Capital Expenditure Post Commissioning Analysis Prudence Check of

Capital Expenditure Post Commissioning Analysis

Prudence Check of Capex �KERC was conducting the prudence check of Capex by engaging consultants. �Based on the reports of the consultants, the Capex incurred by KPTCL was accepted by the Commission and the corresponding Interest on Loans and Depreciation was allowed. �Now, KERC has directed to furnish the post commissioning analysis report for all the works costing more than Rs. 3. 00 Crores during FY 17. �KERC has issued necessary Guidelines for conducting the post commissioning analysis. �KERC will conduct the Prudence Check using the post commissioning analysis reports furnished by KPTCL.

Post Commissioning Analysis �Works costing more than Rs. 3. 00 Crores �KPTCL works: 1) Establishment of Substations; 2) Construction of transmission lines; 3) Construction of exclusive transmission lines; 4) Augmentation of transmission lines; 5) Augmentation of substations and 6) Other type of works, like construction of terminal bays, construction of intermediate tower etc.

Evaluation by Score Card �Planning 10 Marks �Implementation 20 Marks �Achievement of Objectives: Primary Objective 50 Marks Secondary Objectives 20 Marks Total 100 Marks Criteria for Prudence ; At least 30 Marks in Primary Objective and overall 60 Marks.

Points to Remember �Post analysis evaluation should be as per guidelines. �Data used for evaluation should be kept in records. �Imprudent investments in terms CBA or Payback if any needs to be justified with detailed explanation. �KERC will conduct prudence check subsequently and hence all data/information be available at Zonal/Circle/Divisional Levels. �Activity is time bound and hence to be completed in time.

Planning � DPR/Estimates justifying the need for the proposed investment on the basis of field requirements, studies undertaken or directives issued by the Regulator or the initiatives by the Licensees etc. Wherever necessary, supporting documents should be available for review. � If a project with a Cost to benefit ratio less than 1(one) is selected for implementation, the licensee should justify the purpose for taking up such projects. Similarly, if the pay-back period is more than ten years, the records should justify the reasons for taking up such project. � Identify Primary and Secondary objectives for each investment. � To consider various alternatives at the time of conceptualizing the investment in the DPR/Estimates. � If the project is linked with other upstream or downstream projects, appropriate co-ordination is to be ensured for the implementation of the project in economical, efficient and effective manner.

Implementation � The contractor/agency be selected using a Competitive Bid process. � The Licensee shall ensure that, there are no delays in the project completion or over-runs in costs. In case of time overrun or cost overrun, the Licensee should provide specific reasons for the same. � Licensee shall indicate if there were changes in the design or scope of the project executed when compared to DPR/estimate. Reasons for deviation should be documented. � The Licensee shall ensure quality execution of works. � For partial-turnkey projects , materials are to be procured on time and made available for timely execution. � The execution of the project has to be monitored from time to time and any issues that cropped up causing time/cost overruns, has to be reported/ addressed at an early stage. Status reports for the projects involving longer gestation/construction period should be prepared regularly and the completion report prepared containing the Date of commissioning and cost of completion.

Post Execution �Record the benefits achieved from the project. The year on year details related to savings if any, achieved should be compared with the estimated benefits in terms of: Ø Whether the primary and secondary objectives as envisaged, are met Ø Cost benefit analysis - estimated vs actual recorded. Ø Payback period is in line with the estimated period. �Provide the proof of achieving the primary and secondary objectives. �For all those projects where the estimated benefits have not been quantified at the planning stage, the Licensee shall provide details with regard to performance of the system prior to commissioning of the project and performance of the project after commissioning.

Observations on Data Furnished �Works costing more than Rs. 3. 00 Crores only is to be included �All fields are to be filled up �Grading of each works based on guidelines to be done �Marks to be assigned and Total Marks be recorded �Inference of the work being prudent, based on scores to be recorded. �Original report duly signed and countersigned be submitted to Financial Advisor, Regulatory Affairs

Verification by TA&QC �The post commissioning analysis reports furnished will be verified by TA&QC. �The concerned Officers in each Transmission Zone is required to coordinate the task. �The work is to be completed in a time-bound manner.

Sample Format for Grading Schedule of Implementation: Full marks(5), if completed in time. Cost of Implementation: Full marks (5)if completed within estimated cost Realisation of Objectives: 50 Marks if full objectives are achieved Realisation of Secondary Objective : 20 Marks assigned Quality of Execution: 20 Marks shall be assigned as per the Guidelines

Time Line for Finalisation �Completed Formats with grading duly signed shall be submitted within due date �Reports will be sent to TA&QC for verification �Finalised Reports to be sent to KERC within specified date.

Case Study � 220/66/11 k. V Magadi Sub-Station ü Post Commissioning Analysis Report indicates 20% loading in first year ü Prudence Check by KERC indicated 3. 06% loading ü Imprudent Investment attracts disallowance of Capital Expenditure Incurred. ü Reports should be consistent with justifiable data