Indian Power Sector:

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PRESENTATION

• Indian Power Sector
• Growing Investment opportunities
• Ministry of Power, Government of India
• July, 2007

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Topics
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Indian Economy
Average GDP growth rates, 1998 - 2007
Key Highlights of Indian Economy

• Real GDP growth
• Average to be 8.6 for last 4 years
• Expected to be 9.2 in 2006-07
• Driven by Industry (10.2) Services (11.0)
  sectors.
• Significantly high Savings rate 32.4 and
  Investment rate 33.8
• International confidence is reflected
• Upgrade of Indias rating to Investment Grade by
  all rating agencies
• MOODYS rating Baa2
• FITCH rating BBB-
• S P rating BBB-
• Significant rise in Foreign Investments through
  FDI ECB route in 2006-07
• 6th Largest in the World with Forex Reserves of
  US192 billion at 31 Mar 07

India Second highest amongst key economies
Source United Nations Statistical Division
Source Reserve Bank of India
High growth in Indian Economy has led to rapid
growth in foreign investments
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Topics
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Installed Generation Capacity
Total Installed Capacity 134,686.63 MW as on
June 30, 2007
Excludes Captive Capacity connected to Grid
14,636 MW andCaptive Capacity not connected to
grid about 26,000 MW
Sectoral Break-up
Fuel Wise Break up
Source Central Electricity Authority
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Growth potential in Indian Power sector
Growth in Indias Per Capita consumption
Demand Supply of Electricity
Units
Projected
Source Central Electricity Authority
Source Central Electricity Authority
India Low Per Capita Consumption
Growth Projections (at 9 GDP)
Source Planning Commission Integrated Energy
Policy, Aug 2006
Above figures are as on 31st March of the
respective Years
SourceU.N. Development Programme, Human
Development Indicators 2006
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Accelerated Capacity Addition for XI Plan
(2007-2012)
Source CEA, April 2007
13,500 - Non- Conventional energy sources /
12,000 - captive power plants / 10,000 - MPPs
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Accelerated Capacity Addition for XI Plan
(2007-2012)
Of this, 1580 MW been commissioned and another
49,480 MW capacity is under construction
Source CEA
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Investment Potential
Investment Requirements during XI Plan

• The Working Group on Power for XI Plan has
  assessed funding requirement for power sector
  during XI plan as USD 224 Billion .
• Thermal and Hydro Generation US 93 billion
• Captive Generation and Renewable Energy
  Sources US 25 billion
• Merchant Power Plants US 9 billion
• RM US 3 Billion
• Total Generation US 129 billion
• Transmission, Distribution and Rural
  Electrification US 95 Billion

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Topics
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Macro View

• Enabling provisions in place
• Public sector investments have been stepped up
  will need to be supplemented through private
  investments
• 100 FDI in all segments of power sector has
  been allowed
• Power trading also covered for 100 FDI
• Guidelines for setting up power exchanges issued
• Power exchanges to become reality
• Level playing field for both domestic and
  international investors.

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Electricity Act 2003

• The Act creates a liberal and transparent
  framework for Power Development
• It facilitates investment by creating competitive
  environment, and reforming distribution segment
  of power industry
• Entry barriers removed/reduced -
• Generation de licensed, freed from all controls
  for thermal, with some checks for hydro
• freedom to captive generation including group
  captive
• recognizes trading as an independent activity
• mandates open access in transmission
• Open access to consumers above 1 MW within five
  years commencing from 27th Jan 2004 (date of
  enforcement of amendment to Electricity Act)
• Permits multiple licensees in distribution for
  same area
• Regulatory Commissions - to develop market
  (including trading)

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Electricity Act ..

• Legal and policy framework in place.
• National Electricity Policy 2005 announced.
• Guidelines for determining tariff through
  competitive bidding notified 2006
• 5 Regional Power Committees set up 2005
• Electricity Appellate Tribunal Operational 2005
• CERC has notified regulations for open access in
  transmission 2005
• Tariff Policy notified in 2006
• Guidelines for private investment in transmission
  2006
• Several SERCs-open access in Distribution
  action initiated

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Vision Statement
National Electricity Policy - 2005

• Aims and Objectives
• Access to Electricity to all households in next
  5 years
• Availability of Power demand to be fully met by
  2012
• Supply of reliable quality power
• Per capita availability over 1000 units by 2012
• Minimum lifeline consumption 1
  unit/household/day as a merit good by 2012
• Financial turnaround and commercial viability of
  sector
• Protection of consumer interests.

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Tariff Policy - 2006

• Aims Objectives
• Tariff Policy
• Ensure availability of electricity reasonable
  competitive rates
• Ensure financial viability and attract
  investments
• Promote transparency, consistency and
  predictability in regulatory approaches
• minimise perceptions of regulatory risks
• Promote competition, efficiency in operations and
  improvement in quality of supply
• Tariff policy elaborates tariff determination -
  u/s 62 63

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Tariff Policy ...

• Section 62 Tariff Policy lays down framework
  for performance based cost of service regulation
  in respect of aspects common to generation,
  transmission and distribution
• Section 63 Tariff Policy - all future
  requirement of power should be procured
  competitively by discoms except in cases of
  expansion of existing projects or where there is
  State controlled / public owned company as an
  identified developer
• Even for public sector projects, tariff of all
  new generation and transmission projects to be
  decided on competitive bidding after 5 years or
  when the ERC is satisfied that situation is right
  to introduce such competition

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National Consensus on Reforms

• Electricity is a concurrent subject under the
  Constitution
• Frequent meetings
• A recent National Conference of Chief Ministers
  on Power convened by the Prime Minister of
  India unanimously resolved on the following
  initiatives
• Standing Group of Power Ministers of the States -
  chairmanship of Union Power Minister - to look
  into all issues impeding the power sector.
• Subcommittee - chaired by Union Finance Minister
  Dy. Chairperson of Planning Commission as
  member - financing requirements of the power
  sector
• National Power Project Management Board for
  monitoring timely commissioning of projects
  (States urged to set up similar authorities)
• Task force on Hydro Power - to expedite hydro
  power development, Rehabilitation and
  Resettlement issues
• The Power Ministry would incentivise meaningful
  structural reforms such as open access.

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Reforms Consensus

• Centre to provide financial assistance for
  upgrading TD systems
• APDRP scheme being revised
• All villages to be electrified by 2009
• The States-
• commit to achieving and sustaining drastic
  reductions in aggregate technical and commercial
  losses (ATC losses) through the next five years
• commit to operationalising open access in
  transmission distribution sectors
• to augment the quantum of power flowing into the
  grid -
• resolve to appropriately restructure levies -
  cross subsidy surcharge, wheeling surcharge
• facilitate captive power plants by removing
  restrictive levies, duties and regulations
• will formulate clear, cost-effective and
  comprehensive rural electrification plans
  addressing concerns of sustainability,
  availability, affordability and delivery of power
• Regulators basic rules established. Now urged
  to look at promotion of competition, efficiency,
  restructuring and investment

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Topics
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Ultra Mega Power Projects
A Major Investment Initiative

• GoI initiative to facilitate setting up of 9
  large sized projects of 4000 MW each -
• reaping economies of scale
• quick capacity addition leading to cheaper power
• efficient super critical technology
• leading to cheaper power
• Investment opportunities of about US 4 billion
  in each project
• Tariff Policy mandates competitive procurement of
  future power requirements by Distribution
  Licensees.
• Such tariff is to be accepted by Regulatory
  Commissions

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Criteria For Site Selection

• Pit head location with domestic coal,
• Coastal location with imported coal, or
• Coastal location with domestic/blended coal
• Through a preliminary scrutiny by CEA of a number
  of potential sites available in the country, 9
  suitable locations have been identified
• Four pithead locations with indigenous coal
• Five Coastal locations with imported coal

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Role of Ministry of Power

• IPP experience suggests desirability of
  Government intervention in
• securing reliable fuel supply,
• obtaining environmental clearances
• co-ordination with states bulk power
  purchasers, for achieving financial closure
• land acquisition and resolution of RR issues
• Basically - to be a facilitator

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Role of Ministry

• Co-ordination with concerned Ministries/ Agencies
  for ensuring
• Coal Block Allotment/ Coal Linkage
• Environment/ Forest clearances
• Facilitate acquisition of land
• Required support from State Govt. Agencies
• Financial Institutions towards financial closure
• To facilitate PPA and proper payment security
  mechanism - with State Govt./ State utilities

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The Shell Company Concept (SPV)

• Shell company to work independently upto to a
  stage where major tie-ups, statutory clearances
  and linkages are in place -
• Preparation of bankable project report
• Acquiring land
• Allocation of coal blocks for pithead projects
• Allocation of water by the State Govt
• Appointing consultants for EIA, Project
  Report,ICB
• Various approvals and statutory clearances
• Off-take/sale of power section 63 of EA 2003
  provision
• Power Evacuation/ (Transmission) System

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Incorporation of SPVs

• Wholly owned subsidiaries of PFC -
• Coastal Gujarat Power Limited
• Sasan Power Limited
• Coastal Andhra Power Limited
• Jharkhand Integrated Power Limited
• Orissa Integrated Power Limited
• Coastal Maharashtra Power Limited
• Coastal Karnataka Power Limited
• Coastal Tamil Nadu Power Limited
• Akaltara Power Limited

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Payment Security Mechanism

• UMPPs are based on single seller multi buyer
  model
• Direct payment of monthly bills by procurers
  against invoice raised by seller
• As condition in PPA, direct payment backed by -
• Letter of credit (LC) by distribution licensee
  1.1 times expected monthly bill
• Escrow Account claims on receivables of
  distribution utility
• Finally in the unlikely event of default, direct
  sale to customers/ other utilities as per
  provisions of the Electricity Act 2003

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Present Status

• Mundra Project
• LOI placed on 28.12.2006 to Tata Power Ltd.
• Project awarded on 23.04.2007 to Tata Power Ltd.
• Sasan Project
• LOI placed on 28.12.2006 to consortium of Lanco
  Globeleq
• Krishnapatnam Project
• 13 firms qualified under RFQ Stage
• RfP submission - 24th Aug
• Jharkhand Project
• 10 bids received under RfQ and under evaluation
  stage
• More Projects to be brought under the initiative

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Topics
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Private Participation - Transmission

• The Act provides for participation
• Transmission licensed activity, but -
• Dedicated transmission line can be set up by
  generating company or captive plant owner without
  any license
• For granting license for inter State or intra-
  State transmission, Regulator shall consider
  recommendation of CTU/STU - However, such
  recommendation not binding
• Policy frame work and guidelines developed (Apr
  06) for facilitating private participation
  through-
• tariff based competitive bidding for transmission
  services
• Empowered Committee bid documents finalisation,
  bid evaluation, project identification through
  tariff based competitive bidding - 14 projects
  identified
• REC PFC - advance project formulation to speed
  up projects
• SBD for the RfQ finalized. Project specific RfQ
  likely to be issued in near future
• Balance 10 projects also likely to be bid out
  shortly.

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Private Participation - Distribution

• Earlier licensees working satisfactorily
• WB, GJ, MH
• Now in Delhi, UP, OR
• Orissa privatized in 1999
• Turn around after initial difficulties. ATC
  loss reduction of over 4 in 2004-05. 11 to 14
  loss reduction in 3 years
• Estimated financial gain to Orissa US 330
  million between 1996-2003
• No tariff increase since Feb. 2001
• Delhi privatized in 2002
• ATC loss reduction as per target by all
  companies
• Government annual cash outgo down - US 260
  million to US 35 million in 05-06
• Transformer failure from 15 to 1
• Load shedding substantially reduced

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Private Participation Other Areas

• International Conclave 4-5th July 07
• Main plant equipment
• boilers, turbines, generators
• 6 7000 MW to be increased
• BOP
• coal handling plants
• ash handling plants
• LP piping
• Construction machinery dozers, dumpers, cranes
• Coal mining
• Fuel supply

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Other Areas

• Possibilities
• individually, or joint venture with private, or
  with public sector
• Possibilities as
• equipment supplier, equipment manufacturer,
  generator, transmitter, distributor
• Portfolio investment - NHPC, REC, POWERGRID
• Other infrastructure sectors ports, rolling
  stock, roads
• Need of the hour cutting edge technology - from
  supercritical to ultra supercritical

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Improving Health of State Utilities -
Distribution Sector Reforms

• MoU/ MoA with States
• Accelerated Power Development Reforms Programme
  (APDRP)
• Rating of State Utilities
• Reliability Index
• Training of over 25,000 distribution personnel

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Payment of Dues - State Utilities to CPSUs

• Since 2003-04, the realization of dues by CPSUs
  improved to about 100 of current billing
• 2001-02 76
• 2002-03 95
• 2003-04 Almost 100
• 2004-05 Almost 100
• 2005-06 Almost 100
• Full payment to all private gencos, traders, fuel
  suppliers

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Improving health of State Power Utilities
Commercial Losses of State Utilities as of
Turnover (Without Subsidy)
Revenue Gap (without subsidy) (Cents/ kWh)
Average Revenue Realized (ARR) (Cents/ kWh)
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