Abhinay Project Report

Summer Internship Program
(SIP)
Project Report
On
Financial Statement Analysis

&
Procurement Management
At
National Thermal Power Corporation
By:
Abhinay Seth
Project Report
On
Financial statement analysis
Apeejay Institute of Technology School of Management Page 1

&
At
A report submitted in partial fulfillment of the

requirement of
PGDM program of
Apeejay Institute Of Technology
Prepared under the Guidance of
FACULTY GUIDE:
Prof. Amar k.Saxena
(Finance Faculty)
COMPANY GUIDE:
Dinesh Bahuguna
(DGM Finance)
By:
Abhinay Seth
TABLE OF CONTENTS
Sr.No. CONTENT PAGE NO.

1 ABSTRACT 1
2 INTRODUCTION 3
3 SCENARIO OF POWER SECTOR 5
4 BACKGROUND OF NTPC 8
5 PROCUREMENT MANAGEMENT 20
6 GENERAL CLAUSES 42
66
7 ILLUSTRATING ON TENDERING
8 FINANCIAL STATEMENT 84
ANALYSIS
9 FINANCIAL POSITION 112
10 SWOT ANALYSIS 114
11 CONCLUSION 117
12 RECOMMENDATION 119
13 REFERENCE 121
Abstract
The report entitled “Financial Statement Analysis & Procurement Management at

National Thermal Power Corporation” is about the purchase practices followed at
NTPC for every equipment and financial statement analysis will provide the

knowledge about current financial status of the company and its comparison with
the other player in the same sector will enable to know which one is performing
better. Procurement management activities are followed during all procurement
by NTPC.
Procurement Management at NTPC starts with Indenting by the department that

requires the material and goes to the cost department and finance department for
required approval. In between various activities like Liquidated Damages
calculation, Spare Parts procurement terms, Guarantee in Liability Defect period
etc are undertaken. Once all the terms and conditions are formulated and
approved, the tender document preparation starts. The tender documents are
issued to the prospective bidder for a cost that starts from Rs 200 to Rs 3000.
The content of the tender document is prepared in such a manner that the
prospective bidder comes to know about all the important details about the
contract. The issuance of tender document is followed by the receipt of Bids from
various vendors in the specified format. Once all the bids are received, they are
opened in presence of some nominated officials from Finance, Contracts and
Materials department. The representatives from the bidders may also be present.
Then a comparative statement of the quoted bids is prepared and the contract is
awarded to the lowest quoting bidder.
During the document preparation phase, payments terms are also decided and
documented in the General Condition of Contract, which is issued to the bidder
with the tender documents. Apart from payments, there are various other issues
like Arbitration, which are dealt in the tender documents. Liquidated Damages is
one of the very important clauses. Liquidated damage is a payment to be made
by the contractor in case he fails to complete the project in the stipulated time. In
case of equipment, it is related to the performance of the equipment. The
purchase is followed by the evaluation, which is done for two things, the vendor’s
performance and the purchase performance. The Vendor evaluation comes in
handy for placing future orders where as the Purchase Performance evaluation
provides detailed insight into the procedures being followed to procure the
required material.
Financial statement analysis is yet another one of the important part of the project
where in various crucial ratios which help to analyze the financial position of the

company are being calculated which provide inside into the growth prospects of
the company. The tool used for financial statement analysis is Ratio Analysis and
cash flow analysis. Ratio Analysis is the process of determining and presenting
the relationship of items or group of items in the financial statement. It has
emerged as a principle technique for the analysis of the financial statements of
the companies.
These ratios are being calculated with the help of the 2 most important financial
statements of the company i.e. profit and loss account and balance sheet. These
are important not only for the working of the company but they are even important
for the outsiders of the company like creditors, investors etc. and further its
comparison with other power sector players Reliance Energy and Tata power will
help to analyze the better position of the company in comparison to others or in
case of any loop holes the company can perform better in future.
Cash flow analysis is statement which shows the cash requirement of the
company or the way through which company can meet its day to day obligations.
It is one of the most important components as it shows day to day requirement of
the company.
The project also includes over all study of the power sector which will help in
knowing the company in much better sense and its position in power sector.
Introduction
The electricity services in India were generally provided by the State Electricity
Boards, as it was believed that being under the control of the State governments,
they could protect the consumer interests against exploitation. Over a period of
time, it however, came to be realized that because of their monolithic nature, the

State Electricity Boards suffered from operational inefficiencies on account of
which they had incurred heavy losses. The services rendered by them were also
of poor quality. These factors forced the governments to think in terms of
commercialization of the services so that the additional investments necessary for
infrastructure development become available through private sector involvement
and the services rendered become globally competitive.
Central Government issued a policy resolution dated 22-10-1991 on

private sector participation in power sector. It was followed by necessary changes
in the legal framework. Despite the policy of liberalization, the entry of new
players continued to be regulated by the government who remained the final
arbiter in all matters, including tariff fixation. It became necessary, therefore, to
provide a level playing field to new players and to provide for competition. It was
decided to encourage private sector participation in the generation, transmission
and distribution since future expansion could not be achieved through public
resources alone. Thus, the phenomenon of private sector involvement in power
sector is a relatively modern reaction to the revealed concerns and issues
associated with complete reliance on the public sector provision of infrastructure.
It should also be decided to set up independent Central and State Regulatory
Commissions.
Promotion of competition, efficiency and economy in electricity industry can be

conveniently achieved through the process of competitive bidding. The Central
Government issued detailed guidelines for competitive bidding of power projects
in January 1995 whereby the competitive procurement of power sector projects
was made mandatory. These guidelines laid emphasis on project identification,
justification and development before taking up competitive bidding.
National Thermal Power Corporation one of the major players of the power sector
and it has shown consistent results year after year NTPC has set new
benchmarks for the power industry both in the area of power plant construction
and operations. It is providing power at the cheapest average tariff in the country.
With its experience and expertise in the power sector, NTPC is extending
consultancy services to various organizations in the power business.

It follows all the bidding procedures as are being stated by the power ministry and
other authorities. Procurement Management is one of the major departments at
NTPC as for every purchase at the NTPC proper procurement management
procedures are being followed which help to analyze the working and even
results in efficient working of the process. Through this working the bidder who
quotes the best is being awarded with the work n through these working only
companies is efficiently able to cut down at its cost.
Financial statement analysis one the other hand helps to analyze the financial
position of the company. They act as the lens of the company’s performance over
the years.
Analysis of financial statements is the systematic numerical calculation of the

relationship between one fact with the other to measure the profitability,
operational efficiency and the growth potentials of the business. It includes three
major steps they are as follow:
(1) Selection of the information which is relevant to the decision under

consideration.
(2) Classification or grouping of the information in such a way that
significant relationship is established.
(3) Interpretation and drawing of inferences and conclusions by studying
these relationships.
Financial analysis can be used as the preliminary screening tool in selection of

stock in secondary market .It can be used as a forecasting tool of future financial
condition and results. It may be used as a process of evaluation and diagnosis of
managerial, operating, or other problem areas.

&
Scenario of Power Sector in India
Growth of Indian power sector
Power development is the key to the economic development. The power Sector
has been receiving adequate priority ever since the process of planned
development began in 1950. The Power Sector has been getting 18-20% of the
total Public Sector outlay in initial plan periods. Remarkable growth and progress
have led to extensive use of electricity in all the sectors of economy in the
successive five years plans. Over the years (since 1950) the installed capacity of

Power Plants (Utilities) has increased to 89090 MW (31.3.98) from meagre 1713
MW in 1950, registering a 52d fold increase in 48 years. Similarly, the electricity
generation increased from about 5.1 billion units to 420 Billion units – 82 fold
increase. The per capita consumption of electricity in the country also increased
from 15 kWh in 1950 to about 338 kWh in 1997-98, which is about 23 times. In
the field of Rural Electrification and pump set energisation, country has made a
tremendous progress. About 85% of the villages have been electrified except far-
flung areas in North Eastern states, where it is difficult to extend the grid supply.
Structure of power supply industry
In December 1950 about 63% of the installed capacity in the Utilities was in the
private sector and about 37% was in the public sector. The Industrial Policy
Resolution of 1956 envisaged the generation, transmission and distribution of
power almost exclusively in the public sector. As a result of this Resolution and
facilitated by the Electricity (Supply) Act, 1948, the electricity industry developed
rapidly in the State Sector.
The Electricity Laws (Amendment) Act, 1998 passed with a view to make
transmission as a separate activity for inviting greater participation in investment
from public and private sectors. The participation by private sector in the area of
transmission is proposed to be limited to construction and maintenance of
transmission lines for operation under the supervision and control of Central
Transmission Utility (CTU)/State Transmission Utility (STU). On selection of the
private company, the CTU/STU would recommend to the CERC/SERC for issue
of transmission licence to the private company.
Current problem of power sector
The most important cause of the problems being faced in the power sector is the
irrational and unremunerative tariff structure. Although the tariff is fixed and
realized by SEBs, the State Governments have constantly interfered in tariff
setting without subsidizing SEBs for the losses arising out of State Governments
desire to provide power at concessional rates to certain sectors, especially
agriculture. Power Supply to agriculture and domestic consumers is heavily
subsidized. Only a part of this subsidy is recovered by SEBs through cross

subsidization of tariff from commercial and industrial consumers. The SEBs, in
the process, have been incurring heavy losses. If the SEBs were to continue to
operate on the same lines, their internal resources generation during the next ten
years will be negative, being of the order of Rs.(-) 77,000 crore. This raises
serious doubts about the ability of the States to contribute their share to capacity
addition during the Ninth Plan and thereafter. This highlights the importance of
initiating power sector reforms at the earliest and the need for tariff rationalization.
Power supply position at the beginning of 9th plan
The total installed capacity at the beginning of 9th Plan i.e. 1.4.97 was 85,795
MW comprising 21,658 MW Hydro, 61,012 MW Thermal including gas and diesel,
2,225 MW Nuclear and 900 MW Wind based power plants.
The actual power supply position at the beginning of the 9th Plan indicates peak
shortage of 11,477 MW (18%) and energy shortage of 47,590 MU (11.5%) on All
India basis. To meet the growing demand and shortages encountered, sufficient
capacity would need to be added in subsequent plan periods.
Ninth plan capacity addition programme
The Working Group on Power, constituted by Planning Commission, in its report

of December 1996 had formulated, a need based capacity addition programme of
57,735 MW for the Ninth Plan which would by and large meet the power
requirements projected in 15th Electric Power Survey Report. However, it was felt
that this capacity addition of 57,735 MW is not feasible and a target for capacity
addition of 40245 MW was fixed for Ninth Five-year plan. The above target was
finalised after considering the status of Sanctioned/ongoing schemes, new
projects in pipeline, likely gestation period for completion of the projects and likely
availability of funds. The Sector-wise/type-wise details are given below:
Sector-wise / type-wise capacity addition programme during ninth plan (Figures in

MW)

Background of National Thermal Power Corporation

NTPC Limited is the largest thermal power generating company of India. A public
sector company, it was incorporated in the year 1975 to accelerate power
development in the country as a wholly owned company of the Government of
India. At present, Government of India holds 89.5% of the total equity shares of
the company and the balance 10.5% is held by FIIs, Domestic Banks, Public and
others.
Within a span of 31 years, NTPC has emerged as a truly national power

company, with power generating facilities in all the major regions of the country.
Based on 1998 data, carried out by Data monitor UK, NTPC is the 6th largest in
terms of thermal power generation and the second most efficient in terms of
capacity utilization amongst the thermal utilities in the world.
NTPC’s core business is engineering, construction and operation of power

generating plants. It also provides consultancy in the area of power plant
constructions and power generation to companies in India and abroad.

As on date the installed capacity of NTPC is 26,404 MW through its 14 coal
based (21,395 MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects
(1,054 MW).
NTPC acquired 50% equity of the SAIL Power Supply Corporation Ltd. (SPSCL).
This JV company operates the captive power plants of Durgapur (120 MW),
Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33% stake in
Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture company
between NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding
Co. Ltd. The present capacity of RGPPL is 740 MW.
NTPC’s share on 31 Mar 2006 in the total installed capacity of the country was
19.51% and it contributed 27.68% of the total power generation of the country
during 2005-06.
NTPC has set new benchmarks for the power industry both in the area of power
plant construction and operations. It is providing power at the cheapest average
tariff in the country. With its experience and expertise in the power sector, NTPC
is extending consultancy services to various organizations in the power business.
NTPC is committed to the environment, generating power at minimal

environmental cost and preserving the ecology in the vicinity of the plants.

NTPC has undertaken massive afforestation in the vicinity of its plants.
Plantations have increased forest area and reduced barren land. The massive
afforestation by NTPC in and around its Ramagundam Power station (2600 MW)
have contributed reducing the temperature in the areas by about 3°c. NTPC has
also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization
Division to manage efficient use of the ash produced at its coal stations.
This quality of ash produced is ideal for use in cement, concrete, cellular
concrete, building material.
A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has

been established in NTPC with the assistance of United States Agency for
International Development. (USAID). Cenpeep is an efficiency oriented, eco-
friendly and eco-nurturing initiative - a symbol of NTPC's concern towards
environmental protection and continued commitment to sustainable power
development in India.
As a responsible corporate citizen, NTPC is making constant efforts to improve

the socio-economic status of the people affected by the its projects. Through it's
Rehabilitation and Resettlement programmes, the company endeavors to
improve the overall socio-economic status of Project Affected Persons.
NTPC was among the first Public Sector Enterprises to enter into a Memorandum
of Understanding (MOU) with the Government in 1987-88. NTPC has been
Placed under the 'Excellent category' (the best category) every year since the
MOU system became operative.
Recognizing its excellent performance and vast potential, Government of the

India has identified NTPC as one of the jewels of Public Sector ‘Navratnas’- a
potential global giant. Inspired by its glorious past and vibrant present, NTPC is
well on its way to realize its vision of being “A world class integrated power major,
powering India’s growth, with increasing global presence”.

Installed capacity of NTPC
AN OVERVIEW Projects No. of Projects Commissioned Capacity

(MW)
NTPC OWNED
COAL 14 21,395
GAS/LIQ. FUEL 07 3,955
TOTAL 21 25,350
OWNED BY JVCs
Coal 3 314*
Gas/LIQ. FUEL 1 740**
GRAND TOTAL 25 26, 404
* Captive Power Plant under JVs with SAIL

** Power Plant under JV with GAIL, FIs & MSEB
PROJECT PROFILE
Coal Based Power Stations Coal based State Commissioned

Capacity
(MW)
1. Singrauli Uttar Pradesh 2,000
2. Korba Chattisgarh 2,100@
3. Ramagundam Andhra Pradesh 2,600
4. Farakka West Bengal 1,600@
5. Vindhyachal Madhya Pradesh 2,760@
6. Rihand Uttar Pradesh 2,000
7. Kahalgaon Bihar 840@
8. NTCPP Uttar Pradesh 840@
9. Talcher Kaniha Orissa 3,000
10. Unchahar Uttar Pradesh 1,050
11. Talcher Thermal Orissa 460
12. Simhadri Andhra Pradesh 1,000
13. Tanda Uttar Pradesh 440
14. Badarpur Delhi 705

Total (Coal) 21, 395
Gas/Liq. Fuel Based Power Stations Gas based State Commissioned
Capacity
(MW)
15. Anta Rajasthan 413
16. Auraiya Uttar Pradesh 652
17. Kawas Gujarat 645
18. Dadri Uttar Pradesh 817
19. Jhanor-Gandhar Gujarat 648
20. Rajiv Gandhi at Kayamkulam Kerala 350
21. Faridabad Haryana 430
Total (Gas) 3,955
Power Plants with Joint Ventures

Coal Based State Fuel Commissioned Capacity
(MW)
22. Durgapur West Bengal Coal 120
23. Rourkela Orissa Coal 120
24. Bhilai Chhattisgarh Coal 74@
25. RGPPL Maharastra Naptha/LNG 740
Total(JV) 1054 Grand Total (Coal + Gas + JV) 26,404
@ Additional capacity under implementation • Bhilai 500 MW (2 x 250 MW)

Power plant operations
The operating performance of NTPC has been considerably above the national
average. The availability factor for coal stations has increased from 85.03 % in
1997-98 to 89.91 % in 2004-05, which compares favorably with international
standards. The PLF has increased from 75.2% in 1997-98 to 87.54% during the
year 2005-06 which is the highest since the inception of NTPC.
It may be seen from the table below that while the installed capacity has
increased by 43.93% in the last eight years, the employee strength went up by
only 1.95
Description Unit 1997-98 2005-06 % of increase
Installed Capacity MW 16,847 24,249 43.93

Generation MUs 97,609 1,70,880 75.07
No. of employees No. 23,585 24,044 1.95
Generation/employee MUs 4.14 7.81 88.65
The energy conservation parameters like specific oil consumption and auxiliary
power consumption have also shown considerable improvement over the years.
Turnaround capability
NTPC has also demonstrated its ability in turning around sub-optimally

performing stations. The phenomenal improvement in the performance of
Badarpur, Unchahar and Talcher by NTPC stand testimony to this.
Badarpur (705 MW)

The expertise in R&M and performance turnaround was developed and built up
by NTPC with the operational turnaround of Badarpur TPS through scientifically
engineered R&M initiatives.
Unchahar (420 MW)
The Feroze Gandhi Unchahar Power Station was taken over by NTPC as part of
a win-win deal with the Uttar Pradesh Government whereby the dues of UPSEB
were adjusted was used to and the expertise of NTPC turnaround the languishing
station.
Talcher (460 MW)

An even more challenging turnaround story was being scripted at the OSEB's old
power plant at Talcher, taken over in June 1995. The table indicates the dramatic
gains in the performance of the power plant after take over.
While NTPC bettered the PPA commitments, from the viewpoint of capital
requirements, turning around such old units is a low cost, high and quick return
option. These successes helped NTPC, the concerned SEBs and the entire
nation in terms of economy and power availability.

Tanda
Tanda Thermal Power station was taken over by NTPC on the 15 Jan 2000.The
PLF of the power station improved from 14.9% at the time of the takeover to
86.39% for the year 2005-06.
Growth plans
Over the last three decades, NTPC has spearheaded development of thermal
power generation in the Indian power sector. In this process, it has built a strong
portfolio of coal and gas/liquid fuel based generation capacities. The company
has made initial forays in the area of hydropower development and plans to have
a significant share of hydro power in its future generation portfolio. Although
NTPC is also offering technical services, both in domestic and international
markets, through its Consultancy Wing, the generation business would continue
to be the single largest revenue generator for NTPC.
The Indian power sector is witnessing several changes in the business and
regulatory environment. The legal and policy framework has changed
substantially with the enactment of the Electricity Act 2003. In the foreseeable
future, India faces formidable challenges in meeting its energy needs. Recently, a
draft integrated energy policy has been issued, which addresses all aspects
including energy security, access, availability, affordability, pricing, efficiency and
environment. To meet the twin objectives of ensuring availability of electricity to
consumers at competitive rates, as well as attract large private investments in the
sector, a new Tariff policy has also been issued. The power sector thus offers a
mixed bag of challenges and opportunities to players and NTPC would continue
to review its business strategy and portfolio in light of these changes.
Growth of the Generation Business
Developing and operating world-class power stations is NTPC’s core

competence. Its scale of operation, financial strength and large experience serve
to provide an advantage over competitors. To meet the objective of making

available reliable and quality power at competitive prices, NTPC would continue
to speedily implement projects and introduce state-of-art technologies.
Total capacity portfolio
India’s generation capacity can be expected to grow from the current levels of
about 120 GW to about 225-250 GW by 2017. NTPC currently accounts for about
20% of the country’s installed capacity and almost 60% of the total installed
capacity in the Central sector in the country. Going forward, in its target to remain
the largest generating utility of India, NTPC would endeavour to maintain or
improve its share of India’s generating capacity. Towards this end, NTPC would
target to build an overall capacity portfolio of over 66,000 MW by 2017.
Fuel / Energy mix for capacity addition
Currently, coal has a dominant share in the power generation capacities in India.
This is also reflected in the high share of coal-based capacities in NTPC’s current
portfolio. With high uncertainties involved in Domestic gas/ LNG, both in terms of
availability and prices, NTPC would continue to set up large pit-head coal based
projects, including few integrated coal cum power projects. To reduce the
dependence on fossil fuels, there is a need to push for renewable sources of
power in the sector. NTPC would avail of opportunities to add hydropower to its
portfolio subject to competitive tariffs. A first step in this direction has already
been taken with the investment in Koldam Hydro Power Project. NTPC would
continue to closely monitor developments on nuclear front also and be open to
setting up around 2000 MW of Nuclear power generation capacity, possibly
through a Joint Venture. As a leader in power generation, NTPC would also
consider other energy sources such as biomass, cogeneration, fuel cells, etc for
future development thereby reducing the dependence on thermal fuels.
While a decision on the fuel/energy mix for NTPC in the future would be largely
governed by their relative tariff-competitiveness, the fuel mix in 2017 may be
different from the existing portfolio, though not very significantly.
Diversification along the Value Chain
NTPC has achieved the distinction of being the largest thermal generating
company in India. In the past, this focus was adequate as the industry was highly

regulated with limited diversification opportunities. Over last few years, the
country has been facing acute shortages, both in coal and gas, severely affecting
optimum utilisation of its power stations and these shortages are likely to continue
in future as well. This is in spite of the fact that India is one of the largest
producers of coal in the World. To safeguard its competitive advantage in power
generation business, NTPC has moved ahead in diversifying its portfolio to
emerge as an integrated power major, with presence across entire energy value
chain. In fact, to symbolise this change, NTPC has taken on a new identity and a
new name “NTPC Limited”. NTPC has recently diversified into coal mining
business primarily to secure its fuel requirements and support its aggressive
capacity addition program. In addition, NTPC is also giving thrust on
diversification in the areas of power trading and distribution. Diversification would
also allow NTPC to offer new growth opportunities to its employees while
leveraging their skills to capitalise on new opportunities in the sector.
Establishing a Global Presence
To become a truly global company serving global markets, it is essential for

NTPC to establish its brand equity in overseas markets. NTPC would continue to
focus on offering Engineering & Project Management Services, Operations &
Maintenance services, and Renovation & Modernization services in the
international market.
Establishing a successful services brand would be a precursor to taking higher

investment decisions in different markets. Going forward, NTPC would continue
to evaluate various options for strengthening its presence in global markets
including setting up power generation capacity, acquisition of gas blocks etc.
Circa 2017: NTPC’s corporate profile
By the year 2017, NTPC would have successfully diversified its generation mix,
diversified across the power value chain and entered overseas markets. As a
result NTPC would have altered its profile significantly. Elements of the revised
profile that NTPC would seek to achieve are:

At

Procurement Management at NTPC
Procurement is the acquisition of goods and services at the best possible total
cost of ownership, in the right quantity and quality, at the right time, in the right
place for the direct benefit or use of the governments, corporations or individuals
generally via but not limited to the contract.
Simple procurement may involve nothing more than repeat purchasing.

Complex procurement could involve finding long term partners or even co-destiny
suppliers that might fundamentally commit one organization to another.
A key question in procurement is what to buy, given a limited budget. If good data
is available it is good practice to make use of economic analysis methods such as
cost benefit analysis or cost utility analysis.
Procurement Process in General:
Procurement may also involve a bidding process. A company may want to

purchase a given product or service. It may call cost rates from various suppliers
and accept the one which cost it lowest.
Procurement steps:
Procurement life cycle in modern business usually consists of seven steps. They
are as follow:
1. Information gathering: if the potential customer does not already have an

established relationship with sales/marketing functions of the suppliers of
needed products and services then it is necessary for him to search for the
suppliers who can satisfy the requirement
2. Supplier contact: when one or more suitable suppliers have been

identified. Requests for the quotes, request for proposal, request for
information or requests for bids may be advertised or direct contact may
be established with suppliers for acquiring the required things.

3. Background Review: References for product or services quality are
consulted and any requirements for follow up services including
installation, maintenance and warranty are investigated. Samples of the
product and services being considered may be examined or trials
undertaken.
4. Negotiations: Negotiations are undertaken and price, availability and

customization possibilities are established. Delivery schedules are
negotiated and a contract to acquire the products and services is
completed.
5. Fulfillment: Suppliers preparations, shipment, delivery and payment for

the product and services are completed, based on contract terms.
Installation and training may also be included.
6. Consumption, Maintenance and Disposal: During this phase the

company evaluates the performance of the product & services and any
accompanying service support, as they are consumed.
7. Renewal: when the product and services has been consumed and/ or
disposed of the contract expires, or the product or services is to be re-
ordered, company experience with the product and services is reviewed. If
the product and services is to be re-ordered, the company determines
whether to consider other suppliers or to continue with the same suppliers.

INTRODUCTION TO PROCUREMENT
Procurement activities to be taken by NATIONAL THERMAL POWER

CORPORATION (NTPC) are to satisfy varying project requirement of equipment,
materials and services. Any procurement-requiring adherence to the IDA
procurement procedure, long equipment delivery periods, intense engineering co-
ordination or specialized engineering knowledge during procurement etc. would
be classified as category “A” contracts. All other procurement contracts pertaining
to a project will be classified as category “B” contracts.
Procurement at NTPC is initiated on the basis of approved indents/requisitions
and indicating budget and project estimate provisions. The contract
services/materials management services receive the requisition/indent for the
procurement of materials/equipment/services duly approved by the competent
authority and then plan and organize the procurement action.
Objective
The basic objective of procurement management at NTPC is to make available,
the needed equipment, material, works and services in the right quality and
quantity, at the right time and at the right price after giving fair and equal chance
to tenderers, so as to obtain the optimum value for each unit of expenditure

What is a contract?
A contract in its simplest form defined as a promise, or group of promises, that

the law will enforce. The promise is to do, or refrain from doing, a particular
activity.
But in commercial context, a contract is a document in which the terms of the
promise are recorded. It can also be explained, as “a contract is an agreement
enforceable at law between two or more parties to undertake or perform a
particular thing. In undertaking or performing that activity both the parties accept
certain responsibilities and in return receive certain benefit for performing the
same.
Procedure of procurement
Intent of the contracting parties:

An agreement between the two parties does not itself constitute a contract. There
must be a definite promisor, each of whom is legally capable of performing the
intended part of the agreement. It is necessary for the two parties to have their
agreement legally binding, that is, that the agreement be written and enforceable
by law.
At NTPC the department, which requires the materials is known as intending
department and the department that procures the material is known as the
material department. Hence intending department is the customer for material
department.
1. Intending for Procurement: Procedure for intending is as follow:

For the purpose of indenting, material planning is required. It is nothing but
classifying the materials into various categories to facilitate a speedy and efficient
procurement. In this process all the materials which may be required at any of the
NTPC projects or offices are classified in to five major categories and their
procurement is to be done on the basis predefined for them.
1. Stock item (Automatic Recoupement items/AR)
2. Insurance Items (I)
3. Unit Replacement item (UR)
4. Capital Item (P)
5. Other non-stock items (Not falling under any of the above category)
But since this classification is very vague and unspecific, a further classification is
done to exercise selective control over all Material Management activities. This
classification is known as the ABC analysis.
Identification of Responsibilities.
NTPC being a utility organization with projects located away from the corporate
office, has divided the responsibilities of contracts management, both pre award
and post award between the corporate office and project site. A contract
management functions as an independent specialized techno commercial
function unit to meet the overall corporate objective in the area of project

procurement. It has been in place since inception of NTPC as corporate contract
department or concurrence department.
The corporate contracts procures plants/ equipment and services for its projects,
which are characterized by the adherence to the procurement of external funding
agencies, factoring of the long process owner for award of all such contracts
including high value civil works, its monitoring and post award follow up till the
delivery of equipment from the suppliers works till the closure of the contracts.
The corporate contracts division/department is responsible for installation of the

plant & equipment and its execution is the responsibility of the project site.
There are number of the other small value contracts with lesser of engineering
coordination, whose pre award and post award contracts are handled by the
project sites. The principles and guidelines followed for these site contracts are
similar to those applicable to corporate contracts.
In view of the complexity involved in the construction of thermal generation

projects. The contracts management systems calls for the further sharing of
responsibilities for specialized functions such as engineering, finance, cost
engineering, quality assurance and inception at corporate center & erection, site
finance, field quality assurance etc. as the project site. The co-ordination and
division of responsibility between the departments at two responsibility centers
are also clearly defined.
Stages of international competitive bidding (ICB)
Step 1
(a) Contract packaging
Contract packaging is the first step of procurement for a project. The total
project work is broken into smaller well-defined packages. This is done with the
view to optimize the number of contracts to be handled for the better planning,
co-ordination and implementation of the whole project and at the same time to
execute the project at an optimum cost to the owner.
(b) Development of packages

First of all feasibility report for any project is prepared which contains the
details of the various equipment systems and services required for a particular
project.
Subsequently, as the conceptual design progresses, a detailed project

description emerges as design intent memorandum (DIM) incorporating
station schematics like thermal schematics, electrical signal line diagrams,
and station water flow systems, coal and ash handling systems etc. these
schematics provide the inter linkage between the various equipments and
services. The engineering function is responsible for development of such
schematics. Taking into consideration the requirement of the project master
network (PMNW) schedule, grouping of equipment and services is done to
arrive at contract packages. Each package as developed above normally
forms an independent contract.
The development of contract package list for a project is done jointly by

engineering, contracts, and corporate planning and finance functions. The
contract package being extremely vital to a successful project
implementation is approved for implementation by the highest corporate level
authority.
Step 2
Cost estimation.
(a) Cost estimation: cost estimation process is the most important financial
activity in the process of budgeting and procurement. Whenever NTPC
procures some material, it is either financed from the budget allocated to
the particular department requesting for the material or it will be financed
from the central fund. The procurement of the second kind requires financial
clearance from the finance concurrence department. For the purpose, cost
estimation is done before forwarding the indent document to the finance
department. There are various methods of cost estimation, which are used
at NTPC. Some of the methods use very technical details and procedures
whereas some are simple to implement and uses market rate to prepare a
cost estimate.

(b) Historical cost method: In this method of cost estimation. The cost
engineering department at NTPC uses the latest cost incurred for similar
kind of project. For example, if the cost estimate has to be prepared for a
new thermal power plant, the latest executed thermal power plant rates will
be used not any other. Hence the rates thus obtained are very near to the
actual rates that might be prevalent in the market at that point of time. But to
smoothen the effect of inflation and various other financial components in
the prices at the time of the execution of that project, an escalation factor is
used. All the prices of the previous projects are multiplied by this factor and
a very close estimation of market rare is thus obtained. This escalation
factor calculation is discussed separately in the report.
(c) Market rate method: market rate method is used for the procurement
that are not in very large numbers and value. In this method once an indent
is prepared, some of the vendors registered at NTPC or listed in trade
journals are sent a request for quoting the prices of a particular good. This
enquiry is not tender and the rates provided by the vendors are not part of
the bid. After the information is received, the rates quoted by various
vendors are compared and the lowest quoted price is taken as base rate for
calculations. However if the difference in the price quoted by two vendors
are reasonably high an average of the two may be taken as the base.
However for civil works component of the contract, the wages rates are
taken from the government gazettes and similarly for some homogenous
products like cement, steel etc. a standard market prevailing rate is used.
6. Tendering Procedure
Normally an open tendering system for procurement is adopted during

construction stage of a project. However depending on the circumstances and the
requirements, limited tendering or single tendering system is also adopted in
specific cases. Following are three types of tenders:
Types of tenders
Based on the materials classification and DOP, there are three types of tenders

(1) Open tender: procurements or value Rs 1 lakh and above must be
done through open tendering. All the plant packages are procured through
open tender. Open tender is accessible to all known reliable and proven
sources of particular equipment/ material. For the purpose, a notice inviting
tenders must appear in two or more newspapers of all India repute in
addition to one or more local newspaper where the materials/ equipment
is to be delivered. However to avoid frivolous tenders, a pre qualification
procedure may be adopted. This process will take place once in every
three years by advertising in two or more newspapers of all India repute in
addition to one or more local newspapers where materials is to be
delivered. The criteria for pre qualification will inter-alia consist of past
performance, financial soundness, technical competence, organizational
capability etc. but for the items valued less than 1 lakh the pre qualification
can be done on the basis of data available in trade journals,
manufacturer’s directory or approved vendors list of state
government/central government/DGS & D vendors to whom enquiries
were floated in past.
(2) Limited tender: limited tender is a type of tender where instead of
sending bid enquiry to all the possible vendors through newspapers, a
limited number of vendors are intimated through post or fax. But a limited
tender may b invited only for the procurement worth less than Rs. 50000.
in limited tender, minimum of four bidders are invited to quote the prices
for the required equipment/materials/services and these four bidders must
be from the approved list of vendors mentioned in the open tender.
However a limited tender is a special case and cannot be issued without
proper explanation and requirement. In case of urgency, items worth more
than rs.50000 may also be procured with authorization of competent
authority and the reason must be recorded in the indent documents.
However the next higher authority of the procurement department will
decide the number and names of supplier.
(3) Single tender: this type of tendering is the easiest and fastest to
acquire goods but requires lot of paper work or documentation and
authorization before the acquisition can be initiated. These acquisitions
take place on the ground of standardization. To initiate a single tender, a
proprietary article certificate must be issued by a competent authority and

the purchase will not be made without authorization of a general manager
or to whom the power is delegated. This type of tendering is monopolistic
in nature and is avoided to the extent possible. However single tendering
is done in many other cases which are not mentioned anywhere in the
DOP.
Step 4
Qualifying requirements for bidders:
Normally the post qualification procedure is adopted for determining the capacity
and capability of the bidders as to know whether they would be able to
successfully execute the contract in case of award of contract to them. The
qualification requirements has two parts, the standard or general QR, which is
common for all contract packages and the specific QR as finalized for a particular
package.
In the notice for inviting tenders/ invitation for bids only the specific part of QR is
published. However the bidding documents stipulates the complete QR i.e. the
standard part of the qualification requirements as also the specific requirements
for a particular contract package. The QR’s for each of the contract package are
based on intensive and well researched interdisciplinary efforts and finalized by a
standing committee headed by the director (technical). Such qualification criteria
inter-aliia includes the status of a bidder i.e. manufacturer or project executing
agency, financial status, technical requirements to be fulfilled etc. in case of post
qualification procedure the analyses of bidder qualification data is carried out
during the bid evaluation process. Conformity by the lowest evaluated bidder to
be stipulated qualification requirements is a prerequisite for the award of the
contract. If required, a pre qualification procedure is adopted for obtaining offers
only from pre qualified bidders who meet the specified criteria.
In case of pre qualification procedure, the bidders are required to furnish

documents/ data to validate past performance, financial status, technical
capability, organizational capacity for specific works through a pre qualification
notice published in leading newspapers.
Step 5

Issuance of invitation for bids
The invitation for bids (IFB) or notice inviting tender (NIT) are published in leading
national newspapers as per guidelines and procedures. Copies of IFB or NIT are
also sent to the bidders who have evinced interest in supplying similar
equipments or services in the past. In the case of procurements funded by
external funding agencies following international competitive bidding procedures,
the IFB are also published in the Indian trade journal and a copy of IFB sent to
each of the embassies/ high commissions of members countries of the funding
agency. In case of procurements under the World Bank funding the IFB is also
published in the “development business” of United Nations when required.
Contents of bidding documents:

Every time when a open tender is invited, the bidders are provided with a set of
documents, which provides various required information and terms and
conditions of the contract. The documents also contains the various contract
forms which the bidder is expected to sign and return to NTPC to acknowledge
the acceptance of the terms and conditions of the contract. The document also
contains the guidelines for bidders for bank guarantee to be submitted as bid
security i.e. 2% of total contract amount.
Earnest money and the like, this document is issued for a cost that is decided on
the basis of the total estimated value of the indent the costs of the documents are
as follows:
s.no Estimated value of indent Cost of tender
documents
1 Up to Rs. 10 lakhs 200
2 Above Rs 10 lakhs and up to 25 lakhs 300
6 Above Rs 500 lakhs 3000
Every time a new tender is notified a set of tender documents are issued against
the payment of stipulated fee according to the price list given above. This set of
tender document consists of many different documents meant for different

purposes. The documents may vary from project to project. but there are certain
documents which are generally issued to bidders. They are as follow:
Instruction to Bidder (ITB): This document is meant to provide the

bidders the vital information required to understand and evaluate the tender offer.
The document contains the general instructions like the terms of payment, bid
security, contract performance security, liquidated damages, currencies
conversion, defects liability and work schedule. The document also specifies the
qualifying or eligibility requirements of the bidder and the goods and services
supplied. The ITB also contains information for the foreign bidders. Additionally
the ITB contains various references to clauses of GCC (General conditions of
contract) and SCC (special conditions to contract). Finally the document specify
about the language and interpretation and implied terms and conditions of all the
documents provided with the bid. ITB also contains information about how to
modify and withdraw the bids already submitted to NTPC. Hence in short we can
identify this document as the guidelines and information brochure to bidders
before they submit their quotations for the notified work.
(a) Bid proposal sheet or Bid data sheet: Bid proposal sheet is set of
documents which contains the formats for bidding, summary price
proposal, break up of bid price, equipment wise price break up, civil works
price break up, commercial deviation, technical deviations, guarantee
deceleration, price adjustments data, price break up of recommended
spares, construction equipments, special maintenance tools, QR data and
capacity data, work completion schedule, declaration of import content,
check list, information regarding value addition and type test charges. This
document is nothing but a standard format providing the bidder to furnish
the details required by the NTPC in a standard format used at NTPC.
(b) General condition of contract: The document titled general

condition of contract of GCC is document that takes care of the legal
aspect of the contract between bidder and NTPC. This document is also
an integral part of all bid documents with some minor changes or no
changed at all. The document starts with the definition for the terms used
in various tender documents. This is worth noting that all the terms used in
the bid document are predefined and have one and only meaning which is

defined in the GCC. The document also contains different formulas that
are to be used on some future dates to calculate the LD or the price
escalation. Finally the document also refers to the unforeseen events like
out break of war, bankruptcy of the contractor or any other force major.
The GCC also has a clause called RESOLUTION OF DISPUTES that
specifies the procedures to be followed if any dispute occurs, arising out of
or in connection with the contract.
(c) Special conditions of a contract: special conditions of contract or

SCC are not a standard document that is issued with all the tender
documents. The document takes care of the special issues that have come
up or may come up in the course of the execution of that particular
contract and has not been covered in the general condition of contract.
The very first clause of the document is TIME- THE ESSENCE OF
CONTRACT. The document also talks about the detailed manufacturing
plan and master schedule of the execution of the contract. It is the SCC
where we mention the issues related to liquidated damage clause. This is
mentioned in the document itself that “the following special condition (if
contract shall supplement the general conditions of contract). Whenever
there is a conflict. The provisions herein shall prevail over those in the
general conditions of contract”. Hence the document may also be
considered as the amendments to the GCC.
(d) Erection condition of contract: this document again is specific

document which may not be issued with all the tenders. As the name it
suggests. The document deals with the erection component of the contract
(if any).in the document some particular issues pertaining to the erection
component of the contract is dealt with. Typically, an Erection Condition of
Contract deals with the civil construction works undertaken at the site
where the equipment is to be installed and commissioned. This also takes
into consideration the statutory and local authority who may be in charge
of monitoring the work in progress and whose permission may be required.
Hence this document is a must for all the work where there is an erection
component.

(e) Technical specification: the document is the thickest document of
any bid document. This document contains all the specifications required
for that particular project. The document is prepared by the project
engineering department and contains the technical specifications of the
equipments and spares to be procured. It may also contain the drawings of
the equipments or layout of the project. Similarly the document will also
enlist all other possible alternatives to the already mentioned specifications
(if any). Since there is no financial aspect associated with this document, a
detailed study of this document is out of the scope of the report.
Tender committee
Delegation of powers has very important role to play in purchasing power process
at NTPC. For every purchase value of exceeding Rs 200000.
The committee consists of three members, one representative each from the
indenting department, materials department and finance (concurrence). The
representatives are nominated by competent authority varying from senior
manager to DGM depending upon the value of the contract. This committee will
take into consideration every possible aspect of the terms and conditions, prices,
inspection procedures, phasing delivery if required etc. This committee also
formulates the QR (qualifying requirements) for the bidders of that particular
tender.
Tender opening:
Tender opening is the penultimate step in purchasing process. Tenders are
opened on the due date and time mentioned in the tender notification without fail.
If the date mentioned is declared holiday, the next working day will be considered
as the opening date but the time will remain the same. The sealed envelops
containing the bid will be opened by the purchase and finance executives
nominated by their head of the department. The representatives of the bidders
may also be present if they wish so however their absence will not hinder the
process. The name and rates quoted by all the present bidders will be read out
and any omission or irregularity will be pointed out on the spot.
Alterations will be initiated by the officers present at the time of the opening of the
tenders. All the quoted figures should also be encircled and will be written in
words if the bidder have not done so already and will be attested. Total number of

alterations and corrections will also be written and attested. These all activities
are done to ensure proper and transparent procurement process.
Security deposits:
A refundable security deposit may be asked at the time of submission of the bid.
This deposit is taken to ensure that the vendor who is awarded that contract will
not refuse to undertake the contract. If the bidder after successful bidet refuses to
undertake the contract, the earnest money deposited by him will be forfeited.
However there are various instances where this deposit may be waived off. For
example for all the purchases valued less than Rs. 50000 the EMD may be
waived off. Similarly for the PSUs, NSICs and SSI parties, the EMD can be
waived also. On successful completion of bidding the earnest money may either
be returned to the bidder or may be adjusted towards the security deposit to be
provided by the bidder. Another major deposit is in form of performance
guarantee of liquidated damage (LD) the equipments provided by the vendor fail
to perform as per the specification, the cost for this shortfall may be recovered
from the vendor. This guarantee is generally 10% of the awarded value and is in
form of bank guarantee. However in cases of procurement from proprietary
vendor the same may be waived depending upon the merit of case.
However in case of procurement of equipments or materials or services there is a

contract for providing spares for the next three years. In case the prices of these
spare parts goes up in the future and the vendor refuses to supply the spares at
the same rate than this guarantee deposit if forfeited. As a matter of fact, this
guarantee is taken just to make sure that the contractor does not refuse to honor
the contract in future after he realizes that the prices have gone up or for some
similar reasons.
Step 6
Submission, Receipt and Opening of bids
The time allowed for preparation and submission of bids by the bidders is decided
taking into consideration the particular circumstances and complexity of work
involved. Generally, a period of not less than 6 weeks from the date of invitation
of bids is considered for preparations and submission of bids. For large and
complex packages this period is extended to 10 to 12 weeks.

Bids are received in a sealed condition at the place, date and time identified in
the invitation for bids/bidding documents. A receipt is issued to the bidders for the
bids delivered by hand indicating the date and time of delivery.
The bids received are opened by a team comprising representatives from

engineering, contracts and finance departments in the presence of bidders
representative who chose to attend the bid opening. The details such as name od
bidder, bid price, availability of bid security, guaranteed parameter, discounts if
any, are read aloud during the opening of bid. All the participants in the bid
opening are required to sign a register as a proof of attendance maintained for
this purpose
.
Late and delayed tender
Though the last dates for receipt of tender and tender opening dates are
mentioned in the bid invitation notice and all the bidders are expected to adhere
to them, some time some tender documents posted by the bidders get delayed in
the post and reach the NTPC office later than the date specified in the tender
invitation notices. It can be caused by several reasons within bidder’s control or
out of one’s control. All such tenders are classified into two categories. Late
tenders and delayed tenders.
(1) Late tenders: the tender that have been posted on or after the due date
and received subsequently are considered to be late tender. Similarly all
the tenders posted through courier before the due date but received after
the due dare is also considered to be Late Tender. As a policy all the late
tenders are rejected out right.
(2) Delayed tender: when a tender documents is posted before the due
date but is received after the due date. For such tenders which are posted
through registered post or speed post before the due date and is received
within 6 working days of bids due date may be opened and considered
with the approval of competent authority. But this consideration has a
condition that the date of posting of the bids documents must be clearly
visible. on the postal stamp on the envelope containing the documents.
Tender those is posted by ordinary post and are received after the due

date and time will not be opened and will be returned to the party after
finalization of bid except in case where:
(a) The number of acceptance offer is less than three.
(b) Lowest and acceptable tender is unreasonably high when
compared with lowest purchase price.
(c) Artificial manipulation of rates by forming a ring is suspected.
(d) All the tenders are providing the make of only one manufacturer.
(e) If a substantial savings in foreign exchange is possible.
Step 7
Evaluation of Bids:
The bids are received, opened and evaluated by a duly constituted tender
committee comprising members from contracts, engineering and finance
functions in accordance with the ‘delegation of powers’. The committee
determines the lowest evaluated bid for award of contract in terms of criteria for
evaluation of bids stipulated in the bidding documents and puts up its
recommendation for approval of competent authority in accordance with the
‘delegation of powers’.
The process of evaluation of bids begins with an examination of the bids to
determine:
1. bid eligibility
2. Acceptability of bid security furnished by the bidder.
3. Completeness of bid and correctness of signature.
4. Acceptability of joint deed of undertakings
5. Computational errors in the bid price.
6. Stated deviations from the bidding conditions, which might reflect on the
substantial responsiveness of the bid and justify its rejection.
Though generally and to the extent possible avoided clarifications may be sought
from the bidders. If considered necessary by the tender committee, with the
approval of competent authority. Due care is taken of the fact that such
clarifications would not call for any material alterations on the bidder’s bid.
The detailed evaluation is carried out only for bids, which are substantially
responsive. Bid evaluation considers price and other factors in a transparent

manner and in accordance with the stipulated evaluation criteria stated in bidding
documents such as cost compensations for the deviations from the bidding
conditions taken by the bidders, differential price factors for guaranteed
parameters etc.
In case of procurement under international competitive bidding procedures, the

bid price are converted into a single currency i.e. in the Indian rupees based on
the exchange rate prevailing as on the date of bid and comparison of bids. Other
factors such as a domestic price preference and purchase preference to public
sector undertakings applicable as per the extant guidelines are also considered
for the purpose of evaluation of bids.
Once the lowest evaluated bidder is selected as above the next step is to
determine whether the qualification requirement as stipulated in bidding
documents are met and whether the bidder in question is capable to successfully
executing the contract. An affirmative determination of the above is prerequisite
for award of contract to the bidder. In case the lowest evaluated bidder does not
meet the above requirement, the similar determination is done for the next lowest
bidder. If the bidder also fails, the process is continued until the lowest evaluated
and qualified bidder is chosen.
Negotiation:
When adequate competition exists, the negotiation should and must be avoided.
This competition may be in from of many manufacturers making the same good
or a single manufacturer providing the goods through many retailers or suppliers
and all the retailers and suppliers are free to quote individually. However if it’s
found that the price quoted by all individual bidders are unreasonably high in
comparison to the last purchase price or estimate or in case of some ambiguous
technical or commercial terms and conditions, negotiations can be done with the
approval of competent authority as per DOP. In normal circumstances, the
negotiation should take place with the technically and commercially evaluated
lowest vendor only. However, depending upon the situation the negotiation may
be carried out with more than one party at a time. Normally the negotiation is
carried out by the tender committee. But in case a tender committee is absent i.e.
no committee was formed to monitor the procurement, representatives from

finance and purchase may complete the task of negotiation. However, negotiation
process is not always for negotiating the price of equipment or material or
services supplied but it may also involve terms and conditions of supply. Future
commitments for supply of spare parts and consumables and many other aspect
of the contract. For example a lowest price bidder may not get the contract if it is
found that another bidder who is quoting higher than him but is offering lowest
priced spares. Hence in this case a negotiation may be conducted with the lowest
to make him offer the spares at the same rate as being offered by his competitor.
Once the negotiation process is finished and the two parties involved in the
negotiation reach a consensus, the committee’s purchase proposal or
recommendation will be put up to the competent authority for approval and
subsequently the letter of indent may be faxed to the party.
Step 8
Contract Award
All the activities related to evaluation of bids and approval of evaluation report or
award recommendations by the competent authority, concurrence of the funding
agency (wherever applicable) and post bid discussions with the successful bidder
to resolve ambiguities or non conformity to the bidding provisions observed
during the bid evaluations are required within the bid validity period.
Post purchase activities
Vendor evaluations
Once a vendor has supplied some material to NTPC, the vendor is registered
with the NTPC and it is given a performance rating which may be used in future
to award of contract in case of limited tender and single tender. This rating
system is not very complex but some formulas are used.
Parameter Measure Weightage

A) Quality performance Rejection 4
B) Delivery Performance
(1) Time Schedule delivery Ratio of contractual delivery
to actual in a week 2
(2) Quantity Schedule delivery Deviation in Quantity 2
c) commercial & Contractual Pre- post award performance 2
Performance

Calculations of vendor ratings will be done as follows:
(a)Quality performance = 1 – rejected quantity * weightage

Supplied quantity
(b) Time schedule = 1 – contract delivery in week * weightage

Actual delivery in week
© Quality schedule = quantity received * weightage

Quantity ordered
Parameter Minimum percentage score

Quality 70%
Delivery 50%
Commercial contractual Terms 50%
On the basis of points scored against each parameter categorization of vendor

shall be done as follows:
Vendor Rating Point Score

A) outstanding 8 and above
B) Very Good/Good 6-8
C) Unacceptable Less than 6
Indices of performance
1. Adherence to lead – time: Against each purchase order the

supplies are to be affected as per the declared lead time with a cushion
+10%. In case the actual lead time differs by more than +10% from the
declared lead time then the total lead time slippage shall be taken into
account for rating calculation.
Declared lead time slippage

RATING = Declared Lead time

2. Extent of Rejection: supplier as per specification and without rejection
should be the aim of all purchase executives. But at time the rejections is
possible due to non conformance of the specification or performance
slippage. Hence a rating system is developed to take care of that
Rejected value of material supplied – value of material

RATING = value of material supplied
3. Budget compliance: The responsibility of each purchase personnel is

to keep the procurement within the allocated budget. The additional
responsibility is in form of maintaining the quality also at the same time.
The rating for budget compliance will be done as follows:
Budget allocated – Excess over budget

RATING = Budget allocation
And over all rating is done on following basis:
Sum of above rating * 100

OVER ALL RATING = 3

General clauses
A. INTRODUCTION
Source of Funds
National Thermal Power Corporation Ltd . (herein after called 'NTPC' or

'Employer) intends to finance the Package named in the Bid Data Sheet
(BDS), through external commercial borrowings, internal and other

sources.
NTPC intends to make financing arrangements for the subject package by

means of Buyers Credit from International Banks through the Export Credit
Agencies of the country concerned to the extent the goods and services
covered in the package are imported from OECO countries. For the above
purpose the Export Credit Agencies require certain. Procedure formalities to be
completed by the equipment supplier of their country. The bidder shall, in case of
award of contract, facilitate completion of such formalities as may be required by
the respective export credit agency to enable NTPC to avail Buyers Credit for
funding eligible goods and services covered in the package. The aforesaid option
of funding is also intended to be availed by NTPC for supply of goods and
services from OECD countries by the sub-vendors/sub-contractor of the bidder.
The bidder shall make similar compliance in respect of its sub-vendors/ sub-
contractors to the extent the goods are imported from concerned OECD country
ELIGIBLE PLANT, EQUIPMENT AND SERVICES
For the purposes of these bidding documents, the word "facilities" means the
plant and equipment to be supplied and installed, together with the services to be
carried out by the contractor under the contract. The words "plant and
equipment,” "installation services," etc., shall be construed in accordance with the
respective definitions given to them in the General Conditions of Contract.
All countries and areas are the eligible source countries for goods and services to
be supplied under this contract and accordingly goods and services to be
supplied under this contract may have their origin in any country and area
For purposes of this clause, "origin" means the place where the plant and
equipment or component parts thereof are mined, grown, or produced. Plant and
equipment are produced when, through manufacturing, processing or substantial
and major assembling of components, a commercially recognized product results
that is substantially different in basic characteristics or in purpose or utility from its
components.

The origin of the plant, equipment and services is distinct from the nationality of
the Bidder.
BID PRICES
Unless otherwise specified in the Technical Specifications. Bidders shall quote for
the entire facilities on a "single responsibility" basis such that the total bid price
covers all the Contractor's obligations mentioned in or to be reasonably inferred
from the bidding documents in respect of the design, manufacture, including
procurement and subcontracting (if any), delivery, construction, installation and
Completion of the facilities including supply of mandatory spares (if any). This
includes all requirements under the Contractor's responsibilities for testing, pre-
commissioning and commissioning of the facilities and, where so required by the
bidding documents, the acquisition of all permits, approvals and licenses, etc.; the
operation, maintenance and training services and such other items and services
as may be specified in the bidding documents, all in accordance with the
requirements of the General Conditions of Contract and Technical Specification.
Bidders are required to quote the price for the commercial, contractual and
technical obligations outlined in the bidding documents. If a Bidder wishes to
make a deviation to the provisions of the bidding documents save those listed,
such deviations shall be listed in Attachment 6 of its bid.
Bidders shall give a breakdown of the prices in the manner and detail called
for in the Price Schedules. The Bidders shall present their prices in the following
manner:
Separate numbered Schedules shall be used for each of the following

elements. The total amount from each Schedule (1 to 4) shall be summarized in a
Grand Summary (Schedule 5) giving the total bid price (s} to be entered in the Bid
Form.
Schedule No. 1
Plant· and Equipment including Type Tests charges and Mandatory Spare Parts
supplied from Abroad

Schedule No. 2
Plant and Equipment including Type Tests charges and Mandatory Spare Parts
to be manufactured within Employer's Country
Schedule No. 3
Local Transportation including port handling, port clearance, port charges, Inland
transit Insurance and other local cost incidental to delivery of Plant & Equipment
and Mandatory Spares
Schedule No. 4
Installation Services including Erection Works, insurance covers other than inland
transit insurance and other services as specified in the bidding document
Schedule No. 5 Grand Summary (Schedules Nos. 1 to 4)
Schedule No. 6 Recommended Spare Parts
Schedule No. 7 Taxes and Duties not included in Bid Price
Schedule No. 8A Break up of type test charges quoted in Schedule -1
Schedule No. 8B Break up of type test charges quoted in Schedule -2.
SCHEDULE OF UNIT RATES
The plant and equipment included in Schedule No. 1 and 2 above exclude all
materials used for civil, building and other construction works. All such materials
shall be included and priced under Schedule No. 4 (Installation Services).
In the Schedules. Bidders shall give the required details and a breakdown of their
prices as follows:

A) Plant and equipment- including Type Test charges and mandatory spares to
be supplied from abroad (Schedule No.1) shall be quoted on CIF Indian port-of-
entry. In addition, the FOB price shall also be indicated.
Further, Bidders seeking qualification on the basis at association / collaboration

with manufacturer(s) of particular equipment(s) are required to quote the price of
such equipment(s) including spares on CIF (Indian Port of Entry) basis, if the
items are to be imported by the manufacturer or the Bidder. In case, such
equipment and spares are not quoted by the bidder on CIF (Indian port-at-entry)
basis, then Employer shall assess the CIF (Indian port-of-entry) price of such
equipment and mandatory spares for the purpose of evaluation and accordance
of price preference
C) Plant and equipment including Type Test charges and mandatory spares
manufactured or fabricated within the Employer's country (Schedule No. 2) shall
be quoted on an EXW (ex factory, ex works, ex warehouse or off-the-shelf, as
applicable) basis, and shall be inclusive of all costs as well as duties and taxes
paid or payable on components and raw materials incorporated or to be
incorporated in the facilities. However, Sales Tax (not the surcharge in lieu of
Sales Tax), Local Tax including Entry Tax/Octroi (it applicable) and other levies; n
respect of direct transactions between the Employer and the Bidder shall not be
included in the Ex-works price but shall be quoted separately in Schedule No.7.
Further, taxes and other levies, if any, on type tests on equipment with respect to
direct transaction shall be quoted separately. The taxes, duties and levies quoted
by the bidder in Schedule-7 shall be as applicable in the Employer's country as
on seven (7) days prior to the last date for submission of bids.
C) Local transportation, inland transit insurance, port clearance and port charges
and other local costs incidental to delivery of the Plant and Equipment including
mandatory spares shall be quoted in Schedule No. 3. The Employer shall be
responsible and be liable only for payment of custom duty and import duties, if
imposed in future, on CIF component of the plant and equipment including
mandatory spares to be supplied from abroad. However, the Employer, as a
consignee shall furnish promptly necessary clarifications and documents as may
be required to be furnished by the consignee for the purpose of customs
clearance

D) Installation services shall be quoted separately in sc no. 4 and shall include
rates or prices for all labors and contractor’s equipments, temporary works,
materials, consumables, and all matters and things of whatever nature, charges
for insurance cover other than inland transit insurance, operations, and
maintenance services, the provision of operations and maintenance manuals,
training, training of employer’s personnel etc. and other services are identified in
he bidding documents and necessary for proper execution of installation services,
including all taxes, duties, levies, and charges payable in employer’s as of seven
days prior to the deadline for submission of bids.
E) Recommended spare parts shall be quoted separately in Schedule-6 on

CIF/EXW basis in accordance, Local transportation charges including inland
transit insurance and port charges etc. for recommended spares shall also be
quoted in Sc.No.6.
BID SECURITY
The bidder shall furnish, as part of its bid, a bid security in a separate sea/ed
envelope in the amount and currency as stipulated in the Bid Data Sheet
The bid security shall, at the Bidder's option, be in the form of a Banker's cheque
irrevocable letter of credit or a bank guarantee. , In case of domestic bidders the
Bank Guarantee shall be from- a Bank as specified in the Bid Data Sheets. In

case of foreign bidders, the Bank Guarantee can be from any other bank also in
addition to the banks specified in Bid Data Sheet and if the Bank Guarantee is
from a Bank not specified in the Bid Data Sheet, then the Bank Guarantee shall
be confined by any such Bank as specified in the Bid Data Sheet. The format of
the bank guarantee or letter of credit shall be in accordance with the' form of bid
security included in the bidding documents. Bid security shall remain valid for a
period of forty five (45) days.
The bid security shall be furnished in a separate sealed envelope. Any bid not
accompanied by an acceptable bid security, in a separate sealed envelope, shall
be rejected by the Employer as being non-responsive and returned to the Bidder
without being opened. The bid security of a joint venture must be in the name of
all the partners in the joint venture submitting the bid.
The bid securities of unsuccessful bidders will be returned as promptly as

possible, but not later than twenty-eight (28) days after the expiration of the bid
Validity period.
THE BID SECURITY MAY BE FORFEITED
(a) If the Bidder withdraws its bid during the period of bid validity specified by the
Bidder in the Bid Form
(b) If the Bidder does not accept the correction of its Bid Price pursuant
(c) If the Bidder does not withdraw any deviations listed in Anachment-6 at the
cost of withdrawal indicated by him
(d) If the Bidder refuses to withdraw, without any cost to the Employer,
Any deviation not listed in Attachment 6 but found else...where in the bid.
In case of successful bidder, if the bidder fails within the specified time limit
To sign the contract agreement, in accordance with ITB.

To furnish the required performance security in accordance with ITB.

CONVERSION TO SINGLE CURRENCY
To facilitate evaluation and comparison, the Employer will convert all bid prices
expressed in the amounts in various currencies in which the bid price is payable
to a single currency. The currency selected for converting bid prices to a common
base for the purpose of evaluation, along with the source and date of the
exchange rate.
TECHNICAL EVALUATION
The Employer will carry out a detailed evaluation of the bids previously
determined to be substantially responsive in order to determine whether the
technical aspects are in accordance with the requirements set forth in the bidding
documents. In order to reach such a determination, the Employer will examine
and compare the technical aspects of the bids on the basis of the information
supplied by the bidders, taking into account the following factors:
a) Overall completeness and compliance with the Technical Specifications

And Drawings; deviations from the Technical Specifications as identified in
Attachment 6 to the bid; suitability of the facilities offered in relation to the
environmental and climatic conditions prevailing at the site; and quality, function
and operation of any process control concept included in the bid. The bid that
does not meet minimum acceptable standards of completeness, consistency and
detail will be rejected for non-responsiveness.
Achievement of specified performance criteria by the facilities
(b) Type, quantity and long-term availability of mandatory and recommended

Spare parts and maintenance services.
(c) Any other relevant factors, if any, listed in the Bid Data Sheet, or that
the Employer deems necessary or prudent to take into consideration.
COMMERCIAL EVALUATION

The comparison shall be of the EXW price of domestically manufactured plant
and equipment including Type Test charges and mandatory spares (within the
Employer's country), such price to include all costs as well as duties and taxes
paid or payable on components and raw materials incorporated or to be
incorporated in the plant and equipment including mandatory spares plus the CIF
(Indian port-of-entry) price of the plant and equipment including Type Test
charges and mandatory spares named port of destination offered from outside
the Employer's country, plus the cost of local transportation, insurance covers,
installation and other services required under the contract. The Employer's
comparison will also include the costs resulting from application of the evaluation
procedures .However, the Price of recommended spare parts quoted in Price
Schedule No. 6 shall not be considered for evaluation of Bids.
The Employer's evaluation of a bid will take into account, in addition to the bid
prices indicated in Price Schedules Nos.1 through 4 (with summary in Schedule
No.5) along with the corrections pursuant to ITB , the following costs and factors
that will be added to each Bidder's bid price in the evaluation using pricing
information available to the Employer
(a) The cost of all quantifiable deviations and omissions from contractual and
commercial conditions and the Technical Specifications as identified in
Attachment 6 to the Bid.
(b) Compliance with the time schedule to the Form of Contract Agreement and
evidenced as needed in a milestone schedule provided in the bid
(c) The functional guarantees of the facilities offered.
(d) The extra cost of work, services, facilities etc., required to be provided by
the Employer or third parties.
(e) Price Preference.
FUNCTIONAL GUARANTEES OF THE FACILITIES
(1) Bidders shall state the functional guarantees (e.g. performance,

Efficiency, consumption) of the proposed facilities in response to the Technical
Specifications. In case a minimum (or a maximum, as the case may be) level of
functional guarantees is specified in the Technical Specifications for the bids to
be considered responsive, bids offering plant and equipment with such functional
guarantees less (or more) than the minimum (or maximum) specified shall be
rejected.
2) For the purpose of evaluation, the adjustment specified in the Bid Data Sheet
will be added to the bid price for each drop (or excess) in the responsive
functional guarantees offered by the Bidder, below (or above) either a norm of
100 or the value committed in the responsive bid with the most performing
functional guarantees, as specified in the Bid Data Sheet. The Adjustment
Factors shall be converted to such currency as specified in Bid Data Sheet
WORK, SERVICES, FACILITIES ETC., TO BE PROVIDED BY THE EMPLOYER
Where bids include the undertaking of work or the provision of services or

facilities by the Employer in excess of the provisions allowed for in the bidding
documents, the Employer shall assess the costs of such additional work, services
and/or facilities during the duration of the contract. Such costs shall be added to
the bid price for evaluation
PRICE PREFERENCE
Any adjustments in price that result from the above procedures shall be
added, for purposes of comparative evaluation only, to arrive at an "Evaluated Bid
Price." Bid prices quoted by Bidders shall remain unaltered.
The method of evaluation is illustrated below
ILLUSTRATIVE METHOD OF EVALUATION

Quoted Bid Price without taxes
& Duties (after considering
Arithmetical errors)
ClF price including Type Test charges N1

+ Inland transportation including inland transit
Insurance for equipment and mandatory spares
(b) Ex-works price including

Type Test charges + in- N2
land transportation including
inland transit insurance for
equipment and mandatory spares
(c) Price for Installation Services N3
(d) Total price N=N1+N2+N3
Cost compensation
- Technical R
Cost compensation
- Commercial T
4 Deficiency in mandatory spares V
5 Adjustment works of Functional

Guarantee X
6 Additional work of employer Z1
7 Price preference PP= 0.15 x CIF

CIF value of import content of ex-work price quoted in schedule -2, shall be the
value of import content declared by Bidder in Attachment -9 to bid in respect of
plant and equipment including mandatory spares to be manufactured or
fabricated within the Employer’s country and quoted on Ex-works (India) basis.
8 Evaluated Bid Price EP1= (N+R+T+V+X+Z1+PP)
PRICE PREFERENCE
For granting price preference, the bid price of all bidders shall be increased by
fifteen percent (15%) of the CIF component contained in the bid.
Bidders seeking qualification on the basis of collaboration with manufacturer(s) of

particular equipment (s) are required to quote the price of such equipment(s)
including spares on CIF (Indian port-of-entry) basis, if the items are to be
imported by the manufacturer or the bidder. In case, such equipment and spares
are not quoted by the bidder on ClF basis, then Employer shall assess the CIF
(Indian port-of-entry) price of such equipment and mandatory spares for the
purpose of evaluation and the total bid price will be increased by 15% of such
assessed CIF price also for the purpose of granting price preference.
PERFORMANCE SECURITY
Within twenty-eight (28) days after receipt of the notification of award, the
successful Bidder shall furnish. The performance security for ten percent 10% of
the Contract Price and in the form provided in the section -Forms and Procedures
of the bidding documents or in another form acceptable to the Employer.
In case Joint Deed(s) of Undertaking by the Contractor along with his
associate(s)/collaborator(s) form part of the Contract, then, unconditional Bank
Guarantee(s) from such associate(s)/collaborator(s) for amount(s) specified in Sid
Data Sheets shall be furnished within twenty eight (28) days after Notification of

Award. These Bank Guarantees shall be furnished in the form provided in the
section "Forms and Procedures· of the bidding documents and shall be valid till
such period as specified in the corresponding format for Deed of Joint
Undertaking.
In case of a successful foreign bidder, if the Employer accepts to enter into
the Second Contract and I or Third Contract with the Assignee, pursuant to ITS
Sub-Clause 28.4 above, then, within twenty eight (28) days after Notification of
Award, assignee shall furnish additional performance security for ten percent
(10%) of the value of the Contract entered into with assignee and the form
provided in the section "Forms and Procedures· of the bidding documents.
ADJUDICATOR
Adjudicator under the contract shall be appointed by the Appointing

Authority as mentioned in the Bid Data Sheets.
The adjudicator shall be paid fee plus reasonable expenditures incurred in
the execution of its duties as Adjudicator under the contract. These costs shall be
divided equally between the Employer and the Contractor
SPARE PARTS PROCUREMENT
Most or the NTPC procurements are related to equipment. On an average the

average economic life of a NTPC owned plant is considered to be 25 years and
depreciation is taken into account considering these 25 years. Hence during the
life lime of the equipment it will definitely require spares as well as some
consumables. Hence NTPC has incorporated a clause in the Bid Documents
issued to the bidders called SPARE PARTS. This clause has three sub clauses
that take care of different types of spare pans required during the lifetime of the
plant
If NTPC finds -that certain spare parts are mandatory for the plant operation, it
specifies so in the Technical specification. In such cases, the item wise price
breakdown of such spares on a ClF (India Port)/Ex Work's (India) basis is to be
included in the bid by the bidder. However these prices will be free form
escalation and should be indicated separately. The prices of spare parts shall
also come into picture while evaluating the bid. During the six months starting
from signing the contract, NTPC will have the right to increase or decrease the

number of spare parts to be procured. In addition, the bidder may by his own
experience provide a complete list of recommended spare parts for an
operational period of three (3) years for the equipment supplied. "The list should
be complete providing the details of how many of the suggested spare parts are
present in the equipment supplied as well as their expected operational life. The
bidder shall further indicate item wise price break-up on for site basis. The prices
quoted in the list shall be valid without any escalation for a period of not less than
six (6) months after the placement of order for Power Plant Turnkey Equipment
Basis. But this additional recommended spare parts list will not be taken into
consideration while evaluating the bid. However a specific clause in the General
Condition of Contract makes the supplier provide a list of addresses of all the
sub-supplier who provide the spare parts. The clause is "The Contractor will
provide the Owner with all the addresses and particulars of his sub-suppliers
while placing the order on vendors for items/components/equipment covered
under the Contract and will further ensure with his vendors that the owner, if so
desires, will have the right to place orders for spares directly on them on mutually
agreed terms based on offers of such vendors.
In addition, to cater to any exigency arising during the start-up and initial
Operation stages up to the satisfactory completion of Trial Operations due to
enfant mortality of items/components/consumable hardware, the bidder shall at
his own cost shall arrange and maintain an inventory of such items so as not to
have any major interruptions during the period from start up to Trial Operations.
PROCUREMENT OF FOREIGN SPARE PARTS
Many of the plants of NTPC are manufactured by foreign manufacturer. Hence

during the lifetime of the equipment, it may require many spares parts and
consumables. But to acquire these spare parts .there is no specific method
followed by NTPC. However in such a case the list of authorized agents of
manufacturer producing the parts is obtained from the manufacturer itself. If the
listed dealer is only supplier of manufacturer, the procurement is made through
single tender .Else a normal procurement procedure is followed.
For example a plant monitoring equipment was in need of batteries and a
connecting cable. Both the items were proprietary in nature and the firm had only
one authorized dealer providing the required material. Hence the dealer was

issued a single tender for supplying the required spares. Similarly in case of a
Diesel Generator Set which was manufactured by a US firm had only one
authorized service provider in the locality and hence a price list for the
components used in the DG Set was acquired from the manufacturer and the
contract was awarded to the sole service provider. In case of bigger value spare
parts a three year supply of the spare parts is guaranteed by the supplier at the
time of supplying the equipment and for further requirement of the spares the
vendor may be contacted or a global tender may be issued high value spares not
manufactured by any Indian firm or being imported by an Indian firm.
However the payments for both the types of spares will be made in following
manner,
Upon dispatch and against invoices and shipping documents :75%
On receipt and storage at Site on physical verification by the engineer: 25%
PAYMENTS:
Payment is the most important term for any contract. Hence the General
Condition of Contract deals the terms of payment. There arc various sub clauses
to this clause. The first clause deals with the currency of payment. The clause
specifically mentions that “the Contract Price shall be paid in the currency or
currencies in which the various price components have been stated and as
incorporated in the Contract”. Once the currency is settled and accepted by both
parties, the due date for the payment must be decided in advance. The payment
is generally made in parts. Once the contract is awarded, an Initial Advance
payment is made to the Contractor and afterwards payments against dispatch,
progressive completion of works and then a final payment is made to the
contractor. Whenever a payment has to be made it is divided into two parts (if
applicable), the Indian Rupee component and foreign currency component. The
due date for initial foreign currency component for the advance payment is 60
days from the award of the contract and 30 days for the Indian rupee component.
The Initial Advance payment is done automatically however the payments against
dispatch and payments against partial work completion are made after the
contractor applies for it. Once the contractor applies for payments, the validity of

the application is checked and the invoices or completion report by the engineer
is sought. This report is known as Interim Payment Certificate and it certifies the
value of the contract executed till the date of completion. However if any part of
the work completed docs not comply with the Contract or has been done
prematurely according to the master schedule provided at the time of the
contract, the NTPC shall not pay for that part of the work.
MODE OF PAYMENT: All the payment on the dispatch will be made in form of
Letter Of Credit (L/C) in favor of the contractor. The issue of Letter of Credit shall
be valid for a period of three months from the date of issue. The utilization of this
L/C however is sole responsibility of the contractor. Once the good is received at
the site and possession is taken by NTPC only then the payment will be made to
contractor’s Banker through Owner’s bank.
The payment for advance, Taxes and duties inland transportation, insurance and
erection portion of works and Type test charges (if any) will be directly made to
contractor.
PART PAYMENT: When NTPC agrees to pay the contractor in part with each
additional phase of plant completion, or each new lot of equipments/ material
received follows a payment schedule and regulation to make the payment. This
schedule is arrived at by analyzing the various component required in the delivery
of the equipment / material received or dispatched or it may issue at advance
made to contractors supplies for the procurement of the equipment/material. For
analysis purpose we have taken the schedule that has been used for TANDA
Thermal Power Station.
NATURE OF % OF TOTAL % OF EX-WORK CONDITION OF

PAYMENT EX-WORK PRICE ON PRO- PAYMENT
PRICE OF RATA BASIS
EQUIPMENT

a) Initial Advance 10% ------------------- In ref. to GCC
b) Pro-rata
payment against ------------------ 60% On producing
dispatches invoice and
satisfactory
evidence.
c) Pro-rata -------------------- 20% Physical
payment on item variation &
received certificate by
Engineer of test
results.
d) On successful
completion of 10% -------------------
performance and
guarantee test
The owner will reimburse all the taxes and duties applicable to material
purchased by the NTPC in full once the dispatch of the equipment is proved with
enough documentary evidences. However the payments for the inland
transportation and insurance will be paid only after the material is received at the
site by owner. As far as the type-test charges are concerned, it will be paid in full
after successful completion of the test. However the owner reserve the right to
waive off any or all Type Test and all the cost of the test shall be deducted form
the total value of the contract as per rate mentioned in the Bid Proposal Sheet.
ESCALATION FACTORS:
Escalation factors or Contract Price Adjustment is an Endeavor to protect the

interest of the contractor as well as that of NTPC. The escalation factor is a

derived value by which the prices of materials vary or may vary on some date in
future. The clause is a very detailed. Clause and covers every aspect of the price.
For the price adjustment purposes, only following components will be considered.
Ex-factory price for the equipment / material for the Indian origin and FOB price
component for the equipment / material of non-Indian origin (excluding spares)
subject to ceiling of 20%. In case of Indian contractor, for any equipment /
material etc. imported by him for the purpose of performance of the contract,
which is dispatched directly from the port of disembarkation to the site the words “
ex-factory price” shall be deemed to mean the price of equipment / material as it
is dispatched from the port of disembarkation to the project site.
ERECTION COMPONENT
For the escalation of price in case of equipment / material, all the ex-factory
prices will be fragmented as Fixed Portion of price and the variable portion of the
price .The variable portion of price, assume to fluctuate with the changing labor
and material indices. The indices are obtained from the list of industrial Indices
published by the Ministry of Industries, Ministry of Labor and the Office of the
Economic Adviser, Govt. of India. Labour Bureau, Simla, publishes the labour
index or Consumer Price Index for Industrial Workers whereas the Economic
Adviser of the Govt. of India publishes the Material Index, or Index no of
wholesale price under group "All Commodities"
Hence based on the above-mentioned indices and price components, the
escalation will be calculated as illustrated below.
PRICE ADJUSTMENT FOR Ex-FACTORY /FOB PRICE OF EQUIPMENT
Let us assume that dEC is the escalated price component and ECo is the original
price. EC1 is the adjusted Ex factory price.

Hence
dEC= EC1 – EC0
a A1 x f1 b B1 x f2 cC1 x f 3 l L 1 x f1
EC1= EC0 x {F + + + +---------------+ }
A B C L0
A, B, C etc. = Published price indices of corresponding Major material / items

such indices shall necessarily be in the country of origin of goods.
.
L = Labour index.
l
F = Fixed portion of Ex- factory Price / FOB price component of
equipments
a ,b, c, etc. = Coefficient of major materials involved in the ex-factory /FOB price
of the equipment / material expressed as component of contract price.
L = co-efficient of Labor component in Ex-factory / FOB price of the

equipment / Material
f1, f2, f3 etc = Exchange rate correction factor for respective material and f1 is
the ex-change correction factor for labor with reference to the currency of the
country of index and respective contract currency such that
Zo
f =
Z1

Where Z is the number of units of currency of the country of origin of the index,
which is equivalent to one unit of respective contract currency.
PRICE ADJUSTMENT FOR ERECTION COMPONENT:
For Indian rupees component of Erection Price.
dER =ER1-ER0
And ER1=ER0 * (0.15 +0.85 F1/F0)
b) For Foreign Currency portion of Erection Price.
dEE =EE1-EE0
And EE1=EE0 * (0.15 +0.85 EF1/EF0 x f)
F = Indian Field Labour Index- namely All India Consumer Price Index for
Industrial. Workers, as published by Labour Bureau, Simla of the Government of
India.
EF =Index for Expatriate Field Labour component of the erection work as agreed
in the Contract.
f = Exchange rate correction factors for respective materials and 11 is the

exchange rate correction factor for labour with reference to the currency of the
country of index and the respective contract currency such that ;
Zo
f =
Z1

which is equivalent to one unit of respective contract currency
Note:
Subscript zero '0' will correspond to thirty days prior to the date of bid opening in
all cases and date of bid opening in case of ZO.
Subscript one' I' will correspond to the billing period.
iii) The price variation calculated by above formula will not be subject to any
ceiling unless specified in the Special Condition of Contract.
3. PRICE ADJUSTMENT FOR CIVIL WORK COMPONENTS
All the prices quoted by the bidder shall be the Base Prices which will· be
subjected to Price Adjustment. A fixed component of the civil work price will be
firms and sans any price adjustment. Balance portion will be subjected to price
adjustment. The' adjustment will be calculated as followed:
dCV = CV1-CV0
Lb L1f1 m M1 f2 d D 1 f3
CV1= CV0 x (F + + +)
L0 M0 D0
F = Fixed Portion of the Ex factory Price/FOB component of the equipment.

(The value may change from project to project).
m = Material component of the contract price.
d = High Speed Diesel component of the contract price.

L = Labour Index which shall be index number of consumer price index for
industrial workers as published by Labour Bureau or India in their monthly bulletin
entitled INDIAN LABOUR JOURNAL.
Lb = Labour component of the contract priced
M = Material Index which will be Index number of wholesale price under group
all commodity as published by Ministry of Industry from the country of Origin.
D = High Speed Diesel price per litre, which will be price of high -speed diesel at
the Indian Oil Corporation retail outlet nearest to project.
f1, f2,f3 = exchange rate correction factor for labour with reference to the
currency of the country of index and the respective contract currency such that
Zo
f =
Z1
which is equivalent to one unit of respective contract currency.
Notes:
Subscript '0' refers to the value of the above mentioned labour/material indices for
diesel price as on 7 days prior to the date of opening the bids.
Subscript 'I' refers to the values of corresponding labour/material indices or diesel

or diesel price as applicable for the month prior to the month in which the work is
executed.
ii) The total Price Adjustment amount shall not exceed 15% in any case.
TOTAL ADJUSTMENT TO CONTRACT PRICE:

To calculate the total adjustment required to be done in the contract –price,
we sum up all the item wise price adjustment and are applied to the total
contract price in order to get the exact value of the contract on the date of the
evaluation or for making the payments.
Total Price Adjustment = dEC+dER+dEE.
The price adjustment for various components of the contract is thus derived thus
derived is then applied to the contract price and a suitable and practical price is
obtained from the historical cost data available. This adjustment is highly project
specific because the percentage of the various components used in the project
changes. Hence every time a new project is executed, a new set of price
adjustment is arrived at by using the formulae discussed above and putting the
actual figure of the materials to be used by the project.
ARBITRATION
Despite all the care taken and all the irregularities avoided there are times when
the relationship between the supplier and purchaser becomes bitter. In that case
to avoid any legal complications a set of arbitration rules are laid down and
agreed upon in advance. These rules are indisputable and are accepted by both
the parties. Some of the important arbitration clauses are mentioned here.
1) In the event of any query, dispute or difference whatsoever arising under this
contract or in connection with any question relating to existence, meaning and
interpretation of [his contract or any alleged breach thereof, the same will be
referred to the sole arbitrator of the General Manager of the NTPC or to a person
appointed by him for the purpose. The arbitration shall be conducted in
accordance will the provisions of Indian Arbitration Reconciliation Act, 1996
2) It will be no objection that the Arbitrator is an interested person and/or that he

had to deal with the matters to which the contract relates and/or in the course of

his duties he expressed any view on any mutter in dispute. The award of
arbitrator shall be final and binding.
3) In the event of Arbitrator dying, neglecting, resigning or being unable to act for
any reason or his award being set aside by the court for any reason, it will lawful
for the General Manager of the NTPC to appoint another Arbitrator in place of the
outgoing Arbitrator.
4) It is further terms of this agreement that no person other than the person shall
act as an Arbitrator and that, if for any reason that is not possible, the matter
should not be referred to arbitration at all.
5) The Arbitrator may from time to time, with the consent of nil parties enlarge the
time ill making the award.
6) The cost incidental to the arbitration shall be at the discretion of the Arbitrator;
the arbitration shall be conducted in NEW DELHI or at such other places where
arbitrator may decide.
7) Not withstanding any dispute between the parties Supplier shall not be entitled
to withhold delay or defer his obligation under the contract and same shall be
carried out strictly in accordance with terms and condition of contract.
8) In the event of dispute or difference arising between parties the public sector
enterprise and Government, the provision of BPE office memorandum No
BPE/GL001/76/MAN/2110-75-BPE (GML-1) dated 1st January 1976 shall be
applicable.

ILLUSTRATING ON TENDERING
SUB: EVALUATION REPORT FOR FIRE PROTECTION SYSTEM PACKAGE

FOR STPP, STAGE II (2X500 MW)
1.0 BRIEF SCOPE OF THE WORK

The scope of work for the subject package includes design, engineering,
compliance with statutory requirements and obtaining clearances from
statutory authorities, wherever required, manufacture, inspection and
testing at manufacturer’s work or supplier’s work, packaging and
transportation from the manufacturers work to the site including customs
clearance and port clearance, port charges (if any), insurance, receipt,
unloading, handling, storage and in plant transportation at site, fabrication
at site, fabrication, pre assembly (if any) installation, testing and
commissioning including successful completion of trial operation and
performance and guarantee testing of fire protection system complete with
all associated civil works including furnishing of spare at site, reconciliation
with customs authorities (in case of foreign bidders) as per specifications
and scope defined in bidding documents.
2.0 FINANCING
The subject package is envisaged to be financed through external

borrowing, Internal and other sources.
3.0 COST ESTIMATE
The approved cost estimate for the subject package is rs.2363.74 lakhs
including CST and service tax
4.0 INVITATION FOR BID & BID RESPONSE
4.1 The bids for the subject package were invited under international
competitive bidding (ICB) procedures. The abridged Invitation for
Bid (IFB) was published in leading newspapers during third week of
May’2006 and Indian Trade journal on 9.6.2006. The detailed IFB
was displayed on internet.
4.2 As per the provisions of IFB, the bidding documents were on sale
from 18.05.2006 to 19.06.2006. in the response the following 9
parties had purchased the bidding documents:
• M/S L6 New Delhi

• M/S L2 Mumbai
• M/S L7 Germany
• M/S L8 Dubai
• M/S L1 ltd. Japan
• M/S L9 ltd.
As per the provisions of IFB, the bids were scheduled to be

opened on 14.7.2006. however, in view of requests received from
prospective bidders and issuance of various amendments or
clarifications to bidding documents, the bid opening date was
extended to 4.8.2006. The bids were finally opened on 11.8.2006 in
the presence of representative of the bidders who chose to attend.
Out of nine parties who had purchased the bidding documents, the
bid were received from following 5 parties:
I. M/s XYZ ltd., Japan (XYZ)

II. M/s ABC Ltd, Mumbai (ABC)
III. M/s PQR ltd, New Delhi (PQR)
IV. M/s UVW, New Delhi (UVW)
V. M/s LMN Ltd., Chennai (LMN)
5.0 Quoted Prices
5.1 the prices quoted (considering rebates/discounts, wherever applicable) by all

the participating bidders are bought out below:
S.NO Name Of the Total Quoted Price Discount Offered Net Quoted Price
Bidder without after considering
discount/rebate the discount
1 L1 XYZ US $ 761592.57 9.2% on sch2 *269782648
+ Rs 262826314 price of Rs

202117467
2 L2 ABC Rs. 279016673 Nil 279016673

3 L3 PQR Rs. 352187305 19.5% on 285264337
Rs.343194705
4 L4 UVW Rs. 287895809 Nil 287895809
5 L5 LMN Rs. 297250000 Nil 297250000
Exchange rate of US $ = Rs 45.81 i.e. SBI BC selling rate as on 11.8.05 has

been considered.
5.2 The break up of prices as quoted by all participating bidders along with
details of discount is brought out in Annexure VI of every document
submitted.
6.0 Preliminary Evaluations of Bids
BID SECURITY
As per the provisions of ITB clause 12 & BDS Item no. 4 each bidder is
required to furnish a bid security for an amount equivalent to Rs.
47,28,000/- in currency of bid or in US dollars, which should be valid for
the period of 45 days beyond original bid validity period i.e. 225 days from
the date of bid opening (225 days from bid opening works out as
24.3.2007)
all the bidders who have participated in the bidding have furnished the bid
security, for the amount and in the form specified in the bidding documents.
However, the validity of bid security furnished by PQR and UVW are 6 days and
51 days short of the specified period to other bidders. The details of Bid security
submitted by all the 5 participating bidders are brought out at annexure V of the
bid submitted by bidders. As the shortfall in the validity of the bid security is
marginal, the bid security of PQR and UVW were accepted.
acceptance of important conditions

as per the clause ITB 21.5, no deviations whatsoever to the following provisions
of the bidding documents is permitted by the employer and the bidders are

required to give a certificate in the format as specified in bidding documents for
having taken no deviation to these conditions along with their bid. This clause
further stipulates that any bid not accompanied by such certificates shall be
rejected by the employer and returned to the bidder without being opened:
• governing laws (clause 5 of GCC)
• settlement of disputes (clause 6 of GCC)
• terms of payments (clause 12 of GCC)
• performance security (clause 13 of GCC)
• performance security for deed of joint undertaking (clause
13.1 of GCC)
• Taxes and duties (clause 14 of GCC)
• Completion Time Guarantee (clause 26 of GCC)
• Defect Liability (clause 27 of GCC)
• Functional Guarantee (clause 28 of GCC)
• Patents Indemnity (clause 29 of GCC)
• Limitations of Liability (clause 30 of GCC)
All the five bidders have furnished the certificate confirming their acceptance to
the aforesaid important conditions.
BID VALIDITY
the bids submitted by all the bidders are valid for a period of 180 days from the
date of bid opening as called for in the bidding documents.
PRICE BASIS
as per clause 10.7 of ITB prices quoted by the bidder shall be subject to
adjustment during performance of the contract to reflect changes in the cost of
labor, material etc. in accordance with the procedures specified in appendix 2 to
the form of contract agreement.
Further as specified a bid submitted with a fixed price quotation will not
be rejected, but the price adjustment will be treated a zero. The price
adjustment provision will not be taken into consideration in bid
evaluation. Bidders are required to indicate details in bid submitted by
them in attachment 17 of the bid.

As may be seen from the para 6.2 above, all the bidders have confirmed their
acceptance to the specified provision on price adjustment while submitting the
required certificate.
POWER OF ATTORNEY
All the bidders are required to enclose power of attorney to sign the bid.
And same has been done by all the 5 bidders to the contract.
completeness of the bids

As per the clause mentioned in ITB bidders were required to complete the bid
form and the appropriate price schedules & attachments. All the bidders have
furnished the relevant schedules & attachments. However, in certain schedules &
attachments details or the required break up have not been furnished by the
bidders.
Bids of all the five bidders generally cover the complete scope of work except
certain deviations and other discrepancies.
ARITHEMATICAL ERRORS
As per the one of the clause in ITB of bidding documents, arithmetical
errors are rectified on the following basis.
Quote
If there is discrepancy between the unit price and the total price, which is
obtained by multiplying unit price and quantity or between subtotal and
the total price, the unit or sub total price shall prevail and the total price
shall be corrected. If there is a discrepancy between words and figures
the amount in words will prevail. If the bidder does not accept the
correction of errors, its bid is rejected and the bid security is being
forfeited in accordance with clause in ITB.
Unquote
6.7.2 it may be noted that no arithmetical error was observed in the bid
XYZ, however certain arithmetical errors was observed in the bids of rest
of 4 bidders i.e. UVW,ABC,POR,LMN. The details of the arithmetical
corrections are as follow:

6.7.2.1 Arithmetical error in the bid ABC
There was no error in the schedule 1, schedule 2 and schedule 3.
however, schedule 4 when the installation price was calculated by
multiplying unit rate with specified quantity, there was an error of Rs.
+585/- , further there was totaling error of Rs. (-) 357/- in schedule 4 and
accordingly the total arithmetical error observed in ABC’s Bid workout to
be +228.
6.7.2.2 Arithmetical error in the bid PQR

Arithmetical errors was observed in bid PQR in respect of certain items,
which have been corrected by multiplying the unit rate with specified
quanity, to arrive at the corrected price. It was observed that the total of
schedule 2 price worked out to Rs 27,67,75,390/- instead of Rs
27,77,03,635 as indicated in PQR. Similarly the total price of schedule 4
worked out to Rs.7,56,42,359/- instead of Rs.6,54,91,070/- as indicated
by PQR. After considering the rebate of 19.5% the total arithmetical error
observed in PQR’s bid worked out to + Rs 74,24,551/-
6.7.2.3 Arithmetical error in the bid of UVW
It was observed that there was no error in quoted price in schedule 1,
schedule 2 and schedule 4 of the bid of UVW; however, there was totaling
errors in schedule 3. The total price for schedule 3 worked out to be Rs
1,19,20,286/- instead of Rs 1,13,92,092/- thus the total arithmetical error
observed in UVW’s bid worked out to be + Rs 5,28.194/-
6.7.2.4 Arithmetical errors in the bid of LMN

Arithmetical errors was observed in bid of LMN in respect of certain items,
which was corrected by multiplying the unit price and specified quantity, to
arrive at the corrected price. In schedule 1, the total price for main
equipment and spares worked out to Rs 41755896 instead of 46120135
as stated by the bidder. In schedule 2 the total price of main equipment
and spares worked out to be Rs 225796948 and Rs 12266574 instead of
Rs 225229631 and Rs 13595020 as indicated by the bidder. Further the
installation price indicated in schedule 4 worked out to be Rs 27949012/-
instead of Rs 34084462/- as stated by bidder. Accordingly total
arithmetical error worked out to be (-) Rs 1,12,60,818/-

6.7.2.5 The computed price of all the bidders after considering the
arithmetical correction is given below:
s.no. Name of Total quoted price after Arithmetical Total computed

the bidder considering discount error price
1 L1 XYZ 26,97,82,648 NIL 26,97,82,648
2 L2 ABC 27,90,16,673 + 228 27,90,16,901
3 L3 PQR 28,52,64,337 +74,24,551 29,26,88,888
4 L4 UVW 29,72,50,000 -12,60,818 28,59,89,182
5 L5 LMN 28,78,95,809 +5,28,194 28,84,24,003
7.0 PRICE PREFRENCE

7.1 As per the clause mentioned in ITB for granting the price preference
the bid price of all the bidders was increased by 15% of the CIF
component contained in the bid.
7.2 The bidders are required to indicate the CIF value of import contents
of supply to be made by the bidders and its assignee (if applicable)
including its sub contractors or sub vendors. This is mentioned in the
attachment 9 of bid form.
7.3 The CIF content as indicated by the bidders in their bids is as follow:
S.No. Name of CIF value of Import Content In Total CIF value of
the Bidders bid Currency Import Content in
Equivalent Indian
(In Sch I) In attch. 9 Rupees. (Rs.)
1 XYZ US$761592 *US$761592 71102282
2 ABC Rs. 42502173 * 42502173 85004346
3 PQR - US$648280 30261710
4 UVW Rs. 55353736 - 55353736
5 LMN 46120135 NIL 46120135
Exchange Rate Considered : 1 USD = Rs. 46.68 SBI BC selling

Apeejay
rateInstitute
as on OBD of
i.e. Technology
11.8.2005 School of Management Page 76
It may be noted that amount indicated in schedule I was indicated in
attachment 9 also by both XYZ & ABC. Intentions of the bidder is not
clear ,however, for the purpose of evaluations import content indicated in
schedule I and attachment 9 was considered for the purpose of
evaluations. This aspect was discussed and ties up suitably with the
bidder in case of award.
7.4 Based on the above, price preference was worked out as 15% of the
CIF value of the import content and the same was considered for the
evaluations as under:
s.no. Name of the Total CIF value of the import Price Prefrence
bidder content in Indian Rupees
1 XYZ 71102282 10665342
2 ABC 85004346 12750652
3 PQR 30261710 4539256
4 UVW 55353736 8303060
5 LMN 46120135 6918020
8.0 preliminary evaluated prices

8.1 considering the quoted prices, arithmetical corrections and the price
preference, the preliminary evaluated prices of the all bidders are as follows:
(All figures in Indian Rupees)

S.No. Name of Total quoted Price Price Preferences Preliminary
the bidder (after arithmetical Evaluated price
corrections)
1 XYZ 26,97,82,648 1,06,65,342 28,04,47,990
2 ABC 27,90,16,901 1,27,50,652 29,17,67,553
3 PQR 28,59,89,182 69,18,020 29,29,07,202
4 UVW 28,84,24,003 83,03,060 29,67,27,063
5 LMN 29,26,88,888 45,39,256 29,72,28,144
8.2 Short Listing
It is visible from para 8.1 above that the preliminary evaluated price of UVW, PQR
and LMN are substantially higher as compared to preliminary evaluated price of
other two bidders i.e. XYZ and ABC. As such the bids of the lowest two bidders
i.e. XYZ and ABC has been taken up for the detailed evaluations.
9.0 detailed evaluation

9.1 The detailed commercial and technical evaluation of the bids submitted by
XYZ and ABC was carried out in accordance with the stipulations of bidding
documents and was presented in section II & section III of this evaluation report
entitled commercial evaluation report and technical evaluation report respectively.
9.1.1 as per clause 8.3 (f) of bidding documents, in case of any deviations to the
provisions of bidding documents, the bidders are required to list the deviations
only in attachment 6 to the bid form. The stipulation of the bidding documents in
this regard is quoted below:
Quote:
Deviations, if any, from the terms and conditions of the bidding documents or
technical specifications was listed only in attachment 6 to the bid. The bidder
shall also provide the additional price. If any, for withdrawal of the deviations.
However, the attention of the bidders is drawn to the provisions of ITB sub clause
21 regarding the rejection of bids that are not substantially responsive to the
requirements of the bidding documents.

Bidders may further note that expect for deviation listed in attachment 6, the bid
shall be deemed to comply with all the requirements in the bidding documents
and the bidders shall be required to comply with all such requirements of bidding
documents and technical specifications without any extra cost to the employer
irrespective of any mention to the contrary, any where else in the bid, failing
which the bid security of the bidders may be forfeited.
At the time of award of the contract, if so desired by the employer, the bidder
shall withdraw these deviations listed in attachment 6 at the cost of withdrawal
stated by him in his bid. In case the bidder does not withdraw the deviations
proposed by him , if any, at the cost of withdrawal stated in the bid, his bid will be
rejected and bid security forfeited.
Unquote
9.1.2 Accordingly, the deviation listed by bidder in attachment 6 has been
considered for evaluation and have been cost compensated, wherever required.
The other deviations or observations or variations though not listed in attachment
6 but elsewhere in the bid have been listed in relevant annexure of commercial
evaluation report i.e. section II and technical evaluation report (section III), for
recommended bidders only.
However, no cost compensation has been considered on account of the
deviations not stated in attachment 6 as these will be required to be withdrawn
by the bidders without cost implications in line with the bid conditions.
9.2. Detailed commercial evaluations

The detailed commercial evaluations of XYZ and ABC are presented in section II
entitled commercial evaluation report. Salient points of commercial evaluation in
respect of the deviations observed in the bids are presented here under:
9.2.1 XYZ
Bidder has not taken any commercial deviation in this attachment 6 and
accordingly as may be seen from the details enclosed in annexure IIA of section
II no cost compensation has been considered for the purpose of evaluation.
9.2.2 ABC

Bidder has not taken any commercial deviation in this attachment 6 and
accordingly as may be seen from the details enclosed in annexure IIA of section
II no cost compensation has been considered for the purpose of evaluation.
9.3 detailed technical evaluation
9.3.1 XYZ
The detailed technical evaluation of the bid of XYZ and ABC is presented in
section III of this evaluation report entitled “technical evaluation report”. Salient
points of technical evaluation in respect of the deviations observed in the bids are
presented hereunder been considered for the purpose of evaluation.
The mandatory spares and types tests offered by XYZ are generally in line with
the specification requirement.
9.3.2 ABC
The technical details of fire detection & protection system package offered by
XYZ are generally in line with specification requirements. Bidder has not taken
any technical deviation in this attachment 6 and accordingly no cost
compensation has been considered for the purpose of evaluation.
Certain deficiencies with respect to mandatory spares have been observed and
the same are also listed in annexure IID section III of this evaluation report. Price
implication due to scope of deficiency of mandatory spares work outs to be Rs.
9,76,165/-
9.4 quality assurance

It has been observed from the attachment 6 furnished by XYZ and ABC that they
have not taken any deviation on quality assurance issues. Further, evaluation of
the bid of afore mentioned two bidders have been carried out and is discussed in
Technical Evaluation Report, section III.
10.0 Work Schedule

10.1 as per the item number 9 of bid data sheets in bidding documents, the
completion of facilities (including trial operations) has been specified as 26
months from the date of notification of award for unit 4 and 31 months for unit 5
respectively.

10.2 The work schedule quoted by XYZ and ABC in attachment 16 is in line with
the schedule mentioned above. The detailed work schedule shall be discussed
and finalized with successful bidder.
11.0 FINAL EVALUATED PRICES
11.1 Based on the detailed evaluation of bids of XYZ and ABC, the final
evaluated prices of these bidders’ works out as under:
(All figures are in Rupees)

S.No. Description XYZ ABC
1 Preliminary Evaluated Price 28,04,47,990 29,17,67,553
2 Cost Compensations NIL NIL
3 Commercial NIL NIL
4 Technical NIL NIL
5 Deficiency in mandatory spares NIL NIL
6 Final Evaluated Price 28,04,47,990 29,27,43,718
11.2 As may be seen from the detailed evaluation at para 11.1 above, XYZ’s bid
has been found to be the lowest evaluated technically and commercially
responsive bid.
11.3 The taxes and duties as applicable for direct transaction between the
contractor and NTPC and as quoted by the bidder in schedule 7 though payable
by NTPC are not to be considered for evaluation as per the provisions of bidding
documents and accordingly, the same have not been considered in evaluation.
However, the taxes and duties quoted XYZ and ABC are as indicated below:
11.3.1 In schedule 7, XYZ have been indicated as “NONE” towards central sales
tax, local sales tax, entry tax/ octroi and any other tax or duties in their bid.
11.3.2 in schedule 7, ABC have indicated as “NIL” towards central sales tax, local
sales tax, entry tax/octroi and any other tax or duties in their bid.
12.0 Fulfillment of qualifying requirements

12.1 The following stipulations are indicated against ITB clause no. 8.3 (c) of
section II of bidding documents:
Quote:
In the absence of pre qualification, documentary evidence establishing that the
bidder is qualified to perform the contract, if its bid is accepted, shall be furnished
in attachment 3 to bid.
The documentary evidence of the bidder’s qualifications to perform the contract, if
its bid is accepted, shall establish to the employer’s satisfaction that the bidder
has the financial, technical, production, procurement, shipping, installation and
other capacities and capabilities necessary to perform the contract and meets the
experience and other criteria outlined below:
The bidder shall provide satisfactory evidence that he and/or, where applicable,
his collaborator or associate.
i) Is a supplier, from an eligible source country, who regularly
manufactures equipments of the type specified and/ or undertakes the
type of work specified and has adequate technical knowledge and
relevant experience for the works covered in the bidding documents.
ii) Does not anticipate a change in ownership during the proposed period
of execution of work (if such a change is anticipated, the scope and
effect thereof shall be defined).
iii) Has adequate financial stability and status to meet the financial
obligations pursuant to the works covered in the bidding documents.
iv) Has adequate capability and capacity to perform the work properly and
expeditiously within the time period specified. The evidence shall
specifically cover with written details the installed manufacturing and/or
fabrication capacities and present commitments (excluding those
anticipated under this specifications) of the bidder. If the present
commitments are such that the installed capacity results in an
inadequacy of manufacturing and/or fabrication capacities to meet the
requirements appropriate to the works cover in his bid, then the details
of alternative arrangement to be organized by the bidder for this
purpose and which shall meet the employer’s approval, shall also be
furnished.
v) Has an adequate field service organization to provide the necessary
field erection and management services required successfully erecting,

testing and commissioning the equipment/ systems are required by the
bidding documents.
vi) Has established quality assurance systems and organization designed
to achieve high level of equipment/ system reliability, both during
manufacturing and/ or fabrication and field installation activities.
In addition to the requirements stipulated above, the bidder should also meet
the qualifying requirements stipulated in item 3 of bid data sheets.
Unquote:
12.2 The following has been mentioned in item no.3 of bid data sheet:
In addition to qualifying requirements stipulated under section II,
instruction to bidder (ITB), the following shall also apply:
Quote:
12.2.1 The bidder should have designed, supplied, erected and
commissioned atleast 2 fire detection and protection systems
consisting of the systems described in (a), (b), (c), (d) below, in a
single contract of value not less than Rs.40 million or equivalent, in
industrial or commercial installations.
These systems must have been designed to the recommendations
of Tariff Advisory Committee of India or any other International
reputed authority and the systems should be in operating condition
for a period of not less than two years as on date of bid opening:
a. Fire hydrant system
b. Automatic high velocity water sprays or medium velocity water
spray or sprinkle system
c. Fire water pumping and pressurizing arrangement
d. Fire detection and alarm system comprising of smoke detectors
or heat detectors, interconnecting cable network and fire alarm
panels.
And
12.2.2 Bidder should have achieved an average annual turnover of Rs.
200 million or equivalent in the last three financial years.
Unquote:

12.3 As may be seen from the detailed evaluation at para 11.1 above, XYZ’s
bid has been found to be lowest evaluated bid. Accordingly, the
qualification data of XYZ has been analyzed and is presented as given
below:
12.4 Fulfillment of qualifying requirements by XYZ
The analysis of XYZ with respect to their meeting the general qualifying
requirements mentioned in clause 8.3 (c) of ITB, based on the data
furnished by them in their bid has been carried out and is presented
below:
(i) As per clause 2.2 of ITB all countries are eligible
source countries therefore XYZ is a supplier or
contractor from eligible source country. On perusal of
details furnished by XYZ in the bid and as discussed
at para 12.5.1 below, it is observed that XYZ have
executed ten fire protection packages for various
electric power companies, gas plants and other clients
and are executing fire works for fire protection. From
the above, it emerges that XYZ is a contractor who
regularly undertakes the type of work specified and
has adequate technical knowledge and relevant
experience for the work covered under the bidding
documents.
(ii) XYZ has confirmed that they do not anticipate any
change of ownership and scope during the proposed
period of execution of subject work.
(iii) It also evident from the analysis of financial data that
XYZ appeared to have adequate resources and
stability to execute the subject contract.
(iv) As per one of the clause of ITB it shows that capacity
and capabilities of XYZ has been analyzed from the
details enclosed by them in their bid. It emerged from
the analysis that XYZ has adequate capabilities to
execute the subject contract, if awarded.

12.4.2 In support of meeting the qualification requirements the bidder
in attachment 3A of their bid has declared the annual turnover
for the last three years that is as follow:
S.no. Financial Year In US $ In Indian rupees

1 2003-2004 562.17 27484.49
2 2004-2005 619.96 29541.09
3 2005-2006 682.60 33372.31
Averag Annual Turnover 621.58 30132.63
e
From the above table the average turnover of the XYZ comes
outs to be 621.58 US$ equivalent to Rs 30132.63 million against
NTPC’s requirement of Rs.200 million as specified.
13. Comparison with Cost Estimate

13.1 The quoted price of XYZ in equivalent Indian rupees workouts
to be 26,97,82,648 and the same is higher by 14.3% as compared
to the approved cost estimate of Rs.2363.74 lakh.
Quote:
Review on basis of NIT cost estimate:
The bids for the subject package were opened on 11.8.2006 and the
quoted L1 price was 14.13% higher than approved NIT cost estimate
as communicated by contract service vide their IOM dated 13.8.2005.
The NIT estimate for the mechanical works was prepared on the basis
of L1 bid for kahalgaon II fire detection and protection package. Since
this bid was opened almost at the same time of the preparation of the
cost estimate, it reflected the latest market trend at the time of
preparation of cost estimate.
Updating the NIT cost estimate

Project Engineering (mechanical) water system vide their IOM has
informed that there are certain scope changes between BOQ which
was tendered and BOQ considered at the time of approval of NIT cost
estimate. Further, PE have informed that there is increase in scope of

work after initiation of the estimate and civil cost shall increase by 25%
due to increase in scope.
Unquote:
13.2 From the above It can be seen that quoted price of XYZ at US $
761592.57 + Rs. 234,231,507 (equivalent to Rs. 26,97,82,648) is
0.59% higher than the updated cost estimate.
14.0 AWARD RECOMMENDATION

In view of above, it is proposed to award the contract for fire
protection package for Sipat STPP stage II to M/s XYZ bosai ltd.,Japan
at a price of US $ 761,592.57 and Rs. 234,231,507/- (equivalent to Rs.
26,97,82,648)

Financial statement analysis
At

Financial statements
Financial statements are the end products of the financial accounting process.
Financial statements are the tools of presenting financial information about the
company in concise and capsule form. Financial information is the information
which is related to the financial position at the moment in time and the results of
series of activities over a period of time
Financial statements include Balance Sheet and Profit & Loss or income
statement & cash flow statement of the company.
BALANCE SHEET: Balance Sheet is one of the most significant financial

statements of companies. The Balance Sheet is a statement which reports the
values of properties owned by the enterprise and the claims of the creditors and
owners against these properties. It is the screen picture of the financial position of
the company.
PROFIT & LOSS A/C: it is flow statement which reveals result of operations for a
period of time. It is condensed and classified record of the gains and losses
causing change in the owner’s interest for a period of time.
CASH FLOW STATEMENT: it is statement which shows the cash requirement of

the company or the way through which company can meet its day to day
obligations. It is one of the most important components as it shows day to day
requirement of the company.

Financial Statement Analysis
Analysis of financial statements is the systematic numerical calculation of the

relationship between one fact with the other to measure the profitability,
operational efficiency and the growth potentials of the business. It includes three
major steps they are as follow:
(4) Selection of the information which is relevant to the decision under
consideration.
(5) Classification or grouping of the information in such a way that
significant relationship is established.
(6) Interpretation and drawing of inferences and conclusions by studying
these relationships.
Financial analysis can be used as the preliminary screening tool in selection of

stock in secondary market .It can be used as a forecasting tool of future financial
condition and results. It may be used as a process of evaluation and diagnosis of
managerial, operating, or other problem areas.
Financial statements analysis major techniques which inform about the position
and profitability of the company are as follow:
(1) Ratio Analysis
(2) Cash flow Analysis
(3) Trend Analysis

Ratio Analysis
Ratio Analysis is the process of determining and presenting the relationship of

items or group of items in the financial statement. It has emerged as a principle
technique for the analysis of the financial statements of the companies.
Ratio analyses help to know the operational efficiency, profitability and liquidity of
the company which is important for the external users as well as insider users of
the company.
Financial tools that help in ratio analysis are as follow:

(1) Liquidity Ratio
(2) Activity or Efficiency Ratio
(3) Profitability Ratio
(4) Capital Structure of leverage ratio
(5) Investment Analysis ratio

NTPC
YEAR 2006 2005 2004 2003 2002
1. Liquidity Ratio
1.1 Current Ratio
Current Assets 126958 102113 108193 172657 153063
Current liabilities 49102 52306 65244 34202 31881
current ratio 2.59 1.95 1.66 5.05 4.80
1.2 Quick Ratio
Quick Assets 103553 84336 90813 154945 132887
Current Liabilities 49102 52306 65244 34202 31881
Quick Ratio 2.11 1.61 1.39 4.53 4.17
1.3 Cash Ratio

Cash & Bank Balance 84714 60783 6091 5447 5511
Current Liabilities 49102 52306 65244 34202 31881
Cash Ratio 1.73 1.16 0.09 0.16 0.17
Liquidity Ratios
12
10
8 cash ratio
ratios
quick ratio
6
current ratio
4
0
2006 2005 2004 2003 2002
years
(1) Liquidity Ratio :

Liquidity means the firms or company’s ability to meet its current financial
obligations as they arise. Short term liquidity involves current assets and
current liabilities of the company. if the company has sufficient working
capital that is current assets are more than current liabilities then company
is said to be liquid enough to meet is current or day to day obligations.
There are few ratios to measure the liquidity of the company they are as
follow:
(a) Current Ratio:

Current ratio is the relationship between current assets and current
liabilities.
Current Assets
Current Liabilities
Current assets of the company represent those assets which can be in

ordinary course of business converted into cash within a period of one
year. It includes cash, marketable securities, debtors, inventories, loan
and advances given and prepaid expenses.
Current liabilities of the company are the obligations of the company

which are to be paid within a period of one year. It includes loan and
advances taken, creditors, accrued expense and provisions.
Ideally a company should have 2:1 current ratio its shows that company
has enough funds to meet its short term obligations. Higher the current
ratio better it is for company as it enhances the liquidity position of the
company and builds creditors and investor’s trust.
FOR NTPC:
Current Ratio has been very good over the years. Though it has fallen from 4.80
times in the year 2002 to 2.59 times in the year 2006 but it is still a good one. It
shows that the Company’s current assets are 2.59 times more than current
liabilities.

The current ratio of company shows fluctuating trend but has always been good
as current assets have always been more than current liabilities which shows that
firm has always enough funds to meet its day to day obligations.
(b) Quick Ratio:

It measures the instant debt paying capability or company’s ability to pay
unexpected demand for working capital. This ratio establishes the
relationship between quick or liquid current assets and current liabilities
Current assets – (Inventories + prepaid expenses)

Current Liabilities
Ideally it should be 1:1 but if the liquid ratio or quick ratio is more
than 1:1 than company seems to be sound and good. On the other
hand if it is less than 1:1 the company is said to be unsound.
For NTPC
Quick Ratio was 4.17 in the year 2002 which came to 2.11 in the year 2006,
indicating that the company is having quick assets to pay its current liabilities.
It was best in year 2003 of 4.53 and average in rest of the years. This shows that
company keeps enough liquid funds to meet its unexpected cash requirements or
obligations. For NTPC it shows that it can meet unexpected need for funds easily.
(c) Cash Ratio:

It measures the absolute liquidity of the company. it is a relationship
between absolute quick assets and quick liabilities.
Quick Assets includes cash, bank and marketable securities and
Quick Liabilities includes all current liabilities except bank over draft.
Absolute Liquid Assets
Quick Liabilities

Ideally it should be 0.5:1
For NTPC
Cash Ratio has increased from 0.17 times in year 2002 to 1.73 times in year
2006 showing the firm’s ability to quickly pay its debt, and more cash in its current
assets. This means over the year’s company has increased its cash balances
with itself and made itself more liquid in terms of the liquidity maintenance.
2. Activity or Efficiency
Ratio
2.1 Inventory Turnover
Ratio
Cost of Goods sold 224818 194734 160156 106156 147964
inventory at the end 23405 17777 17380 17712 20176
inventory turnover ratio 9.61 10.95 9.21 5.99 7.33
2.2 Receivables Turnover

Ratio
Net Sales 261153 225402 188519 190475 178153
Receiveables at the end 8678 13747 4699 124349 115328
Receiveables Turnover
Ratio 30.09 16.40 40.12 1.53 1.54
2.3 Total Assets

Turnover Ratio
net sales 261153 225402 188519 190475 178153
Total assets 717371 659483 596346 493319 450411
Total assets turnover ratio 0.36 0.34 0.32 0.39 0.40
2.4 Fixed Assets

Turnover Ratio
Net Sales 261153 225402 188519 190475 178153
Fixed Assets 460396 431062 400281 366106 328912
Fixed Assets Turnover
Ratio 0.57 0.52 0.47 0.52 0.54
2.5 C/ATurnover Ratio

Net Sales 261153 225402 188519 190475 178153
Current Assets 126958 102113 108193 172657 153063
Current Assets Turnover
Ratio 2.06 2.21 1.74 1.10 1.16
2.6 Working Capital Turnover Ratio

Net Sales 261153 225402 188519 190475 178153
Net Current Assets 95843 61606 54527 148282 119653
W C Turnover Ratio 2.72 3.66 3.46 1.28 1.49
ActivityRatio
60
50
WCTurnover Ratio
40
Current Assets
ratios
Turnover Ratio
30 FixedAssets
Turnover Ratio
20 total assets
turnover ratio
10 Receiveables
Turnover Ratio
0 inventoryturnover
2006 2005 2004 2003 2002 ratio
years
(2)Activity or Efficiency Ratio:

An activity ratio is the relationship between sales or cost of goods sold and
investment in various assets of the company. It is always expressed as
turnover. They are intended to describe how efficiently or intensively a firm
uses its assets to generate sales.
Some of the important activity or efficiency ratios are as follow:
a) Inventory or stock turnover Ratio:

It establishes the relationship between costs of goods sold and
average inventory. It is calculated to consider the adequacy of the
quantum of capital and justification for investing in an inventory. The
quantity of the stock should be sufficient to meet the demand of the
business and it should not be too large as it results in unnecessary
locking up of capital in stock.
Cost of Goods Sold

Average Inventory at cost
Here average stock is opening stock +closing stock

2
Cost of goods sold is computed as

(Opening stock + Purchase + direct expense) – closing stock
The ratio reveals the number of times finished stock is turned over
during a given accounting period in relation to sales. It also indicates
whether investment in inventory is within limit or not. The more high
the ratio the more profitable it is. Low ratio indicates dull business or
over investment in inventories.
FOR NTPC:
Inventory Turnover Ratio has increased from 7.33 times in the year 2002 to
9.61 times in the year 2006.indicating that NTPC maintained inventory 9.61 times
as compare to the year 2002 where it was 7.33 times. Since NTPC is into
business of power so it do not have its own inventory as such but for its business
it requires coal so here inventory is considered as coal which is not used for
selling purpose it can only show that how efficiently it is maintaining its current
inventory and inventory maintenance at NTPC is showing efficient results.
b) Receivable Turnover Ratio:

How far the company is efficient or successful enough in realizing
its credit debtor’s turnover ratio is being calculated. It establishes
relationship between net credit sales and average receivables of
the year.
Net Credit Sales
Average Receivables
Credit sales means all credit sales minus the sales returns. Or else
a total sale is considered as credit sales.
Average Receivables are computed as:
Opening Debtors and B/R + closing Debtors and B/R

2

For NTPC
Receivables Turnover has also rose from 1.54 times in the year 2002 to 30.09
times in the year 2006 indicating NTPC collected its outstanding credit account &
its collection of the fund has improved incredibly.
It was very poor in year 2002 where company had bad collections from debtors
as most of the funds of the company were blocked or had less recovery. But in
year 2004 it rose to 40.12 times which could have been possible due to large
fund collection at one time or major past collection must have been done in year
2004. But, in year 2005 it fell back to 16.40 times which was can be attributed as
average collection in the year because company can’t have huge collection every
year. And this ratio is good enough now in year 2006 which is 30.09 which shows
that company has good recollection system and its only small amount of fund is
blocked rest all is collected easily.
(C) Total Asset Turnover Ratio:

This ratio expresses relationship between costs of goods sold or net
sales and total assets or investments of a firm.
Net Sales or Cost of Goods Sold

Total Assets
Total Assets means all fixed and current assets but the provision for
depreciation is adjusted in it.
This ratio indicates the number of times the assets are turned over in a
year in relation to sales. A higher total assets turnover ratio is the
indicator of effective utilization of investment in assets where as lower
assets turnover ratio indicates that assets are not properly utilized in
comparison to sales. Thus, there is an over investment in assets.
Extremely high ratio means over trading in the business.

For NTPC
Total Assets Turnover Ratio indicates that NTPC in the year 2006, for
every 1 rupees in total assets generate 36 paisa in sales.
This shows that company still need to concentrate more on this ratio for its
effective utilization of the funds as it can even go much higher .
(d) Fixed Assets Turnover Ratio:

This ratio expresses the relationship between fixed assets (less
depreciation) and net sales or cost of goods sold. This ratio measures
the efficiency and profit earning capacity of the firm.
Sales or Cost of Goods sold

Fixed Assets less depreciation
The higher the ratio the greater is the intensive utilization of fixed assets.
Lower ratio means under utilization of fixed assets and excessive
investment in these assets.
For NTPC
Fixed Assets Turnover indicates that NTPC in the year 2006, for every 1
rupees in fixed assets generate 0.57 in sales. It shows intensive utilization of
fixed assets. Indicates the profit earning capacity of the company is high.
(e) Current Assets Turnover Ratio:

This ratio expresses the relationship between current assets and net
sales or cost of goods sold. This ratio reflects the efficiency and capacity
of working capital. On the basis of this ratio efficiency of current assets
and over and under investment in the company can be examined.
Sales or Cost of Goods Sold

Current Assets
For NTPC
Current Assets Turnover Ratio: indicates that NTPC in year 2006 for
every 1 rupees in current assets generate Rs.0.26 in sales. This shows that
company’s current assets are effectively utilized but more efforts should be
made to increase this ratio further.
(f) Working Capital Turnover Ratio:

This ratio establishes relationship between net working capital and net
sales or cost of good sold. This ratio is used to assess the efficiency with
which the working capital is being used in the business.
Sales or Cost of Goods Sold

Net Working Capital
A high working capital ratio indicates efficient management of working

capital or over trading i.e. low investment in working capital and more
profits. Low working capital turnover ratio implies under trading i.e. funds
are not being utilized efficiently.
For NTPC
Working Capital Turnover Ratio: indicates the proper management of the

working capital in the firm which is required for the day to day operations of the
firm. It shows that in year 2006 for every rupee in working capital generates 0.272
in sales. It has increased from 1.49 times in year 2002 to 2.72 times in year 2006
which indicates that company is managing its working capital very efficiently. And
it is continuously improving which is good for the investors as well as for the
company.

3. Profitability Ratio
(based on sales)
3.1 Gross Profit Margin
Gross Profit (PBIT) 77856 77737 92594 47456 46201
Net Sales 261153 225402 188519 190475 178153
Gross Profit Margin 29.81% 34.49% 49.12% 24.91% 25.93%
3.2 Operating profit Ratio

Operating Profit 72467 77180 61483 48950 58206
Net sales 269581 234913 188519 190475 178153
Operating Profit Ratio 26.88% 32.85% 32.61% 25.70% 32.67%
3.3 Net Profit Ratio

Net Profit 58202 58070 52608 36075 35396
Net Sales 261153 225402 188519 190475 178153
net profit Ratio 22.29% 25.76% 27.91% 18.94% 19.87%
ProfitabilityRatio
100.00%
80.00%
net profit Ratio
ratio
60.00%
Operating Profit Ratio
40.00% Gross Profit Margin
20.00%
0.00%
2006 2005 2004 2003 2002
years
(3) Profitability Ratio:

The main objective of the business firm is to earn profits. It is possible only
when resources of firm are efficiently utilized. Profitability depends on
quantum of sales, cost of production and use of financial resources etc.
The profitability of the firm can be easily measured by its profitability ratios.
These ratios indicate overall managerial efficiency. Profitability can be
measured based on sales or based on capital and assets.
Apeejay Institute of Technology School of Management Page

100
(i) Profitability based on sales
(a) Gross profit Ratio:
This ratio expresses the relationship of gross profit on sales to net
sales in terms of percentage.
Gross Profit X 100

Net Sales
Gross profit can be computed as Net Sales – Cost of Goods Sold.

The ratio measures the trading effectiveness and basic profit earning
potentiality of a company. The higher the ratio the greater will be the
margin.
FOR NTPC:
Gross Profit Margin: has reduced from 49.12% in the year 2004 to 29.81% in
the year 2006. This tells that NTPC generate 30 paisa from every 1 rupee sales.
Although it was good in year 2004 which could due to the large sales in that
particular year or may be due to market favoring the environment of the sales.
Still it is good for year 2006 i.e. for every one rupee sale company can generate
30 paisa as profit after meetings it expenses of generation.
(b) Operating profit Ratio:

This ratio establishes the relationship between operating profit
and net sales. It is also defined as the ratio of profit before
depreciation, interest and tax to total turnover. Operating profit
means the net profit arising from the normal operations and
activities of the business without taking account of extraneous
transactions and expenses purely financial nature.
Operating Profit X100

Net Sales

101
This ratio indicates the net profitability of the main business i.e.
operating efficiency of a firm. The higher the operating ratio the
better would be the operational efficiency of the firm. A higher
operating profit ratio means that a firm has been able not only to
increase its sales but also been able to cut down its operating
expenses
(c) Net Profit Margin

This ratio measures the relationship between net profit and sales of
a firm. Net Profit is the excess of revenue over expenses during a
particular accounting period. The net profit ratio is determined by
dividing the net profit by sales and expressed as percentage.
Net Profit (after tax) X100

Net Sales
This ratio is the indication of over all profitability and efficiency of the
business. A high net profit ratio would only mean adequate returns
to the owners. It also enables a firm to withstand in cut throat
competition when the selling price is declining or cost of production
is rising. A low net profit ratio on the other hand, would only indicate
inadequate return to the owners.
For NTPC
Net Profit Margin: has increased from 19.87% in year 2002 to 22.29% in year
2006 but it has reduced in comparison to year 2004 as it was 27.91% in year
2004. This shows that company is running efficiently and it can pay more to its
investors as it generates 23 paisa in the profit for every single rupee of sale.
Though it is less than year 2004 but yet it is not bad it still displays the profit
earning efficiency of the company as good.

102
4. Profitability Ratio (based on capital)
4.1 Return of Capital Employed
Net Profit (PBIT) 77856 77737 92594 47456 46201
Capital Employed 523572 500540 458267 386343 356526
Return of Capital Employed 14.87% 15.53% 20.21% 12.28% 12.96%
4.2 Return On Equity (ROE)

Net Profit (PAIT) 58202 58070 52608 36075 35396
Shareholder's Fund 449587 417763 355501 315040 286453
return on equity 12.95% 13.90% 14.80% 11.45% 12.36%
4.3 return on total assets

net profit after tax 58202 58070 52608 36075 35396
total assets 717371 659483 596346 493319 450411
return on total assets 8.11% 8.81% 8.82% 7.31% 7.86%
Profitability Ratio (based on capital)

25.00%
20.00% Return of Capital

Employed
15.00%
ratios
return on equity
10.00%
return on total assets
5.00%
0.00%
2006 2005 2004 2003 2002
year

103
Profitability Ratio Based on Capital
(a) Return on Capital Employed:
This ratio expresses the relationship between profit and capital
employed and is calculated in percentage by dividing the net profit
by capital employed.
Net Profit (PBIT) X100

Capital Employed
The return on capital employed provides a test of profitability related

to long term funds. The higher the ratio, the more effective and
efficient would be utilization of capital or vice- versa.
For NTPC
Return on Capital employed: it has increased from 12.98% in year 2002 to

14.87% in year 2006 though it was maximum in year 2004 of 27.91%. all though
years it is showing the almost regular trend but it was higher in year 2004
because that was the year in which company got its maximum funds back.
This shows that company was making most effective utilization of its capital in
year 2004 but it is still operating efficiently.
(b) Return on proprietor’s funds or equity:

This ratio expresses the percentage relationship between the net
profit (after interest and tax) and proprietor’s funds or shareholder’s
investment.
Net Profit (after interest and tax) X100
Shareholder’s funds
Shareholder’s funds include preference share capital as well as
equity shareholders funds which in turn comprises of equity share
capital, share premium and reserves & surplus.

104
For NTPC
Return on Equity (ROE): It is also consistent over the years reflecting not
much variation. It is 12.95% for the year 2005 indicating that NTPC generate 13
paisa in profit per 1Rs invested in Equity. Maximum was for year 2004.
(c)Return on Total Assets:

Profitability of the company can also be measured by establishing
relationship between net profit and total assets. Total assets mean
all net fixed assets, current assets and non trading investments.
Net Profit after Tax X 100

Total assets
This ratio measures the profitability of investments which reflects

managerial efficiency. The higher the ratio the better is the profit
earning capacity of the firm or vice versa.
For NTPC
Return on Assets (ROA): It has been consistent over the years; it is 8.11%
for the year 2006 indicating that NTPC generates 8 paisa of profit per one rupee
invested in assets.

105
5. Leverage or Capital Structure Ratio
5.1 Debt - Equity Ratio
Total Debt 201973 170878 154528 132157 115812
Net Worth 449587 417763 355501 315040 286453
Debt - Equity Ratio 0.45 0.41 0.43 0.42 0.40
5.2 Debt to Total Assets ratio
Total Liabilities 263375 238345 235469 178007 163958
Total Assets 717371 659483 596346 493319 450411
Debt to Total Assets Ratio 0.37 0.36 0.39 0.36 0.36
5.3 interest Coverage Ratio

net profit before interest and tax 77856 77737 92594 47456 46201
fixed interest charges 17632 16955 33697 9916 8680
Interest coverage ratio 4.42 4.58 2.75 4.79 5.32
5.4 Dividend Coverage Ratio

net profit after interest and tax 58202 58070 52608 36075 35396
dividend 23087 19790 10823 7080 7079
Dividend Coverage Ratio 2.52 2.93 4.86 5.10 5.00
Leverage or Capital Structure Ratio
6
5 Debt - Equity Ratio
4
ratios
3 Debt to Total Assets

Ratio
2
interest coverage
1 ratio
0 Dividend Coverage
2006 2005 2004 2003 2002 Ratio
years

106
(4) Leverage or Capital structure Ratio:
Leverage or capital structure ratios are calculated to judge the long term
solvency or financial position of the company.
Some of the important capital structure ratios are as follow:
(a) Debt – Equity Ratio:

This ratio indicates the relative proportion of debt and equity in
financing the assets of a firm. It reveals the relationship between
internal and external sources of funds of a company.
Total Debts
Net Worth
Total debts refer to the total outside liabilities i.e. short term and long
term loans. Net worth mean total paid up amount of equity and
preference share capital plus the total or accumulated amount of
reserves and surplus.
This ratio plays important role in analyzing the long term solvency of a
company. It indicates the firm’s capacity to pay long term debts and
procure additional loans and informs whether the firm is following the
policy of trading on equity.
For NTPC
Debt Equity Ratio: are also consistent and there has been not much
variation in this ratio over the years it was 0.40 in year 2002 and 0.45 times in
year2006. But, it is slowly and steadily rising each financial year. This ratio shows
that the long term solvency of the firm is sound enough it has good capacity to
pay its long term debts which make it easy for it to procure funds from the market
easily due to its long term solvency ratio.

107
(b) Debt to Total Assets Ratio:
This ratio measures the long term solvency of the business. It reveals
relationship between total assets and total external liabilities. External
liabilities mean all long term and short term liabilities.
Total Liabilities
Total Assets
This ratio measures the proportion of total assets provided by creditors

(long term as well as short term) of the company i.e. what part of
assets is being financed from loans. If total assets are more than
external liabilities the firm is treated as solvent. So, higher the ratio the
greater is the amount of creditors that is being used to generate profits
for the owners of the firm.
FOR NTPC:
Total debt ratio is consistent over the year; it was 0.36 times in 2002, 0.36 times
in 2003 and 0.39 times in 2004, 0.36 times in 2005 and 0.37 times in 2006
indicating that NTPC use 37% Debt and 63% Equity Capital structure in the year
2006. This shows that company is solvent enough as its total assets are more
than its total debt. It uses less funds from outside to finance its working or for
generating profits.
(c)Interest coverage Ratio:

This ratio measures the debt servicing capacity of the firm and
particularly where payment of fixed interest on long term loans is
concerned.
Net Profit (before interest and tax)

Fixed Interest Charges
The higher the ratio the more is the interest paying capacity of the firm
and safety margin available to long term creditors. The low ratio
indicates that the firm is using excessive debt. The investors can

108
forecast the financial risk by comparing interest coverage ratio with
standard ratio of the industry.
For NTPC
Interest coverage Ratio: has fallen from 5.32 times in the year 2002 to
4.42 times in the year 2006 but in year 2003 it started falling and then again
increased from 2.75 times in year 2004 to 4.42 times in year 2006 indicating how
well NTPC has its interest obligations covered. It was maximum in year 2002. As
compare to industry ratio of 6 times it is still good. This shows that firm can meet
its long term interest obligations on time as and when they arise. This is utmost
important for interest bearing securities. In case of NTPC it’s the loan that they
are carrying.
(d) Dividend Coverage Ratio:

This ratio measures the ability of a firm to pay dividend on preference
shares which carry a fixed rate of dividend. This ratio is expressed in
number of times of net profits after taxes.
Net profit after tax and interest

Dividend
This ratio indicates the safety margin available to preference

shareholders. The higher the dividend coverage ratio the better it is
from the preference shareholders’ point of view.
FOR NTPC:
Dividend Coverage Ratio: has fallen from 5 times in year 2002 to 2.52
times in year 2006. this is bad indicator has it shows that company is not able to
meet its dividend obligations of the shareholder as the investors who are
investing in firm requires more returns so this should be analyzed properly and
accordingly actions should be taken as it is hampering interest of shareholders.
Possible reason for it could be increase in the dividend rate which made the
dividend to fall and in case of NTPC there is no preference dividend its only
dividend paid to the equity shareholders is considered.

109
110
6.Investment Analysis
Ratio
6.1 earning per share
profit after tax 58202 58070 52608 36075 35396
no of equity share 8245464400 8245464400 7812549400 7812549400 7812549400
earning per share 7.05 7.06 7.06 7.06 7.06
dividend pay out ratio

dividend per share
dividend 23087 19790 10823 7080 7079
outstanding shares 8245464400 8245464400 7812549400 7812549400 7812549400
dividend per share 2.8 2.4 1.38 0.906 0.906
earning per share 7.05 7.06 7.06 7.06 7.06
(DPS/EPS) 39.7 34.0 19.5 12.8 12.8
cost of capital
total debt (D) 201973 170878 154528 132157 115812
total equity (E) 449587 417763 355501 315040 286453
interest chareged (I) 17632 16955 33697 9916 8680
cost of debt (I/D*100) (1-t)
(kd) 5.79 6.59 14.5 4.98 4.98
cost of equity capital (ROE)
(ke) 12.94 13.9 14.8 11.45 12.36
over all cost of capital (Ko)
Kd*(D/D+E)+Ke*(E/D+E) 10.71 11.77 14.7 9.53 10.23
market value of firm
(PBIT/Ko) 7269.467787 6604.6729 6298.91156 4979.643232 4516.226784
retained earning 31877 35600 40398 28600 28317

net profit 58202 58070 52608 36075 35396
retention ratio 0.548 0.613 0.768 0.793 0.800
ROE (%) 12.95% 13.90% 14.80% 11.45% 12.36%
growth (retention ratio *
ROE) 0.071 0.085 0.114 0.091 0.099
Investment Analysis Ratio
50
40 growth (retention ratio

* ROE)
30
ratios

20 (DPS/EPS)
earning per share
10
0
2006 2005 2004 2003 2002
years

111
Investment Analysis Ratios
1. Earning Per Share – EPS

The rate of dividend on shares depends upon the amount of profits
earned by the firm. Whatever profits remains, after meeting all
expenses and paying preference share dividend, belongs to equity
shareholders.
Profit after tax – Preference Dividend
No. of equity shares
This is a popular ratio as it measures the profitability of a firm from

owners’ standpoint. The higher the ratio the greater would be the
market price of a company’s shares or vice versa.
FOR NTPC:
EPS has been consistent over year it was 7.06 in year 2002 and is 7.05 in year
2006.
2. Dividend Yield Ratio:

It expresses relationship between the dividend per share and market
value per share.
Dividend per Share X100

Market Price per Share
This ratio shows the rate of return to shareholders in form of dividend
based on the market price of the share i.e. actual rate of dividend on
his investment.
FOR NTPC:
Dividend yield ratio increased from 12.8 in year 2002 to 39.7 in year 2006 which
shows that the company will be paying higher dividend per share now its
retention ratio has fallen.

112
113
114
115
OVERVIEW
The financial statements have been prepared in compliance

with the requirement of the Companies Act, 1956 and Generally
Accepted Accounting Principals (GAAP) in India. There is no
material departure from the prescribed accounting standards in
preparation of the annual accounts. The accounting polices
adopted by the company and the estimates and judgments
relating to the financial statements have been made on a
prudent and reasonable basis in order that the financial
statements reflect the true and fair view of the company’s state
of affairs and profits for the year.

116
FINANCIAL POSITION:
1. Share Capital:
During the previous year the company made an Initial Public Offer (IPO) of
865.830 million equity shares. The IPO comprised fresh issue of 432.915 million
equity share and “Offer for Sale” by Government of India of 432.915 million equity
shares. As a result of fresh issue of Rs. 4330 million, the issued, subscribed and
paid-up equity share capital of the Company has increased from Rs.78,125
million to Rs. 82,455 million comprising 8,245,464,400 equity shares of Rs. 10
each fully paid up.
2. Reserves & Surplus:
The major items, which make up the Reserve and Surplus are detailed below:
2.1 Share Premium Account:
The fresh issue of equity shares made during the previous year at a price of Rs.
62 per share including a premium of Rs. 52 per share , which made additions of
22360 last year and this year with deduction of Rs. 53 in respect of share issue
expenses so it amounted to Rs 22307.
2.2 Bonds Redemption Reserve :
In line with the requirements of SEBI Guidelines for maintaining a Bond

Redemption Reserve a sum of Rs.2,926 million has been credited during the year
and Rs. 16 million has been written back towards redeemed Bonds.
2.3 General Reserve:
As per the requirements of the Indian Companies Act 1956 and taking into
consideration the dividend pay-outs made and proposed a sum of Rs.29032
million has been transferred from profit and loss account during the year. Also
adjustment towards dividend is done for Rs.10 million.

117
3.Ratings:
Borrowings and Fixed Deposits Scheme of the Company have been rated by
different rating agencies, the detailed are as under:
Instruments Rating Ratings

Rated Agency Assigned
Domestic Bonds CRISIL ‘AAA’

ICRA ‘LAAA’
Euro Bonds Standard & ‘BB outlook Positive’

Poor’s Fitch ‘BB + outlook Stable’
Fixed Deposits CRISIL ‘FAAA’

118
SWOT ANALYSIS
OF
NATIONAL POWER THERMAL CORPORATION

119
STRENGTHS OF NTPC
• The company has kept itself sufficient liquid funds to meet any kind of
cash requirements.
• Efficient working capacity of the plants
• Efficient & timely completion of projects
• A minimum risk factor
• Best integrated project management system
• Company with excellent records & high profits
• An early starter more than 30 years experience in power sector
• One among the 9 jewels of India called as NAVRATANS
• Highly motivated & dedicated workers & officers.
• Excellent growth prospects with significant additions, modifications &
replacements
• Employee friendly personnel policies
• Low project cost of NTPC’s plants.
• one of the listed company on Bombay stock exchange
WEAKNESS OF NTPC
• Depleting raw materials.

• Some of the plants of NTPC have become old and need
investments for replacements or modifications.

120
OPPORTUNITIES FOR NTPC:
• Demand & supply Gap.

• Upcoming hydro & nuclear sector
• Huge opportunity in the consultancy services both abroad as well as in
India.
• Growth in power sector.
THREATS TO NTPC
• Rising prices of raw materials makes working costly.

• Huge competition from SEB’s, Reliance Energy, Tata Power & other
private players in power industry.
• Coming up of other sources of power generation & consumption.
• Huge capital requirement for expansion, diversification, horizontal &
vertical integration.

121
Conclusion
Purchase management activities at NTPC are one of the most vital activities
undertaken by the Rs.18000 Cr power giant of India. The process followed by
NTPC is very objective in nature and employs a very short term relationship with
its supplier. The system tries to take advantage of the competition in the field of
heavy engineering where foreign manufacturers like MHI, GE etc. are competing
with Indian manufacturers like BHEL and L&T. NTPC being a public sector
company, to be free from nepotism and favouritism has adopted a system where
transparency and automation is at its utmost level. Transparency was achieved
by a multi member team and sealed tenders where no one knows in advance the
quotation offered by a particular bidder. Automation here signifies that almost all
the contracts are awarded following the same procedures, by awarding the
contract to the lowest bidder that is L1 without much consideration.
Together they constitute a very reliable and corruption free system. At times it
seems that the system is capable of saving lots of money of NTPC but in most of
the cases the cost of maintaining the system itself combined with the poor
responsiveness amounts to a lower level of efficiency. In today’s world of
cutthroat competition only those firm are going to survive who are committed to
efficiency, as it were their core competency. Cost must be reduced by means of
optimum utilisation of resources and channelled into more profitable segments. It
is an established fact that on operational level NTPC is one of the world’s most
efficiently run organisations.
Benefits can not be evaluated in isolation as there are certain features very
unique to the kind of domain NTPC is into. As we have discussed earlier that
most of the item except coal and gas have a very infrequent and unpredictable
demand. This means that NTPC can not anticipate its demand in advance and
hence going into a long term supply contract is very difficult. For some
procurement which actually constitutes more than 70% of non fuel procurement,
the items are manufactured to order. In these cases even the manufacturer is not
sure of the future price and availability of the equipment and hence going into a
long-term contract based on current prices may do more harm than benefits.

122
Another factor which must be understood is that there are very few companies
which are into manufacturing of the kind of equipments or material required by
NTPC. And since the fixed capital employed by these firms are huge, many a
times they offer huge discounts just to acquire a particular order so that they can
fulfil some of their targets. NTPC has witnessed one such offer in past where a
substantial discount was offered by a vendor on the condition that the contract
should be awarded to him in a specific time period mentioned by the
manufacturer. These benefits could not have been availed by NTPC had it been
in a long-term relationship with a particular manufacturer.
Financial statement analysis of the national power thermal corporation shows that
firm is efficient enough to run its day to day business. The liquid ratios of the
company i.e. current ratio, quick ratio, and acid test ratio indicate that NTPC is
able to pay its short term bills without undue stress. This shows that company is
liquid enough to meet its day to day obligations.
The long term ratios i.e. debt equity ratio and interest coverage ratio indicates
that NTPC is easily able to meet its financial leverages. Turnover ratios i.e.
inventory turnover, receivables turnover, asset turnover indicates NTPC id
efficiently using its assets to generate sales. Also the profitability ratios i.e. profit
margin, return on equity etc. indicates there is slight fall in net income of the
company. But the earning per share has remained same all the year this shows
the investors side is safe enough.
Over all it can be summarised that NTPC is financially sound i.e. financial position
and profitability of the company is quite acceptable.

123
RECOMMMENDATIONS
• The overlooked aspects of equity and transparency in processing of a tender

are also the important aspects and should not be overlooked at the sake of
technical suitability and commercial viability.
• While preparing the estimates enough care should be taken to ensure that
quantities of items are neither on the higher side nor on the lower side. This
will help in checking the quantity deviation, erratic rates, legal disputes and
other difficulties.
Estimated rates should be worked out on the basis of market analysis. They
can also be prepared from standard schedules such as DSR, MES
schedules.
• Enough care should be taken while preparing the bid documents. It must be
ensured that technical specifications do not contradict the items in the Bill Of
Quantity (BOQ) to avoid confusions, delays, favors etc during the execution
apart from the long drawn legal disputes, arbitrations. Etc
• All payment terms, including advance payments should be mentioned in the

bid documents itself so as to obviate release of any payment out of the
purview of contract later on.
• The QR should be clearly mentioned and should not be made unnecessarily

stringent suiting a particular agency. To avoid complications, the QR should
be prepared by a committee comprising a member each from the Indenting,
Finance and Contracts Department.
• For facilitating the Limited Tender (LTE) inquiries, enlistment or the

registration of parties should be carried out on a project level periodically.
While issuing the Tender documents against the open tender advertisement
the credential of the bidders, in original, should be checked invariably in
respect to the QR. A photocopy of the credentials should be kept for record
purposes.

124
• The tender committee officials should encircle and initial on each page of the
tender documents received form the parties on the tender opening date. They
should mention number of any corrections (if so made) on each page.
Otherwise they should mention ‘no cutting/no overwriting’. This will eliminate
scope for an tampering at the alter date.
• The tender committee should ensure that all conditions having financial
implications are loaded properly in the tender evaluation and considered in
the comparative statement. They should study the reasonableness of the
rates offered by the bidders and while recommending the award, they should
ensure the reasonableness of the rates of the lowest bidder.
• While recommending award of a contact to a particular bidder, a justification

analysis should also be prepared.
• To avoid any chances of any selective relaxation of the stringent QR norms

the subsequent changes in the QR norms should be through the press
Corrigendum

125
References
• List of Books Referred

 Financial Management by Khan & Jain
 Financial analysis techniques by Helfred
 Annual Report of NTPC
 Delegation of Powers Manual of NTPC
 Purchase Management Manual of NTPC
• Websites Referred
 Official website of company www.ntpc.co.in
 www.indiainfoline.com
 www.moneycontrol.com
 www.powermin.nic.in
 www.ntpctender.com
 www.pfc.com
 www.teriin.org
 www.worldenergy.com
 www.ntpceoc.com

126

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Summer Internship Program

Financial Statement Analysis

Apeejay Institute of Technology School of Management Page 1

A report submitted in partial fulfillment of the

Prepared under the Guidance of

Sr.No. CONTENT PAGE NO.

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3 SCENARIO OF POWER SECTOR 5

9 FINANCIAL POSITION 112

10 SWOT ANALYSIS 114

The report entitled “Financial Statement Analysis & Procurement Management at

Apeejay Institute of Technology School of Management Page 3

Procurement Management at NTPC starts with Indenting by the department that

Apeejay Institute of Technology School of Management Page 4

Apeejay Institute of Technology School of Management Page 5

Central Government issued a policy resolution dated 22-10-1991 on

Promotion of competition, efficiency and economy in electricity industry can be

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Analysis of financial statements is the systematic numerical calculation of the

(1) Selection of the information which is relevant to the decision under

Financial analysis can be used as the preliminary screening tool in selection of

Apeejay Institute of Technology School of Management Page 7

Growth of Indian power sector

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Structure of power supply industry

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Power supply position at the beginning of 9th plan

Ninth plan capacity addition programme

The Working Group on Power, constituted by Planning Commission, in its report

Sector-wise / type-wise capacity addition programme during ninth plan (Figures in

Apeejay Institute of Technology School of Management Page 10

Apeejay Institute of Technology School of Management Page 11

Within a span of 31 years, NTPC has emerged as a truly national power

NTPC’s core business is engineering, construction and operation of power

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NTPC is committed to the environment, generating power at minimal

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A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has

As a responsible corporate citizen, NTPC is making constant efforts to improve

Recognizing its excellent performance and vast potential, Government of the

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AN OVERVIEW Projects No. of Projects Commissioned Capacity

* Captive Power Plant under JVs with SAIL

Coal Based Power Stations Coal based State Commissioned

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Power Plants with Joint Ventures

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NTPC has also demonstrated its ability in turning around sub-optimally

Badarpur (705 MW)

Unchahar (420 MW)

Talcher (460 MW)

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Growth of the Generation Business

Developing and operating world-class power stations is NTPC’s core

Apeejay Institute of Technology School of Management Page 19

Fuel / Energy mix for capacity addition

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Establishing a Global Presence

To become a truly global company serving global markets, it is essential for

Establishing a successful services brand would be a precursor to taking higher

Apeejay Institute of Technology School of Management Page 21

National Thermal Power Corporation