1. Hindustan Zinc Ltd, India Thermal power Plant COST MANAGEMENT & CONTROL ME 2605 Prof. Håkan Kullvén By Group:Tokyo Hotel Roshan Kumar Gnyawali Deepan Chithambaranadhan Karthick Rajamanickam Baskaran Suman Manivannan Ashwini kumar Gupta

2. Hindustan Zinc Ltd, India Thermal power Plant Hindustan Zinc Ltd (HZL) is India's leading zinc producer HZL is Indias only integrated zinc company, operating from mine to finished metal Primary products are Zinc, Lead Own coal based power plant to reduce energy cost involved in manufacturing primary products Businesses are organized as SBUs with a flat structure We have studied the SBU CPP(77 MW * 2 Units, Coal based power plant) HZL SMELTERS MINES CLZSDZS SBU CPP VZS SBU Zinc smelterSBU Lead smelter Central services O&M team Administr ation Accounts Purchasing Area of Focus for cost calculation

3. Generating Station Electricity to Zinc Plant, Mines, Others Turbine Steam from boiler Steam to turbine GENERAL SCHEME OF THERMAL POWER PLANT Internal use Steam to Zinc Plant

4. Hindustan Zinc Ltd, India Thermal power Plant Cost Accounting at Thermal power plant Main product: Electricity & Steam By product : Ash Process costing without an inventory of finished goods For internal purposes only the Process cost( excluding depreciation, interest ) is considered in cost calculation The focus is on controllable costs (O & M costs, Fuel costs) Deviance from budget values (based on design parameters) is the basis for corrective action Steam is sold to internal customer. Revenue from fly ash is not guaranteed so the revenue generated from by product is ignored when calculating cost of Electricity. Electricity is fed to Zinc plant, Mines(1& 2), other customers (Mines and Other customers are fed via the Grid ) Some of the different costs in Thermal power plant Direct Materials: Coal, LDO ;Indirect material: Lubrication oil, tools ;Direct labor :O & M personnel of Contractor, Manufacturing overhead: Electricity, HZL support team ; Non -Manufacturing overhead: Administration expenses

5. COST STRUCTURE Coal cost for producing steam for external use is included in Electricity generation cost 100%Acid,Oil cost charged to electricity All values in 100000 Indian Rs.

6. Suggestion for accurate costing METHOD Calculate stage wise cost ( for boiler,turbine and generator) Allocate Manufacturing overheads (O&M spares & other ) to the individual cost entities depending on the level of attention each entity needs.We assumed value of (60%,30%,10%) for boiler, turbine, generator respectively Distribute the direct material (Coal, LDO,LIME) & manufacturing overhead cost to steam and electricity. % of steam sold to the Zinc plant and that used for electricity generation is used as the basis for allocating costs.

7. Suggestion for accurate costing OUR FIGURES All values in Indian Rs.

8. Cost reduction To control the cost overruns Variance analysis is done at HZL The different drivers for cost variation( from budgeted value )are listed Then the Rupee contribution of each driver towards cost escalation is determined To control the cost drivers related to operation Improvement projects based on Six sigma philosophy are undertaken To control cost drivers related to non operational factors awareness programs on resource usage, aggressive commercial practices are undertaken

9. Transfer pricing Company policy The producer has the right to choose fair price Price is subject to approval by Unit head Changes allowed each month based on operating costs Electricity Full cost with profit Twice that of production cost Not same price for every customer Suggestion Profits shouldn't be basis for performance appraisal Pricing of the primary product (Zinc, lead) should be used as the measure to control production costs Steam to Zinc plant Full cost with profit Only cost of direct material (coal) considered for cost calculation Oil,lime costs is ignored Other indirect costs are ignored Suggestion Depreciation costs Maintenance and operation costs Abnormal effects costs must be considered

10. Planning & Control Budgeting process Based on discussion with Operation team, Plant condition. Additional capital expenditure budget for improvement projects. Key performance goals are defined every year. Management control systems Monthly performance evaluation meeting presided by CEO(HZL), Board Member of parent company (Vedanta resources). Mainly Results control strategy. Divisional performance evaluation Return on investment is used. 16% /year of the total capital invested is expected.