Development of Coal and Power Sector

1. Investor Perspectives Development of Coal and Power Sector Harsh Agrawal February 2011

2. Experienced Generators Companies Associated with the Power Sector Companies Unrelated to Power Sector / Unawarded Projects Large Capacity Additions Planned in Power Generation ~81 GW in Additions by FY2015, Led Primarily by Private Sector Capacity Announcements by the Private Sector MW Installed Capacity at March 2010 Capacity Addition Announcements Between F2011e–17e Potential Installed Capacity at March 2017e Private Centre Private Centre Private Centre + = State State State Source: CEA, Infraline, Company Data, Morgan Stanley Research; e= Morgan Stanley Research estimates

3. High Dependence on Domestic Coal to Meet Targets Coal Dominates the Thermal Category Significant Capacities Dependant on Domestic Linkages and Coal Blocks % of Total Thermal Capacity Additions between FY 2011E and FY 2017E (118GW of Thermal Capacity) % of Total Thermal Capacity Additions between FY 2011E and FY 2017E (118GW of Thermal Capacity) Lignite Gas Domestic -Linkage Fuel Linkage not tied up Domestic +Imported Coal Imported Domestic -Captive Blocks Source: CEA, Infraline, Company Data, Morgan Stanley Research

4. CIL SCCL Captive Captive Mine Production Till Date Production Dominated by CIL, Coal Block Production Needs to Ramp Up to Meet Demand Captive Mine Production Relative to CIL, SCCL Production MnT Source: Infraline, Company Websites, Industry Sources

5. Captive Coal Block Status Source: Minutes of Review Meeting held on 20th and 21st July 2010 under the Chairmanship of Additional Secretary (Coal) to review progress of captive blocks and associated End Use Projects

6. Captive Coal Block Status Details of operating blocks Source: Minutes of Review Meeting held on 20th and 21st July 2010 under the Chairmanship of Additional Secretary (Coal) to review progress of captive blocks and associated End Use Projects, Company Websites, Industry Sources

7. Potential for substantial delay Issues Faced in Development of Captive Mines Core Issues faced by Captive Mine Developers • Clearance hurdles: Grant of prospecting license, approval of mining plan, land acquisition etc. time-consuming • Infrastructure bottlenecks: Blocks in remote areas require development of transport infrastructure at extra cost • Land acquisition issues: Availability of land records, tribal and forested land, R&R procedures add to acquisition delays • Local issues: 90% of coal reserves in India are in 4 states which have been affected by Naxalism • Financing limitations: Uncertainty of cash flows, aggravated by the issues listed above, lead to lender discomfort Normative timelines issued by MoC indicate that production may start ~72 months from allotment Coal block allotment Purchase of geological report Mining lease application to State Govt. Mining plan preparation and approval Environ-mental clearance ForestClearance Land Acquisition Production 24 months 12-18 months 28 months Of the 24 operational blocks, the time to become operational has ranged from 3 to 9 years Source: KPMG, Infraline, Industry Sources

8. Analysts Predicting Growing Deficits Over Time Deficit Predictions of 300 – 400 MM Tonnes by FY 2017 Analyst 1 Projected Thermal Coal deficit; MM Tonnes Source: CEA, Infraline, Company Data, Morgan Stanley Research; e = Morgan Stanley Research estimates Analyst 2 Projected Total Coal Deficit; MM Tonnes Source: Credit Suisse Estimates

9. Majors Ports Running at Very High Utilisation Total Traffic (mtpa) % Total Coal Handling Capacity Needed at Ports mtpa Source Indian Ports Association Source Credit Suisse Estimates However, Constrained Port Handling Capacity Imported Coal Volumes to be Affected due to Capacity Constraints

10. Increasing Investments and the Way Forward • Policy changes to increase coal production • Allowing for coal block auctions • Third party sales from captive blocks • Streamlining clearance procedure for coal blocks • Shortening of development timeline critical • Forest and environment clearance obtained before allocation • Land acquisition substantially complete • R&R issues analyzed before allocation • Strengthening inland transportation and port handling capacity • Increasing rail capacity and reduction in transportation time • Enhanced port handling capacity