Corporate Finance Department
In FY2006/07, NEA registered a growth of 11.10% in total sales despite transitional situation in the country. This growth in sales is less than the projected target by 4.41%. Internal sales were increased by 12.59% to reach 2179.89 GWh whereas exports (sales to India) were decreased by 18.95% compared to FY 2005/06. Export to India stood at 78.25 GWh. Net revenue from Internal sales amounted to NRs. 14,309.21 million for FY 2006/07 as against NRs.
12,789.55 million in the previous year, thereby, registering an increase of 11.89%. Export sales revenue was NRs. 489.04 million compared to NRs. 579.33 million in the previous fiscal year registering a decrease of 15.58%. Total rebate given to the customers amounted to NRs. 322.40 million, an increase of 6.11% over that of the previous fiscal year.
In the year under review, NEAs income from other services such as surcharge, interest, lease rent, service charge, dividend etc. was NRs 878.70 million which is higher by 37.32% as compared to the previous years figures. The contribution of income from other services to the total income is 5.61%. Total income after rebate stood at NRs. 15,677.00 million showing an increase of 12.20% over the total income of FY 2005/06.
NEAs total operation and maintenance expenditure amounted to NRs. 13,766.90 million, an increase of 11.22% over the previous years expenditure of NRs 12,378.20 million. Power purchase increased by 10.72% to reach a total amount of NRs. 7,077.70 million. This is 44.22% of the total expenditure. Interest expenditure, the second largest component of the total expenditure was decreased by 14.79% over previous years figure to register a total amount of NRs. 2,599.70 million. NEAs cost of debt has been reduced due to the reduction of interest rate of government loan from 10.25% to 8% from FY 2006/07.
Staff cost amounted to NRs. 1,810.30 million in FY 2006/07 which is an increase of 4.00% over previous years cost. This increase was due to the increment in dearness allowance by 10% and regular increment of grade by 2%. Staff cost amounted to about 11.31% of the total cost. Likewise, Operation & Maintenance expenses increased by 12.90% to reach a figure of NRs. 1,694.04 million. Major civil repair and maintenance of Trishuli Hydroelectric Project dam, vehicles maintenance, cost increase due to natural calamities like snowfall, storm and flood at various places and rise in price of various construction materials contributed to this increase in costs.
Depreciation, royalty, prior years adjustments and other expenditure which included deferred revenue expenditure, loss of other assets and provisions amounted to NRs. 1,880 million, NRs. 969.38 million, NRs. 500 million and NRs. 455.40 million respectively.
NEAs total cost of sales has been decreased compared to FY 2005/06 but direct operating cost has increased mainly because of inflation and expansion of service in rural areas. However, there is no mechanism to recover/adjust those costs at present. Hence NEA has applied for automatic tariff adjustment which is yet to be approved by the Tariff Fixation Commission. NEA considers tariff increase as the measure of last resort. FY 2006/07 was the sixth in the sequence of years for which NEA has to operate its business without bonafide tariff adjustment, which resulted a loss of NRs 0.54 for each KWh sold to the customers. This figure is less by 43% in comparison to FY 2005/06.
Despite more than 94.20% collection rate of internal sales, NEAs cash situation was still not satisfactory in the year. Public sector and street light dues still remains a serious problem. The outstanding receivable balances from municipalities and government offices and public institutions stood at approximately NRs. 2 billion at the end of the fiscal year. Additional fund requirement for various projects including Middle Marsyangdi HEP further exacerbated the cash crunch. In FY 2006/07, NEA spent over NRs.1 billion as additional disbursement to Middle Marsyangdi HEP. In order to overcome the problem of cash shortage, NEA has already initiated the process for issuance of Power Bonds, which is the first of its kind in Nepalese capital market.
Institutional strengthening process has been introduced through Institutional Strengthening Project, a subcomponent of Power Development Project under the financial assistance of the World Bank. The consultant has submitted the final report which stressed the need for enhancement of the present capabilities in finance, accounts, and internal audit through training and process mapping by NEAand introduction of new computerised financial accounting system. NEA has requested donor agencies for funding the institutional strengthening of NEA.
 

Finance and Accounts Department
NEAs revalued fixed asset at the end of the FY 2006/07 reached NRs. 62,121.30 million as compared to NRs. 61,573.00 million at the end of previous fiscal year. Total revenue in FY 2006/07 was NRs. 15,677.00 million in comparison to NRs. 13,971.80 million in FY 2005/06, which was an increase of 12.20% over the figures of previous year.
Total operating expenses under generation, transmission, distribution and administration in the FY 2006/07 stood at NRs. 8,958.50, NRs. 276.10, NRs. 1,938.20 and NRs. 564.10 million respectively. As compared to previous fiscal years figures, the expenses under the above headings increased by 10.59%, 18.96%, 13.76% and 34.47 % respectively, whereas the total expenses increased by 11.22%. Although the operating surplus was registered from NRs 1593.60 million to NRs 1,910.10 million in FY 2006/07, NEA suffered a net loss of NRs. 329.60 million which is 74.00% lower than that of previous year’s loss figure of NRs. 1,267.80 million. The main reason for this improvement was the substantial savings in power purchase cost due to the devaluation of US Dollar exchange rate and profit in the account of interest and loan repayable in Japanese Yen. Furthermore, the government has reduced interest rate from 10.25% to 8.0% on long term loan. These developments have helped in improving financial performance of NEA as compared to earlier years. However, NEA continued to suffer loss for the seventh year in a row due to various reasons.
In FY 2006/07, NEA invested NRs. 9,148.60 million in capital works and projects of which NRs. 4,461.50.1 million comprised of government equity, NRs. 2,106.68 million came as government loan and NRs.2,580.42 million was borne from NEAs internal source.
NEA has invested NRs 883.49 million in subsidiary and others till FY 2006/07 of which NRs 489.60 million has been invested in equity of Chilime Hydro Power Co. Ltd. (CHPCL), a subsidiary of NEA. In FY2006/07, NEA collected 35% (NR5 171.36 million) dividend from CHPCL. It is expected that CHPCL’s financial performance will be even better in future, which will influence the share price. NEA also benefited from the growth of assets because of large increase in CHPCL investment values in the market. Other investments of NEA include equity investment in Nepal Engineering Consultancy (NR5 2.28 million), Khumbu Bijuli Co (NR5 20.65 million), Salleri Chaylsa Hydro Electric Co (NR5 11 .63million) and Butwal Power Co (NR5 8.86 million) .NEA has not realized any gain from the above companies except Butwal power Co. In FY 2006/07, NEA received NRs 2.57 million as dividend (30%) from BPC. NRs 350.47 million have been invested till the end of FY 2006/07 in Citizen Investment Trust (CIT) for equalization of gratuity and pension liability.
NEKs total borrowing stood at NRs. 51,672.70 million as of end of FY 2006/07.. In FY 2006/07, NEA paid NRs. 733.20 million for interest, NRs. 940.40 million for royalty and NRs. 600.80 million for repayment of loan to government. Likewise, NRs.1 697.50 million was provided for Middle Marsyangdi HEP funding.
The financial audit for FY 2005/06 was completed and approved. In the past fiscal year the financial statements together with auditor’s report were filed with the concerned authorities. Similarly, taxAudit for the above period was finalized and tax return (loss return) was also submitted to Inland Revenue Department by claiming previous year’s forwarded losses as per the provision of Income Tax Act 2058.
In order to achieve better financial discipline, accountability and control in executing the Business Group’s financial transaction and activities, interaction programs have been conducted in regional and central level focusing on accounting, financial and major audit issues. As a result of this program, positive symptoms have been noticed in the area of inter unit reconciliation, identification and verification of assets and compliance with financial delegations and disciplines.
NEA has initiated conversion of its manual accounting system by replacing computerized system in a phased manner. Oracle based Customized Accounting and Inventory System (CAIS) was introduced and to date 100 budget centers are using financial accounting module. Out of 111 budget centers, inventory module is used only in 75 budget centers. NEA is planning to go into full automation covering Small Hydro and projects .This will facilitate to consolidate the accounts and complete the financial and tax audit at stipulated time. This will help to improve the financial reporting system of NEA and will also help to comply with the loan covenants of donor agencies.
During the FY 2006/07, pending audit qualification out of the total outstanding NRs 767.97 million of the period FY 1973/74 to FY 1993/94, NRs 622.00 million has been settled down and rest is in process. This achievement is remarkable.
NEA is required to achieve a number of covenants in respect of borrowing from the donor agencies. Major covenants related to finance are Rate of Return (ROR) (6%), Self Financing Ratio (SFR) (23%), Debt Service Coverage Ratio (DSCR) (1.2 times) and Average Collection Period (ACP) (3 months) In FY 2006/07, NEA achieved 4.41% ,25.26 %, 1.07 times and 3.96 months in respect of ROR, SFR, DSCR, and ACP respectively.