4

YOUR

T I M E

G003 - Rohit Agarwal H005 - Mohit BaglaG022 - Rohit Garg G050 - Sahil Goyal

The Power Sector in IndiaIndia’s power requirement by 2017 would be approximately 315 to 335 GW, and would require a generation capacity of 415 to 440 GW

This implies tripling the installed capacity from the current level of 140 GW, translating into an annual

addition of 20 to 40 GW

The Power Sector in India

47%

31%

21%

Installed Capacity

State SectorCentral SectorPrivate Sector

Installed Electricity Generation Growth

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

132 143 148 159 174200

223 238273

CAGR: 9.4%

Installed Electricity Generation Capacity (GW)

Jhajjar Power Plant, Haryana1320 MW (2*660 MW) supercritical coal-fired power plant in the village of Khanpur in the Jhajjar District of Haryana

Supercritical unit with pressure of the boiler is about 3530 psi and temperature is 1050°F (565°C)

Project facilities include Railway siding for transporting coal & a 14 km long water supply pipeline from the JLN feeder canal

• 214.5 ha for Plant & Equipment, Switch Yard, Coal handling system & related plant

• 109.3 ha for Ash Disposal• 137.0 ha for Greenbelt and Water storage

HPGCL had formed a Special Purpose Vehicle (SPV) called Jhajjar Power Limited (JPL)

China Light Power PIPL

Contract on Build, Own and Operate (BOO) basis awarded to CLP Power India Pvt. Ltd. through a tariff-

based competitive bidding process under the Electricity Act 2003

The overall cost of the project is ₹59,681 M which is part-financed by the promoters ₹20,661 M through a combination of equity and compulsorily convertible preference shares

Assets and Services of CLP India Group:• Power Generation• Transmission and

Distribution System• Retail• Gas Storage

Project Financing

CPL was the lowest bidder with levelised tariffs of 2.99/unit

As per the PPA, DISCOMs will buy 90% of power produced and 10% will be sold on merchant basis

Agreement was valid for 25 years and already executed between JPL and UHBVNL & DHBVNL

JPL and the Environment

Installed flue gas desulphurization (FGD) with financial implication, even though the Indian regulations do not require this

JPL was awarded the CNBC TV 18's Infrastructure Excellence Award for the year 2012 in the main category of

Energy & Power

Environmental Impact Assessment was completed by MECON Limited in January 2008 based on terms of reference approved by the MoEF

Implementation of effective Wastewater Management System produced in the form of blow-down from the closed

cooling water system

• Land Acquisition▫494.1 hectares of low-yield agricultural land ▫Uninhabited site hence no displacement of households▫Compensation rates were higher than the prevailing market prices at the time of

negotiation in 2007 under Land Acquisition Act, 1894▫ It consists of a cash payment plus a deposit that will yield an annuity for 33 years.

The deposit is designed to provide long-term livelihood support for each affected household

▫ JPL will work closely with communities to develop alternative livelihoods for those requiring new economic activities

Socio-Economic Analysis

• Employment▫ Workers will be recruited from adjacent villages to the greatest extent possible, and the

necessary social infrastructure will be provided for the workforce▫ Workers from outside the area will stay in temporary accommodations on the project site▫ The completion of construction activities will see a reduction in job opportunities in the project

area that could create local resentment▫ Employees and their families will reside in the plant residential site, where they will contribute

to demand for local food and services

Socio-Economic AnalysisPeriod Company

EmployeesContractor Employees

Total

Construction 50 2k-4k 2050-4050

Operation 275 50 325

• Induced Development▫Demand for food and services▫With an increase in employment opportunities, people will be encouraged to

take up skills development and technical training▫The level of literacy is expected to rise over time as a result▫ Improvement in road infrastructure.

Socio-Economic Analysis

• Electricity & Taxes▫ The state is expected to get around 60 lakh additional units of electricity per day from the

plant▫Payment of corporate income taxes to the central Government over the

Project’s life▫ indirect taxes during construction

• Other Initiatives by CLP▫ CLP India works with Wockhardt Hospital to provide free medication and consultation to

the community in four villages around Jhajjar▫ CLP India supports 10 trainees per year in their paramedical training▫ CLP India supports Anganwadis, the units in villages which record births, with nutritious

food for children and lactating mothers. The program also provides basic education for children

▫ CLP India runs programs on Personality Development and Retail Management which aim to provide skills training to youth to increase employability

▫ CLP India runs workshops for female empowerment through skills training. Courses include stitching training

▫ CLP India supports the supply of RO drinking water to school children and anganwaris in Khanpur-Kalan and Jharli villages

Socio-Economic Analysis

• The total funding for the project stands at > 6000 crores INR till date• The project had initially received sanctions amounting to Rs 3,900 crore in loans lead-arranged

by IDBI Bank and was funded by a group of banks including Power Finance Corporation (PFC), Rural Electrification Corporation (REC) and Infrastructure Development and Finance Corporation (IDFC) among others

• CLP India has signed a $288 million ECB (External Commercial Borrowing) agreement with five of Asia's top banks▫ Bank of Tokyo–Mitsubishi UFJ, Ltd.▫ China Development Bank Corporation▫ Export-Import Bank of China▫ Hong Kong And Shanghai Banking Corporation Ltd.▫ Standard Chartered Bank

Investments

•Usage of supercritical technology•Developing Economy – Industry & Personal Use

Revenue Drivers

Cost Drivers• Insufficient Coal Supply•Poor Financial Health of State Discoms•ECB

Indian coal sector under stress due to high demand & inadequate coal supply linkages for coal power plants in the country, leading to Indian power plants attempt to secure coal from countries such as Australia, Indonesia & South Africa

Increase in demand for coal due to the sanctioning of UMPP projects led to a need to establish an alternate source of coal. Two recently bid UMPP projects, Reliance Power & Tata Power, decided to build coal linkages with Indonesia due to high quality of coal, geographical proximity & lower price.Bidding for UMPP projects based on the coal linkages built for imported coal & the prices for imported coal.

The e-auction is still not openly starting a system of commercial mining. There is still too much regulatory control, it is still working on a system of allocations and quotas. They are still tying up coal blocks for allocation to end-users.

Why do we import coal? • Our coal is of a very poor quality, its ash content is very high.• We are transporting stones over great distances, across the length

and breadth of the country, and wasting fuel and energy.

High Demand & Inadequate Coal Supply

Linkages

E-Auction

Why Import?

Need to build alternate sources of

coal supply

KEY ISSUES – INDIAN POWER SECTOR

Quality of Coal

Distance between Coal Ports &

Terminals

Regulatory Aspects

Consistency of Delivery

• Australia is having the best quality coal with Highest GCV value (ARB) of around 6700-7000 kcal/kg,

• Next comes the turn of Russian coal & Mozambique Coal with somewhat closer GCV value to the Australian Coal.

• Indonesia is having the least GCV quality (4200 kcal/kg to 5800 kcal/kg),

• The Distance and numbers of days in transit has of Coal Terminals has been a major issue for Indian thermal power plants.

• African countries like 95 Mozambique, Botswana score over others. Number of days in transit is approximately 14-15 days as compared to other available options.

• Most of the countries introduce attractive regulatory policies during their developing stage

• Once they have attained their target level in that particular sector, in order to protect the domestic players, they will make strict regulations for the foreign players.

• Indonesia has been playing a major game here• African countries, Australia, Indonesia have enough reserves and as per the present consumption pattern the coal reserves in Indonesia will last for another 18 to 20 years.

• South Africa is good resources but the inland transportation facilities are the biggest constraint.

• African countries are the viable options for coal import for Indian thermal power plants

KEY CHALLENGES – IMPORTING COAL

Low Availability

Revenue Generation

• A lot of distribution companies (discom) are not supplying power to consumers

• It pulls down power generation at these power plants• Hindrances in continuous power generation• Occasional breakdown

Inability to take up ultra mega plants

• All power plants are inherently assumed to be base load. • But, the load varies throughout any given day • Power plants actually have the plants, but don’t have the gas• In a base load plant, output has to be cut when demand is low

• If at all they have ten years of great profit-making performance where their shareholders make decent returns

• CLP has got $20 billion in market cap and $1.4 million in profit last year.

• All of that could be wiped off by one UMPP gone bad.

• If the proposed capping of fixed cost is at a higher level, companies can still make money

• There are two things: Is the cap on fixed cost high enough to absorb the fuel cost?

• If it is not, companies will lose money. Survival becomes a concern for these companies

Lower Fixed Cost Cap

KEY CHALLENGES – REVENUE & COST

PRIVATE PARTICIPATION IN POWER SECTOR

ELECTRICITY LAWS 1991

• Establish Operate and Maintain as IPP

with 100 % ownership

• Long Term PPA with SEB

• Assured 16 % ROE• Foreign Currency

risk to be borne by SEB

ELECTRICITY ACT 2003(Amended)

• Promote competitive procurement of electricity

• Facilitate transparency and fairness in procurement processes

• Competitive tariffs ensure that operational and financial efficiencies

Bidder to Arrange:• Land• Domestic

Fuel • Technology• Clearance &

approvals

Procurer to Arrange:• Land• Domestic

Fuel • Technology• Clearance &

approvals

Bidder to arrange:Imported Fuel

Case 1 Case 2MEDIUM

TERM

ONE PART

TARIFF

LONG TERM

TWO PART

TARIFF

ESCALABLE(Base Price with Index)

NON ESCALABLE(Firm Price)

ENERGY CHARGE

CAPACITY CHARGE

NQHR

CERC

Base Price(With Index)

Energy Charges = Net quoted heat rate * Scheduled Generation * Monthly Weighted Average Price of

Fuel / Monthly Average Gross Calorific Value of Fuel.

TARIFF STRUCTURE

BIDDING UNDER CASE 2 METHOD

11 BIDDERS QUALIFIED TO SUBMIT FINANCIAL

BID ON 22 MAY 07

LETTER OF INTENT ISSUED ON CLP ON 23

JULY 2008

CLP - Rs.2.996 LANCO INFRATECH -

Rs.3.046TORRENT POWER -

Rs.3.82

FINANCIAL BIDS OF THREE BIDDERS

OPENED ON 17 MARCH 2008

19 BIDDERS SUBMITTED BID AFTER

RFQ

CLP POWER INIDA PVT LIMITED BID FOUND

TO BE MOST COMPETITIVE

BIDDING OF JHAJJAR POWER PLANT

Recommendations

Indian Thermal Power plants like JPL will not be able to fulfill their long-term coal requirement for adequate generation of electricity

Revisiting current Government regulations on sourcing Coal from South Africa, Indonesia and East African countries like

Mozambique and Botswana

Hedge upon the 90% committed power generation sale to State DISCOMs with other private players

The 10% Merchant sale Power generation needs to have a defined player to avoid any leakages or no-

sale scenarios

Welcoming