Internal Audit report 80-81 Third Quarter Final.docx

Internal audit of Power company

1. P.L. Shrestha & Co.
Kupondole, Lalitpur Tel.: [phone]
C h a r t e r e d A c c o u n t a n t s P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited

बबबबब बबबब
बबबबबब बबबबबबब


INTERNAL AUDIT REPORT
Third Quarter
FINANCIAL YEAR 2080/81

Submitted To:
Audit Committee
Butwal Power Company Limited

2. P.L. Shrestha & Co.

Char ter ed Ac count ants

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Introduction
Butwal Power Company Limited (BPC) is a pioneer in hydropower development in Nepal. BPC was incorporated in 1965 AD as private company
and converted into public limited company in 1993 AD.
Pursuing privatization process in 2003AD, Government of Nepal handed over majority ownership and management control to private investors
on public-private partnership model. Shangri-La Energy Ltd, Interkraft Norway, United Mission to Nepal, Nepal Electricity Authority (NEA) and
Government of Nepal became the principal shareholders of BPC. BPC is registered with the Securities Board of Nepal and listed in Nepal Stock
Exchange Limited.
Starting off with electrification plan of a small city in the south-central Nepal, BPC is the only enterprise which can look back to a four-decade
long history of success, sustained growth and capacity building in the country.
BPC owns and operates 12 MW Jhimruk Hydropower Plant and 9.4MW Andhikhola Hydro Project. Through its subsidiaries, BPC is engaged in
operation & maintenance of power plants, consulting engineering of hydropower and infrastructure projects, manufacturing and repair of
hydro-mechanical and electro-mechanical equipment for power plants. The head office of the Company is situated at Buddha Nagar, Kathmandu
and Liaison office is situated at Butwal.
Audit Period
Third quarter of Fiscal Year 80/81.
Objectives
Internal Audit is an independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a
view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity’s
risk management and internal control system.
Accordingly, the objective of this assignment is to review the BPC's existing policies and internal control framework, its’ operation, point out the
risk areas and give recommendation thereon.
Scope
The scope of internal audit includes Advising and recommending the Board, Audit Committee and the management of the Company for
improving governance process, internal control and risk management system. Accordingly, the scope of this Internal Audit includes the
following:
a. Financial Audit- Concentrating on coverage of effectiveness and efficiency of
• Accounting Practices adopted by the Company as per standards
• Financial Reporting
• Revenue Cycle Management
• Fund Management
b. Value for Money Audit- Concentrating on coverage of effectiveness and efficiency of Corporate Management includes:

3. P.L. Shrestha & Co.

Char ter ed Ac count ants

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


• Information Technology and Communication Systems
• Asset and Inventory Management System
• Human Resource Management System
• HR Policies and Manuals of the Company having Financial Implication
• Procurement Plan, Process and Control System
• Facility Management and Building Management
c. Risk Management- Review of:
• Major Risk, Impact Analysis and its Financial Implication to the Company
• Strategic Risk, Business Risk, Operational Risk and Specific Risk etc.
d. Compliance Audit- Concentrating on coverage of effectiveness and efficiency of:
• Contract Management System of the Company
• Legal and Other Compliance and Statutory Reporting
• Follow up of previous audit findings
• Compliance and effectiveness implementation of decision of Board of Directors and its Committees
e. Profitability- To conduct the Audit of:
• Generation Business
• Distribution Business
• Business and Project Development Plan for its Implementation
f. Internal Control- Assessment of:
• Efficiency and effectiveness of business operation
• Reliability of financial operation

4. P.L. Shrestha & Co.

Char ter ed Ac count ants

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


• Compliance with applicable law and regulations.
g. Others:
• Advice on policy related issues
• Tracking of improvement vis-à-vis observations over previous audits.
• Submit Annual Report to Audit committee specifying the major highlights of the observations and improvements in the
process/control/mechanism.
Audit issues have been ranked as High, Medium and Low depending upon the level of risk. Issues have been further identified as
strategic (decision making), financial (having financial impact), Operational (effecting on day-to-day affairs) and compliance (legal or
policy related).
Audit of Head office was covered during this half. The above-mentioned objective will be met and the scope will be covered on different halves
giving due importance to the materiality, business complexity, regulator’s guidelines and directives, BPC’s internal policy and degree of
deviation observed, if any, while performing our audit procedures.
Risk Grading
A brief description of system of the Internal Audit Report issues or findings has been provided in order that the Company is able to better
prioritize implementations or recommendations emanating from findings. The following system of grading has been applied:
1. High: Risks are those which are particularly significant and the involvement of management may be required for their resolution. These are the
high-level issues which impact seriously on the achievement of overall objectives of the Company and may cause financial loss to the company.
2. Medium: Risks are those that may have significant impact on control environment.
3. Low: Risks are those which are less significant but nevertheless merit attention.
Methodology
Our review covers new and other transactions during the audit period on a sample basis. However, we shall not express an opinion on the
truthfulness and correctness of the financial statements of BPC but shall report on the BPC existing policies and internal control framework,
point out the risk areas and give recommendation thereon.
Limitations
“The facts and figures reported are, as they existed at the time of our review. We therefore, would not be liable to update our Report for the state
of affairs as they stand after the date of the review”.
 “Our end conclusions are based on and limited to scrutiny of Records, Documents, Reports and Representations provided to us by the
management and personnel of BPC. Further, all our conclusions have been based on a sample review/testing/walk through of
transactions/processes and are subject to this limitation.

5. P.L. Shrestha & Co.

Char ter ed Ac count ants

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


 We have pre-supposed the legitimacy of all signatures and the authenticity of all documents provided to us including copies of original
documents. We would not be liable for a failure by the management of BPC to either disclose all information to us or furnishing information
to us based on incorrect and/or incomplete information or misrepresenting facts, notwithstanding the reasons and background thereof.
 “The management of BPC is responsible for putting in place an effective and fully functional internal control system. The responsibility for
implementation of Review recommendations rests solely with the management of BPC. The procedures performed by us should not
preclude normal inquiry or scrutiny of the documents and records, whether checked by us or not, by the management of BPC as a part of
their normal internal controls.
 “Working papers prepared/generated/procured by us during the course of our review are our property and giving access to such working
papers to any person/organization will be subject to the norms and regulations prevalent in our firm and the pronouncements of the
Institute of Chartered Accountants of Nepal, regarding grant of access to working papers”.
 “Our Report is meant strictly for internal use by BPC. We must approve, in advance and in writing, any other distribution of our Reports.
Audit Team
Engagement Partner – CA. Sachet Lal Shrestha
Team Leader – Mr. Nirajan Shahi
Team Member –Ms. Binita Shrestha
Acknowledgment
We express our sincere gratitude to staff of BPC for the cooperation extended to us in the course of our audit.

6. P.L. Shrestha & Co.

Char ter ed Ac count ants

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Table of Contents
1. Procurement: ................................................................................................................................................................................................................................................................. 1
1.1 Inventory Management: Slow moving Capital Stock: ......................................................................................................................................................................... 1
1.2 Improper Procurement Practice: .................................................................................................................................................................................................................. 2
2. Non-compliance with Laws and Regulations: .............................................................................................................................................................................................. 4
2.1 Non-compliance to Companies Act: .............................................................................................................................................................................................................. 4
2.2 Improper Corporate Governance: ................................................................................................................................................................................................................. 5
2.3 Non-compliance to Labour Act: ...................................................................................................................................................................................................................... 6
2.4 Non-compliance to VAT Rules: ........................................................................................................................................................................................................................ 6
3. Finance: ............................................................................................................................................................................................................................................................................. 9
3.1 Long Pending interest receivable from Associate company: ......................................................................................................................................................... 9
3.2 Pending receivables: ............................................................................................................................................................................................................................................. 9
3.3 Lower Return on Investment: ........................................................................................................................................................................................................................ 10
3.4 Prepaid Expenses Booked Incorrectly: .................................................................................................................................................................................................... 12
3.5 Physical verification of assets: ...................................................................................................................................................................................................................... 13
4. Human Resource: ...................................................................................................................................................................................................................................................... 14
4.1 Insufficient Training and development to staff:.................................................................................................................................................................................. 14
4.2 Difference in leave certification requirement: .................................................................................................................................................................................... 14
5. Operation (Generation and distribution): .................................................................................................................................................................................................. 16
5.1 Generation Loss on Andhikhola: .................................................................................................................................................................................................................. 16
5.2 Distribution Loss: ................................................................................................................................................................................................................................................. 16

7. P.L. Shrestha & Co.

Char ter ed Ac count ants

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


6. Information and Communication Technology: ......................................................................................................................................................................................... 18
6.1 No BCP and DRP: ................................................................................................................................................................................................................................................... 18
7. Business Development and Project: ............................................................................................................................................................................................................... 19
7.1 7 MW Solar Power Project at Jhimruk Area: ......................................................................................................................................................................................... 19
7.2 Kabeli-A (KAHEP) (37.6 MW) ........................................................................................................................................................................................................................ 19
7.3 Manang Marsyangdi Hydro Electric Project (135 MW) (MMHEP): ........................................................................................................................................... 20
7.4 Lower Manang Marsyangdi Hydro Electric Project (139.2 MW) (LMMHEP)....................................................................................................................... 21
7.5 Mugu Karnali Hydropower Project (160 MW) (MKHP) .................................................................................................................................................................. 22
8. Investment: ................................................................................................................................................................................................................................................................... 24
9. Corporate Guarantee /Capital Commitment/Contingent Liability: .............................................................................................................................................. 26
9.1 Corporate Guarantee:......................................................................................................................................................................................................................................... 26
9.2 Capital Commitment: .......................................................................................................................................................................................................................................... 27
9.3 Contingent Liability: ........................................................................................................................................................................................................................................... 27
Annexure I: .................................................................................................................................................................................................................................................................................. 29

8. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


1. Procurement:

1.1 Inventory Management: Slow moving Capital Stock:
MEDIUM
Observations Recommendation Management Response
During our review, it was identified that the company has been retaining its inventory
for a longer duration, and a substantial portion of Capital Stock is categorized as slow-
moving, reflecting a significantly low Stock Turnover Ratio.
A low stock turnover ratio indicates potential issues in Inventory Management, which
may lead to increased carrying costs, obsolescence (due to new advanced equipment),
and financial strain.
Huge Capital is tied up in inventory, limiting funds available for other critical business
operations.
Subledger Code Items Amount
319005 Capital stock 26,42,844
419007 Capital stock 12,14,976
519007 Capital stock 31,43,122.74
619001 Power House Stock 2,29,04,085.29
519006 Power House Spare Parts
Stock
1,81,74,571.77
419003 T/L and D/L Stock 72,41,960.97
419002 Electrical Stock 27,83,816.32
319002 Electrical Stock 43,95,956.5
319001 TL/DL Stock 32,11,612.33
TOTAL 6,57,12,945

The management is recommended to
Implement advanced inventory
management systems and accurate
demand forecasting to reduce excess
inventory and improve stock
turnover.
The spare parts, especially
those items which are not
readily available in the local
market and need to be
imported from the third
countries, are kept in the stock
for the smooth operation of
the plant.

9. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Implications:
Prolonged retention of inventory increases carrying costs, risks obsolescence, and ties
up capital, limiting funds for other critical business operations


1.2 Improper Procurement Practice:
MEDIUM
Observations Recommendation Management Response
As per clause 10 of Butwal Power Company Limited Procurement Manual 2020,
notwithstanding anything contained in this manual, the goods and services can be
directly procured from Subsidiary and associate company on arm’s length price for up
to threshold limit of 5 million at a time.
However, on our review, we found following repair of unit 1 and unit 3 turbine parts of
Jhimruk were carried out in 2 lots which requires almost similar repair parts in almost
same time period exceeding the threshold value of 5 million from Nepal Hydro and
electric (subsidiary of BPC).
Voucher No. Particulars Vendor Amount
Goods
dispatched
Date
PI/KTM/
INCL_053
Parts for repair
of turbine
Jhimruk
Nepal Hydro
and electric
limited
35,91,812 2080/10/17
PI/KTM/
INCL_052
Parts for repair
of turbine
Jhimruk
Nepal Hydro
and electric
limited
20,40,107 2080/10/19

The management is recommended to
ensure strict adherence to
procurement guidelines by
consolidating similar procurement
needs to avoid splitting orders and
exceeding threshold limits and
implement regular compliance check
to ensure compliance with
procurement policies.
Among the 3 units of runners
at JHC, each runner is
overhauled one at a time and
sent for repair. Accordingly,
unit 1 runner was sent for
repair on 2080/05/04 from
site and Purchase Order was
issued on 2080/06/05. The
due date of delivery was
2080.11.30. M/s NHE
delivered it a month earlier on
2080/10/21. Likewise, unit 3
runner was sent for repair on
2080/06/22 from site and
Purchase Order was issued on
2080.07.23. The due date of
delivery was 2081.01.23.
However, M/s NHE delivered
it a month earlier on
2080/12/22. These runners
were delivered together by
Implications:

10. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Non-compliance with the procurement manual can lead to potential regulatory issues
and undermine the integrity of procurement processes, risking financial penalties and
reputational damage.
NHE after completion of
repair work each before one
month of due delivery date.
The repair works are not
intended to split the
transaction due to specialized
nature of work requiring
competent skill, equipment
and experience as being
provided by NHE for more
than 20 years now.

11. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81




2.1 Non-compliance to Companies Act:
MEDIUM
Observations Recommendation Management Response
As per section 175 of the Companies Act, 2063, where an agreement or arrangement is
made between the following companies whereby any company directly or indirectly
provides loan or other kinds of financial assistance, pays any liability, provides guarantee
or any other kind of security to another company or any other transactions other than
an ordinary business transaction executed between them, it shall be deemed to be a
transaction between associated companies.
Where any transactions referred to above is carried on, the associated company shall
give a notice of executing such transactions to its shareholders and the Office as soon as
possible. Following details must be disclosed in the notice:
1. Date of transaction and the parties involved in the transactions.
2. Nature of transaction and where transaction such as provision of a loan, provision of
financial assistance and furnishing security has taken place under such transaction, the
amount or the value thereof.
However, BPC has made following advance payment to associate companies and
provided corporate guarantee to associate companies without above notice:
Advance payment to associate: 155 million to Nyadi hydropower
Corporate guarantee to Associate: 4,510 million to KEL (during the third Quarter 80-
81)
The management is recommended
ensure compliance with of the
Companies Act, 2063 by promptly
disclosing all relevant transactions
between associated companies to
shareholders and the Office and
establish a robust internal control
system to monitor and report such
transactions in the future.
Noted. The Company has
disclosed such related party
transactions, in its quarterly
financial reports published in
National Daily newspaper as
per SEBON Guidelines and
uploaded in the BPC web site
www.bpc.com.np.
Implications:
Failure to disclose these transactions as required by law may result in legal and
regulatory consequences, undermine transparency and trust with shareholders, and
potentially incur financial penalties
2. Non-compliance with Laws and Regulations:

12. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81



2.2 Improper Corporate Governance:
HIGH
Observations Recommendations Management Response
As per section 55(1) of Labour Act, 2074, The employer shall procure accidental
insurance of at least seven hundred thousand rupees covering all kinds of accidents for
each labour.
Further, as per section 54(1) of Labour Act, 2074, The employer shall make provision for
annual medical insurance of at least one hundred thousand rupees for each labour.
Where, as per Section 2 definition of Labour Act, 2074, “Labour” means a worker or
employee or a person employed with any job title who performs a physical or intellectual
work for the employer.
Hence, definition of Labour does not encompass BOD member as Labour.
However, BPC has been covering all 9 BOD members (7 Directors and 2 alternate
director) under Group Personal Accidental (GPA) insurance and medical insurance along
with employees as detailed below:
 Under Group Personal Accidental insurance for each BOD member;
Annual Sum Insured: 21,240,000 (equivalent to 60 months CEO salary)
Total Annual premium for all employees (including BOD): 809,754
 Under Medical insurance for each BOD member;
Annual Sum Insured Annual Premium
100,000 Nrs.175

The management is recommended
to revise insurance policies to
exclude BOD members from Group
Personal Accidental and medical
insurance coverage intended for
employees, and ensure compliance
with the Labour Act, 2074 by
limiting coverage to eligible
employees only.
BPC Board Meeting No. 346 held
on 2076/08/22 (December 8,
2019) decided to provide all the
Board Directors GPA, Medical
and International Insurances
facilities and endorsed by the
27
th
AGM of BPC held on
2076/09/24 (January 9, 2020).
Implications:
Including BOD members under insurance policies meant for employees results in non-
compliance with the Labour Act, 2074, potentially leading to legal implications and
financial discrepancies

13. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


2.3 Non-compliance to Labour Act:
MEDIUM
Observations Recommendation Management Response
As per section 54(2) of Labour Act, 2074 the premium required for the medical insurance
shall be borne by both the employer and the labour on pro rata basis.
However, on our review, Company has been paying Premium of medical insurance on full.
Sum insured for each employee: 100,000
Total Annual premium for all employees: 75,620.
The management is recommended to
adjust the payment structure to
comply with the Labour Act, 2074 by
ensuring that the premium for
medical insurance is shared pro rata
between the employer and
employees, and communicate the
change to all employees to ensure
transparency
BPC has been providing medical
insurance for its employees,
spouse and 2 children up to 18
years of age and BoDs. Even as
per section 54(2) of Labour Act,
2074 the premium required for
the medical insurance shall be
borne by both the employer and
the labour on pro rata basis,
but as per the Section 34(3) of
the same Labor Act says that
the company cannot reduce the
facility which employees has
been taking except in the case
agreed between Management
and Union in CBA.
Implications:
This practice results in non-compliance with the Labour Act, 2074, potentially leading to
legal repercussions and increased financial burden on the company.

2.4 Non-compliance to VAT Rules:
MEDIUM
Observations Recommendation Management Response

14. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


As per Rule 6C of VAT Rules, 2053 government entity or the public institution wholly or
partially owned by government of Nepal, while making the payment to the contractor or
supplier for goods, services or both received as per an agreement or the contract, shall
withhold and deposit 30% of the VAT amount payable to such contractor or supplier in the
concerned revenue heading on behalf of such contractor or supplier.
It doesn’t apply to smaller or one-off transactions that do not have a formal written
agreement or contract in place.
During our observations, we came across the following instances where BPC had not
withheld 30% VAT while making payment to the parties who were on Vendor list through
annual contract. List of such parties has been listed below:
Voucher no.
Party’s name
Taxable
Amount
(NRs.)
VAT
Amount
(NRs.)
30%
VAT
(NRs.)
VEN/KTM/PI_205
Himal Refrigeration &
Electrical Industries
22,500 2,925 887.5
VEN/KTM/PI_296
Himal Refrigeration &
Electrical Industries
22,500 2,925 887.5
VEN/KTM/PI_213 Techno S. P. Ltd. 32,000 4,160 1,248
VEN/KTM/PI_297 Techno S. P. Ltd. 21,700 2,821 846.3

The management is recommended to
immediately implement procedures
to ensure 30% VAT withholding for
all payments to vendors with formal
contracts (including annual
contracts), and additionally, rectify
past omissions by consulting with
tax authorities to address any
outstanding liabilities.
These items are related to
direct purchase. Accordingly,
VAT has not been withheld.

Regarding Himal Refrigeration
and Electrical Industries,
Rajbiraj, VAT has not been
withheld due to lack of link up
facility of EBL and insignificant
VAT amount.
Implications:

15. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Non-compliance with VAT withholding requirements can result in regulatory penalties,
increased scrutiny from tax authorities, and financial liabilities for the unpaid VAT.

16. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


3. Finance:

3.1 Long Pending interest receivable from Associate company:
HIGH
Observations Recommendation Management Response
The company has provided a loan (advance to associate) to Nyadi Hydropower Limited
amounting to NRs. 155 million till date at the rate of 14.10% interest.
However, interest amounting to NRs. 161.072 million (5.157 million booked during the
third Quarter Magh-Chaitra) has not been realized till date.
The management is recommended to
initiate proactive measures to
recover the outstanding interest
amount promptly, review the loan
agreement terms for clarity on
interest realization, and consider
renegotiating terms if necessary to
ensure timely interest payments.
Follow up is being done to
Nyadi. Due to take & pay PPA,
the company is suffering from
operation Loss.
Implications:
The unrealized interest amount of NRs. 161.072 million on the loan to Nyadi Hydropower
Limited poses a significant financial risk and affects cash flow projections.

3.2 Pending receivables:
HIGH
Observations Recommendation Management Response
During our period, the Company has long pending receivable from Harish Chandra Shah
amounting to NRs 185,000,000. Further, accrued interest thereon is also 16,241,097.
Legal action has not been initiated for the recovery of the amount as decided in Board
meeting no. 391. Further, as per Board Meeting no. 403 management reported multiple
cheques has been received from Harish Chandra shah but were bounced by bank due to
insufficient balance in the account.
Legal case as per prevailing law has not been initiated for such banking crime against
Harish Chandra shah as instructed in Board meeting no. 403 dated April 19, 2024.
The management is recommended to
immediately pursue legal action as
per prevailing law against Harish
Chandra Shah for recovery of the
overdue amount and accrued
interest, including addressing
bounced cheques. regularly review
and update allowances for expected
credit losses for advances towards
shares and interest receivable to
BPC has received the cheques of
whole receivable from Harish
Chandra Shah and S.C. Power
Company Pvt. Ltd. amounting
to Rs. 185 million. And a second
supplementary agreement has
been signed on July 12, 2023
about the settlement of the
receivables. Status updates in
this matter has also been

17. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Further, it has also provided an allowance for expected credit loss for advances towards
share of Kabeli Energy Limited for NRs. 123,536,367 and of Gurans Energy Limited for NRs.
135,700,323 considering remoteness of chances for conversion of Advance towards share
into Equity shares and for the interest receivable from Kabeli Energy Limited for NRs
7,860,259 considering the uncertainty regarding the recoverability.
reflect the current assessment of
recoverability
reported to the Boad meeting
No. 405 held on Friday, Jestha
25, 2081) (June 7, 2024)
Implications:
The long pending receivable from Harish Chandra Shah, along with accrued interest and
bounced cheques, represents significant financial risk and potential loss for the company
due to delayed legal action

3.3 Lower Return on Investment:
HIGH
Observations Recommendation Management Response

18. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Return on Investment of BPC has decreased from 23.68% in 2074/75 to 0.27% in 2080-
81.
Dividend received during 80-81:
Company Description Amount (NRs.)
Hydro - Consult
Engineering Ltd.
72 % Cash Dividend received of
F/Y 2079/80
10,070,600
Nepal Power
Exchange Ltd.
5 % net of tax Dividend received
of F/Y 2079/80
1000,000
BPC Services Ltd.
10 % Cash Dividend received of
F/Y 2079/80 950,000

Period Investment at Cost Dividend Income
Return
(%)
2080/81 4,689,629,545 12,020,600.00 0.26%
2079/80 4,098,611,042 44,165,000.00 1.08%
2078/79 3,663,646,629 11,440,209.00 0.31%
2077/78 3,415,528,475 324,956,259.00 9.51%
2076/77 3,790,751,223 744,120,794.00 19.63%
2075/76 3,788,308,646 578,954,023.00 15.28%
2074/75 2,163,231,381 512,267,203.00 23.68%
Above mention amount for “Investment in Cost” also include amount invested by the
The management is recommended to
prioritize and expedite the
completion of ongoing hydropower
projects to start generating returns
and improve overall ROI.
Noted. More than 70% of the
investment made for the project
under development –
Marsyangdi Cascade Projects
with generation capacity of
altogether 601 MW now at
preconstruction phase, 37.6
MW Kabeli-A project is at
construction phase. Regarding
60 MW Khimti Project, PPA
negotiation with NEA is still
pending. 30 MW Nyadi project
is operating at loss due to take
and pay PPA.

19. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


BPC for the projects which are still in either pre-construction or construction phase.
Status of Preference Dividend from Khudi Hydro Limited:
Total
Cumulative
dividend till
2078-79
Dividend
FY
2079/80
Declared
for 79-80
Declared till
date
Pending to
declare
117,420,850 8,259,840 28,800,000 64,105,436 61,575,254
Dividend collection for FY 79-80 as announced on AGM date poush 18, 2080 of Khudi
hydro limited is still pending.
Further, there is long pending preference dividend to be collected of prior year.
Implications:
Low return on equity investment and delays in receiving declared and pending
preference dividends suggest potential cash flow issues and liquidity problems.

3.4 Prepaid Expenses Booked Incorrectly:
LOW
Observations Recommendation Management Response
As per Clause 4 Internet/Wi-Fi facility of BPCX.CMX.GD.004.02, employees above
officer cadre and IT staff cadre can be provided internet facility upon the approval of VP-
corporate on need base after recommendation from concerned head.
We encountered an instance where Internet bill of staff totaling NRs. 16,885 have been
booked incorrectly. According to the accrual accounting principle, only the expenses
related to the current fiscal year (18th March 2024 to 15th July 2024, a four-month period)
should be recognized as an expense, while the remaining amount should be recorded as a
prepaid expense. However, half of the total bill, amounting to 8,443, was an expense. The
remaining half, 8,442, was recorded as a prepaid expense.
The management is recommended to
ensure adherence to accrual
accounting principles by accurately
allocating expenses between current
period expenses and prepaid
expenses based on the service period
covered by the bill.
Internet service providers have
arranged to provide an internet
facility to its customers to use
the internet for 15 months upon
annual renewal of internet
service. Accounting has been
done ensuring the adherence to
accrual system accurately
allocating expenses between

20. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


the Implications: current period expenses and
prepaid expenses.
 Current year expenses have been overstated.
 Inaccurate representation of both operating expenses and prepaid assets in the
financial statements.

3.5 Physical verification of assets:
MEDIUM
Observations Recommendation Management Response
As per Clause 3.5 of Finance Manual, 2070 there shall be semi-annual verification of assets
and all discrepancies raised during such verification shall be duly reconciled, such
verification shall also identify obsolete and idle asset.
However, there was no such verification in place during the FY 2080-81.
As, Assets management Software (AMS) is not in working condition, the record for the
assets is being maintained manually in excel; verification hence could not be carried out.
Further, Reconciliation of such balance with general ledger was not possible.
Repair or replace the non-functional
Assets Management Software (AMS)
to facilitate accurate asset tracking,
conduct immediate semi-annual
asset verifications to rectify
discrepancies, and establish
reconciliation procedures between
excel records and the general ledger
for compliance and accuracy
The process of incorporating
the Assets management
Software (AMS) into ERP Fact
software is ongoing and
planned to be completed by the
end of Ashwin 2081. Thereafter,
AMS will be phased-out.
Implications:
The lack of semi-annual verification of assets as required by the Finance Manual, 2070, and
the non-functional Assets Management Software (AMS) has led to potential discrepancies
in asset records, hindering accurate financial reporting and asset management.

21. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


4. Human Resource:

4.1 Insufficient Training and development to staff:
MEDIUM
Observations Recommendation Management Response
Training and seminars for professional development of staff have not been held as per
the training calendar for 2080/81. While actual trainings held are not in the training
calendar.
Further, actual expenses incurred for training and development during the year is very
low.
Approved budget for training and development: 32,31,000.
Actual expenses till the end of Quarter 3: 395,130.04.
The management is recommended to
adhere to the training calendar and
ensure the allocated budget is
utilized effectively to enhance staff
development.
Noted
Implications:
Staff may not be receiving necessary training, potentially affecting their performance and
overall organizational efficiency.

4.2 Difference in leave certification requirement:
MEDIUM
Observations Recommendation Management Response
As per section 44(2) of Labour Act, 2074, A labour who seeks the sick leave for more than
Three (3) consecutive days shall submit a certificate on his or her medical check-up by a
recognized doctor.
However, clause 5.7 of BPC Personnel manual provides if an employee is sick for more
than Seven (7) days, he must submit to his/her supervisor a physician’s certificate.
Hence, there seems clear conflict between Labour Act, 2074 and BPC personnel manual.
The management is recommended to
align the BPC Personnel Manual with
the Labour Act, 2074, to require a
medical certificate for sick leave of
three consecutive days.
Sick leave provided to the
employees are as per the policy
of the company in compliance
with Labor Act 2074.

22. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Implications:
The discrepancy may lead to non-compliance with the Labour Act, resulting in potential
legal issues.

23. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81




5. Operation (Generation and distribution):

5.1 Generation Loss on Andhikhola:
HIGH
Observations Recommendation Management Response
There is always a risk in generation business due to Hydrology risk associated with run-
of-the-river power generation (Both Andhikhola and Jhimruk).
Run-of-the-river power (ROR) projects are sensitive to seasonal variations in river flows,
producing more electricity during the wet season and less during the dry season as these
projects have little or no capacity for water storage and rely on the flow of river water
for power generation. Prolonged low water levels resulting from droughts or irregular
rainfall can lead to operational strain and thus revenue loss. JHC and AHC utilize
discharge from Jhimruk Khola and Andhikhola which are based on perennial rivers. This
exposes the projects to risks associated with variations in water discharge from these
rivers.
Due to lower river discharge during the dry season in the quarter ended Chaitra, there
was generation loss in the months of Falgun and Chaitra amounting total of 58,77,404.34
while selling to NEA from Andhikhola generation as per Annexure I attached below.
The management is recommended to
implement strategies to mitigate
hydrology risks, such as diversifying
the energy mix, investing in water
storage solutions, or exploring
alternative revenue streams to
reduce dependency on seasonal river
flows.
Noted.
Implications:
Variations in water discharge can lead to significant operational and financial strain due
to reduced electricity generation and subsequent revenue loss.

5.2 Distribution Loss:
HIGH
Observations Recommendation Management Response

24. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


ERC has revised tariff rates under Andhikhola distribution center on public hearing
dated baisakh 14, 2081 resulting in Breakeven situation under distribution through
Andhikhola. Such revision of tariff will be applicable from Ashadh.
However, the electricity tariff rates at Jhimruk are fixed at same as of NEA resulting
operating loss in FY 2079/80 of about 2.94 crore and such loss will continue as tariff
rate will not be given more than that of NEA.
Further, such distribution loss will worsen given the NEA has revised its tariff rates
which is lower than its previous rate.
Hence, if Jhimruk EDC also align its tariff rate with revised NEA rate as per the local public
protest then given loss will increase by 2.5 lakhs per month.
Hence, the sustainability of Jhimruk distribution business is at stake.
BPC has distribution license under Jhimruk till 2101 Chaitra.
Hence, BPC cannot sustain continuous loss in distribution business under Jhimruk for
next 21 years of remaining distribution license period and therefore should seek
alternative measures to mitigate the distribution loss.
Hence, BPC should look on the possibility of transferring of Jhimruk Distribution Center
to NEA to address the concerns of the local level and the company at a time
The company should explore on
transferring the Jhimruk distribution
Center to NEA to mitigate ongoing
losses and address local concerns,
ensuring sustainable distribution
operations.
BPC has already applied to
handover Jhimruk Distribution
System to GON and is being
followed up.
Implications:
Continuous Distribution loss will decrease the profitability and fund availability for the
smooth operation of the company.

25. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


6. Information and Communication Technology:

6.1 No BCP and DRP:
LOW
Observations Recommendation Management Response
Business continuity and disaster recovery plan are the process, policies and procedures
related to preparing for recovery of critical business function and continuation of IT
infrastructure in the event of disruption and disaster (natural and man-made).
Further, it also ensures the safety of employees and visitors in the office building in event
of natural disaster and Succession for management (succession planning, especially in top
management positions in the company)
BCP/DRP includes emergency plan, recovery plan, backup plan and test plan.
The company has Backup plan only in place as Google cloud with daily backup service.
Hence, for recovery of critical business and business continuance from a serious
disruption in activities due to non-availability of BPC facilities, there shall be proper BCP
and DRP in place.
The company should urgently
develop and implement a
comprehensive BCP and DRP,
encompassing emergency, recovery,
and test plans, to ensure resilience
against disruptions, safeguard
employee safety, and maintain
continuity of operations, particularly
for top management succession
planning.
For Data backup plan BPC ICT
having five data backup options
(Server, Portable Hard Disk,
NAS storage, Site storage
Server at Galyang and in Azure
cloud)
As for Disaster Recovery Plan
(DRP) BPC office is not a real
time critical operation like
banking sector. So, company
has no provision of DRP.
Implications:
Significant risks of prolonged disruptions and potential data loss, thereby jeopardizing its
critical business functions and IT infrastructure during emergencies

26. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


7. Business Development and Project:

7.1 7 MW Solar Power Project at Jhimruk Area:
LOW
Observations Recommendation Management Response
Recently, NEA had invited tariff-based e-bids on April 3, 2024 for purchasing power
from solar VP plants from different parts of country for 25 yrs.
The ceiling tariff rate was 5.94 per unit. The bidder was asked to submit bid to NEA for
one or more projects but not exceeding capacity of 150 mw within Deadline: 19 may,
2024.
The company being qualified to bid for the sale of power from 7mw Jhimruk on-grid
solar project has submitted bid to NEA.
whereby bid security submitted to NEA was 7 million for 7 MW Jhimruk Solar i.e. 1
million per MW valid up to dec. 2024.
Company spent has already spent 34 lakhs for license for survey, feasibility study, and
IEE (project WIP).
BPC shall closely assess the sustainability of solar power business at the given ceiling
rate of NEA to recover the project and operation related cost in long run.
BPC should conduct a thorough
financial analysis and consider
potential cost optimization
strategies or additional funding
options to ensure the sustainability
and profitability of the Jhimruk Solar
Project under the given tariff
constraints.
We are updating the project cost
and financial analysis based on
the preliminary offers received
from potential EPC contractors.
The bidding process has been
followed sustainability analysis.

Implications:
Failing to closely monitor the project leads to execution and stabilization risks associated
with the projects as the project is in the early stage of revenue generation. Any
substantial cost overrun in project could require additional investments from BPCL to
these companies.

7.2 Kabeli-A (KAHEP) (37.6 MW)
HIGH
Observations Recommendation Management Response

27. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


As per Clause 4.5 Delays and Penalty of Power Purchase Agreement with NEA, in the event
that commercial operation date fails to occur on or prior to the Required Commercial
Operation Date and if such failure is caused by the inability of Company to complete the
project and Company Interconnection Facilities in accordance with the Agreement and
Connection Agreement ,then the company shall pay to NEA in the same currency as that
of Purchase price ,an amount equal to the sale of 45% of the total Contract Energy for the
delay period.
Further, the performance guarantee might also be forfeited in the inability to achieve
RCOD.
The Proposed Commercial Date of Operation (PCOD) of the project which was previously
scheduled on 2081/12/30 is not feasible to be achieved which will result in RCOD related
penalty and
further the company will face reduced cash flow in coming years.
Generation license was issued on 2012 which is valid for 35 years. The cash flow period
now remaining is 20 years after 3 years of construction period. The cash flow will further
reduce if the construction period is further delayed.
It is recommended to speed up the
construction process to achieve
PCOD to avoid the financial liability.
BPC is following up to speed
up the project construction as
the construction management
is led by AKPL.
Implications:
 Due to unattainability of the RCOD of the project, the penalty would be charged and
the return from the investment in the project becomes uncertain.
 Delay in construction of the project will reduce the generation period of the project
resulting in lower profit.

7.3 Manang Marsyangdi Hydro Electric Project (135 MW) (MMHEP):
HIGH
Observations Recommendation Management Response
PDA has been signed recently and the financial closure with bank is at the last stage.
Financial closure is in progress as equity injection by Chinese investor is in progress. Exim
bank China has approved loan to MMHEP.
BPC has already invested NPR 329.49 million for this project as on reporting date.
There is early need of financial
closure and start of construction to
complete the project on time.
It is recommended to speed up the
construction process to achieve
BPC is following up for timely
completion of financial closure
with China Exim Bank and start of
construction at the earliest as JVC
is leading the project
management.

28. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


As per the PPA agreement with NEA, the RCOD has been fixed on March 31, 2026 which
does not seems feasible as of now. The plan was to start the construction at the beginning
of 2023 which has not been started till date.
As per Clause 4.5 Delays and Penalty of Power Purchase Agreement with NEA, in the event
that commercial operation date fails to occur on or prior to the RCOD and if such failure is
caused by the inability of Company to complete the project and Company Interconnection
Facilities in accordance with the Agreement and Connection Agreement, then the company
shall pay to NEA in the same currency as that of Purchase price, an amount equal to the
sale of 25% of the total Contract Energy for the delay period.
Further, the performance guarantee might also be forfeited in the inability to achieve
RCOD.
PCOD and to avoid additional
financial liability.

Implications:
 Due to unattainability of the RCOD of the project, the penalty would be charged and
the return from the investment in the project becomes uncertain.
 Delay in construction of the project will reduce the generation period of the project
resulting in lower profit.

7.4 Lower Manang Marsyangdi Hydro Electric Project (139.2 MW) (LMMHEP)
HIGH
Observations Recommendation Management Response
The generation license of LMMHEP was issued on 2075/07/18 with the condition that
PPA and Financial Closure (FC) should be submitted within 2 years, then the deadline was
extended for 3 years and further 1 year on account of delay due to COVID -19 pandemic
which brings the deadline on 2080/7/17.
For extension of the time-period of PPA and financial closure, BPC has submitted the
application along with fees of NRS. 14,000,000 to DOED till 2080/07/18. PPA however
was signed on Shrawan 30, 2080 but financial closure could not be achieved. Hence,
extension for financial closure has been availed till 2081/7/18 with fee of NRs14,000,000.
It is recommended to speed up the
construction process to achieve
RCOD and to avoid additional
financial liability.
SPV formation is in process with
the joint venture of three Chinese
companies for development of
project. Then after the project
management will be led by JVC.

29. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Project is awaiting Construction due to delay in financial closure and Land Acquisition for
the site. IBN has approved investment in this project for Chinese partners (SCIA, CXIG,
QYEC and SHIN) as equity partners. SPV formation at Department of Industries (DOI) is
almost completed and Company registration process will start next week.
Implications:
 The extension of RCOD costs additional financial liability.
 Delay in project construction leads to fines and penalties.

7.5 Mugu Karnali Hydropower Project (160 MW) (MKHP)
MEDIUM
Observations Recommendation Management Response
The application for generation license has been submitted prior to expiry of survey license
without obtaining final report. License fee of Rs. 4,000,000 has been paid in this regard.
NPR 85.81 million has been spent by the company for this project as on reporting date.
This project being in an initial stage has not yet been concluded for capital commitment.
License boundary of Mugu Karnali Project has overlapped with license boundary of Mugu
Karnali storage Hydropower Project (MKSHP) granted to Vidyut Utpadan Company
Limited (VUCL) which has impacted the viability of the project.
The EIA study of the project is pending due to overlapping of the license boundary
approval from MOEWRI required.
There is no transmission line in the Karnali corridor as of now. Due to non-availability of
transmission line, there is a possibility of delay in connection line.
It is recommended to properly study
the project return, legal
requirements and the location of the
project prior to investment in the
project.
The feasibility study has
already been carried out to
recommend the project for
implementation based on the
technical and financial
factors.
Implications:

30. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Early receiving of generation license without prior feasibility of construction and
distribution leads to cash flow generation for period lesser than the generation period,
reducing the investment return.
Overlapping of boundary with other project leads to generation issues in the future.
No transmission line for distribution leads to uncertainty for distribution of generated
electricity.

31. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81



8. Investment:

Investment Status as on 2080.12.30:
Investment in subsidiaries and
associates:
As on 2080.12.30 Shareholding
%
Investment
%
Remarks Management
Response
No. of shares Amount
Nepal Hydro & Electric Limited 715,800

71,580,000.00 51.30% 1.53%
Noted
Khudi Hydropower Limited 504,000

50,400,000.00 60.00% 1.07%
Noted
Khudi Hydropower Limited 576,000

57,600,000.00 70.55% 1.23%
Noted
BPC Services Limited 100,000

10,000,000.00 100% 0.21%
Noted
Nyadi Hydropower Limited 10,751,453

1,075,145,300.00 71.68% 22.93%
Noted
Hydro-Consult Engineering
Limited 147,231

42,991,260.00 100% 0.92%
Noted
Gurans Energy Limited 3,319,836

331,983,600.00 100% 7.08%
Noted
Kabeli Energy Limited 2,966,860

296,686,000.00 27.24% 6.33%
Unable to achieve
RCOD which may
lead to fine and
penalties
Noted
Himtal Hydropower Company
Pvt. Ltd. 601,300

789,700,830.00 19.40% 16.84%
Noted
Marsyangdi Transmission
Company Pvt. Ltd. 6,406

10,346,245.00 19.40% 0.22%
Noted
Manang Marsyangdi
Hydropower Company Pvt. Ltd. 198,455

127,661,228.75 22.40% 2.72%
Noted
SCIG Int'l Nepal Hydro Joint
Development Co. Pvt. Ltd. 3,125,439

93,520,876.00 20% 1.99%
Noted

32. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Himal Power Limited (HPL) 2,978,502

759,512,872.00 16.88% 16.20%
Noted
Hydro Lab (P) Limited 10,000

34,052,484.00 10.73% 0.73%
Noted
Nepal Power Exchange Ltd. Advance towards share

20,000,000.00 0.43%
Noted
Chino hydropower limited Advance towards share

10,032,450.00 0.21%
Formation of SPV
has been achieved
and PPA is yet to
be concluded.
Noted
Gurans Energy Limited Advance towards share

7,230,000.00 0.15%
Noted
SCIG Int'l Nepal Hydro Joint
Venture Development Co. Pvt.
Ltd. Advance towards share

94,000,000.00 2.00%
Supporting
Marsyangdi
Cascade project.
Noted
Manang Marsyangdi
Hydropower Company Pvt. Ltd. Advance towards share

353,086,000.00 7.53%
Construction work
has not been
started yet.
Noted
Kabeli Energy Limited Advance towards share

454,100,400.00 9.68%
Noted

33. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81



9. Corporate Guarantee /Capital Commitment/Contingent Liability:

9.1 Corporate Guarantee:
Party Name
Purpose Amount (NRs) Expiry Date Management Response
Nepal Investment Bank Ltd. Khudi Hydro's OD and Bridge gap loan 55,884,000 7/24/2024
Sanima Bank Limited
On behalf of upper Marsyangdi 2 (UM2) 327 MW
in favor of IBN for DPR 100,000,000 11/14/2024
Noted
Sanima Bank Limited For PDA of MM 50,000,000 4/20/2025 Noted
Sunrise Bank Limited To NEA for PPA of 135 MW MMHEP 135,000,000 3/18/2026 Noted
Kumari Bank Limited For Financial Closure of Kabeli-A Project 1,250,000,000
Till
repayment.
Noted
Everest Bank Limited
For obtaining additional loan borrowed by Nyadi
Hydropower Limited 550,000,000
Until NHL
commences
delivery of
power.
Noted
Laxmi sunrise Bank limited To conclude PPA of LMMHP with NEA 139,200,000
Till Ashwin
end ,2085.
Noted
Kumari Bank Limited
For construction and operation of 37.6 MW
Kabeli-A hydroelectricity Project 4,510,000,000
Until
Repayment
Noted

34. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81



9.2 Capital Commitment:
Project
Total Project Cost
(IDC inclusive)
Total Debt Total Equity BPC
Holding %
BPC Equity
commitment
portion
Management
Response
Chino Khola 7.9 MW 1,580,000,000 1,185,000,000 395,000,000 70.00% 277,000,000 Noted
LMM (139.2MW) (M2) 30,624,000,000 24,499,000,000 6,125,000,000 19.40% 1,188,000,000 Noted
UM 2 (327MW) (M3) 71,940,000,000 57,552,000,000 14,388,000,000 19.40% 2,791,000,000 Noted
MM (135 MW) (M1) 29,700,000,000 23,760,000,000 5,940,000,000 19.40% 1,152,000,000 Noted
SCIG International Nepal Hydro
Joint Development Pvt. Ltd.
1,900,000,000 - 1,900,000,000 20.00% 431,000,000 Noted
Kabeli-A (KAHEP) (37.6 MW) 7,520,000,000 4,512,000,000 3,008,000,000 60.00% 1805,000,000 Noted
Nepal Power Exchange Limited 2,000,000,000 2,000,000,000 10.00% 200,000,000 Noted
Total 145,264,000,000 111,508,000,000 33,756,000,000 7,844,000,000

9.3 Contingent Liability:
Party Name
Purpose
Amount
(NRs) Status
Management Response

35. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81




DOED BPCL has considered an additional 4.3 MW project in
Andhikhola as a separate project on basis of separate PPA
agreement. It has calculated and paid royalty for this new
project to Department of Electricity Development (DOED)
on revised rate i.e., NRs. 100 per installed capacity in KW
and 2% of revenue from electricity sales. However, DOED
has considered the project as an upgrade of the original
project has demanded royalty at NPR 1,000 per KW of
installed capacity and 10% of revenue from sale of
electricity which is under dispute and under consideration
at the Supreme Court of Nepal as a writ petition. Despite
the dispute, DOED, through its direct instruction to Nepal
Electricity Authority (NEA), has already recovered the
amount from the receivable of the company from sale of
electricity made to NEA.
Total disputed royalty payment withheld by NEA on behalf
of DOED as of Asad 32, 2080 amounted to NPR. 40,238,306.
40,238,306 BPCL has filed a legal case
in Supreme Court against
DOED and continues
booking receivable for the
difference figure in the
books.
Noted
NEA Interest claim on excess tax paid under section 57 of
income tax act, 2058.
BPCL has filed a legal case
in Supreme Court against
IRD, Medium level tax
payer office (MTPO).
Noted

36. P.L. Shrestha & Co.
Narayan Gopal Sadak, Maharajgunj, Kathmandu, Nepal Tel.: [phone]
Char ter ed Ac count ants P.O. Box No. 3516 E-mail: [email protected]

Butwal Power Company Limited Internal Audit 3
rd
Quarter FY 2080-81


Annexure I:
Month Chargeable
Power (Kwh)
Rate/Unit
(NPR)
Amount (NPR) Energy
Supplied by NEA
(Kwh)
Rate/Unit
(NPR)
Amount (Rs.) Net Billed
Amount (NPR)
Remarks
Falgun 362,067.00 4.48 1,622,060.16 281,473.00 10.80 3,039,908.40 (1,417,848.24)
Verified with
NEA Internal
Memo
Chaitra 255,860.00 4.48 1,146,252.80 519,056.38 10.80 5,605,808.90 (4,459,556.10)
Verified with
NEA Internal
Memo