The financial strategy of your Company aims at maximizing shareholder value while aligning with the regulatory environment and evolving market dynamics. Your company's strong balance-sheet provides it access to low cost funds in requisite amounts to finance its growth plans. While the equity requirement for new projects can be met from internal accruals, the Company is having discussions with various domestic and international banks and financial institutions for raising debts. The keen interest shown by these agencies to associate with your Company reinforces our conviction that requisite funds can be mobilized at optimum cost.

Your Company is actively engaged in policy advocacy to be able to mobilize large volume of funds from the off-shore money market at attractive pricing.

Fuel Supply, Fuel Security and Fuel Economics

Fuel is the primary input for power generation and accounts for the lion's share in the cost of generation. During the financial years 2005-06 and 2006-07, your Company’s expenditure on fuel constituted 88% of operations related expenditure. Although expenditure on fuel is allowed to be passed through to the customer, your Company is taking strategic actions to ensure adequate fuel supply at optimum price.

Coal being the mainstay of power generation, ensuring adequate supply of coal of the right quality at right price will be critical to the economics of power generation for the country and for the Company. It is estimated that the gap between coal demand and supply for power sector will be nearly 62 million tons by the year 2012. In addition to accelerating mining activities to effectively meet the coal demand, there will be a need to import coal to bridge the gap in the short term.

As a short-term strategy, your Company imports coal to bridge the gap in supply and ensure optimum plant utilization. During 2006-07, your Company imported 2.43 million tons of coal which was 2.14% of the total coal consumption of 113.45 million tons.

Your Company's strategic entry into coal mining, driven by the objective of ensuring fuel security and deriving economy and stability of pricing, is being taken forward through appropriate and timely activities at the six coal mining blocks allotted to your Company and at the two blocks allotted jointly to NTPC and CIL. Activities related to development of coal mines are progressing at a fast pace.

Your Company is also exploring opportunities to acquire coal mines abroad and is looking for partners with proven expertise to acquire and develop coal mines. To ensure long-term fuel supplies to the existing and future projects, your Company has initialed a 'Model Coal Supply Agreement' with Coal India Ltd. (CIL), which will be applicable to coal supply to NTPC from the various subsidiaries of CIL for a period of 20 years Your Company is developing partnerships with organizations having expertise in coal mining like Bharat Earth Movers Limited (BEML), Coal India Limited (CIL), Singareni Collieries Company Limited (SCCL), to promote its mining activities, both in India and abroad. Taking the process forward, a joint venture company named 'NTPC-SCCL Global Ventures Private Limited' has been formed.

Your Company has signed an MoU with SAIL, CIL, RINL and NMDC for formation of a Special Purpose Vehicle (SPV) for acquiring coal mines abroad. Under the umbrella of this SPV, joint ventures based on projects or regions will be formed and your Company will pick up equity in the JVs to be formed for mining of coal for thermal power generation.

For meeting the fuel requirement of its gas based power stations, your Company sources natural gas domestically under the Administered Price Mechanism (APM). There has been acute shortage of domestic gas supply affecting gas based power generation. During 2006-07, gas supplies under APM to NTPC's six gas based stations on the HBJ line were around 9.53 MMSCMD against the contract quantity of 12.93 MMSCMD.

In order to mitigate the shortages in gas supply at the existing gas based stations, your Company began spot-procurement of re-gasified LNG in June 2006. This has resulted in improvement of capacity utilization of Gas Stations from 65.81% during 2005-06 to 71.90% during 2006-07.

For meeting long term arrangements of gas supply, options are being explored for participation in the gas value chain including opportunities abroad.

'Gas for Power'

An MoU has been signed with the Government of Nigeria for supply of at least 3 million tons of LNG per annum at reasonable prices on a long term basis for a period of 25 years to be used by your Company in its power stations in India. In return, NTPC will set up a 700 MW gas based power station and a 500 MW coal fired power station in Nigeria. This would be a win-win arrangement, with the Company augmenting gas supplies for its operations and Nigeria benefiting from the proven project implementation competence of NTPC.

Diversified Growth for Value-Creation

In view of the age-profile of the first set of NTPC power stations, a large number of transformers are close to the end of their design life and would require refurbishment. Further, manufacturing and repair of transformers is going to be a sector requirement. Your Company has recognised the strategic need and business opportunity and has signed a Business Collaboration and Shareholders Agreement with Transformers and Electricals Kerala Limited (TELK) and the Government of Kerala for synergy in the field of manufacturing and repair of power transformers, current voltage transformers, circuit breakers, isolated phase bus ducts, shunt reactors etc. As a result of this agreement, your Company has agreed to acquire 44.6% stake in TELK from the Government of Kerala and its undertakings.

Your Company is looking for avenues of business synergy in order to expand its business activities in line with its growth plans. Considering the large capacity addition plan for the sector, it has finalized an MoU with BHEL to form a joint venture company for carrying out Engineering, Procurement and Construction (EPC) activities in the power sector.

Taking Global Strides

Leveraging its strong engineering and project management expertise, the consultancy wing of your Company is exploring business opportunities abroad. It is already executing energy audit for power stations in Saudi Arabia.

In addition to the MoU with Nigeria for procurement of gas in lieu of setting up power plants in that country, and exploring options for coal and gas business abroad, your Company has signed a Memorandum of Agreement with the Government of Sri Lanka and Ceylon Electricity Board under which it will set up a 500 MW coal based power station in Sri Lanka. It has also set up an Office in Dubai to explore business opportunities in the Middle-East.

Exceptional Operating Performance

For your Company, reliability of power supply and economics of power generation are the two guiding principles in strategizing and executing operational efficiency initiatives. High availability, low down-time of equipment and focus on planned outages to minimize forced outages make your Company's operational performance globally comparable.

The success of your Company's operational strategies and their execution is clearly reflected in its impressive performance data. During 2006-07, the coal stations recorded availability of 90.09%, capacity utilization of 89.43%, planned outage of 7.23% and forced outage of 2.51%, demonstrating outstanding operational performance.

Your Company is taking forward the process of continuous improvement in operations with implementation of best practices through international benchmarking in all areas of operation including Overhaul Preparedness Index (OPI), Station Heat Rate improvement initiative, etc. Your Company will further intensify use of IT for business process automation.

Commercial Focus and Market Agility

With its effective commercial strategies, your Company has been realizing 100% of billing for four consecutive years. This has resulted in strong cash flow situation for the Company with all the consequent business advantages. This has been made possible by our effective customer relationship management. Your Company believes that it has an important stake in the financial strength of its customers. Hence, we reach out to our customers with training interventions and other support services in several areas including engineering services, project management, operation of power plants, etc. And most importantly, we have formulated and implemented an attractive and innovative incentive scheme for encouraging prompt payment of dues.

Looking much beyond sound cash flow management, your Company is strategizing for utilizing the opportunities which will emerge in the future power market. Your Company is poised to utilize the increasing opportunities of selling power in the deregulated segment of the power-market.

Growth in the volume of traded power, open-access in transmission and distribution and augmentation of inter-regional power transmission capacity along with improvement in sub-transmission and distribution networks are going to make power trading a much bigger business area in the power sector. Hence trading companies and power exchanges are likely to enjoy increased share of power business. Recognizing the business opportunities, your Company is in the process of promoting a power exchange in association with several important players and the proposal has been submitted to the Central Electricity Regulatory Commission (CERC).

Further, Merchant Power Plants will be able to utilize the opportunity to sell power in the de-regulated market. During the 11th Plan, your Company will be developing about 2000 MW as merchant plant capacity. Our trading subsidiary NTPC Vidyut Vyapar Nigam Ltd. (NVVN) will sell the power from these merchant plants.

High Performance Team Work and Building Strong Team of Power Professionals

Our strength is our people. Our strength is the knowledge capital we have. Our strength is the skill of our people. Our strength is the commitment, competence and culture of our people. Having one of the strongest teams of power professionals, we are engaged in the endeavour to reach world-class excellence.

'A collaborative work culture with accountability' is an important feature of your Company’s success. Your Company is engaged in canalizing emotional and intellectual energy of every employee of NTPC, which is one great big family. Each member of Team NTPC is sensitized to act as an owner. Organizational pride is a very strongly shared value among employees. Your Company has been placed among the best employers in the country in a number of highly prestigious surveys. The HR Vision of your Company is, “to enable our people to be a family of committed world class professionals, making NTPC a learning organization”.

Your Company strongly believes that its pool of capable and committed manpower, which is its core strength, is the key factor behind all achievements and success. A number of HR initiatives have been taken for the well-being and continuous development of the strong talent pool of 24,000 employees. To meet the human resource needs of expansion and diversification plans, a large number of executives have been inducted at different levels through various modes including campus recruitment from IITs and National Institute(s) of Technology (NITs).

In order to develop capabilities in the new business areas such as hydro, coal mining, etc., a lot of thrust has been laid on training and competency building including strategic tie-ups with various institutes. We are confident that the members of ‘Team NTPC’ will demonstrate the same high productivity levels in the new business areas as they have shown in implementing thermal power projects and their operation.

During the 10th Plan period, your Company achieved around 22% increase in capacity addition with less than 5% increase in the number of employees. In the 11th Plan, we will be nearly doubling our capacity with about 20% growth in the number of employees. During the 10th Plan Period, generation per employee increased from 6.26 million units to 7.99 million units and turnover per employee increased from Rs. 8.4 million to Rs. 14.9 million, indicating high employee productivity which is continuously on the rise.

In order to attract and retain talent, your Company has initiated a number of HR measures which include revisiting social security schemes, performance linked incentive, employee development programmes, etc.

Your Company continually seeks to manage the aspirations of its employees through innovative HR practices and empower them to help the Company achieve its goals.

Comprehensive Change Management

Our transformation agenda is aimed at effectively achieving and managing the exponential and diversified growth in a dynamic business scenario. Your Company is engaged in enhancing empowerment, especially at the regional level. It is revisiting the scheme of delegation of power and aligning the executives to the new business requirements through intensive programmes in areas like leadership development.

Your Company is using IT enablement in a big way. The Company has begun the roll-out of ERP, a flexible, standardized, and integrated information system as one of the key strategic initiatives at a few pilot units. It is a major tool to help its transformation and change-management objective. It will enable your Company in speedy decision making for competitive advantage.

This ERP solution will align your Company’s business processes with global best practices. The implementation of Project ERP would benefit NTPC in achieving improved and faster exchange of information, improved productivity, better data consistency and knowledge sharing. It will help in automation of all business functions of NTPC and in establishing uniform processes and practices across the organization. Company-wide implementation of ERP is scheduled to be completed by May 2008.

Areas of Special Thrust

Focus on Technology and Environment for Sustainable Competitiveness

Your Company acknowledges that technology is going to be the key driver of competitiveness, which in turn, is essential to generate greater shareholder value. Continuous technology up-gradation is our priority area. While we are engaged in continuous improvement of our operational processes and project implementation methods, we are also engaged in futuristic technology development. We seek to maximize efficiency gains and environment preservation while increasing our top line and bottom line growth.

Global warming has become a major global agenda. Coal based power generation being the core business segment of your Company, concerns regarding global warming become all the more relevant for us. Our strategies are aligned to achieve a balance between the imperative of achieving rapid and inclusive power development for the country and that of preserving the environment and containing global warming. Accordingly, the Company has taken several technology initiatives to take care of the requirements of economics, efficiency and the environment. The Company has adopted enhanced steam parameters in the sub critical 500 MW units. This will bring about efficiency increase of 0.64% and will translate into reduction of 2,16,000 tons of CO2 per annum in the 6,000 MW aggregate capacity to be commissioned during the 11^th Plan.

Your Company is poised for commissioning the first 660 MW Super Critical Unit during early part of 2008. Such super critical units will bring an increase of 2.2% in efficiency and will lead to reduction of 7,72,200 tons of CO2 emission per annum from the 6600 MW to be commissioned by the end of 11th Plan. Many such super critical plants are in the pipeline and will further lead to reduction in CO2 emissions and contribute to better environment management and sustainability.

Your Company is the pioneer in India in undertaking Clean Development Mechanism (CDM) projects in large sized thermal and hydro power projects. CDM projects related to R&M, supercritical technology and hydro projects are in the pipeline. Thus CDM provides an opportunity to benefit the environment and entitle your Company for carbon credits. The Company is utilizing this mechanism in line with national and global environmental imperatives.

Your Company plans to set up at least 1,000 MW capacity through new and renewable energy sources by 2017. It has signed an MoU with Asian Development Bank (ADB) for establishing a joint venture company for generating 500 MW Renewable Energy.

Your company is a partner in FutureGen, an initiative to build the world's first integrated sequestration and hydrogen production energy plant. It is also engaged in development of Integrated Gasification Combined Cycle (IGCC) Unit with Indian coal.

NTPC has signed an MoU with Society for Integrated Circuit Technology and Applied Research (SITAR), Bangalore for undertaking the manufacture of LED lamps in view of their low power consumption and long life. This is expected to have a major impact in demand side management, especially in the domestic segment. Your Company has formalized an MoU with Anna University, Chennai for establishment of ‘NTPC Centre of Excellence in Energy Studies’. The Company will promote R&D interaction with the University in areas related to technology development for cost reduction in power generation and distribution, development of photovoltaic cells, white light emitting diodes (LEDs), etc.

Corporate Governance - Part of NTPC's DNA

Transparency and sound governance make our investors and shareholders, including small shareholders, feel very confident about their valuable resources invested with us. Our governance practices are acknowledged for their soundness and are also awarded by prestigious forums.

Our globally acknowledged excellence and exceptional success has been achieved as much through our steadfast commitment to ethics and governance as through systems and people. Your Company’s value based work culture is a major factor behind its enduring success and robust image.

Your Company has taken proactive steps for setting up appropriate governance systems and processes. Transparency, accountability, fairness and intensive communication with stakeholders are integral to its functioning. It believes in system driven performance and performance oriented systems. It has successfully blended growth and efficiency with governance and ethics.

Corporate Social Responsibility – an article of faith for NTPC

Vitally engaged in the endeavour of nation building, your Company is not only a partner in powering India’s growth, it is also a partner in making Indian society more humane and just.

Corporate Social Responsibility is an article of faith for NTPC. This spirit of giving back to the society has led NTPC to transform the socio-economic status of Project Affected Persons (PAPs) and undertake community development programmes in and around its projects. The NTPC Foundation for Corporate Social Responsibility addresses specific domains of promoting socio economic reliance among physically challenged persons. The Vision of the Foundation is "To serve and empower the physically challenged and economically weaker sections of the society". The Foundation is engaged in taking up activities for basic education, health care, income generating schemes for the physically challenged persons and weaker sections of the society, promoting schemes to enhance employability, hospitals for terminally ill patients, old age homes, infrastructure facilities for rural areas, relief measures during national calamities and epidemics, micro financing, job oriented training and skill upgradation and other social welfare and charitable services to needy people.

Your Company also promotes distributed power generation schemes for overall societal benefits. The small power generation units set up in remote villages with the help of NTPC have transformed the social and economic outlook of people in those backward areas. From the view point of social outreach and sensitivity, the small distributed power generation units of a few kilo watts set up in remote villages give us far greater sense of fulfillment than the mega sized power stations, because these small power generation units have been veritable vehicles of socio-economic transformation among remote and underprivileged communities.

Your Company has entered into a partnership with Delhi University to set up a facility for imparting IT skills to the physically challenged people.

Commitment to Sector Reform and Improvement

With firm conviction that a stronger sector means better business environment for your Company, we are contributing to sectoral reform and development initiatives of the Government. Under the Accelerated Power Development and Reform Programme (APDRP) and the Rajiv Gandhi Grameen Vidyuteekaran Yojana, the Company is providing major support in achieving sectoral targets. Under the 'Partners in Excellence (PIE) Programme' launched by the Ministry of Power to improve the performance of underperforming power stations of State utilities through peer interaction, NTPC has brought about performance turnaround in 13 stations that were entrusted to it, having operating capacity of 5,050 MW. Additional generation of 2,833 million units in the NTPC assisted stations corresponds to equivalent capacity addition of 430 MW at 75% average PLF.

One of the major issues to be addressed in order to ensure timely implementation of the projects during the 11th Plan and beyond include manpower development and training facilities commensurate with the large capacity addition. Your organization will contribute in building up a large-scale manpower pool for the power sector by providing training infrastructure and organizing sector specific training to ensure availability of skilled manpower.

Powering Ahead

In the past, your Company has been a catalyst of change in the power sector. Today, the Company is a catalyst of development. And, in the future it will be a catalyst for growth. Our success in the past and our confidence in the future lies on the bedrock of the culture, commitment and competence of the members of 'Team NTPC'.

I convey, on behalf of the entire Board, our appreciation and gratitude to our colleagues for their performance and their enduring contribution, for their performance that has created lasting value.

We are extremely indebted to the Prime Minister's Office and the Planning Commission of India for sustained guidance and support we have been receiving on important policy issues. We are grateful to the Ministry of Power for the invaluable guidance and strong support we have been receiving. We are thankful to the Ministry of Finance, the Ministry of Environment and Forest, the Ministry of Coal, the Ministry of Petroleum and Natural Gas, the Ministry of Commerce, the Ministry of Heavy Industries including the Department of Public Enterprises, the State Governments and other agencies and authorities for their help to NTPC. We are grateful to the Central Electricity Regulatory Commission and Central Electricity Authority for their guidance to the sector and to NTPC. We are extremely thankful to our valued customers - the State Utilities and consultancy clients. We are grateful to the Statutory Auditors of the Company and to the Comptroller & Auditor General for their observations and suggestions. I convey my sincere thanks to Financial Institutions, Banks and other lenders for the unstinted faith reposed by them in the company. I am thankful to our vendors and associates who are our partners in our journey of progress. I take this opportunity to place on record my appreciation and thankfulness to my colleagues on the Board for their invaluable contribution and cooperation in steering the Company. I am indebted to the Independent Directors who lend invaluable perspective and quality to the deliberations and decisions of the Board. We are thankful to the investors who have demonstrated strong faith in your Company.

Building upon its heritage of values and high performance, your Company is aiming higher, delivering more and reaching further. Powering ahead with collective passion of an inspired team: