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Discussion Paper on Terms and Conditions of Tariff - The Indian Perspective

Discussion Paper on Terms and Conditions of Tariff - The Indian Perspective. November 12, 2003 Convention Centre, Scope Complex . A Lender’s viewpoint . Rabo India Finance Pvt. Ltd. www.rabobank.com. Creating Customer Value. What is Project Financing . A cash flow based financing

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Discussion Paper on Terms and Conditions of Tariff - The Indian Perspective

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  1. Discussion Paper on Terms and Conditions of Tariff - The Indian Perspective November 12, 2003 Convention Centre, Scope Complex A Lender’s viewpoint Rabo India Finance Pvt. Ltd. www.rabobank.com Creating Customer Value

  2. What is Project Financing • A cash flow based financing • Without recourse to sponsors • To a project that is a discrete economic unit • In a sector / product that is in the maturity phase • Which involves identification and mitigation of risks by allocating risks to parties best able to manage it • Project assets provide collateral • Promoters provide contractual rather than financial support What a lender essentially looks for in such a transaction is adequacy, predictability & certainty of cash flows Creating Customer Value

  3. Do Power Generation Projects meet criteria of Project Financing • Are cash flows adequate & certain - Adequate Probably Yes, Certain Probably No • Can it be structured without sponsor recourse- No • Can the project be put up as a discrete economic unit - Yes • Is the sector in the maturity phase – Conventional Yes, Renewables No • Can risks be adequately identified & mitigated and/ or allocated - Partially, since sector has high regulation characteristics • Can the project assets provide collateral- Yes • Can the promoters provide only contractual and nofinancial support - No Creating Customer Value

  4. The Impact of Proposed Tariff Norms on Project Cashflows • Debt Repayment Capacity • Tenors of debt and interest rates • Options to extend debt tenors fairly limited • Incorporation of the same in the cashflows • Operational norms • In the waterfall mechanism of cashflows, lenders payment is subsequent to the O&M payments • Foreign Exchange Variation • Pass through ideal for project, but sub-optimal for the sector and detrimental to the offtaker • Hedging strategies on a pilot basis might reveal the hidden gains • Depreciation • Despite the theoretical debate on its relevance, used for meeting debt repayments • Mis-matches in the two lead to • Dipping into the ROE first • And then liquidity problems Creating Customer Value

  5. THANK YOU ! Mohanjit Singh mohanjit.singh@rabobank.com Creating Customer Value

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