A positive a ++ itude

1. ESSAR POWER CONFERENCE ON THE POWER MARKET POST ELECTRICITY ACT 2003 15th October 2003 INDEPENDENT POWER PRODUCERS PERSPECTIVE A K Srivastava MD - ESSAR POWER LTD. A positive a++itude

2. ESSAR GROUP SHIPPING& TERMINAL STEEL POWER TELECOM OIL & GAS CONSTRUCTIONS ESSAR SHIPPING OIL TANKERS BULKERS OFFSHORE SUPPLY VESSELS TERMINAL FACILITIES ESSAR POWER HAZIRA515 MW CC VADINAR POWER COMPANY JAMNAGAR77 MW COGEN HUTCHISON ESSAR JV with HUTCHISON - Delhi - Mumbai - Chennai - Kolkata - Gujarat - Andhra Pradesh - Karnataka - Haryana - Rajasthan - East UP - Punjab ESSAR OIL LTD EXPLORATION &PRODUCTION REFINING MARKETING HAZIRA OPERATIONS - Hot Briquetted Iron - Hot Rolled Coils - Down Stream Complex VIZAG OPERATIONS HY-GRADE PELLETS JV with STEMCOR - Pellet Plant - Beneficiation plant - Slurry pipeline INDONESIA OPERATIONS P T ESSAR DHANANJAYA - Cold Rolling Mill ESSAR CONSTRUCTIONS TURNKEY PROJECTS - Marine - Pipeline * Water line * Gas line - Industrial Plant - Civil & Irrigation - Roads & Highways Group Business Structure

3. PROJECT CONFIGURATION Capacity : 515 MW Combined Cycle Power Plant. Commissioning Dates First & Second GT - Aug 95 Third GT - Nov 95 Combined Cycle - October 97 Comprises of : 3 Gas Turbines ( GE Make Frame 9E) of 110 MW each. 3 HRSG (KHIC Make) 1 Steam Turbine ( GE Make) of 185 MW. Multi Fuel capability (Naphtha/ NGL/NG/HSD) Instrumentation & Controls (Siemens Make) Hazira

4. POWER PURCHASE AGREEMENT ESSAR POWER 515 MW 215 MW 300 MW ESSAR STEEL GEB

5. SALIENT FEATURES OF PPA WITH GEB & ESTL Allocated Capacity - 300 MW for GEB & 215MW for ESTL Effective date - 1st July 1996 for GEB & 1st April 1996 for ESTL PPA : in accordance with GOI guidelines - Two Part tariff Structure Recovery of Fixed Charges at 68.49% PLF. ROE @ 16% at PLF of 68.49% PLF, Incentives @ .575% per % increase in PLF upto 80%. Approved Capital Cost Rs. 957 Crores for GEB & Rs. 810 Crores for ESTL Deemed Generation - 80% PLF average through the year Deemed Non-Generation - applicable if Essar not able to generate as per the declared availability

6. PLANT PERFORMANCE 1998-2003

7. FINANCIAL PERFORMANCE 1998-2002 (Rs. in Crs.) Parameters 98-99 99-00 00-01* 01-02 Total Income 718 829 1034 648 EBIDTA 422 451 614 454 Interest 271 273 372 293 Depreciation 111 114 173 119 PBT 39 64 69 42 Tax 0 1 6 3 PAT 39 63 62 39 * for 18 months

8.  Lot of Clearances were required to set up the project such as Environmental Clearance State & Central Government Clearances Techno-economic Clearance of Central Electricity Authority (CEA)  PPA Finalisation was a long drawn process  Problems encountered during implementation of PPA States are not honouring commitment given in PPA’s concerning Payment Security Mechanisms Deduct rebate for timely payment even though payment is not made in time Due to non-payment of dues to IPP’s and mounting of overdue OUR EXPERIENCE AS IPP’S

9. Most of the IPP’s are defaulting to FI’s / Banks Do not have enough fund for O&M of plant FI’s / Bank tend to charge penalty & LD for not paying in time which is not recoverable in tariff  Though the plants are supposed to be “Base-Load” station, gas-based plants are asked to be back-down off & on which results in Frequent Starts & Stops Higher heat rate due to part load operation and frequent startups  Most of the states have started reopening & re-negotiation of PPA . This is threatening the viability of projects. OUR EXPERIENCE AS IPP’S

10.  Provisions and intent of EC 2003 is a step forward in Power Sector reforms such as Power Generation is de-licensed except hydro Open access system in Transmission Open access in Distribution Generators can supply Power directly to bulk consumers Electricity Regulators role is defined and enlarged  However the above mentioned good intentions may be difficult to realise in practice in near future “Open Access” as of now would be an “As-is-Where-is” “As-Available-When-Available” For Supplying Power to bulk consumers directly, an element of “Surcharge” in lieu of cross subsidy would be levied. How long cross subsidy would continue? What would be the basis of Surcharge? IMPACT OF ELECTRICITY BILL 2003 FOR DEVELOPMENT OF POWER SECTOR

11.  What issues EC 2003 has not addressed? Power is in concurrent list. Each State, as a source of revenue has imposed Electricity Duty on Power to Consumers which varies from Ps. 5/unit to Ps. 50/unit If Electricity Act 2003 does not provide any guidelines to States on Electricity Duty, then States may impose such Duty rates which may nullify good intentions of Power Sector reforms As a suggestion, EC 2003 can specify that Electricity Duty rates as prevailing on 10th June 2003 shall be the cap. Ideally it should be uniform throughout the Country. Electricity Duty should be scrapped on Captive Power Users. IMPACT OF ELECTRICITY BILL 2003 FOR DEVELOPMENT OF POWER SECTOR

12.  For increasing and encouraging the generation in Private Sector Generators should be encouraged to take up Distribution of Electricity To mitigate existing IPP’s financial problems, they may be given preference in allocation of Distribution Circles.  “Open Access” in Transmission and Distribution need to be given on fixed basis  “Surcharge” for supplying to the bulk consumers should be reasonable and abolished in definite period  Electricity Duty to be rationalised  Power trading needs to be encouraged  Tariff should be decided based on competitive bidding and cost-plus method should be discouraged  Electricity boards needs to be restructured to make them financially viable units ROAD AHEAD

13. THANK YOU