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IFCI LIMITEDMumbai Regional Office

RE-APPRAISAL NOTE ON THE PROJECT OF SHREE MAHESHWAR HYDEL POWER CORPORATION LTD. (SMHPCL) FOR SETTING UP OF A HYDRO ELECTRIC POWER PLANT WITH AN INSTALLED CAPACITY OF 400 MW ON RIVER NARMADA AT MANDLESHWAR, DISTT. KHARGONE, MADHYA PRADESH.

(Lead-IFCI)

Additional Financial Assistance sought from FIs/Banks: RTL of Rs. 1710.00 million

I. Proposal in brief1.01Shree Maheshwar Hydel Power Corporation Ltd. (SMHPCL) a company promoted in the private sector by S. Kumars group, is in the process of setting up ahydro electric power plant with an installed capacity of 10 X 40 MW, on the river Narmada, at village Mandleshwar, Dist. Khargone, Madhya Pradesh, in financial collaboration with Pacific Generation Development Company (PGDC) of USA. The financial collaborator was subsequently changed to Bayernwerk AG (BAG) and VEW Energie AG(VEW) after receiving letter from PGDC on 22nd May 1998 conveying their intention to withdraw from the project. However BAG and VEW had also not been able to invest in the company due to certain issues internal to their country (non-availability of political risk cover). SMHPCL had further discussed the matter with M/s Ogden Energy Asia Pacific Limited (OGDEN), who have agreed to step in as financial collaborator.

OGDEN

SMHPCL has entered into shareholders agreement with OGDEN on 3rd December, 1999. As per the said agreement OGDEN had agreed to bring 49% of the equity share capital of the company based on the CEA approved project cost subject to the conditions precedent, of which a few of the important ones are mentioned below:

OGDEN and S. Kumar Power Corporation Ltd. Being appointed to carry out O & M of the project.

Confirmation in writing from the contractors that their respective contracts remains under full force and are current with respect of cost schedule and terms and conditions of the respective contractors.

?? of OGDEN’s legal, technical and financial due diligence of the project to their satisfaction

As per the agreement, the OGDEN will have 4 directors on the Board as against the sponsored?? 5 directors and one nominee of lenders (the constitution of the Board as commissioned?? in para 8.1 requires to be broad based). The MD of the company shall be

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nominated by S. Kumars and appointed by the Board of Directors and management will be professional.

OGDEN has also entered into a joint development agreement, shareholders agreement and subscription agreement. All these agreements are proposed to be sent to Lenders Legal Counsel for carrying out due diligence. As the above contract become effective due to the above condition precedent, a condition is being stipulated that before any additional disbursement out of present or proposed assistance, SMHPCL would furnish a letter from OGDEN that all conditions precedent have been complied by SMHPCL.

1.02 The project would comprise of a 3.42 KM long and 36 meter high composite dam and a dam-toe powerhouse with 10 numbers turbine generator sets of 40 MW each with an aggregate capacity of 400 MW. The project was originally appraised by IFCI in April 1995 with the estimated cost of Rs. 15000 mn.

1.03 Central Electricity Authority (CEA) has given necessary Techno-economic clearance (TEC) and approved the cost of the project at Rs. 15693 million without margin money toward working capital. The margin money was taken at Rs. 130 million in the aggregate project cost of Rs. 15823 million approved by CEA.

As reported by SMHPCL, it has again approached CEA in 1999, for approval of its revised project cost of Rs. 19222 mn (excluding margin money of Rs. 137 mn) comprising of USD 273.36 mn (equi. to Rs. 9704 mn at exchange rate of 1 USD = Rs. 35.50) and Rupee component of Rs. 9517 mn, which has been forwarded by GOMP/MPEB based on the study/review by ILFS to CEA.

The cost of project was again re-appraised at Rs. 18810 mn in June 1998 due to increase in civil cost, plant and machinery and exchange fluctuation. Due to delay tying up of equity the project has been further delayed. The project cost has been re-appraised in November, 1999 at Rs. 23136 mn on account of increase in civil cost, preoperative expenses and exchange fluctuation (Rs. 1036.82 mn).

Further revision in the project cost has been necessitated as now PFC has agreed to sanction FC loan in lieu of that from BVB, which has resulted in decrease in financial and interest costs. The revised project cost has now been estimated at Rs. 22342 (including the margin money of Rs. 231?? mn).

II. PRIORITY?? adequate justification as under :-

i) ????? growing ?? electricity in the state of Madhya Pradesh, which ????? terms of peaking shortage and 21.40% in terms of ????? at present.

ii) ????? infrastructure, identified by the Government of India for ?????

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iii) Hydel power projects deserve a high priority as they are considered more environment-friendly due to the intrinsic advantage of using renewable natural resources and being non-polluting in nature. Further, as 79% of Hydel power potential in India is still unutilized and the proposed project will help in bridging the gap.

iv) Hydro Power Plants have longer life, low operating cost, utilisation of renewable natural resource i.e. water, provide cleaner power etc. as compared to thermal power plants.

III. PARTICULARS OF APPLICANT CONCERN

Name of the Company Shree Maheshwar Hydel Power Corporation Ltd. (SMHPCL)Date of Incorporation 11th May 1993Date of Commencement of Business 6th September 1993Registered Office Maheshwar Hydroelectric Project,

Site Office, Post Mandleshwar,Tehsil Maheshwar,District: Khargone, M.P.

Corporate Office Niranjan,99, Marine Drive,Bombay – 400002.(Maharashtra)

Power Plant Location Mandleshwar,Distt. Khargone,Madhya Pradesh.

Sector PrivateInstalled Capacity (Proposed) 400 MW

The main objectives of Memorandum & Articles of Association of SMHPCL inter alia include setting up of hydro-electric power project.

IV. BACKGROUND

4.01 Originally, the State Government of Madhya Pradesh had entrusted execution of this hydro project to Madhya Pradesh State Electricity Board (MPEB) in December 1988. MPEB had also obtained techno economic clearance from CEA in May 1989 and accordingly MPEB has taken up initial work relating to the implementation of the project. Further work for connecting both banks of the river, construction of a downstream coffer dam-cum-causeway had also been commenced and the same has since been completed.

4.02 In the meantime, according to new liberalisation policy of Government of India for participation of private sector in power generation, State Government of MP entrusted Maheshwar Hydroelectric Project to S. Kumars Group for execution and Operation of the project and MOU with State Govt. of MP was entered into on 28th July, 1993 for establishing, operating and maintenance of the project. S. Kumars Group decided to implement the project through a new company viz. Shree Maheshwar Hydel Power Corporation Ltd. (SMHPCL), with a view to have better operational/ management efficiencies. Further, SMHPCL has also entered into Power Purchase Agreement (PPA) with MPEB in November, 1994 and the same has been revised vide addendum dated 27th May, 1996 incorporating clauses as suggested by IFCI.

S. Kumars Group has formed a new company, namely SMHPCL to implement the project and to ensure inter alia , independent accounting thereby facilitating verification of project cost and determination of appropriate tariff by CEA, transparency in debt management, creation of independent security, adaptability of future changes in the policy guidelines for power sector and induction of eminent hydro power experts on the Board of new company with experience in management, operations and maintenance of similar projects.

V. DETAILS OF OUTSTANDING ASSISTANCE OF IFCI AND CREDIT RECORD (AS ON 31st October, 1999)

A. SMHPCL

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Rs. in millionFacility Sanctioned Disbursed Outstanding Overdue

Principal InterestRTL 500 200 200 --- 23.00FLG 2219.68 (USD

50.91 mn)2219.68 2219.68 --- ---

The company is in default as the project under implementation and the financial closure is yet to take place.

B. GROUP COMPANIES

Facility Sanc. Disb. O/S Overdue

S. Kumars Synfabs Ltd. RTL 850 850 455.9 NILS. Kumars Ltd. RTL/EPS 100 100 68 NILHindon River Mills -- -- 429.6 --

The Credit record of group companies has been satisfactory.

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VI. PROMOTERS/GROUP

SMHPCL has been promoted by S. Kumars Group, who are well known in the field of manufacturing of synthetic textiles, such as suiting, shirtings, dress materials etc. for the last 5 decades. The group has also diversified into manufacture of tyres and tubes for 2-wheelers and 3-wheelers besides finance and investments. The group’s turnover and net worth for the year ended 1997-98 was around Rs. 5690 mn and over Rs. 2830 mn respectively. S/Shri Abhay Kumar S. Kasliwal and Shambukumar S. Kasliwal are at the helm of the affairs of the group who are supported by their sons viz. S/Shri Ambuj A. Kasliwal, Warij. A. Kasliwal, Vikas S. Kasliwal, Nitin Kasliwal and Mukul S. Kasliwal.

VII. PERFORMANCE OF THE GROUP/ASSOCIATE COMPANIES

7.01 As mentioned earlier, S. Kumars group is primarily engaged in the textile business as has diversified into tyres and tubes manufacturing and in financial sector business. S. Kumars group have 6 main companies viz. S. Kumars Ltd., S. Kumars Synfab Ltd., S. Kumars Enterprises (Synfab) Ltd., S. Kumars Tyres Manufacturing Ltd., Shree Ram Mills Ltd. and S. Kumars Infrastructure Corporation Ltd.

A statement showing summary of working results and financial position of the aforesaid companies in Annexure-I. The operation details of the said companies are as under :-

i) S. KUMARS LTD. (SKL)

SKL is closely held profit making concern with satisfactory track and credit record. SKL was incorporated on August 18, 1972 and has fabric processing unit at Dewas (M.P.) and Andheri in Bombay to process synthetic and worsted suiting, dress materials, sarees etc. At present, SKL only undertakes the processing activity for the group on job work basis and the finished products are marketed by its other group companies. SKL’s working for the year ended 31st March, 1998 resulted in a net sales of Rs. 1652 mn on which it made a net profit of Rs. 8 mn and a cash profit of 13 mn. SKL has not been declaring dividend so as to plough back profits into business. SKL’s net worth as on the above date was Rs. 78 mn represented by share capital of Rs. 9 and Reserves & Surplus of Rs. 69 mn.

ii) S. KUMARS SYNFAB LTD. (SKSL)

SKSL is the flagship company of the group. SKSL is engaged in weaving of fabrics at its plant at Dewas and in texturising and twisting activities at its plant at Pithampur and trading in synthetic/blended fabrics. SKSL is a profit making and dividend paying company. SKSL’s working for the year ended September 30, 1998?? resulted in a net salary of Rs. 3875 mn on which it has made a net profit of Rs. 82 mn. SKSL’s net worth as of the above date was Rs. 2280?? mn. SKSL’s equity share of Rs. 10/-each was ?? at Rs. 32.05 on National Stock Exchange on the 09/12/99??. SKSL is presently setting up a state of the art composite textile unit at Dasna?? village near Gaziabad at

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estimated cost of Rs. 5200 mn which has been funded by IDBI, Exim Bank, LIC, GIC and Banks.

iii) S. KUMARS ENTERPRISES (SYNFAB) LTD. (SKEL)

SKEL is a closely held company engaged in trading and manufacturing of cloth at its plant at Dewas.

iv) S. KUMARS TYRE MANUFACTURING COMPANY LTD. (SKTMCL)

SKTMCL is engaged in manufacturing tyres and tubes for 2-wheelers and 3-wheelers at its plant at Pithampur. At present, its entire production is being carried out on job work basis for Apollo Tyres Ltd. SKTMCL was financed by ICICI & IFCI and initially it has to face teething troubles. SKTMCL for the year ended March 31, 1998 had made a total of income of Rs. 74 mn on which on which it earned a net profit of Rs. 3 mn. It has a net worth of Rs. 207 mn as 31st March, 1998. SKTMCL has recently made premature repayment of its outstanding loans and interest by way of one time settlement to ICICI and IFCI.

v) SHREE RAM MILLS LTD. (SRML)

SRML, a composite textile mill in Bombay, was taken over by S. Kumars Group in 1979. SRML is implementing a Rehabilitation Scheme with restructuring of liabilities, production facilities and labour force, as sanctioned in November, 1994 by Appellate Authority for Industrial and Financial Restructuring (AAIFR). SRML has paid entire settled liabilities of financial institutions and banks.

vi) S. KUMARS INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. (SKIDCL) (formerly S. Kumars Finance and Investment Ltd.)

SKIDCL, incorporated in January 1990, is a finance and investment company to deal in infrastructure and financial services and shares/stocks. During the year ended March 31, 1998, its total income was Rs. 23 mn on which it earned net profit of Rs. 12 mn. Its net worth as on that date stood at Rs. 182 mn.

vii) S. KUMARS POWER CORPORATION LTD. (SKPCL)

SKPCL has been incorporated in February 1995 with a view to promote power project and other synergic areas. SKPCL proposes to hold major equity capital as promoter of SMHPCL.

viii) Hindon River Mills Ltd. (HRML)

?? September 1998 the group acquired management control of HRML, a subsidiary company of DCM Shriram Industries Ltd. The lenders including IFCI have recently ?? their advance??

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VIII. MANAGEMENT AND ORGANISATION

SMHPCL is a board managed company having 8 directors including 4 directors from the promoter group as under:

S/Shri1. Shambhu Kumar S. Kasliwal Chairman, Promoter Group2. Warij A. Kasliwal Promoter Group3. Vikas S. Kasliwal Promoter Group4. Mukul S. Kasliwal Promoter Group5. G. P. Singh Outside Professional6. Dr. N. P. Jain WTD (R & R)7. S. P. Singh WTD8. R. S. Rajput IFCI nominee

As per the Shareholders Agreement between SMHPCL and Ogden the board is supposed to have ten directors, 5 from Indian promoters, 4 from Ogden and 1 from Lenders. The said provision is required to be amended and board is required to be broad based to the satisfaction of the lenders. A pre-disbursement condition is being stipulated for this.

Management set up and organisation

The day-to-day affairs of SMHPCL are being looked after by Shri Vikas Kasliwal and Mukul Kasliwal. Shri Vikas Kasliwal, aged 40 years, is MBA from Harvard University and has considerable experience in textile industry. Shri Mukul Kasliwal, aged 34 years, is a MBA from University of Rochester, USA, having considerable experience in the financial area and is looking after finance function, legal work, management information system and administration side of the project. SMHPCL has appointed Shri S. P. Singh, Ex-Chairman of Tehri Project as WTD and K. C. Goel, Ex-Member (Generations), MPEB as adviser. Shri S. P. Singh, WTD is being assisted by GM (Works), Shri A. K. Bahadur, ex-chief engineer of NHPC, Shri S. P. Singh, electrical engineer, Shri Bhatt, civil engineer, Shri Raj Kumar and Shri Lahiri all having experience of many hydro project with NHPC/BHEL.

SMHPCL has appointed Shri Nirmal Falgunia, a Chartered Accountant having 20 years experience in project finance as Executive Director – Finance to look after finance and accounts. The Organisation Chart is annexed as Annexure II.

????? M/s Harza Engineering Company International of USA (Harza) for construction and operation of Hydro Electric Power Projects ????? Engineers to the project and they will closely monitor the project implementation work and also co-ordinate and supervise the work of various contractors. HARZA is getting the design done from M/s Consulting Engineers Services -a renowned engineering and architectural company having 25 years of experience in hydel projects and other civil construction areas to provide complete design and engineering consultancy in collaboration with Harza.

IX. Capital structure (As on 30th September, 1999)Rs. in million

EXISTING PROPOSEDAuthorised 25000

(2500 mn equity shared of Rs. 10 each)

25000(2500 mn equity shares of Rs. 10 each)

Subscribed and paid up 1260 *(126 mn equity shared of Rs. 10 each)

6940

* subscribed entirely by the Indian Promoters

In addition to above, SMHPCL has received share application money from Indian Promoters to the extent of Rs. 104 mn and Rs. 75.6 million from PGDC as associate.

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SMHPCL has entered into a Share Holders Agreement with OGDEN. As per the SHA, OGDEN shall hold 49% equity of the company and balance would be held by S. Kumar group and their associates. As per the SHA, OGDEN will subscribe to the extent of US $73.35 million equivalent to Rs. 3191 mn.

OGDEN GROUP:

Ogden Energy Asia Pacific Ltd. (OGDEN), Hong Kong is a wholly owned subsidiary of Ogden Energy Group Inc. (OEG) which in turn is 100% owned by the parent company Ogden Corporation (Ogden), a publicly held US corporation, incorporated in Delaware, USA.

Ogden is a diversified company providing a wide range of services through its two business segments viz. Ogden services and Ogden energy business.

The operations of OGDEN’s services are performed by Ogden Services Corporation and its subsidiaries principally through its Entertainment Services and Aviation Services operating groups. The Entertainment services group provides total facility management services, presentation of concerts and family shows, food, beverages, novelty, janitorial, security, parking and other maintenance services, to a wide variety of public and private facilities including more than 100 stadiums, convention and exposition centers, arenas, parks, theatres and fairgrounds located in the US, Mexico, Canada, Argentina, Brazil, Spain and the UK. Entertainment also operates a racetrack and five off-track betting parlours in Illinois. The Aviation services provides specialised support services to 185 airlines at 100 locations throughout the US, Canada, Europe, Latin America and the Pacific Rim. The specialised support services provided by this group include comprehensive ground handling ramp, passenger, cargo and warehouse, aviation fueling and in flight catering services. These services are performed through contracts with individual airlines, through consolidated agreements with several airlines and contracts with various airport authorities. In January 1995 Ogden acquired Applied Data Technology Inc. (ADIT), San Diego, California. ADIT is a leading supplier of air combat maneuvering instrumentation systems and after action reporting and display systems.

The operations of the OGDEN’s energy business segments are conducted by Ogden Energy Group Inc. (OEG) through four principal business areas viz. independent power, water, waste to energy and environmental consulting & engineering. The independent power business is conducted by the wholly owned subsidiary of OEG viz. Ogden Energy Inc. (OEI), which develops, operates and, in some cases, invests in independent (i.e. non-utility) electric energy generation (Independent Power Production or IPP) projects, in the US as well as in other countries which sell their output to utilities, electricity distribution companies or industrial consumers. OEI presently has an ownership interesting, or is the operator and designated to be the operator of thirty-eight generation facilities with a total nameplate capacity of 1172 MWs, located in the US, Costa Rica and Bolivia. OEI continues to seek to expand its ownership and operation of IPP projects and is presently focusing on opportunities in the US, Central and South America, the Pacific Rim and India. OEI generally seeks to participate in IPP projects in which it can make an equity investment and become the operator. OEI also seeks to have a role in the development of the projects. Some of the recent power projects in which OEI is involved are (i) 240 MWs gas fired cogeneration facility in Maryland, USDA where OEI is providing start-up services and will be the operator, (ii) 480 MWs coal fired independent electric generating facility in the Republic of Philippines which OEI is developing as part of an incorporated consortium, (iii) Two run-of-river hydro electric projects in Costa Rica of 31 MWs combined capacity in which a subsidiary of OEI has entered into long-term O&M contracts. The water and waste water operations are conducted through a joint venture with Ogden Yorkshire Water Company (OYWC) formed by a subsidiary of Ogden and OEG with a wholly owned subsidiary of Yorkshire Water Plc. a major British water and waste water utility. OYWC operates and maintains waste water treatment facilities for municipalities in New York State. IN 1995, OYWC was also selected for a 25 year water and waste water privatisation programme with the city of Santa Marta, Colombia and signed a letter of intent with City of Bessemer, Alabama to design, build and operate a 20 million gallon per day water filtration, raw water intake and water transmission line system/facilities. Along with a strong local partner, OYWC was also pursing a 30 year concession for municipal wastewater treatment and water recycling in Muscat, Oman. The waste-to-energy (WTE) operations are have been consolidated in a wholly owned subsidiary of OEG viz. Ogden Waste to Energy Inc. (OWTE). The WTE facilities combust municipal solid waste to make saleable energy in the form of electricity or steam. This group completed construction of its first WTE facilities in 1986. It currently operates 28?? WTE facilities at 27 locations all in USA and is the owner or lessee of 17 of them. OWTE

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has the exclusive right to market in the USA the proprietary, massburn technology of Martin GmbH fur?? Umweit??-und Energietechnik (Martin). All of the facilities OWTE has constructed use Martin technology. OEG’s environment consulting services are provided through Ogden Environmental and Energy Services Co. Inc. (OEES) which provides?? a comprehensive range of environmental infrastructure and energy consulting engineering and design services to industrial and commercial companies, electric utilities and governmental agencies. These services include analysis and characterisation, remedial?? investigations, engineering and design, data management, project

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management and regulatory assistance. OEES also overseas removal of storage tanks and contaminated soil from Airforce bases across United States.

Ogden has of restructured its operation in 1997 so as to concentrate on the core businesses viz. Entertainment, Aviation and Energy. The restructuring entailed the disposition of the non core businesses, such as Technology services, Professional services, Bio-medical research support and biological repository services, laboratory operations of Environmental services and Facility management services etc.

The summary of the past financials of Ogden Group is as follows:(US $ in million)For the year ended 31st Dec. 1996 1997 1998Total Revenues 2031 1749 1692Profit After Tax 65 75 87Current Assets 886 833 954Current Liabilities 541 526 625Net Worth/Shareholders Equity 551 556 549Total Debt 2505 2547 2749

The equity investment of the Ogden group is proposed to be routed through Ogden Energy Asia Pacific Ltd. Hong Kong (Ogden), a wholly owned subsidiary of OEG, to reduce tax liability. Ogden is developing a few projects in India as IPP out of which Samalpatti Power Company is nearing financial closure and also it has received mandate from WBSEB for modernizing two of their plants.

X. PROJECT BACKGROUND

The Narmada, the largest west flowing river of the peninsula, rises near Amar Kantak in the Shahdol District of M.P. at an elevation of about 1051 meters in the Mekel range. The river traverses for 1077 km through M.P. Before crossing M.P. area, the river forms a common boundary between M.P. and Maharashtra for a length of 34 km. Thereafter for 40 km, it forms a common boundary Maharashtra and Gujarat. The river then flows through Gujarat state for about 161 km before meeting Gulf of Cambay.

To harness the water of Narmada for generation of electricity and for irrigation, 29 projects in M.P. and one project in Gujarat were proposed. However, these projects could not be implemented for want of agreements among the states. However, Narmada Water Disputes Tribunal (NWDT) settled the dispute by allocating 65.18% of water to M.P., 32.14% to Gujarat and balance to Rajasthan & Maharashtra. NWDT had further determined the height of Sardar Sarovar Dam in Gujarat, at full reservoir level (F.R.L.) at 138.68 metre, Max. Water Level (M.W.L.) at 140.21 metre. To utilise the allocated share of water to M.P., Govt. of M.P. proposes to take up Narmada Sagar Complex Projects, consisting of Narmada Sagar, Omkareshwar and Maheshwar Project. Narmada Sagar and Omkareshwar Projects are multipurpose projects for generation of electricity and irrigation. In relation to Maheshwar Project, Narmada Sagar and Omkareshwar Projects are upstream projects, while Sardar Sarovar in Gujarat state is a downstream project.

According to the original scheme of development of the Narmada Valley Projects, the Maheshwar Hydro Electric project was to be taken up only after completion of the two upstream projects namely Narmada Sagar and Omkareshwar Projects. This would have improved the availability of water in lean months to Maheshwar Power Project. But, on the other hand, the regulated release of water from upstream projects would have hindered the construction of Maheshwar Dam. At the same time, the delay in the construction of Sardar Sarovar Dam to its full height would prevent water spread extending to the toe of the Maheshwar Dam and Power house and would thus help in construction of Maheshwar Dam. Therefore the taking up of Maheshwar project for construction now is found to be ideal.

Presently the Western Region as a whole and in particular the State of Madhya Pradesh is facing acute peak power shortage. In view of this, it is necessary to add hydel installed capacity in the power system to meet this deficit. Peak power deficit is expected to continue in this region during the 9th Five Year Plans as well. Further, the construction of Narmada-Sagar project involves rehabilitation and resettlement of large population and therefore, completion of

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this project is likely to take considerable time, considering the present socio-political environment, apart from resource crunch. With this in the background, water planning studies have been carried out to ascertain the potential for hydro power generation at Maheshwar without the construction of two upstream projects. Fortunately, Bargi reservoir and up-stream irrigation dam would provide regulated release for power generation at Maheshwar Project site in addition to drainage from the free catchment area between Bargi dam site and Maheshwar Project site. Originally this project was proposed to be implemented by the State Govt. of M.P. Because of the liquidity crunch with the State Govt. and ongoing liberalisation, it was decided to assign the project to the private sector.

XI. PROPOSED PROJECT

11.01 SMHPCL is setting up a Hydro-electric Power Plant with an installed capacity of 400 MW. The plant would utilise a maximum gross head of 23 meters. After accounting for the head-losses, the design head of the plant would be 22 meters. The power plant would comprise ?? Kaplan?? turbines ????? turbines of capacity of 40 ????? The dam would have average capacity of 483 million cubic meters (MCM) at ?????

11.02 ???????????

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the water conductor system. The barrage or dam has normally diurnal pondage for meeting daily peaking capacity of the power station. The third category is the combination of the first two arrangements. The proposed Maheshwar project of SMHPCL falls in the second category of the power stations mentioned above. It envisages the construction of 36 metre high and 3.4 km long composite dam across river Narmada to form a reservoir with live storage of 28 MCM which would create a gross head of 23 meters for running 10 turbines of 40 MW each.

Hydraulic turbines fall into two broad categories-impulse turbine and reaction turbine. In the impulse turbine, power is generated due to high velocity water stream striking the turbine blades, which are designed in the shape of cups. The project proposes to utilise 8 Kaplan turbines and 8 propeller turbines as against 10 Kaplan turbines proposed earlier, which fall in the category of reaction turbines. The only difference between two turbines that the runner blades are fixed in case of propeller turbine while in Kaplan the runner blades are moving with the guide vanes. The Kaplan machines are used where there is appreciable variation in the heads as well as in the load while the propeller are good for constant head and load. In this project, the head is almost constant where the propeller are best suited and for absorbing any variation in the load, 2 Kaplan turbine are used. As regards the cost, the Kaplan turbines are expensive as compared to propeller turbines. The reaction turbines produce a rotary motion in the turbines due to flow of water through them, which imparts thrust to the turbine blades in a direction opposite to the direction of the flow. The turbine shaft is coupled with the shaft of generator. The electricity in the generator is produced at 11 kV, which is further increased to 22 kV through transformers to minimise the transmission losses and thereafter transmitted to main grid.

11.03 Location

The composite dam is proposed to be constructed across River Narmada, near Mandleshwar town in Khargone district of M.P. The dam site is 4 km east if Mandleshwar town, situated on Barwaha-Dhamnod road, and is 104 km away from Indore City, the nearest broad gauge Railway station. The power house is proposed to be constructed at the foot of the dam on the right side. The project site is connected to Dhamnod on NH-3 by road at a distance of 26 kms. All culverts and bridges on this road have been constructed conforming to the desirable specifications.

SMHPCL has entered into a MOU with the Govt. of M.P. dated 28.07.93 for the ????? which was later converted into an agreement on ????? SMHPCL shall establish, operate and maintain ????? and Operate basis. The state Govt. has also agreed ????? statutory clearances. NOCs and permissions for ????? of the power station already obtained by the ????? SMHPCL has obtained advance possession ????? by MPEB.

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11.04 Hydrology

The project, being a run-of-the-river type for generation of hydro power, would generate power by utilising the water diverted from the flow of river Narmada. Hence, detailed investigation of the annual run/flow in the river Narmada has been carried out for the purpose of the designing of the proposed project. The catchment area is a mainly rain-fed in the State of MP covering an area of 69184 sq.kms. at work site. After accounting for interception by completed Bargi project (14556 sq.kms.), and proposed projects at Narmada Sagar (61642 sq.kms.) and Omkareshwar (64880 sq.kms.), the unintercepted area works out to 4304 sq.kms.

The water availability and utilisation has been worked out in two scenarios viz. Pre-Narmada Sagar stage and Post-Narmada Sagar stage and based on the same assessment of power benefits from Maheshwar project has been worked out.

Based on the above, CEA has considered design energy (90% dependable year with 95%?? availability) and average energy (50% dependable year with 95% availability) as under:-

Pre-Narmada Sagar Post-Narmada SagarWater Availability (90%) 12870 MCM 19251 MCMWater Availability (50%) 32200 MCM 32708 MCM?? Energy 716 MW 823 MWAverage Energy 920 MW 1226 MW

11.05 Technical arrangements

The key work relating to the civil works including layout design and specifications of plant facilities and machinery foundations (based on the detailed drawing/advice by machinery suppliers) will be executed under construction and design management of CES in collaboration with Harza. CES and Harza have vast experience in the construction management of dams and power houses and large resources of trained manpower. They would provide complete design and engineering consultancy for Maheshwar Hydro Electric Project. CES and HARZA have on their roll highly competent and experienced engineers in the field of hydro power planning and design.

????? rendered by CES and Harza for the proposed project ?????

????? project details:

????? design of all the works of the proposed project????? for procurement of equipment and ????? SMHPCL has entered into a agreement(s) with CES ????? consultancy and project management work. The fee????? CES will be Rs. 51.5 million including out of ????? period.

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11.06 Civil Construction and Plant and machinery

SMHPCL has adopted the International Competitive Bidding (ICB) route by inviting quotations from a panel of short-listed pre-qualified reputed suppliers/contractors for hydro electric plant, machinery and accessories and civil works.

The bids for civil work were invited in two packages i.e. concrete dam and spillway portion. Contract for civil work has been awarded to M/s SEW Construction Ltd-Prasad and Co. Ltd(SCPL) a joint venture of Hyderabad. SCPL is an established construction consortium with annual turnover in excess of Rs. 1000 mn. SCPL had undertaken the contracts of BARGI project, Tawa Project and Srisailam Reservoir and constructed about 100 KM long power channel in the state of Andhra Pradesh. SCPL has wide experience in excavation of soil and rock, concrete chilling and aggregation and have mobilised large labour force required for such large projects.

The plant and machinery would comprise hydro mechanical and electro mechanical equipment. For supply of hydro mechanical equipment, SMHPCL has entered into EPC agreement with ABB, Portugal at a completed cost of US $ 55.67 million equivalent to Rs. 2421 mn. As per the terms, SMHPCL has to pay 15% as down payment and the balance 85% on completion of supply, erection and testing. The electro mechanical equipment will be supplied by Siemens, Germany. The total price for the supply and service of equipment is US $134.15 millions equivalent to Rs. 5836 mn. As per the terms of payment, SMHPCL has to pay 15% as down payment and the balance on supply, erection and commissioning of each unit. The suppliers scope of service includes design, engineering, manufacturing , turnkey erection, commissioning of equipment and deputing its officials for running the plant in the initial period. The contract also includes warranties and guarantees as regards to delivery and performance of the plant.

11.07 Environmental aspects

The proposed project being a Hydel Project, there would be no pollution resulting from its operations. However, during the construction phase, the project would result in submergence of a total land of 4856 hectares including cultivable land of 1435 hectares. The submergence at a maximum water level of dam may affect 22 villages comprising ?? private buildings/houses and 75?? community buildings. In the process, ????? about 14321?? persons may be affected ????? land is involved in ?? submergence ?? in the project area. SMHPCL has already obtained the approval of Ministry of Environment and Forests (MOEF) ?? project subject to ?????

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increased the same to Rs. 1307 mn and Rs.495.9 mn respectively. The necessary execution of R & R and treatment for the catchment areas would be undertaken by the MPEB for which necessary agreement has been executed.

11.08 Evacuation of power

The power generated at Maheshwar project would be stepped up from 11 kV to 220 kV and is proposed to be evacuated by three circuits of 220 kV lines from the power dam station to the MPEB sub-station – at Pithampur and Barwaha. MPEB would be responsible for evacuation of power and its transmission to MPEB sub-station. At present, one circuit is available for transmission of power to the sub-station at Barwaha (which is 60 kms away from the site). MPEB would have to further augment its transmission facilities. As per the PPA agreement, MPEB will make its own arrangements at its own cost to evacuate the power.

11.09 Manpower requirement

The total manpower requirement during implementation/construction stage of the project has been estimated to be around 3000 nos. As of now, at the site, SMHPCL has around 150 persons working on the project. The rest are to be recruited as per the requirement. On completion of the project, SMHPCL would require 175 nos. of staff comprising managers and engineers (10), operating staff (50) and others including security staff (115). SMHPCL does not envisage any difficulty in recruiting requisite staff.

11.10 Schedule of Implementation

The project is proposed to be fully implemented over a period of 48 months from date of financial closure i.e. 1st March, 2000 and as such it is possible to be completed by 29th February 2004 as against the original schedule of completion of 31st March 2002. Due to the reason that total equity could not be tied up and civil contractor has not been issued a letter to proceed and equipment supply contracts have not been made effective so far, the implementation of the project has been delayed.

SMHPCL has already commenced work on creating infrastructural facilities like setting up of stores, repair of down-stream cofferdam and excavation of soil at the site of power house and employee housing. Simultaneously, SMHPCL has carried out detailed design including hydraulic/mechanical modern?? studies of important structures, field investigation and laboratory tests on soil and rocks, etc. SMHPCL has floated bids for Civil Works, Hydro-mechanical, Electromechanical Equipment through ICB route and awarded the contracts.

Physical Progress:SMHPCL has already obtained advance possession of project land and infrastructure from MPEB and have obtained construction power and built linking road from National highway to site.

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SMHPCL has acquired 442 hectares of project land against the requirement of 547 hectares, further acquisition is in progress. It has also acquired 81 hectares of land out of 873 hectares private land coming under submergence. SMHPCL has commenced the civil work on the site and the contractor has mobilized 7 excavators, 50 dumpers, two batching plants, one crusher, cranes, compressors and other construction equipment. However, as discussed with the contractor, the company is yet to issue “Notice to proceed” to civil contractor, which SMHPCL proposes to do once financial closure is complete, as it has to pay the requisite amount of advances to the civil contractor. The coffer dam has already been constructed by MPEB. The power dam, site protection wall construction has been completed. The excavation of power dam site is almost complete in all the 10 turbine bays. The concreting of storage bay, service bay and unloading bay has already been completed. The construction of main power house hall is in progress. The company has already entered into the equipment supply contract with the main suppliers. However, in case of Siemens they are yet to confirm bringing of equity which is part of the supply contract on account of non-availability of export risk cover. The company is discussing with Siemens for sorting out the issues.

The detail implementation schedule for balance work is enclosed as Annexure-III.

XII. COST OF THE PROJECT

12.01 The details of the cost of the project, now estimated at Rs. 22543 million (including margin money for working capital of Rs. 201 million), are given in Annexure-IV. A summary of the same is given here under:

As per CEA Approval1996

REVISION 1(1997)

REVISION 2(November 1999)

Now proposed(March 2000)

Exchange Rate 1.00 35.5 1.00 39.50 1.00 43.50 1.00 43.50US $ Rs. TOTA

LUS $ Rs. TOTAL US $ Rs. TOTAL US $ Rs. TOTA

LPROJECT COST BREAK-UPLAND 100.00 100.00 100.00 100.00 0.00 108.80 108.80 109 109BUILDING AND CIVIL WORKS

3725.10

3725.10

4020.00 4020.00 0.00 4458.44 4458.44 4458 4458

PLANT & MACHINERY

166.75

586.60 6505.63

207.15

0.00 8182.23 191.62 0.00 8344.07 191.82

0 8344

MISC FIXED ASSETS

45.50 45.50 0.00 50.00 50.00 0.00 99.45 99.45 0 99 99

TECH KNOWHOW FEES

4.34 154.07 4.34 46.00 217.43 5.15 51.56 275.59 5.15 52 276

R & R 1282.10

1282.10

0.00 1282.10 1282.10 0.00 1307.31 1307.31 0 1307 1307

C A T?? 495.79 495.79 495.79 495.79 0.00 495.79 495.79 0 496 496COMPANY INCORPORATION EXPENSES

?? ?? ?? 10.00 10.00 0.00 8.52 8.52 0 9 9

PRE. INVESTIGATION

?? ?? ?? 85.00 85.00 0.00 156.88 156.88 0 157 157

ADMINISTRATIVE??

?? ?? ?? 500.00 500.00 0.00 597.73 597.73 0 596??

598

FINANCIAL CHARGES??

?? ?? ?? ?? 1039.47 1739.80 10.58??

1468.30??

2320.00 13.72 1226 1823

INT. DURING CONSTRUCTION??

?? ?? ?? ?? 575.35??

1756.00 ?? 2315?? 4560.11 50.77 2257 4465

PROV. FOR CONTINGENCY??

?? ?? ?? 235.20 235.20 0.00 200.65 200.65 0 201 201

MARGIN ?? ?? ?? 136.50 136.50 ?? 202.98 202.98 0 201 201

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MONEY??T O T A L ?? ?? ?? ?? 8575.40 18810.0

5?? 11472.3

323136.32

261.46

11169

22543

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Comments on the project cost

Land and Site Development ( > Rs. 9 mn.)Out of the total land of 547 Ha envisaged for the project, SMHPCL has already acquired 442 Ha and the revised estimate is based on the actuals already incurred for the said acquisitions.

Building and Civil Works ( > Rs. 438 mn.)The cost under the head ‘Building and Civil Works’ includes residential and non-residential buildings, civil works relating to roads, bridges, Diversion Barrage, power house, excavation of hard soil and rock, etc.

The increase in the cost is mainly due to accounting for the civil works done (Rs. 125.58 mn.) prior to the award of the present civil works contract ( not included at the time of first overrun), provision for price variation clause in the contract which was not provided for earlier Rs. 242 mn.), increase in steel price and inclusion of certain additional excavation and concreting work.

Plant and Machinery ( > Rs. 162 mn.)While there has been decrease in actual FC cost by USD 15.33 mn on account of restructuring of the Electromechanical contract, the increase in total rupee cost is due to the application of exchange rate of USD 1 = INR 43.5 in the present estimates as against USD 1 = INR 39.50 at the time of revision 1. A part of cost of plant and machinery earlier taken, has been transferred to Interest During Construction.

Misc. Fixed Assets ( > Rs. 49 mn.)The increase is mainly due to provision for procurement and maintenance of additional vehicles and construction equipment (Rs. 30 mn.), provision for office furnishings (Rs. 10 mn.) and revised estimates for furnishing the staff quarters (RS. 6.7 mn.)

Technical Consultancy ( > Rs. 59 mn.)The increase is due to inclusion of out of pocket expenses for the owners engineers CES Ltd. (Rs. 5.56 mn) and construction managers Harza International (US$ 0.81 mn) which is a part of the contract but not provided for earlier.

Rehabilitation and Resettlement ( > Rs. 25 mn.)The increase is mainly due to provision for shifting of archeological monuments Rs. (12.7 mn.) and balance?? increase as per the revised estimates of MPEB (to take care of time overrun) who?? have been entrusted with the above work.

Preliminary and Preoperative Expenses ( > Rs. 762 mn.)

Company Incorporation Expenses ( < Rs. 1 mn.) The expenses of Re.8.52 mn included in the present project cost are as per ??

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Preliminary Investigation ( > Rs. 72 mn.) The increase is due to the inclusion of development expenses incurred by MPEB and NVDA (Rs. 55.13 mn), provision for fees payable to lenders engineers, legal counsel and insurance advisor as per the contracts entered into.

Administrative Expenses ( > Rs. 98 mn.) The increase is due to additional fixed overheads consequent to time overrun (from April 2002 to February 2004 – 22 months)

Financial Charges ( < Rs. 84 mn.) The reduction is on account of replacing the costly financial structure with that based on FC loan from PFC in lieu of that from BVB for the Siemens equipment supplies.

Interest During Construction ( > Rs. 2709 mn) The revised estimates are based on the IDC during extended implementation period as also additional funding now envisaged.

12.02 Cost comparison

The cost of hydro-electric power project depends mainly on topography and hydrology at the dam site. The cost of Turbine Generators is dependent on the available water head for generation of electricity. Therefore, it is difficult to draw a realistic comparison of cost between different hydro-electric projects. The Institutions have recently agreed to finance Jaiprakash hydro electric power project of 300 MW capacity at a project cost of Rs. 12630 million where the capital cost per MW works out to Rs. 41.6 mn. In the case of SMHPCL, the capital cost per MW for400 MW capacity works out to Rs. 55.58 mn, which may be considered reasonable having regard to provision of Rs. 1307.31 mn towards rehabilitation and resettlement of displaced persons in case of SMHPCL which is not required in the other case. If we exclude the cost towards rehabilitation and resettlement, the cost per MW comes to Rs. 52.58 million.

12.03 Expenditure incurred on the project

Cost incurred on the project:As per the Statutory Auditors certificate dated the April 9, 1999, SMHPCL has incurred an expenditure of Rs. 3184 mn. SMHPCL has reported that it has further incurred an expenditure of Rs. 392 mn till 31st October, 1999. Out of the said expenditure, it has been observed that Capital advances of Rs. 1064 Mn has been given to some parties who have not carried out their assignments and as such SMHPCL is in the process of recovering the said advance. ?? management fee to the extent of Rs. 193 mn has been paid to M/s Induj Project and ?? Ltd. which has not been considered in the original appraisal and first overrun appraisal as scope of work demarcated for Induj is already covered in the scope of work of Harza and some of the coordination work is to be done by SMHPCL. The company has also not taken any approval from the Institutions in this respect before appointing them. The above expenditure also includes

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sum of Rs. 207.3 million paid to S. Kumars Ltd. pertaining to expenditure incurred before formation of SMHPCL for obtaining Statutory clearances from various government agencies. The above expenditure also includes interest paid on the bridge loan against equity to be subscribed by the associates of promoter and as per Lenders meeting, same to be excluded from the project cost. Lenders have appointed NHPC as the lenders engineer and as per the scope of work they are supposed to examine the physical progress and cost incurred for the same. We are yet to receive the final report from NHPC.As on October 31, 1999, SMHPCL had incurred an expenditure of Rs. 3576 mn on the project. The detail of which and sources thereof is as under:-

Expenditure AMOUNT IN RS MILLIONCOST HEADS Amount incurred

upto 31/10/99Balance cost to be incurred

Completed Cost

LANDBUILDING & CIVIL WORKSPLANT & MACHINERYMISC FIXED ASSETSTECH KNOWHOW FEESR & RC A TCOMPANY INCORPORATION EXPsPRE. INVESTIGATIONADMINISTRATIVEFINANCIAL CHARGESINT. DURING CONSTRUCTIONPROV FOR CONTINGENCYMARGIN MONEY

528000.0017121920.0081404062681470.00113**

57365883448226411154961171921555431820188

10944588344992761307496915759818234465201201

Total – Project Cost 2,155 20388 22543Capital AdvancesIncurred not included in project cost

1,064358

TOTAL 3,577**: Includes business advances and deposits, which will be converted to Margin for Working Capital at the time of commissioning.

Sources: AMOUNT IN RS. MILLIONFUNDING Funds infused Upto

31/10/99Funds to be infused Total Funding

LOAN:Rupee Term Loans

– BVB – ECA/PFC– COMM LOAN– PFC US $ – SBI - FFT– Bank of India– Indore Bank

1,229

0.000.000.000.000.000.00

2,981

7,7810.002,301965220.00

4,210

7,7810.002,3019665220.00

Total Loan 1,229 14,551 15,780

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EQUITY:

PROMOTERS: SKG

ASSOCIATES

COLLABORATORS

1364??

76??

0.00

0.00

2016

3306

1,364

2,092

3,306

Total Equity 1,440 5323 6,763

Total – Project Funding 2669 19874 22543

Capital Advances to be recovered

Expenditure not included in Cost

Payment of Sundry Creditors

Repayment of Bridge Loan

Cash and Bank Balance used

93

638

1,064

357

-93

-638

26

T O T A L 3400 20,590

* Out of the total RTL requirement of Rs. 4210 Mn. Rs. 2500 Mn is already tied up, thus Rs. 1710 Mn is yet to be tied up.

12.04 Progress on R&R:

As per the R&R policy of GoMP, SMHPCL has taken upon the R&R for the people affected by the project. The agencies involved in the R & R and their role are as under:

Proposal of resettlement site: MPEB

Approval of the proposal: Rehabilitation Committee formed by GoMP

Execution of resettlement work: MPEB

Financing and monitoring of the work: SMHPCL

SMHPCL has already acquired 76.97 hectares of land out of total 299 Ha required for R&R. Planning for all the 22 village relocation site has been completed and 3 relocation sites have been approved by Rehabilitation Committee. SMHPCL has developed and constructed first model village at Jalud and plots have been allotted to the villagers. SMHPCL has also developed 50 acres of land for agriculture and has also incurred a total expenditure of Rs. 192 mn against the appraised cost of Rs. 1307 mn.

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XIII. MEANS OF FINANCE

13.01 The Revised cost of the project is estimated at Rs. 22453 mn and is proposed to be financed as under:

As per CEA Approval1996

REVISION 1(1997)

REVISION 2(November 1999)

Now proposed(March 2000)

Exchange Rate 1.00 35.5 1.00 39.50 1.00 43.50 1.00 43.50

US $ Rs. TOTAL

US $ Rs. TOTAL

US $ Rs. TOTAL

US $

Rs. TOTAL

SOURCE OF FUNDS

LOAN:Rupee Term Loans 1750.0

01750.00 2750.0

02750.00 4625.0

04625.00 0 421

04210

F C L :– BVB –

ECA/PFC187.00

6638.50 182.66

0.00 7215.07 178.88

0.00 7781.38 179 0 7781

– COMM LOAN 33.00 1171.50 15.51 0.00 612.84 0.00 0.00 0.00 0 0 0– PFC 34.00 1207.00 34.00 0.00 1343.00 52.90 0.00 2301.15 53 0 2301– SBI - FTT 0.00 27.00 0.00 1066.50 22.20 0.00 965.70 22 0 966– Bank of India 0.00 0.00 12.00 0.00 522.00 12 0 522

Total Loan 254.00

1750.00

10767.00

259.17

2750.00

12987.41

265.98

4625.20

16195.43

266 4210

15780

EQUITY:PROMOTERS – SKG

1100.00

1100.00 1260.00

1260.00 0.00 1364.41

1364.41 0 1364

1364

ASSOCIATES 38.10 125.45 1478.00 35.00 316.50 1699.00 35.00 652.28 2174.78 35 570 2092COLLABORATORS 69.80 2478.00 72.50 2863.75 78.20 0.00 3401.70 76 0 3306Total Equity 107.9

01225.45

5056.00 107.50

1576.50

5822.75 113.20

2016.70

6940.90 111 1934

6763

GRAND TOTAL 361.90

2975.45

15823.00

366.67

4326.50

18810.16

379.18

6641.89

23136.32

377 6144

22543

Equity Capital (Rs. 6763 mn)

Under the revised structure of equity 51% of shareholding i.e. Rs. 3456 mn will be held by S. Kumars Group Cos (20%) and their associates (Siemens – 15%, ABB – 6% and other - 9%) & the balance 49% i.e. Rs. 3306 mn will be held by OGDEN. Out of the total equity of Rs. 6763 mn, the core promoters S. Kumars Group has already brought in their envisaged share of Rs. 1364 mn in the revised financing.

Term Loans

Rupee Term Loans (Rs. 4210 mn)

SMHPCL has already tied up Rs. 2500 mn of rupee term loan (IFCI –Rs. 500 mn, Dena Bank – Rs.250 mn, SBI – Rs. 500 mn and Power Finance Corporation –Rs. 1000 mn, Punjab National Bank – Rs. 250 mn). Thus there is a gap of Rs. 1710 mn in Rupee term loan requirement.

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Foreign Currency Loans (Us $ 266 million)

The entire FCL requirement of US $ 266 mn stands all tied up. (SBI – Frankfurt – US $ 22 mn, PFC – US $ 53 million, Bank of India – US $ 12.00 mn, Bayerische Hypo-und Vereinsbank (BHVB)/PFC US$ 179 mn).

The Buyer’s Credit – Export Agency Covered (ECA) loan of US$ 178.88 mn from the BHVB is in two tranches – First tranche of US $ 132.26 mn, to be utilised for funding the Siemens supplies, is front guaranteed by State Bank of India and Counter Guaranteed by Central Bank, Canara Bank, Bank of Baroda, Dena Bank and Punjab National Bank. The Second tranche of US $ 46.28 mn, to be utilised for funding supplies from ABB is guaranteed by IFCI.

Bank of India (BOI) has joined the consortium and sanctioned US$ 12.00 mn. Consequently, IFCI has cancelled assistance of Rs. 500 mn against sanctioned assistance of Rs. 1000 mn , to accommodate of BOI in the consortium.

The following items of expenditure incurred/to be incurred have not been included in the project cost:

1. EPC wrap fees of (Rs. 300 mn)EPC wrap fee of Rs. 300 mn (Rs. 181 mn already incurred) payable to Induj Project Services for overall EPC contracts management and cost control, as the scope of work is covered by Harza and co-ordination has to be done by SMHPCL. Induj has also not done any such assignment earlier.

2. Interest and fees on Bridge Loan (Rs.231 mn)The Bridge Loans of Rs. 638 million have been availed by the company against the equity infusion to come from Siemens and ABB, who have been inducted as promoters associates for the purpose of promoters contribution. The Project Lenders in the meeting held on 15/09/99 have taken a view that since the loans have been availed against the equity infusion into the project, all the financing charges including IDC be borne by the promoter. Hence this amount has not been included in the project cost.

EQUITY RATIO AND PROMOTERS CONTRIBUTION

Based on the above means of finance, the promoters contribution now work out to 15% of the project cost including the equity to be brought in by Siemens and ABB (who have assigned their voting rights in favour of S. Kumars and hence included in the promoters contribution). The Debt-equity ratio on completion of the project works out to 2.3 :1 as against 2.23:1 as envisaged earlier.

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XIV. MARKET AND SELLING ARRANGEMENTS

The Indian Electricity Scenario

14.01 In India, electricity is one of the most commonly used form of energy. Since independence, India has multiplied its generation capacity over 50 times, from a meagre 1362 MW in 1947 to over 84912 MW in 1996-97 (Thermal – 72%, Hydel – 25% and Nuclear – 3%). Units generated have also leap frogged from 4.1 billion units to around 417 billion units in the same period indicating a compound annual growth rate of about 10% (approx.). During the 8th five year plan period (1992-97), a target of adding 30538 MW was envisaged by the Government of India. As against this target, only 15842 MW has been added till March, 1997. The year wise total generating capacity in India during the last five years is as under:-

Installed Capacity (MW)

Year Hydro Thermal Nuclear Total1992-93 19576 50749 2005 723301993-94 20378 54367 2005 767501994-95 20829 58111 2225 811641995-96 20976 60087 2225 832881996-97 21637 61051 2225 84912

14.02 The demand supply position of energy and power for four years ended 31st March, 1996 is as under:-Year Energy

Requirement BkWh

Availability BkWh

Deficit%

Peak Load Requirement MW

Availability MW

Deficit%

1992-93 307.68 282.24 8.27 52805 41984 20.71993-94 323.25 299.49 7.35 54875 44830 18.31994-95 352.26 327.28 7.70 57530 48066 16.41995-96 389.72 354.05 9.20 69081 49836 18.3

14.03 The Plant Load Factor (PLF) for the last 6 years ended 31st March, 1997 had been as under:-PLF%Ownership 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97State 50.60 54.10 56.60 55.00 58.00 60.30Central 64.50 62.70 69.80 69.20 70.90 71.00Private 56.70 58.80 67.00?? 65.90 72.30 71.20?? 55.30 57.10 61.00 60.00 63.00 64.40SOURCE: TEDDY (TERI) – 1998-99

14.04 Due to lack of adequate T&D systems, defective metering and pilferage, the transmission & distribution losses have been high (approx. 20%) as against normal losses of 8-10% worldwide.

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The growth in the power sector had been mainly achieved through State Electricity Boards (SEBs) which were constituted by the State Governments under the Electricity Supply Act, 1948 (ESA). About 65% of the generation and the bulk of the distribution takes place through SEB system. The efforts of the SEBs were further supplemented by the advent of independent generating companies viz. National Thermal Power Corporation Ltd (NTPC) and National Hydroelectric Power Corporation Ltd (NHPC) in the public sector. However, the health of the SEBs had been unsatisfactory.

The (average) tariff and cost of electricity for the five years was as under:-

Tariff & Cost (Paise/Kwh)

Year Tariff Cost Variance1990-91 81.50 107.40 25.901991-92 88.10 115.30 27.201992-93 195.30 137.40 32.101993-94 118.00 144.00 26.001994-95 132.90 159.90 27.00

Source: NCAER

14.05 In order to improve the power availability in the country and also mobilise additional resources, the GOI has invited private sector for the generation and distribution of power. The private power policy was announced in October 1991, mainly to set up power plant with comparatively bigger capacity thermal/hydel power plants. As the implementation of the said plant have a large gestation period ranging from 3-6 years, the GOI in November, 1995 formulated a policy for setting up the liquid fuel based power plant of comparatively lower capacity having gestation period ranging from 18-24 months to reduce the power supply shortages. The said power plant shall use heavy fuel such as Low Sulphur Heavy Stock (LSHS), furnace oil etc. However, High Speed Diesel (HSD) is not permitted as fuel for the independent power projects.

14.06 Power Scenario in Madhya Pradesh (MP)

(a) Madhya Pradesh Electricity Board (MPEB)

MPEB set up in 1959 for generation, supply and distribution of electricity in Madhya Pradesh of Western Region Electricity Grid comprising of Maharashtra, Gujarat, ?? Madhya Pradesh. MPEB has divided the state into 10 regions, 42 ????? distribution centers for transmission and distribution ????? aggregate capacity of 4026 MW comprising of ????? power plants (848 MW). In addition it also has ????? pool. The thermal generating stations are ????? capacity is spread through out the state. The ????? in East MP, West MP and North MP.

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Physical Performance

For the year ended 31st March 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98Installed Capacity (MW) 3483.70 3733.70 3813.95 3814.7 3815.8 3815.8Thermal 2757.50 2967.50 2967.50 2967.5 2967.5 2967.5Hydel 726.20 766.20 846.45 847.2 848.3 848.3

Plant Availability (%) 71.4 72.00 75.00 80.00 NA NAPLF (%) 52.60 56.00 58.20 58.7 62.3 66.3Auxiliary Consumption (%) 9.28 9.26 9.08 9.28 8.7 8.7T&D Losses (%) 22.70 20.10 19.60 19.00 19.20 19.10Total Units Sold (MU) 16784?? 18651?? 20946 23091 23475 24409Purchase/Sales of Power (%) 56.90 55.40 51.40 52.90 NA NA

It may be observed from the above table that MPEB’s performance registered improvement both in plant availability and PLF coupled with reduction in transmission and distribution losses.

Consumer and Tariff ProfileThe consumer mix of MPEB (% of consumption) and the corresponding revenues generated for the 4 years were as under:

1993-94 1994-95 1995-96Consumer Average

Tariff Rs/unit

% of MPEB revenue

% of consumption

Average Tariff Rs/unit

% of MPEB revenue

% of consumption

Average Tariff Rs/unit

% of MPEB revenue

% of consumption

HT 2.14 64.46 36.23 2.36 62.72 35.48 2.66 61.57 34.80LT 1.74?? 5.54 4.04 2.13 5.80 3.6 2.35 5.65 3.48Domestic 0.64 7.30 14.26?? 0.65 6.96 14.42 0.65 7.04 14.77Agriculture 0.21?? 4.92?? 29.26?? 0.22 5.20 32.15 0.18 4.44 33.45Others 1.59 17.86?? 14.32 1.80 19.31 14.32 2.28 21.29 13.50Avg Tariff 1.37 1.34 1.39Avg cost of ??

1.57 1.67?? 1.77

It would be seen from the table that the electricity consumption pattern of the industrial and commercial consumers varies between 38-42%. However, this segment of consumers contributed to ?? of the MPEB revenue. The share of ?? sectors ?? consumption varies between 43-47%?? while this segment contributed to MPEB’s revenue to the extent of 12%(approx.) indicating very large ??. MPEB’s tariff increased from 1.37 per unit in 1993-94 to 1.39 per unit in 1995-96, while the average cost to sale increased from Rs. 1.57 per unit in 1993-94 to 1.77 per unit in 1995-96.

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14.07 Financial position and working results

A summary of past working results and financial position of MPEB for the last 4 years ended 31st March, 1996 is as given below:

Income Statement Summary (in Rs. Million)

Particulars 1993-94 1994-95 1995-96 1996-97 + 1997-98 +

IncomeSale of Power 22629 28527 3331 43414 43519Subsidies and grants

4151 5148 5922 5962 8116

Other Income 1889 2044 2425 3425 3674Total 29669 35719 41478 52801 55309

ExpenditurePurchase of Power

9043 10028 13762 18269 18671

Generation of Power

5194 6676 7351 9695 11489

Repair and maintenance

1152 1554 1707 2143 2907

Employee costs 4207 5324 5566 6596 8475Administrative expenses

364 413 271 688 624

Misc. Expenditure

397 461 413 2568 1085

Ele. Duty and Cess

162 167 237 328 289

Total Expenditure

20519 24623 29307 40289 44540

?? 9150 ?? 11096 12171 12512 11769?? 5234 ?? 5625 6475 6843 5991?? 2734 ?? 4146 4357 4402 4553

?? 1182 ?? 1325 1339 1267 1225?? 13.99 ?? 14.41 14.27 11.29 14.67??

MPEB could ?? the minimum 3% return on its capital base only after receiving subsidy (Rs. ?? mn) from the State Government.

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Balance Sheet Summary

Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97AssetsGross Fixed Assets 45198 53578 61201 65839 67751 70427less: Accumulated Depreciation

9995 12484 15218 1927 2331 ?? 27155

Net Fixed Assets 35203 41094 453 46612 44438 43272Other AssetsCapital Works in Progress

15307 12305 12050 12926 18537 20995

Other assets 99 115 117 217 496 1480Investments 371 337 94 50 53 1167Current AssetsTotal Current Asset 15333 18220 19015 21883 24757 27526Less Current Liabilities 10961 12239 13609 15711 19768 22460

Net Current Assets 4372 5981 5406 6172 4989 5066Subsidy received from Govt.

4057 4609 1976 5161 9909 2968

Total Assets 59409 64441 65626 71138 78422 74948

LiabilitiesNet Worth 3851 4896 6188 7738 9140 10697Total BorrowingsBorrowing for Working Capital

16 193 18 183 75

Amounts due on capital liabilities

2314 592 - 165 - 155 2404 3348

Capital Liabilities 30123 32408 35728 37536 37474 36973Funds from State Govt. 21362 24174 21277 22980 26220 20231Contributions/Grants Subsidy

1743 2178 2580 2856 3134 3624

Total Liabilities 59409 64441 65626 71138 78422 74948Debt Equity Ratio 1.11 1.03 1.19 1.11 1.03 1.07

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Current Ratio 1.39 1.40 1.41 1.39 1.25 1.23

Credit Rating and Information Services of India Ltd (Crisil) had conducted a study ?? State Electricity Boards (SEBs) in July, 1995 and classified the SEBs into 4 categories- A, B, C, D and A denoting best credit quality and D denoting least credit quality with respect to ability to meet the payment obligations on a timely basis. The study placed MSEB in ‘A’ category and MPEB, APSEB, TNEB, KSEB, KEB, OSEB in ?? category ahead of RSEB, GEB, PSEB, WBSEB, HPSEB, UPSEB, in ‘C’ category ?? Bihar SEB, ASEB, HSEB in ‘D’ category. MPEB has been given a credit rating of 8 CRISIL. The uncertainties that the organisation faces could lead to inadequate capacity for timely payment of principal and interest obligations. As per CRISIL, in overall analysis there is likely to be a strong correlation between the state and the SEB .

Though CRISIL has indicated a moderate rating for MPEB, the proposed structure?? security mechanism capturing the receivables from MPEB would mitigate the credit ?? to a significant extent. In addition, the revenues from MPEB are guaranteed by GOMP?? GOMP has been given a credit rating of “7” by CRISIL. This indicates that the capacity?? for timely payment of interest and principal is satisfactory. The project would have ?? benefit by way of GOMP guarantee, which has been rated as investment grade ?? CRISIL.

MPEB has made losses over the past five years without subsidies. In the absence ?? any drastic measures to shore up performance, CRISIL believes that without subsidies ?? its financial position is unlikely to improve significantly in the short and medium term ?? MPEB has been dependent on the State Government for subsidies in the past. Due to ?? the inability of the Board to correct its tariffs, its dependence on MPSG is expected to ?? continue in the medium term. Further, MPEB has also indicated that GOMP has ?? reimbursed in full the entire subsidy due to MPEB till 1995-96.

It may also be mentioned that a State Government loan of Rs. 7000 million was converted to equity with effect from April, 1997.

14.08 Demand – Supply Position in MP

There has been a consistent gap between the availability and requirement of peak load power and energy in MP. For the period 1991-92 to 1995-96, the overall energy deficit has been between 5 and 8% and the peak load deficit has been between 15 to ??. Details regarding peak power requirement, availability and deficit thereof for past five?? years is as given under:-

??Year Requirement Availability Deficit Deficit (%)1991-92 780 21.31992-93 951 23.31993-94 665 15.31994-95 1110 21.91995-96 1208 23.2

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Energy Deficit (GWH)Year Requirement Availability Deficit Deficit (%)1991-92 21115 19942 1173 5.561992-93 22439 20765 1674 7.461993-94 23945 22791 1154 4.821994-95 27840 25805 2035 7.311995-96 30760 28059 2701 8.8The energy requirement and peak demand estimates provided in the 14th Electric Power Survey conducted by CEA in 1991 shows a consistent increase in demand with a compounded growth rate of 7% for the next eight years.

Pursuant to liberalisation, the MPEB had entered into number of MOUs/PPAs and the status regarding the same is as under :Details Nos Total Capacity (MW)Total no of MOUs signed 20 8220Validity Date expired 5 1360Still Valid 15 6860PPA’s signed 12 4940Detailed project reportsReceived 10 4250Sent to CEA 6 2800

Note: 27 small units of 25 MW each to be run on HFO/Naptha has also been offered to private parties for different locations.

The installed generating capacity, projected peak power availability & demand, energy requirement & availability and deficit/surplus upto 2003-04 in the State of MP is expected to be as under:-

Increase in peak Power and Energy demand EstimatesYear 1997 1998 1999 2000 2001 2002 2003 2004Installed capacity (MW) 5631 5769?? 6921 7906 10226 11105 11345 11885Peak Availability (MW) 3436 3644 4498 5083 5893 7922 8678 8882Peak Demand (MW) 5151 5526 5899 6263 6606 6953 7353 7776Peak Deficit/Surplus (MW) 1715 1822 1401 1180 713 969 1325 1106Peak Deficit/Surplus (%) 33.29 32.?? 23.75 18.84 10.79 13.93 18.02 14.22Energy Requirement?? ?? ?? ?? 37856 39931 42028 44445 47000Energy Availability?? ?? ?? ?? 34686 37459 57358 61637 63559Energy Deficit/Surplus?? ?? ?? ?? 3170 2472 15330 17192 16559Energy Deficit/Surplus?? ?? 26.25?? 10.45 8.37 6.19 36.47 38.69 35.23

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Source: 15th Electric Power Survey, CEA and Dr. N. Tata Rao Report on restructuring of MPEB.

It may be observed from the above that MP which is presently having a peak power deficit of 23.75% and energy deficit of 10.45% would become a surplus state by the year 2001-02 assuming a total IPP capacity addition if 3975 MW.

14.09 Restructuring Plans of MPEB

MPEB presently is a vertically integrated organization with total responsibility for generation, transmission and distribution of electricity to the consumers. Over the years, MPEB has grown in size enormously including providing large scale rural electrification, however, without substantial additions to revenue. The Madhya Pradesh State Government had appointed a High Level Committee under Dr. N. Tata Rao to review the existing power sector in the State and suggest measures for restructuring in the context of liberalisation and induction of private sector in the field of power generation. The recommendations of the Committee are as under:-

(a) MPEB should be organised on a functional basis creating the following corporations which would for the present remain as wholly owned subsidiaries of MPEB and the share holdings could be transferred to private sector/public in due course of time.

Madhya Pradesh Power Corporation (MPCC)

The MPCC shall be responsible for generation of power from the existing power stations and also under construction by the MPEB, purchase power from the Central and private sector power stations, purchase or sell power from and to the other States and realisation of dues from the zones for the energy supplied, settlement of dues with other agencies in regard to sale/purchase of power. The MPCC would function as a commercial undertaking and work out the tariff, taking into account operation and maintenance costs, amount payable to MPEB for servicing its debt obligations and reasonable return on its investments. The tariff shall be approved by an independent regulatory authority.

Madhya Pradesh Transmission Corporation (MPTC)

The MPTC will be responsible for load dispatch, management of the transmission and system above 132 kV and expansion & upgradation of the system to meet the changing requirements.

MP Zonal Distribution Companies (MPZDC)

The?? zonal distribution companies would be responsible for management of the 132 kV and below transmission system & distribution within the zone, expansion and improvement of the existing system and sale of power to HT and LT consumers. MPZDC would be allowed to set the tariff in consultation with independent regulatory and would work as independent profit center.

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14.10 Tariff Policy

MP Government is in the process of setting up an independent Regulatory Authority (IRA) for finalisation of the applicable tariff to be charged from the various consumers. Keeping in view the low tariff structure, the Committee has recommended that the tariff for all the sectors should be increased inter alia including Rs. 1.25/unit for domestic consumption, Rs. 50/HP/month for agriculture farms upto 3 HP and Rs. 75/HP/month for agriculture farms above 3 HP. Besides, the electricity shall be Zonal Distribution companies will be made viable by revisions in tariff to domestic & agriculture sector and by assistance from Price Equalisation Fund. It is proposed that on achieving viability within three to four years, the companies would be transferred to private companies.

MPEB will be the holding company of all the units formed out of it and will be holding all the shares until necessary environment is created for the sale to private companies and public.

14.11New Guidelines for Private Sector investment in power sector

The legal framework provides for three types of utility servicing agencies viz. State Electricity Boards, licensees, and fully Government owned generating companies. SEBs generated, supplied and distributed electricity within the State. Licensees, on the other hand, supply electricity (generated through their own stations or bought) to specific areas within the State. Government owned generating companies promoted by Central and State Governments, supplied power to the grids without any specific responsibility for retail distribution. There are 4 private agencies having generation capacity of 3500 MW viz. Tata Electric Companies (1756 MW), Calcutta Electric Supply Corporation Ltd. (695 MW), Ahmedabad Electric Co. Ltd. (549 MW) and BSES (500 MW). Operating within the framework of pre amended legislation, physical and financial progress of all these companies has been satisfactory. Further there are also captive power plants operating in the country whose total generation capacity is estimated to be 6250 MW. Institutions have recently sanctioned assistance to a number of power projects in the private sector for an aggregate generating capacity of 2074 MW including a 300 MW hydel project.

With a view to bringing in additional resources in power sector, the GOI has formulated in 1992, a scheme to encourage greater participation by private enterprises in the electricity sector. This policy is an invitation to both Indian and Foreign companies to put up power generation and distribution projects. The Indian Electricity Act, 1910 and the Indian Electricity (supply) Act, 1948, the two legislations on which the electricity sector is structured, were amended to permit private enterprises to set up power projects of any type and size as distribution, licensee and generating companies.

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The assortment of incentives in the policy comprehensively cover the legal, administrative and financial environment to make private investments in the power sector attractive. Setting up power projects being a complex exercise requiring a number of statutory and non-statutory clearances, an Investment Promotion Cell (IPC) has been set up in the Ministry of Power to assist and guide entrepreneurs in setting up power projects. To ensure speedy implementation of private power projects, Ministry of Power has set-up a Crisis Resolution Group (CRG) which is chaired by Hon. Minister of Power.

Besides allowing Indian Companies, provision has been made in the policy for fully foreign owned companies to set up generation and distribution projects in the country. The package of incentives formulated by the GOI include:

i)Debt-Equity Ratio of 4:1

ii)Promoters’ contribution of at least 11% of cost of project

iii)100% foreign equity participation, and

iv)Issue of licenses of longer duration of 30 years in the first instance and subsequent renewals of 20 years (as against earlier 20 years and 10 years respectively).

14.12 Incentives for Hydro Power Projects

Hydropower projects enjoy the advantage of utilising renewable natural resource while providing power without polluting the environment. They have higher efficiency level (90-95%) compared to the thermal power plants (40-45%). Besides Hydropower plants have lower operating costs, greater flexibility of Operation, lower auxiliary consumption and a longer life compared to thermal plants. However, hydro power plants have lower Plant Load Factor as it depends on hydrology.

At present, of the total installed capacity in the country, hydel power accounts for only 27%, compared to a share of 70% of thermal power plants and 3% of nuclear power. The total hydro-power potential in India at 60% load factor is estimated at around ?? MW. However the power potential developed so far is only 11876 MW, which is ?? of the total potential. Also the power potential being developed currently ????? MW, which is 7.1%?? of the potential. This would mean that a ?? of Hydropower potential remains yet to be developed. The ?? envisaged for the future about 40% of the aggregate installed power ?? from hydel power plants compared to only 27% now. Madhya Pradesh ?? aggregate hydel potential of 2774 MW of which only 765 MW was ?? on March 31, 1997??.

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To attract private sector investment for hydropower projects and to ensure the viability of such projects, Govt. of India, Ministry of Power, has formulated certain incentives vide notification dated 12th January, 1995.

The two part tariff ensures recovery of annual capacity charge consisting of interest on loan, depreciation, or advance against depreciation at an annual amount not exceeding one-twelfth of the loan amount and limited to the actual loan liability for the year, and energy charges consisting of Operation and maintenance (O&M) expenses (1.5% of capital cost), taxes on income reckoned as expenses, return on equity (16% p.a.), cess/levy on water charges at actuals, and interest on working capital at a normative level of generation. The normative level of generation for the hydropower projects has been fixed at the designed energy of the project, which ahs been defined as the quantum of energy which would be generated in a 90% dependable year with 90% availability of installed capacity of the station. Further provisions for auxiliary consumption and transmission losses @ 0.5% each of the energy generated are allowed for the power plants. The document also provides for incentive @ 0.7% (additional return on equity) for every 1% increase in the plant availability beyond 90%. As per the new hydro policy of Ministry of power the normative availability has been reduced to 85% and the incentive is available for every percent beyond 85%. Further it also provides incentive towards excess generation beyond the normative level/designed energy at a rate to be mutually decided but limited to a maximum of additional 10% return on equity.

14.13 Selling Arrangement

SMHPCL has already entered into Power Purchase agreement (PPA) with MPEB. The PPA shall be valid for a period of 35 years from the date of commercial operations of the last turbine and MPEB would be the sole buyer of the entire power. The highlights of the PPA are as under:

(i) The amount payable by the MPEB with respect to actual energy and deemed generation shall be the sum of capacity charges, energy charges and incentives.

(ii) The capacity charges shall comprises interest in term debts, depreciation, advance against depreciation, return on the equity at the rate of 16%. The energy charges shall comprises maintenance, operation and insurance charges @ 1.5% of the capital funds, interest in working capital, taxes and water cess if any.

(iii) The incentives are comprises of two parts namely (a) Secondary energy i.e. actual energy generated minus design energy. The maximum incentive is on graded scale with a maximum of 10% on equity employed. (b) Availability incentive is based on actual availability of machines over and above normative availability of 90% and it is based on every 1%?? increase in availability incentive will be 0.7% of equity employed.

(iv) PPA also provides for adjustment in interest rates with respect to loans in each currency,?? taxes on income, foreign exchange adjustments due to variation in exchange rates.

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(v) The payment to SMHPCL will be made within 60 days of receipt of invoices.

(v??) MPEB at its own cost will establish and maintain irrecoverable letter of credit for an amount equivalent to 1.5 times of the average invoice for the first and second 6 months of the year.

(vi) MPEB and SMHPCL shall establish an escrow account for an amount equivalent to 1.5 times the average billing amount which will be used as backup to L/C facility.

(vii) The Govt. of Madhya Pradesh has executed irrecoverable and unconditional guarantee to pay SMHPCL any amount payable by MPEB under the PPA.

(viii) In the event of MPEB not able to evacuate the power for any reason including non connection of interconnecting facility or request SMHPCL not to produce power then the deem generation benefit will be available to SMHPCL based on 90% availability and 50% dependability.

(ix) SMHPCL shall be entitled to sell power to third parties in the event of non payment of bills by MPEB.

(x) Design energy calculations are based on 90% dependability.

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XV. STATUS OF GOVERNMENT CONSENTS/CLEARANCES

CLEARANCES CLEARING AUTHORITY STATUSCost Estimate CEA ObtainedMeans of Financing (Revised to be obtained)Techno-economic clearance CEA ObtainedSEB/State Government Clearance MPSEB ObtainedEnvironment & Forest Clearance MOEF ObtainedForest Clearance MOEF/State Govt. ObtainedRehabilitation & Resettlement of displaced families

MOEF Obtained

Company Registration ROC ObtainedChimney Height Clearance National Airports Authority Not ApplicableLand Availability State Government ObtainedApproval for foreign collaboration FIPB/CCFI Not RequiredWater Usage Irrigation Dept. Not ApplicablePermission for Hydropower projects Ministry of Water Resources/CWC ObtainedCompliance to Section 29(2) of Electricity supply Act by publication in local newspaper/official gazette

Published

Power Purchase Agreement Signed and revised -------Escrow Agreement Modified Escrow Agreement to be

signed-------

It would be observed that most of the approval/permission from various Central/State Govt. agencies are in place. The progress in the behalf is considered satisfactory.

XVI. STATUS OF COMPLIANCE OF CONDITIONS

As per the letter of intents issued by IFCI and other lenders, SMHPCL has taken some steps for compliance of various conditions. However, some of the important conditions, which have not been complied so far are as under:

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No. Condition Statusi) Obtain approval from CEA for the revised

project cost and means of financingSMHPCL has submitted revised project cost based on our earlier appraised cost of Rs. 18810 million, which was further increased by SMHPCL to Rs. 23136 million. It has been reported by SMHPCL that it is under consideration by CEA.

ii) Achieve financial closure with tying up of entire amount of loan, guarantee required for the project based on the earlier means of financing ofRs. 18810 million

SMHPCL is yet to have a firm commitment of equity from financial collaborator and machinery supplier viz. ABB and Siemens (though SMHPCL has entered into a shareholders agreement with OGDEN, subscription agreement is yet to be entered and to be examined by lenders counsel). Equity from ABB is also subject to their approval from their Board after the recent restructuring of ABB and Alsthom and exact point of time at which equity will come, is yet to be ascertained. The equity of Siemens is also subject to their receiving of Hermes guarantee and the point of time at which the equity will come is yet to be ascertained. The additional equity required for increase in cost is yet to be tied up.

iii) Enter into shareholding agreement and subscription agreement between Ogden and SMHPCL

SMHPCL has already entered into shareholders agreement, subscription agreement and joint venture agreement with OGDEN. However, the same is yet to be submitted to lenders counsel for their due diligence and certain modifications in respect of constitution of Board, revised project cost etc. is required to be done. The timing of receipt of equity from Ogden is also to be examined.

iv) Appointment of Lenders Engineer and receipt of their report

NHPC has been appointed as the lenders engineer in January, 1999. They have submitted their draft report on the technical matters. However, the final report is yet to be received covering the financial aspects also. The delay in submission of the final report has been attributed to non-receipt of information by the lenders engineer

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which has since been submitted.v) Acquisition of land SMHPCL has acquired only 442 hectares of project land

out of 547 hectares and the balance has yet to be acquired.vi) Entering into Escrow agreement with MPEB SMHPCL has entered into agreement with MPEB for

establishing Escrow agreement. However, it is yet to enter into formal Escrow agreement with MPEB.

vii) Assignment of project documents, title and other documents

SMHPCL is yet to create the English Mortgage along with the assignment of the project documents. The issue was pending due to stamp duty, which was to be resolved by GOMP and since the same has been resolved by GOMP, SMHPCL has to take necessary action.

viii) To pledge promoters shareholding to the extent of 51%

SMHPCL is yet to comply as the draft document is being finalised by Lenders Legal Counsel.

ix) Appointment of concurrent auditor In the last Officers Level Meeting, it was decided that SMHPCL would appoint a concurrent auditor of repute by 30th Sept. 1999, the same is yet to be complied with. SMHPCL has reportedly received some offers and is in the process of finalising the appointment.

XVI. PROFITABILITY

16.01 Statements showing estimates of profitability along with the relative projected cash flow and balance sheets for 12 operating years commencing 2004 to 2015 are given in Annexures V, VI and VII respectively. The basic relative assumptions of profitability are given inAnnexure-VIII.

The plant has been designed on the basis of gross head of 23 meters and minimum draw down level of 455 MCM. As per the design, the plant would generate 3504 million units of electricity per annum at 100% capacity utilisation on 24 hours per day and 365 days per annum working basis. However, based on water availability, on the basis of 90% dependable year and 90% per cent availability of the plant, SMHPCL’s plant would be able to generate 823 Million units per annum to yield a plant load factor of 23.48%. However, for the purpose of profitability projections the generation of power has been considered at 1226 million units (post Narmada Sagar) (PLF 34.08%??) on the basis of water availability of 50% dependable year and 95% plant availability. The tariff has been calculated taking into account the above units and incentives as per the latest Government guidelines for hydro power projects.

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Tariff Parameters

The tariff in the proposed project is consist of three parts i.e. Annual Capacity Charge, Energy Charge and Incentives.

The annual capacity charge consists of interest on term loans including DPG commission, chargeable depreciation and advance against depreciation.

The energy charge consist of interest on working capital, operation and management expenses, insurance, income tax and return on equity @ 16% per annum.

The incentives consists of i) availability incentive which is allowed at the rate of 0.7% on equity for 1% increase in plant availability above 90% normative availability and ii) secondary energy incentives which is based on extra energy generated over and above design energy and payable in a scale with a maximum 10% return on equity. The maximum incentives available is 17% on equity.

The upstream Narmada Sagar Dam is under construction and is expected to be commissioned in year 2004-05. After the commissioning the Narmada Sagar, the additional regulated water flow will be available through out the year, which will increase the design energy and actual generation. While according the approval, the CEA has estimated following energy scenarios:-

Generation in MU Pre-Narmada Post NarmadaDesign Energy 716 823Average Energy 920 1226

For the purpose of profitability calculation, we have assumed actual saleable energy generation of 910 million units in pre-Narmada and 1213 million units in post Narmada.

XVIII.??GENERAL OBSERVATIONS

18.01 STRENGTHS

i) SMHPCL has been promoted by S. Kumars group having satisfactory track record, in financial collaboration with Ogden Energy Asia Pacific Ltd. of USA, a well known Power generation and distribution company, who would also work as Operations and Maintenance Manager for the project.

ii) SMHPCL’s project would meet the growing deficit of electricity in MP, which is ?? to be 32.?? in terms of peaking shortage and 26.25% in terms of energy requirement in the year 1997-98.

iii) The proposed project in power sector which is the key sector in infrastructure, ????? Government of India for private sector participation.?? Hydel power projects?? are considered more environment-friendly due to the intrinsic advantage of using renewable natural resources and being non-polluting in nature.

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v) A staggering79% of Hydel power potential in India is still unutilised and the proposed project will help in bridging the gap.

vi) The project has a favorable Debt Equity Ratio at 2.33:1 compared to the norm of 4:1.

18.02 RISK FACTORS i) Escalation of project cost and time overrun as the balance implementation period is of 4 years, any delay or time overrun would escalate the project cost. For such high capital intensive project with long implementation period, close project monitoring and co-ordination is essential. SMHPCL has ensured implementation of the project through a team of highly experienced and result oriented professionals and HARZA. However, looking at the experience of technical consultants and project management consultants i.e. Harza, the possibility of time/cost overrun is considered to be minimum.

ii) Geological uncertaintiesExtensive geological investigations have been carried out before taking up the civil work. The project area does not have any adverse geological features such as major faults or thrusts or highly stressed rock mass.

iii) Siltation of the reservoirThe radial gates have been provided for periodical flushing out of the silt deposited in the reservoir.

iv) Safety of work against earthquakesExcept the intake chamber all other works are underground, which are not prone to earthquakes. However, Seismic studies have been carried out and adequate provision of seismic loads has been made in the design of all works. Further each contractor/supplier will insure all risk relating to their respective contracts during the construction period. Further the company is negotiating for obtaining Advance loss/profit insurance for the construction phase of the project. After the commercial operations, SMHPCL will take comprehensive all risk policy including loss of profit against all insurable perils. A suitable condition in this regard is being stipulated.

v) Evacuation of power and timely payment by MPEBAs per the PPA, SMHPCL is by and large assured of payments, which would be backed?? by State Government Guarantee, for which SMHPCL is taking necessary steps.

vi) ?? Factors – Rehabilitation & Resettlement of Displaced Families during the construction phase, the project may result in submergence of a total land of 5510 hectares including?? cultivable land of 873 hectares. The submergence at a maximum water level?? of dam may affect few villages. No forest land is involved in reservoir submergence?? and in the project area. SMHPCL has already obtained the approval of the Ministry of Environment and Forests (MOEF) for the project.

vii) Environmental?? Protection – Hydro power projects by nature are environmental friendly and do not?? generate harmful effluent(s) during the operations. As mentioned earlier, no

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forest land is involved in reservoir submergence and in the project area. However a provision of Rs. 459.9 mn has been made for catchment area treatment programme in the cost estimates.

XIX. GENERAL OBSERVATIONS AND RECOMMENDATIONSMHPCL has been promoted by S. Kumars group. M/s Ogden Energy Asia Pacific Ltd. has stepped into the project as financial collaborator in place of BAG and VIEW, Germany who have not shown further interest and not taken up the equity of 49%. The entire civil construction work has been undertaken by SEW and satisfactory progress has been made on the site as per the schedule under the construction management of CES and Harza who have the necessary competence. SMHPCL has placed order for plant and machinery to Siemens and ABB, however as they are also going to bring the equity, SMHPCL is finalising with them the actual timing of bringing the said equity. The promoters of SMHPCL have also confirmed in writing that they would be recovering the advance from the contractors and would be brought back in the project within a definite time frame. CEA has cleared the project and PPA has been signed with MPEB with the provision of assured payments besides the guarantee of State Government. SMHPCL has also forwarded a draft approved by the lenders for Escrow agreement, which is expected to be signed by MPEB. The Government of Madhya Pradesh has also reduced the stamp duty, which will enable SMHPCL to create “English Mortgage” with the assignment of project documents with the Institutions. The project cost has increased to Rs. 22543 million due to increase in pre-operative expenses, marginal increase in civil cost and exchange fluctuations from the earlier appraised project cost of Rs. 18810 million. To meet the above increase in cost and taking account the foreign exchange availability and tied-up debt, SMHPCL has to further raise additional debt of Rs. 1710 mn and equity of Rs. 2092 mn besides the untied equity to be brought in by foreign collaborators. The financial indicators of the project based on the above increased cost and means of financing thereof are satisfactory. SMHPCL’s hydro electric power project would be comparatively cost effective and environment friendly and also would bridge the gap in power requirement both for peak load as well as energy requirement in the western region. The lenders engineers have submitted their draft report as per which project is technically feasible and commercially viable.

SMHPCL has approached CEA in 1999 for approval of its revised project cost of Rs. ?? mn (excluding margin money of Rs. 137 mn) which has been recommended by GOMP/MPEB based on the ?? of ILFS to CEA for approval. The present ????? of Rs. 22543 mn (based on exchange rate of 1 USD = Rs. 43.50 mn) is only ?? higher (only Rs. ?? mn based on exchange rate of 1 USD = Rs. 35.5 as has been approved by CEA) and a meeting has been called by CEA to further review ??.

In view of the foregoing, it is recommended that proposal of SMHPCL merits support of the ?? subject to the special terms and conditions as stated out in the Appendix ?? terms and conditions applicable to the grant of such assistance.

Dated: ?? March, 2000.

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Appendix –

Re: Shree Maheshwar Hydel Power Corporation Ltd (SMHPCL)

Special terms and conditions (Pre-disbursement)

1. Additional assistance would be subject to the same terms and conditions as already applicable to existing

assistance.

2. SMHPCL shall bring back the capital advances of Rs. 1064 million, with interest, given to various agencies

who have not been awarded with any project contracts.

3. Appointment of concurrent Auditor : AMHPCL shall appoint a reputed firm of chartered accountants as

concurrent auditor.

4. Bringing in additional equity required for the present overrun in the project cost by the promoters/sponsors.

5. SMHPCL shall undertake to furnish all the information to lenders engineer, concurrent auditors, lenders legal

counsel to the satisfaction of IFCI.

6. SMHPCL shall amend certain provisions of shareholders and subscription agreements as may be suggested by

the lenders, and also shall furnish letter from strategic?? investor that conditions precedent to these agreements

have been complied by SMHPCL.

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