format No. C-2 & 5, D-2&
5 and E-2& 5 to regional finance and account by 10 th August. Regional finance
and accounts in consolidation with regional P&S will review and consolidate the
above information and forward the same to GMs of the projects by 15th August.
4. The training and recruitment budgets are to be drawn by HR and Admin.
Departments.
5. Head of Department are responsible for control and co-ordination of Capex
budget of contact coordinators within the department and also for preparation of
budget establishments expenses within their control.
6. All department budgets should be forwarded to budget coordinators identifies by
GMs/ HODs for each division by 15th August- mostly the finance and accounts
acts as budget coordinator.
7. The budget coordinator of each division should prepare the total divisional budget
and forward the same with the approval of GM/ HOD to the secretary of the
concerned budget committee- project budget in case of project, regional finance in
the case of regional HQ and corporate budget in the cases of corporate divisions.
BUDGET MEETING
After receipt of approved project budgets by the corporate budget, the same is
scrutinized to check every possibility of its veracity. After the same, the budget
meeting is organized with the participation of project budget representatives,
corporate monitoring group and corporate planning department. Corporate budget
group supervises the budget meeting and the head of corporate budget is secretary
of the meeting.

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27

In the meeting every outlay proposal is discussed in its length and breadth. How
much BE is to kept for the Next ear and RE estimation and physical progress etc,
are discussed to sort out the proposed outlay wherever possible. The business of
this meeting is recorded on the minute book and signed by all the members of
meeting. The outcome of the meeting is finally incorporated in the BE/RE
provision.
ANNUAL EXPENDITURE REPORT
In addition to the monthly expenditure report furnished by finance to concerned
agencies, cumulative expenditure up to 31st March of every year based on audited
balance sheet also needs to be compiled for all divisions/ projects for which the
budgets are formulated.
In case the audited balance sheet is not available the information may be compiled
based on the provisional balance sheet. In such cases, changes, if any should be
communicated subsequently based on audited balance sheet. The budgets head
given in Annexure-I for DCO. And for other expenditure, the report is to be
prepared for each of the items mentioned in respective budgets. F&A department
at project/ regional/ CC will prepare the report.
This report so compiled will be sent to the followings:
General manager (project)
All HODs at project
Regional finance
Regional P&S department CTF
Corporate contracts
Cost Engg. Cell in CC
For regional establishments expenses, the report will be compiled by regional
finance and forwarded to all divisional heads in the region and corporate budgets.
Similarly, in case of CC expenses, the actual expenditure report will be compiled
by corporate accounts and forwarded the same to all divisional/ project head in
addition to corporate budget.
Since the actual expenditure up to the end of previous year is the starting point for
formulation of revised estimates and budget estimates, it must be ensured that this
report (i.e. actual expenditure) reaches the concerned departments latest by 15 th
July in form No. F-6

REVIEW AND
BUDGETS
Performance Budgeting

MONITORING

OF

PERFORMANCE

28

For success of any task, the role of review and monitoring is quite vital.
The same can be equally being applied to the performance budget of NTPC.
NTPC has evolved a comprehensive model to review the performance if project
budget. The budget is reviewed inline with its BE outlay and RE as compared to
the actual expenditure on quarterly and monthly basis.
A.

MONTHLY AND QUARTERLY REVIEW OF CAPITAL BUDGET

a.

Monthly review of project budgets

Project budget report the actual expenditure against budgets heads on form No. F1.1 to 1.4 every month to the following:
I. In case of Generation of project
- GM (project)
- Project planning and systems
- Regional finance
- CTF
- Corporate budget
- Corporate contracts
The respective project review teams examine the monthly budget review. The
reasons for major variations (in case of each budget head exceeding 10% of
BE/RE or Rs. 10 lacs, which ever is lower) are analyzed indicating the
responsibility for corporate center, task force and site and recorded in the minutes
of respective review team meeting. The scheme for monthly review of projects
budgets is given in flow chart No.3.
In addition to the budget review, the project finance also furnish actual
purchase of construction materials vi., steel, cement and other stores in form No.
F-1.9 as compared to the budget for year. The status of purchase as well as
outstanding advances against procurement of materials will also be reviewed as
part of the monthly review of project budget in respective PRT meetings.
The procedures for monthly review is illustrated in flow-chart No. III.
B.

QUARTERLY REVIEW OF PROJECT BUDGETS:

The budget should a be reviewed quarterly with a view to projecting

anticipated expenditure during the year against approved BE/RE. As time is
essence of such review. Only a quick estimate of anticipated expenditure for
individual projects heads involving provisions exceeding Rs. 50 lacs in each case
should be made. For this purpose the contract coordinators in the task force and
project level will estimate anticipated expenditure up to end of the previous
Performance Budgeting

29

quarter reported by the project budget, based on the information furnished by

concerned contract coordinators, project budget will compile predicted budget
utilization in form No. F-2.2. This report should be sent by 20 th of April, July, and
January.
The predicted budget utilization should also be discussed in the respective
PRT meetings and final assessment indicating broad reasons for variations since
the previous review should be recorded in the minutes. The method for quarterly
review of project budget is indicated in flow chart No. 4 and establishments
budget in flow chart No.5.

JOINT VENTURE AND BUDGET PROVISION FOR JV

Till the date NTPC has successfully entered with many companies in both private
sector and government sectors, to bring synergy in many areas such as business of
construction, erection and supervision of power projects, business of R & M works, for
managing the captive power plants.
As such till date we have yet to finalize areas where NTPC can JV to bring
synergy in its deficient areas such distribution, transmission, bulk consumers, fuel
suppliers. In the absence, a clear-cur guidelines for JV modalities and objectives we may
not realize the true gain of JV synergy.
Now Capex funding for JV projects are well guided by the JVs agreement
criteria. Each area where NTPC has to invest is clearly demarcated in JV agreement and
accordingly the same where are properly shared and NTPCs share is accordingly
identified and funded through annual budget outlay. Such funds are slowing from the
internal resources o9f the company.

Performance Budgeting

30

Annual budget provision for the JV follows the following steps:

1. First, the JV Company as distinct entity identifies the areas where the
constructional activities are required.
2. Secondly, reporting such expenditure to parent companies.
3. Thirdly, the parent companies assess the veracity of such requirement, check the
justification of such expenditure, and need to incur them.
4. Fourthly, the conditionality(s) of JV is corroborated to with the actual requirement
to find out how such requirement can be met.
5. Then proper sharing formula put into to find out NTPCs share and accordingly
the same is funded through annual budget provision.
OVERVIEW OF ANNUAL PLAN OF NTPC
The Ministry of power to the planning commission every year along with its own
recommendation and that of CEA submit the annual plan of the central projects for the
sector. In light of these recommendations, the planning commission conducts a detailed
examination of proposals of respective projects and thereby allocates funds for the
ensuing financial year.
Annual plan compiled by the corporate budget is put in IEBR statement that is
submitted to planning commission government of India every year.
In accordance with the guidelines issued by planning commission, the annual plan
for ensuing year is to be prepared in the prescribed formats and submitted by 15 th October
every year. Sets of specimen forms are provided for this purpose. The programme for
compilation pf annual plan is given below. The programme also indicates the departments
responsible for compilation of annual as well as target dates for submission of the
relevant information to corporate budgets who will consolidate the same and forward it to
various Govt. agencies.
The annual plan of the company is divided into four volume are given below:
Volume I
overall proposals of annual plan NTPC as whole
Volume II
consolidated budget proposals project/sch wise
Volume III
physical progress tracking data of project activity
Volume IV
financial outlay in VII and VIII plan

Volume I
Performance Budgeting

31

A. CONSTRUCTION ACTIVITITIES
It contains the overall proposal of financial outlay for NTPC as whole. The overall
proposal covers the followings:
1. Brief write up about NTPC.
2. Power programme- outlay and expenditure and expenditure (form-PR I)
PR-I contains the followings:
- Annexure I commissioning schedule of generation projects
- Annexure II IXth plan programme outlay summary
-Annexure III -- state wise central sector outlay
3. Phasing of benefits from the Generation projects in terms of MW PTII
4. External assistance for aided projects PR IX
It provides the external assistance component and its magnitude in the
form of external assistance route through budget, flow of ECBs-indicating
its deployment for various projects and the ECBs stage of funding
committed or uncommitted. Details given in the statement PR IX gives
the detail of an agreement organization name, amount of aid, credit no,
terminal date of assistance etc.
5. Financing of the projects- central sector plan expenditure PR X
- Through internal resources (retained earning plus dep)
- Loan from Govt. of India.
- Domestic borrowing in the form of loans from Fis and Bond
- External commercial borrowing
- Syndicated loan ECA and Euro bonds
- Budgetary support from Govt. of India

B. FINANCIAL AND INTERNAL RESOURCES DATA

-

Estimation of internal and external budgetary resources IEBR for annual

plan- IEBR statement- II
IEBR statement projects the funding capability of the company taking into account the
retained surplus of the company, net inflow of loans/ IAC, budgetary support from
Government for plan schemes.
-

IR financing of plan outlay (Annexure-II)

it basically, gives the financial statistics of last 5 years indicating the movement of Gross
Internal resources Generation, accretion to working capital, net internal resources and
extra budgetary support for all those five financial years. The purpose of this statement is
Performance Budgeting

32

to calculate the proposed budgetary support to fill up the gap found in the above
resources to go ahead with the construction activities.
-

Contribution of NTPC- profoma I

in this Performa, the details regarding receipts and expenditure and revenue and capital
account.
-

Cost of Generation projects- Proforma II

it shows actual expenditures, BE, RE, BE(next year) for installed capacity (MW terms),
energy generation (MU), PLF, expenditure on employee and the cost of Generation.
Details of energy sales/ revenue in Proforma III, indicating the category of
users/ customers in actual, BE, RE, BE (NY) budget estimates.
-

Rate of return Proforma IV

it is a statement showing the rate of return on net fixed assets employed at the beginning
of the year as required under the latest section 59 if electricity (supply) Act 1948.
-

Revenue arrears- Proforma V

It shows the SEB wise revenue arrears-O/S including its surcharge for the late payments.
C. PHYSICAL ASPECTS
Under this the physical progress of various construction activities is shown
indicating the major Milestone achieved and also the time schedule of construction
activities to undertake in the future.
VOLUME II
In the volume II the BE estimates of the current year along with its corresponding RE
figure and the actual expenditure for each project wise-whether it is on-going schemes or
R & M or new project or other capital Misc. schemes.
VOLUME III
It is specifically meant for the physical schedule of different construction activities and
other project activities. It details up the activities in month wise manner. The information
given under this volume is quite helpful to now the status quo of different activities very

Performance Budgeting

33

minutely. It is as per scheduling of Master Network diagram along with its comparison
with actual position.
VOLUME IV
This volume shows the budget outlay for the completed schemes, which were completed
in seventh and eighth plan period but on which still some expenditure, are incurred as
capital outlay.

ANNUAL BUDGET OF GOVT. OF INDIA

The Indian constitution requires the govt to present the parliament a statement that shows
separately the expected revenues and expenditure, both current and capital by heads of
account.
Budget making motion start by third quarter.
On the expenditure side initial estimates are provided various ministries. There are two
component of expenditure-plan and non-plan expenditure. Each ministry concerned
submits their finance ministry who in turn refer to the high level authority- the planning
commission.
The consolidated budget of NTPC is summarized in the form of annual plan is submitted
to power Ministry for its approval. The government support for each year to the power
sector is provisioned in the annual budget for all central sectors PSU and state Govt.
control utilities in the form of grants. The Govt. therein allocates the resources either in
the form of planned and non-planned expenditure to each ministry after proper
justification of asked capital expenditure.46 p
CONSOLIDATION OF PROJECT BUDGETS
In accordance with the guidelines issued by planning commission, the annual plan for
October 15 every year. A set of specimen forms is provided for this purpose. The
programme for compilation of annual plan is given below. The programme also indicates
the departments responsible for compilation of annual as well as targets dates for
submission of the relevant information to corporate budgets who will consolidate the
same and forward it to various Govt.agencies.
Formats

Description

Responsibility

Annexure I

Physical achievements

Corporate planning

Annexure II

Corporate budget

Corporate budget

Performance Budgeting

34

Annexure III

Financial outlays

Corporate budget

Annexure IV

Scheme-wise outlays

Corporate budget

Annexure VI
Annexure VI

Employment directly generated or Corp. personnel and admin.

expected
S&T component
R&D /CC

Form PR-I

Outlays and expenditure abstracts

Form PR-II

Phasing
of
benefits
generation projects
Master Control Network

Corporate budget

from Corporate planning

monitoring
Form PR-III
Corporate planning
monitoring
Form PR-IV
Bar/ Mile stone chart (complete Regional P&S
details)
Form PR-XII
Investigation and surveys of New Corporate budget
project sites
Form PR-XIII
Manpower
planning
and Corporate P&A
requirement
Annexure VIII and 20 points programme
Regional finance
IX

and
and

The following points may be kept in view while filling in data for annual plan:
1
The programme and targets are to be based on completion dates indicated by the
Govt. Of India in the administrative sanction for on-going projects and target dates
indicated in the feasibility reports for new schemes. The network, the resources based
network and the approved project schedules or schedule indicated in the feasibility
reports. Unit-wise data of physical targets and milestones are to be furnished in the case
of boiler and turbo-generator both in the master network and resources based network.
2
The annual plan proposal is to be based on the budget estimates, which are
finalized during the last week of September. As soon as the budgets are finalized, regional
finance will provide copies of budgets as approved by corporate budget committee to
regional planning and systems to enable the later to complete the fund requirement and
activity chart for the remaining period of the project in statement PR-IV.
3.
The master control network is to be prepared by corporate planning and
monitoring department and forward the same to regional finance, regional P&S and
corporate budgets. The master control; network is to be prepared for each of the units for
generation projects.
4.
In the forms PR-IV and PR-V, the current estimates to be indicated for the project
will be as per performance budget (form No. C-2.1). in cases where this information is
Performance Budgeting

35

not, available (new approved scheme) estimates form the latest available feasibility
report/ detailed report/ revised cost estimates should be adopted which will be forwarded
by cost engineering cell in the corporate center to regional finance. The information
should also include reasons for variations between the current estimates as adopted in the
annual plan and latest approved cost estimates under the following heads.
a. Domestic price inflation
b. Inflation for the items imported
c. Exchange rate variation of supply of capital goods
d. ERV of the loan from international agencies
e. Change in the scope of work
f. Other reasons
5. The work head to be indicated in the PERT networks, resources based network
and cost estimates should coincide with the budget heads so that a comparison could
be effected between the project outlay, actual expenditure, budget provision and
phasing of funds against each work head. This requirement may be considered very
important as the planning commission every year is insisting this upon.

METHODOLOGY

This project has been prepared to with limited access to records and related documents
relating to the performance Budget of NTPC. The contents of this report are fully pf
academic pursuits. With limited access to Annual plan, project budget proposal and

Performance Budgeting

36

budget Manual of NTPC. Certain financial analysis has been done which should not be
construed as nay-authentic fact.
The budget annual has been referred in most of the cases. The annual report of 20062007 has been taken into consideration. Certain soft copy of budget database has been
somewhere in this project report with the prior permission of concerned authority.

Performance Budgeting

37