i) Credit risk

Credit risk is the risk that a counter party will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities including deposits with banks and financial institutions.

ii) Liquidity risk.

Liquidity risk is the risk that the Company may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses.

iii) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: currency rate risk, interest rate risk and other price risks. Financial instruments affected by market risk include loans and borrowings, deposits, investments. Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. This is based on the financial assets and financial liabilities held as at 31st March, 2023 and 31st March, 2022.

The company operates mainly in regulated environment. Tariff hydro power stations of the company is fixed by the Central Electricity Regulatory Commission (CERC) through Annual Fixed Charges (AFC) comprising the following five components: 1. Return on Equity (RoE), 2. Depreciation, 3. Interest on Loans, 4. Operation & Maintenance Expenses and 5. Interest on Working Capital Loans. In addition to the above, Foreign Currency Exchange Variation and Taxes are also recoverable from Beneficiaries in terms of the Tariff Regulations. Hence variation in interest rate, currency exchange rate variations and other price risk variations are recoverable from tariff and do not impact the profitability of the company.

The company's risk management is carried out as per policies approved by Board of Directors from time to time.

(A) Credit Risk

The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and other financial instruments.

a) Trade Receivables

The Company extends credit to customers in normal course of business. The Company monitors the payment track record of the customers. Outstanding customer receivables are regularly monitored. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are mainly state government authorities and operate in largely independent markets.

CERC tariff regulations 2019-24 allows the Company to raise bills on beneficiaries for late-payment surcharge which adequately compensates the Company for time value of money arising due to delay in payment. Further, the fact that beneficiaries are primarily State Governments/ State Discoms and considering the historical credit loss experience for trade receivables, the Company does not envisage either impairment in the value of receivables from beneficiaries or loss due to time value of money due to delay in realization of trade receivables.

b) Financial assets at amortised cost

Employee Loans: The Company has given loans to employees at concessional rates as per the Company's policy which have been measured at amortised cost at Balance Sheet date. The recovery of the loan is on fixed instalment basis from the monthly salary of the employees. Management has assessed the past data and does not envisage any probability of default on these loans.

c) Financial instruments and cash deposits

The Company considers factors such as track record, size/networth of the institution/bank, market reputation and service standards and limits and policies as approved by the board of directors to select the banks with which balances and deposits are maintained. The Company invests surplus cash in short term deposits with scheduled Banks.

B) Liquidity Risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due.

The Company's objective is to maintain optimum levels of liquidity at all times to meet its cash and collateral requirements. The Company relies on a mix of borrowings, capital infusion and excess operating cash flows to meet its need for funds. The current committed lines of credit and internal accruals are sufficient to meet its short to medium term expansion needs. The Company monitors rolling forecasts of its liquidity requirements to ensure that it has sufficient cash to meet capital expenditure and operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities.

(C) Market Risk:

The sensitivity analysis excludes the impact of movements in market variables on the carrying value of post-employment benefit obligations provisions and on the non-financial assets and liabilities. The sensitivity of the relevant Statement of Profit and Loss item is the effect of the assumed changes in the respective market risks. The Company's activities expose it to a variety of financial risks, including the effects of changes in interest rates.

(i) Interest rate risk and sensitivity

The Comapny's exposure to the risk of changes in market interest rates relates primarily to the Company's long term debt obligations with floating interest rates and any changes in the interest rates environment may impact future cost of borrowing.

2.41 Disclosure as per Ind AS 1 “Presentation of financial statements

a) Changes in significant accounting policies:

During the year, following changes to the accounting policies have been made:

i) Policy no. 1.21 ‘Depreciation and amortization” has been modified during the year. The impact of the same has resulted in decrease in depreciation expense by ' 1851 lakh and increase in net block of Property , plant and equipment (PPE) by the same amount.

b) Reclassification and comparative figures

Certain reclassifications have been made to the comparative period's financial statements to enhance comparability with the current year's financial statements.

b) In pursuance to section 115 BAA of the Income Tax Act, 1961 announced by Govt. Of India through Taxation Laws (Amendment) Act, 2019, the company has an option for a lower tax rate by foregoing certain exemptions/deductions. The company has not opted for this option as the company has sufficient MAT credit available to it in the future and continues to recognise the taxes on income as per the earlier provisions. 2.43 Disclosure under the provisions of IND-AS 19 ‘Employee Benefits’:-

a) Defined Contribution plans:

(i) Pension:

The company has Defined Contribution Pension Scheme and is contributing to the National Pension System(NPS). The liability for the same is recognized on accrual basis.

b) Defined benefit plans:

(i) Employers contribution to Provident Fund:

The Company pays fixed contribution to Provident Fund at predetermined rates to a separate trust, which invests the fund in permitted securities. The obligation of the company is limited to such fixed contribution and to ensure a minimum rate of return to the members as specified by GOI. The liability for the same is recognized on the basis of actuarial valuation. EPFO has not yet notified the interest rate on the employees provident fund for the F.Y. 2022-23. Pending notification of the rate by the Government, actuarial valuation has been carried out considering the provisional interest rate of 8.15% recommended by Ministry of Labour. However, actual obligation, if any shall be ascertained and paid to the trust after the notification of the rate by EPFO. Further, contribution to employee pension scheme has been paid to the appropriate authorities.

(viii) Risk exposure

Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such company is exposed to various risks as follow-

A) Salary Increases- Actual salary increases will increase the Plan's liability. Increase in salary increase rate assumption in future valuations will also increase the liability.

B) Medical cost increase- Increase in actual medical cost per retiree will increase the plans liability. Increase in medical cost per retiree rate assumption will also increase the liability.

C) Investment Risk - If Plan is funded then assets liabilities mismatch & actual investment return on assets lower than the discount rate assumed at the last valuation date can impact the liability.

D) Discount Rate : Reduction in discount rate in subsequent valuations can increase the plan's liability

E) Mortality & disability - Actual deaths & disability cases proving lower or higher than assumed in the valuation can impact the liabilities.

F) Withdrawals - Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal rates at subsequent valuations can impact Plan's liability.

c) Other Long Term Employee Benefit Plans

The company provides for earned leave benefit and half pay leave to the employees of the company which accrue annually at 30 days and 20 days respectively. Earned leave (EL) and Half pay leave (HPL) are en-cashable subject to limits and other conditions specified for the same. The scheme is un-funded and liability for the same is recognised on the basis of actuarial valuations. During the year, provision amounting to ' 1827 Lakh has been made on the basis of actuarial valuation at the year end and debited to statement of profit and loss (P.Y.: ' 1648 Lakh).

Terms and conditions of transactions with related parties

a) Transactions with the related parties are made on normal commercial terms and conditions and at arm's length price.

b) Consultancy services provided by the company to subsidiary company is generally on nomination basis.

c) The Company is seconding its personnel to subsidiary and joint venture companies as per terms and conditions agreed between the companies, which are similar to those applicable for secondment of employees to other companies and institutions. The cost incurred by the Company towards superannuation and employee benefits are recovered from these companies.

d) Outstanding balances of subsidiary and joint venture companies at the year-end are unsecured and settlement occurs through banking transaction. The Company has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken in each financial year through examining the financial position of the related party and the market in which the related party operates.

*Consequent upon the approval of Shareholders of Kholongchhu Hydro Energy Limited (KHEL) in 5th Extra ordinary Meeting (EGM) held on December 30,2022, SJVN had transferred all its entire shareholding in KHEL to Druk Green Power Corporation (DGPC) Bhutan against payment of equity contribution of SJVN in KHEL along with interest @ 9% per annum with monthly compounding till the date of payment to SJVN. The amount received on transfer of share in excess of cost of shares has been shown under other income note no. 2.33

1. Equity investments in subsidiary and joint venture companies are measured at cost as per the provisions of Ind AS 27 on ‘Separate financial statements'.

2. The Company has 26% interest in Cross Border Power Transmission Company Limited. The company is domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The Company is principally engaged in establishment, operation & maintenance and transfer of Indian Portion of Indo-Nepal Cross Border Transmission Line from Muzaffarpur to Dhalkebar.

a) Provision for Performance Related Pay

Short-term Provision has been recognised in the accounts towards Performance Related Pay/ incentive to employees on the basis of management estimates as per company's rules in this regard which are based on the guidelines of the Department of Public Enterprises, Government of India

b) Provision for Interest on Arbitration Awards

This includes provisions created on the basis of arbitration/court award as to probable outflow in respect of interest on contractors claims against which arbitration award/Court decision have been received and which have been further challenged in a Court of Law. Utilization/ outflow of the provision is to be made on the outcome of the case

c) Provision-Others

This includes mainly provision made towards expenditure on Local Area Development Authority in respect of Rampur Hydro Power Station.

d) In respect of provision for cases under litigation, outflow of economic benefits is dependent upon the final outcome of such cases.

e) In all these cases, outflow of economic benefits is expected within next one year.

B. Contingent Liabilities:-

(i) Capital works

Contractors have lodged claims aggregating to ' 59391 Lakh (P.Y.: ' 67902 Lakh) against the Company on account of rate & quantity deviation, cost relating to extension of time and idling charges due to stoppage of work/delays in handing over the site etc.The company has created a provision of ' 2841 lakh ( P.Y.: ' 826 lakh) against these claims. These claims are being contested by the company as being not admissible in terms of provisions of the respective contracts or are laying at arbitration tribunal/other forums/under examination with the Company.

(ii) Land Compensation cases

In respect of land acquired for the projects, some of the land oustees have filed claims for higher compensation amounting to ' 2506 Lakh (P.Y.: ' 2506 Lakh) before various authorities/courts. Company has shown the same as contingent liability as possibility of any outflow in settlement of these claims is considered as remote.

(iii) Disputed Income Tax Demand including TDS

The Income Tax Department had raised a demand of ' 2861 lakh for various assessment years. The company is contesting the cases & filed appeals with CIT (Appeals) and has accordingly deposited ' 366 lakh towards disputed income tax demand. There is also a contingent liability amounting to ' 50 Lakh towards TDS related demands.

(iv) Guarantees

During the previous year the company has given a corporate guarantee for a loan drawn by SAPDC, a subsidiary company. Amount outstanding as on 31.03.2023 amounting to ' 141639 lakh has been shown as contingent liability.

(v) Others

Other Contingent liability is mainly in respect of bills discounted with banks against trade receivables amounting to ' 25989 lakh (P.Y.: ' 24904 lakh). In case of any claim on the Company from the banks in this regard, entire amount shall be recoverable from the beneficiaries along with surcharge.

b) The Company has commitments of ' 479726 Lakh (P.Y.: ' 109726 Lakh) towards further investment in the subsidiary companies as at 31 March 2023.

c) The Company has commitments of ' 689 Lakh (P.Y.: ' 35957 Lakh) towards further investment in the joint venture entities as at 31 March 2023.

d) Company's commitment in respect of lease agreements has been disclosed in Note no.2.54

2.51 Disclosure as per Ind AS 108 ‘Operating Segments’

a) Operating Segments are defined as components of an enterprise for which financial information is available that is evaluated regularly by the Management in deciding how to allocate resources and assessing performance.

b) Electricity generation is the principal business activity of the Company. Other operations viz., Contracts, Project Management and Consultancy works do not form a reportable segment as per the Ind AS - 108 on ‘Segment Reporting'.

c) The Company is having a single geographical segment as all its Power Stations are located within the Country.

2.52 Disclosure relating to creation of Regulatory Deferral Accounts as per Ind AS 114:

a) The company is mainly engaged in generation and sale of electricity. The price to be charged by the company for electricity sold to its customers is determined by the CERC which provides extensive guidance on the principles and methodologies for determination of the tariff for the purpose of sale of electricity. The tariff is based on allowable costs like interest, depreciation, operation & maintenance expenses, etc. with a stipulated return. This form of rate regulation is known as cost-of-service regulations which provide the Company to recover its costs of providing the goods or services plus a fair return.

b) As per the CERC Tariff regulations any gain or loss on account of exchange rate variation during the construction period shall form part of the capital cost till the declaration of commercial operation date. Exchange differences arising from settlement/translation of monetary item denominated in foreign currency to the extent recoverable from or payable to beneficiaries in subsequent periods as per CERC Tariff Regulations are recognized on an undiscounted basis as regulatory deferral account debit/credit balance by credit/debit to movements in regulatory deferral account balances and adjusted from the year in which the same becomes recoverable from or payable to the beneficiaries.

c) Pay revision of employees of CPSUs has revised from 1st January, 2017. The impact of actual increase in employee cost on account of wage revision of operational power stations is recoverable from beneficiaries in future throughTariff.

d) Interest charged to profit & loss account on account of arbitration awards in respect of hydro plants is included in regulatory deferral account debit balance as the same is recoverable from beneficiaries through tariff in future.

e) Risks associated with future recovery/reversal of regulatory deferral account balances:

i) Demand risk due to changes in consumer attitudes, the availability of alternative sources of supply.

ii) Regulatory risk on account of changes in regulations and submission or approval of rate-setting application or the entity's assessment of the expected future regulatory actions.

iii) Other market risks, if any.

The Company expects to recover the carrying amount of regulatory deferral account debit balance over the life of the projects.

2.53 Disclosure as per Ind AS 115,” Revenue from contract with customers”

I) Nature of goods and services

The revenue of the Company comprises of income from energy sales and consultancy services. The following is a description of the principal activities:

a) Revenue from energy sales

The major revenue of the Company comes from energy sales. The Company sells electricity to bulk customers, mainly electricity utilities owned by State Governments as well as private discoms operating in States. Sale of electricity is generally made pursuant to long-term Power Purchase Agreements(PPAs) entered into with the beneficiaries.

IV) Contract balances

Contract assets are recognised when there is excess of revenue recognised over billings on contracts. Contract assets are transferred to unbilled revenue when there is unconditional right to receive cash, and only passage of time is required , as per contractual terms. The contract liabilities primarily relate to the advance consideration received from the customers which are referred as “advances from customers”.

The following table provides information about trade receivables, unbilled revenue, amount receivable for late payment surcharge and advances from customers:

V) Transaction price allocated to the remaining performance obligations Performance obligations related to sale of energy:

Revenue from sale of energy is accounted for based on tariff rates approved by the CERC (except items indicated as provisional) as modified by the orders of Appellate Tribunal for Electricity to the extent applicable. In case of power stations, where the tariff rates are yet to be approved/ items indicated provisional by the CERC in their orders, provisional rates are adopted considering the applicable CERC Tariff Regulations. Revenue from sale of energy is recognised once the electricity has been delivered to the beneficiaries. Beneficiaries are billed on a periodic and regular basis. Therefore, transaction price to be allocated to remaining performance obligations cannot be determined reliably for the entire duration of the contract.

Performance obligations related to Consultancy and sale of energy through trading:

For consultancy, transaction price for remaining performance obligations amounts to ' 763 Lakh ( P.Y.: ' 1731 Lakh) which shall be received over the contract period in proportion of the services provided by the Company.

VI) Practical expedients applied as per Ind AS 115:

a) The company has not disclosed information about remaining performance obligations that have original expected duration of one year or less and where the revenue recognised corresponds directly with the value to the customer of the entity's performance completed to date.

b) The company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the company has not adjusted any of the transaction prices for the time value of money.

VII) The Company has not incurred any incremental costs of obtaining contracts with a customer and therefore, not recognised an asset for such costs.

2.54 Disclosures as per Ind AS 116 ‘Leases’

1. The Company has adopted Ind AS 116-Leases effective 1st April, 2019, using the modified retrospective method. On the date of initial application, the lease liability has been measured at the present value of the remaining lease payments and right of use assets has been recognised at an amount equal to the lease liabilities.

2. Practical expedients applied as per Ind AS 116

a) Applied a single discount rate to a portfolio of leases of similar assets in similar economic environment with a similar end date.

b) Applied the exemption not to recognize ROU assets and liabilities for leases with less than 12 months of lease term on the date of initial application.

c) Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

3. The incremental borrowing rate has been applied to discount the lease liabilities.

3. To Firms/companies in which directors are interested : Nil (P.Y.: Nil)

B. Investment by the loanee (as detailed above) in shares of SJVN : Nil

2.57 The Company has a system of obtaining periodic confirmation of balances from banks and other parties. There are no unconfirmed balances in respect of bank accounts and borrowings from banks & financial institutions. With regard to receivables for energy sales, the Company sends demand intimations to the beneficiaries with details of amount paid and balance outstanding which can be said to be automatically confirmed on receipt of subsequent payment from such beneficiaries. In addition, reconciliation with beneficiaries and other customers is generally done on quarterly basis. So far as trade/other payables and loans and advances are concerned, the balance confirmation letters/emails with the negative assertion as referred in the Standard on Auditing (SA) 505 (Revised) ‘External Confirmations', were sent to the parties. Some of such balances are subject to confirmation/reconciliation. Adjustments, if any will be accounted for on confirmation/reconciliation of the same, which in the opinion of the management will not have a material impact.

2.62 Disclosure related to Corporate Social Responsibility (CSR)

As per the Companies Act, 2013, the company is required to spend at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. During the year an amount of ' 3300 lakh [(2% of Average Profit Before Tax of immediately previous three years (P.Y ' 3947 lakh, 2% of Average Profit Before Tax of immediately previous three years)] to be spent on CSR during the year. The company has paid an amount of ' 6023 lakh (P.Y: ' 5075 lakh) to the CSR trust formed to manage the CSR activities which has been booked to CSR expenses as per Accounting Policy.

2.64 Govt. of Himachal Pradesh vide it's notification dated 16.02.2023 has imposed water cess on the generation of electricity in Himachal Pradesh. Company has two operational projects of 1912 MW in Himachal Pradesh. However, Govt. of India, Ministry of Power vide it's letter dated 25.04.2023 has termed this as illegal and unconstitutional and advised the States not to levy any taxes/duties contrary to constitutional provisions. CPSE's have also been advised not to make payment of such taxes and challenge the same in the courts. As a precautionary measure the company has filed a writ petition against the said notification in the Hon'ble High Court of Himachal Pradesh.

2.65 Board of Directors have authorised Director (Finance) and Company Secretary to rectify the errors and carry out modifications, if any.