Kot Addu Power Company Pvt (Ltd.) 1

IN THE NAME OF ALLAH, MOST

BENEFICIENT,

MOST MERCIFUL

Praise To Be Allah, Lord Of The

World,

The Beneficent, The Merciful,

Owner Of The Day Of Judgments,

Thee (alone) We Worship; Thee

(alone) We Ask For Help.

Show Me The Right Path,

The Path Of Those, Whom Thoa Hast

Favored,

Not (the path) Of Those Who Earn

Thins Anger

Nor Of Those Who Go Astray.

Amen

!

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PREFACEIn bachelor of Business Administration, Internship is an important matter which gives opportunity

To students in practical field

The most important point in Internship is that the student should spend their time ion

practical field in a true manner and with the spirit to learn

practical orientation of theoretical study framework.

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ACKNOWLEDGMENTI am very thankful to Almighty Allah who has all the powers

in the world and who also give us power to perform the

assigned task, which otherwise we can’t perform.

I am also obliged to the favors and co-operations made by the respected Mr. Zubair Aslam (Manager Tax &Treasury)and all

sub ordinates which helped and guided me in an efficient manner and were always there for me during my period of

learning. Without their humble help it was not easy.

I am very thankful to all my friends and teachers who

provided me great guideline in this effort.

Table of Contents

1. Introduction………………………………………………………………..6

2. Share capital structure & liability of shareholders……………………………6

3. Vision Statement……………………………………………………………7

4. Mission Statement………………………………………………………….7

5. Core Values………………………………………………………………..7

6. Objectives of studying the organization…………………..…………………….7

7. Board of Directors………………………………………………................8

8. Management Hierarchy & Divisions of KAPCO……………………………..9

9. Departments………………………………………………………………..9

9.1 Human Resource Department…………………………………………...9

9.2 Operations Department…………………………………………………9

9.3 Finance Department…………………………………………………….9

9.4 Information Technology Department……………………………………10

10. Finance & Accounting Operations…………….…………………………….10

10.1 Financial Hierarchy…………………………………………………11

10.2 Power Station Finance………...………………………………………11

10.2.1 Payment Section…………………………………………………..12

10.2.2 Cash Section……………………………………………………....13

10.2.3 Tax and employee’s welfare section………………….....................13

10.2.4 Payroll Section……………………………………………………14

11. Corporate Finance System Of The Organization…………………..………….14

11.1 Mobilization of Funds……….……………………………………….14

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11.2 Generation of Funds................................................................................…...15

11.3 Sources of Funds……..……………………………………………...15

12. Contract & Procurement Department……………………………………..17

13. SWOT Analysis…………………………………………………………..20

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1. INTRODUCTION

Kot Addu Power Plant (the "Power Plant") was built by the

Pakistan Water and Power Development Authority ("WAPDA") in five phases between

1985 and 1996 at its present location in Kot Addu, District Muzaffargarh, Punjab. In

April 1996, Kot Addu Power Company Limited ("KAPCO") was incorporated as a public

limited company under the Companies Ordinance, 1984 with the objective of acquiring

the Power Plant from WAPDA. The principal activities of KAPCO include the

ownership, operation and maintenance of the Power Plant.

Kot Addu Power Company Limited ("KAPCO") was incorporated in 1996 with the

purpose to contribute economical power to the national grid. KAPCO has shown

exceptional results in the area of plant maintenance, availability, quality standards and

financial performance. In April 2005 KAPCO was formally listed on all the three Stock

Exchanges.

KAPCO is committed to contributing to Pakistan's economy by powering the lives of its

people by continuously improving its performance through efficient systems, capable

workforce and good governance.

2. Share Capital Structure & Liability of Shareholders

On June 27, 1996, following international competitive bidding by the Privatization

Commission Government of Pakistan (the "Privatization Commission"), the management

of KAPCO was transferred to National Power (now International Power) of the United

Kingdom, which acting through its subsidiary National Power (Kot Addu) Limited

("NPKAL"), bought shares representing a 26% stake in KAPCO. Later, NPKAL bought a

further 10% shareholding in KAPCO increasing its total shareholding to 36%.

The other majority shareholder in KAPCO is WAPDA with a present shareholding of

46%.

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3. Vision Statement

To be a leading power generation company, driven to exceed shareholders' expectations

and meet customer’s requirements.

4. Mission Statement

To be a responsible corporate citizen

To maximize shareholders' return

To provide reliable and economical power for our customer

To excel in all aspects relating to safety, quality and environment

To create a work environment which fosters pride, job satisfaction and equal

opportunity for career growth for the employees

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1. How management of the organization uses the theoretical concept of finance in

their decision making for investment purposes and generation of funds.

2. How the organization is using electronic data in decision-making.

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5. Core Values

The core values of the organization are profitability, corporate social responsibility,

recognition and reward, excellence, integrity and respect for each other.

6. OBJECTIVES OF STUDYING THE ORGANIZATION

The following are objectives of studying the organization,

1. What are the theoretical concepts the Finance Department of the organization

under is playing?

2. What accounting system is being used in the organization?

3. What is the finance system of the organization?

4. What are the sources and uses of funds?

5. How they raise money to run their business and budgets and what are the

investment avenues of the organization for placement of their funds to gain

the maximum return.

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7. Board of Directors

8. Management Hierarchy & Divisions Of KAPCO

Kot Addu Power Company Pvt (Ltd.)

Mr. Imtiaz Anjum

Chairman

Mr. Syed Rizwan Ali Shah

Chief Executive

Chief Executive Officer

Mr. Malcolm Peter Clampin

Director

Director

Mr. Aftab Mahmood Butt

Director

Mr. Vince R. Harris

Director

Dr. Abdul Hameed

Director

Director

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9. DEPARTMENTS

9.1 Human Resource Department

Human Resource Department deal in recruitment of fresh employees of functioning of

organization, arrange trainings for them, , appraise their performance annually, awards

them and penalize to the delinquent ones. The Manager HR is the competent authority

who subordinate and operative person of all functions and task of the department.

9.2 Operations Department

All operational functions are being performed by this department in the organization,

purchasing of new equipment by calling tenders and auction of old one is carried out by

this department. The Manager operations are competent authority of this department and

manage all functions of the department.

9.3 Finance Department

This is the most important department of the organization as it has to take decision about

the major resource which is funds of the organization being invested in different sectors

of economy. This department compiles the annual financial reports for presentation to

Controlling Govt. agencies, to share holders, to supplier to internal and external

customers of the organization. The department also responsible for the revenue and

capital budgets for the banks on yearly basis.

9.4 Information Technology Department

With the start of Globalization and automation, the organization has also established IT

department in order to compete the market. Whole organization is connected by net

working. This department is managed by the Manager IT, System Administrators, system

support staff. The main function of this department is to purchase /design software for the

organization and maintain the system for smooth operation.

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10. FINANCE & ACCOUNTING OPERATIONS

The main function of Finance Department in the Kapco is to summarize all the business

transactions recorded, classified and communicate the information contained in the

system to decision makers.

It formulates the annual budgets according to the informations.

It provides informations about economic resources, claims to resources and

changes in resources.

It provides information useful in assessing amount, timing and uncertainty of

future cash flows.

The accounting operations are being done at unit level. It is computer based accounting

operation system as there are large numbers of transactions which are not possible in

manual accounting system. Professionally skilled persons are doing these operations.

10.1 Financial Hierarchy

Kot Addu Power Company Pvt (Ltd.)

Mr. Mohtashim Aftab

GMF/CFO

ChairmanMr. Junaid Asghar

Financial Controller

Mr. Rabnawaz Anjum

Manager Reporting

Director

Mr. Azeem Asif

Assistant Financial Controller

Mr. Zubair Aslam

Manger Tax & Treasury

Mr. Anas Farhan (Asst.Manager Tax) & Mr. Rizwan Butt (Asst.Manager Treasury)

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There are two types of finance operating in KAPCO which are as follows,

1. Corporate Finance

2. Power Station Finance

10.2 POWER STATION FINANCE

The accounting system of the organization consists of double entry system in which

vouchers are passed for each entry in the system reflecting its credit and debit amount for

each head of account being involved for accomplishment of a transaction. In the entry,

the account assistant enters the transaction by vouching entries and same are

authenticated by manager operations or any other authorized officer after ascertaining its

genuineness and correctness. The system then automatically segregates them according to

Income/Expenditure which is executed at the end of weak after completion of all

transactions from each terminal. The print of these reports is taken at day end step on

daily basis in order to check wrong impact of any entry and necessary correction entries

are passed on after calling all the working of the day by the manager operations and

account assistants. There are following sections to control the financial operations of the

power station.

10.2.1 Payment Section

The following operations are performed in payment section of the organization related to

thermal or plant financing,

Purchase Order

The plant or power station financing starts when Contracts & Procurement department

issue a purchase order of some supplying material to different suppliers against demand

from Power Station Authority. The supplier supply the related material and send invoice

of payment of material to Contracts & Procurement department which after inspection of

material and authorization of payment send to finance department for payments. The

major contents of the purchase order are as follows,

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Order description Quantity

Order reference Unit cost

Quotation reference Price detail

Payment Invoice

The account assistant receives payment of purchase invoice and prepares a payment

invoice under instructions of payment order. After prepare a payment invoice, account

assistant verify it and send to assistant manager of costing for further verifications and for

approval of payments. The major contents of purchase ledger invoice are,

Doc number PO number

Creditor number Invoice number

Supplier name/address Account code

Description Amount payable

Issue of cheques of payments

After approval and verification of payments, account assistants prepare A/C payable

cheques against suppliers to credit their accounts. The financial controller sign different

cheques of payments after verification of account assistant and assistant manager of

costing.

Invoice Register

After issuing and signing, cheques are send to suppliers by mail to debit payment A/C

and payment invoices are send to invoice register for record in case of disputes in future

in terms of payments or auditing.

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10.2.2 Cash Section

In cash section, the petty cash is used for transaction of small payments lower than

RS.5000. Moreover, payments of different utility bills of the KAPCO employee’s

residential colony are also facilitate in this department.

10.2.3 Tax and employees welfare section

The amounts of WHT, Sales tax are deal in this section according to the terms &

conditions of the FBR. Moreover employees’ welfare programmes such as

Provident Fund

It is contributed by the employee and equal contribution is made by the employer. In

Kapco the ratio is different for the contribution of the provident fund. It may be 3 percent,

6 percent and 10 percent. The employees can take loan from this fund but maximum

installment for repayment is 48 and also interest is charged on the outstanding loan.

Pension Scheme

In Kapco the pension is calculated as per company policy which varies from year to

year. The employees are able to get this facility after the 25 year of service. In case of

death of the employee his family can get pension amount but the employee must have

completed 10 year of service. The pension is paid 50 percent in lump sum at the time

of retirement of the employee and balance is commutated. Moreover

EP Fund

Social Welfare Fund

Advance Loan Scheme

All these programmes are deal in this section.

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10.2.4 Payroll Section

Payroll section prepares the pays slips of all employees of Kapco according to their pay

scales. Moreover all type of bonuses, increments and all type of deductions are also done

in this section.

11. CORPORATE FINANCE SYSTEM OF THE ORGANIZATION

From the accounting information, the corporate finance makes decisions to invest the

funds generated. These investments are in corporate sector, in capital and money markets.

The treasury department and shares department makes decisions about investment of

funds generated.

11.1 MOBILIZATION OF FUNDS

The treasury department mobilizes the funds by introducing various profit and losses

sharing saving schemes. The funds are mobilized from following sources.

Individuals (self employed, salaried persons and other private individuals)

From corporate bodies

Govt. enterprises and departments

Corporations

Commercial banks and non bank’s financial institutions

11.2 GENERATION OF FUNDS

The funds are generated in shape of interest income/profit earned by portfolio of

investments, on interest income from different employee’s funds, brokerage, other

miscellaneous heads and investment in different sectors of economy such as corporate

investment in shares, Mutual Funds, Ordinary Shares of listed Companies, Mudarba,

Pakistan Market Treasury bills, Pakistan Investment Bonds, TFC’s etc.

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11.3 SOURCES OF FUNDS

The sources of funds of KAPCO are share capital, Reserves and liabilities created from

deposits and borrowing from financial institutions.

According to their financial functions, Kapco categorized their investments into two categories:

A) Primary MarketB) Secondary Market

PRIMARY MARKET

The primary market is part of the capital markets that deals with the issuance of new

securities. Companies, governments or public sector institutions can obtain funding

through the sale of a new stock or bond issue.

In the primary market, Kapco purchases financial instruments which are issued for the

first time. State bank of Pakistan is main primary dealer who issues Treasury bills and

PIB’s.

Following are the primary dealers which are working with Kapco other than the State

Bank of Pakistan:

a) Habib Bank Limited

b) National Bank of Pakistan

c) Standard Chartered Bank

d) United Bank Limited

e) MCB Bank Limited

f) Citi Bank

g) RBS formerly ABN Amro Bank

h) Pak Oman Investment Company Limited

i) JS Bank Limited

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SECONDARY MARKET

Secondary Market refers to a market where securities are traded after being initially

offered to the public in the primary market and / or listed on Stock Exchange. Kapco

invested in different securities of the secondary market according to the different terms

and conditions as follows,

1) Debentures

Kapco purchased bonds issued by a company bearing a fixed rate of interest usually

payable half yearly on specific dates and principal amount repayable on particular date on

redemption of the debentures. Debentures are normally secured / charged against the

asset of the company in favour of debenture holder.

 2) Bond

Kapco purchases a debt security generally issued by a company, municipality or

government agency. Kapco lends money to the issuer and in exchange, the issuer

promises to repay the loan amount on a specified maturity date. The issuer usually pays

Kapco periodic interest payments over the life of the loan.

 

3) Treasury Bills

Kapco purchases short-term (up to 91 days) bearer discount securities issued by the

Government as a means of financing its cash requirements and in turn pays profit/interest

according to the different terms as agreed.

4) TFC (Term Finance Certificates)

Kapco purchases these TFC’s issued by different banks. Usually they are for long-term

periods and profit on these certificates is paid on semi-annually basis.

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Comments on Organizational Structure

The above mentioned structure shows that it is vertical organization structure. The

powers have been decentralized in said structure. All decision making up to extent of

their powers is being done in each functional level. Each level makes its own planning,

business strategy. The integration of all levels results in achievement of strategic goals of

organization.

12. Contracts & Procurement Department

Purchasing refers to a function in business whereby the enterprise obtains

the inputs for what it produces, as well as other goods and services it requires.

Procurement is the acquisition of goods or services at the best possible

total cost of ownership, in the right quantity and quality, at the right time, in the right

place for the direct benefit or use of governments, corporations, or individuals.

Purchasing refers to a function in business whereby the enterprise obtains the inputs for

what it produces, as well as other goods and services it requires. In larger businesses, the

function is frequently carried out in a purchasing department, headed by a purchasing

manager.

The purchasing procedure of KAPCO consists of following steps.

1) Identification of Requisition

2) Stock verification of Inventory in stores

3) Selecting potential suppliers or contractors

4) Invitation for tender

5) Tender opening and analysis of offers.

6) Authorization from Technical Engineer and Finance manager for budget purpose.

7) Placement of order

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8) Payment (including taxes)

9) Maintaining records of performance

1) Call off orders

The specification should clearly make reference to the fact that the order

will operate as a call off order, and should clearly define the duration of the order.

2) Urgent /Emergency Purchase

As the KAPCO is in production industry and a lot number of machines are

used at the plant and always there is danger to happen any emergency regarding the

working of these machines. So for this the engineers are allowed to submit emergency

purchase order.

3) Reorder level It is the level of different items which is set by the engineers with the

negotiation of the purchase department. In simple words it is that quantity at which the

engineer will give requisition for new purchase.

4) Reorder quantity

It is the quantity the engineer can ask at reorder level. For example if

reorder level of any item is 2 and reorder quantity is 10 than the engineer is allow to send

the requisition of 10 items when the 2 items are remain in the store.

5) Stores process

Procurement department is managing seven stores. Three storekeepers

manage all stores with their assistants and a store manager supervises all these stores. The

stores names are alphabetically from A to G. These stores contain about 30,000 inventory

level, which is controlled by software, named as Q4w stock.

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6) PROCEDURE TO ISSUE ITEMS FROM STORE

In KAPCO, store department had issued an ‘ISSUE BOOK’ to every department. The

requisitioning department fills the store issue note and gets approval from the store

manager. The stores issue the required goods to the specified department. The

storekeeper at that time makes required entries in the issuance register as well as in

software. Three copies of store issue note are prepared, one copy is kept in department,

second copy is sent to accounts and the third copy is kept in store record.

7) Received Items in Stores

When goods and material are received in the stores, the relevant storekeeper requests an

inspection of the goods and material by the engineer. The Engineer will check and verify

the material in quantity and quality. In case of rejection of material, supplier will be

notified immediately.

13. SWOT Analysis

Strengths

Kapco has the hardworking, cooperative and trained staff. As well as very

friendly environment.

The turnover ratio is very low because it is offering best packages to its

employees.

The HR dept is working for the increasing communication and computer skills of

lower staff.

ISO 9001, 14001, 18001 under the umbrella of IMS through SGS has been

accomplished.

All manual procedures have been computerized.

Modern software’s are in use for quick and efficient system

.Health and safety department has ensured complete safety and security to

workforce.

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The price of the share of the Kapco is always high than the price of share issue 1st

time.

It has the biggest store in Pakistan.

Easy access to the top management

Weaknesses

As the Wapda is the only buyer of electricity so the company is bound to give

supply according to the choice of Wapda.

After 2006 it is paying taxes while the 1st ten years it was exempt from this.

During the last ten years no expansion has been made for power generation.

The fear of inquiries is always there as the new government has changed the some

points of power purchase agreement.

Opportunities

All the expansion programs of KAPCO is free of tax.

As the whole country is facing the problem of electricity the importance of this

power plant has much increased and it is affecting its share price.

Threats

As the wapda is the only buyer of the electricity in Pakistan and company is

bound to sale electricity to wapda, so it is totally depending on wapda for

payments.

The Kapco has to import the machinery and spare parts as well as the services of

experts from abroad so the security conditions in Pakistan is very important.

In Pakistan, Several other projects are coming up in power generation. So Kapco

management will face numeral challenges in technical workforce, because new

competitors will offer better packages.

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Submitted To: HR Department

Submitted By: Hafiz Fahad Nasir (BBC-08-32)

Institute of Management Sciences

Bahauddin Zakariya University

Multan

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