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Contents. 1. Sector Overview. 2. Opportunities for Investments. 3. Investor Issues & Mitigation. INDIAN ELECTRICITY SECTOR – An Overview. Current state – A snapshot. Consumes 3.7% of the world’s commercial energy 5th largest in energy demand Energy deficit 8% Peak shortage 12.5%

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Contents

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  1. Contents 1 Sector Overview 2 Opportunities for Investments 3 Investor Issues & Mitigation

  2. INDIAN ELECTRICITY SECTOR –An Overview

  3. Current state – A snapshot • Consumes 3.7% of the world’s commercial energy • 5th largest in energy demand • Energy deficit 8% • Peak shortage 12.5% • PLF grown from 60% to 75% • T&D Losses amongst highest • SEB losses > 22,000 crores • 78 Mn rural HHs not serviced

  4. Electricity to Fuel India’s Economic Growth • A condition for growth, Human Development • Per capita consumption to increase from 606 to 1,000 kWh/yr by 2012 • Power for all by 2012 • 10% CAGR in capacity required to fuel targeted GDP growth targets • 100,000 MW capacity addition planned • Inter-regional transmission capacity to grow from 9,000 MW to 37,150 MW

  5. INVESTMENT OPPORTUNITIES

  6. Size of investment opportunity – Enormous • Ultra Mega Power Projects • 7 projects of 4000MW each requiring investments @ INR 15,000 crore each • Hydro Power • 68% of potential capacity yet to be developed • Under the 50,000 MW Hydropower Initiative, 77 schemes aggregating over 33,000 MW with appropriate tariff identified for preparation of DPRs • Captive Power - Policy support • Open access, Group Captives • Fuel linkage / Captive mines • Transmission • Creation of National Power Grid with estimated investment of INR 70,000 crores, private investment sought at INR 20000 crores • JV / IPTC models

  7. Size of investment opportunity – Enormous • Distribution • private sector participation in privatization of discoms • Rural electrification initiative : could involve INR 140,000 crores • Nuclear Power • Nuclear deal with US has opened opportunities • Power generation, fuel supply, Plant design & technology etc • Renewables • Wind, Bio, Cogeneration-bagasse etc. • Potential 1,00,000 MW in mid term Investor, Developer, EPC Contractor, Technology & Equipment supplier, Transmission & Dist Utility

  8. India Moves up to 4th Rank in EY Global Renewables Index • E&Y Country Attractiveness Indices provide scores for national renewable energy markets • India has taken UK’s place at 4th in the LT All Renewables Index • 3rd in both the LT and Near-Term Wind Indices • Looks to build on last year’s 1,430 MW of growth • 5,000 MW wind capacity target by FY2012 likely to be exceeded this year GoI currently working on a comprehensive renewable energy policy aimed to make India becoming energy independent by 2030

  9. Investor Friendly Environment being created • Integrated approach from stakeholders • EP 2005 & NTP 2006 have changed the legal framework besides trying to address the problems • ICB guidelines issued for procurement of power by distribution licensees, transmission projects • FDI proposals for power generation, transmission and distribution projects are on RBI automatic approval route • Tax holiday on profits earned for a period of 10 years • And a huge market ! A competitive, transparent & open environment always welcomes investors

  10. New Markets Without Payment or Regulatory Risk SEBs/Distribution Companies 1 Regulated Markets Traders 2 Captive Power 3 Unregulated Markets Open Access Consumers 4 Limited Credit Risk Source: EY Research

  11. KEY INVESTOR CONCERNS & MITIGATION

  12. What are Investors’ Key concerns ? • Financial health of utilities – with continued losses - capacity to pay for power purchased • Lenders’ concern regarding payment security mechanism • Hydro Projects - Rehabilitation & Resettlement issues and location related risks • Regulatory uncertainty • High / divergent Open Access charges • Captives - Pricing of surplus power, grid support charges • Renewables – reliability issues, grid connectivity • Fuel availability & price risks

  13. Redressal of Investor Issues is receiving attention • Concern: Poor efficiency and financial health leading to inadequate payment capacity of state utilities • Mitigation: Sustained Reform Initiatives, Traders as alternate buyers and emergence of other alternate buyers with open access • Concern: Payment Security Mechanism (PSM) requirement of FIs and delays in financial closure of projects • Mitigation: Financial Institutions revisiting PSM requirements, Creation of Inter-Institutional Groups (IIG), participation in UMPP initiative • Concern: What is the payment security mechanism in the absence of sovereign guarantees for UMPPs? • Mitigation: Govt. proposes to adopt a three tier mechanism involving revolving LC , Escrow account establishing irrevocable claims of receivables of distribution utility & direct sale option to HT consumers 1 2 3

  14. Redressal of Investor Issues is receiving attention • Concern: Location related risks and R&R issues associated with hydro projects • Mitigation: national R&R policy developed, greater data reliability, JV structure with PSUs • Concern: Regulatory Uncertainty • Mitigation: Competitive Power Procurement, Greater transparency in regulatory proceedings and Multi-Year tariffs (MYT) • Concern: High Open Access Charges • Mitigation: Policy measures like National Electricity Policy & NTP 2006 promote standardization, mandate linear reduction 4 5 6

  15. Redressal of Investor Issues is receiving attention • Concern: Uncertainty on renewables limiting their attractiveness • Mitigation: Use of hybrid energy systems like a combination of gas/diesel-solar-wind to impart stability, CDM mechanism to generate additional revenue, EA mandates SERCs to fix quotas for procurement of power from renewable sources, viable tariff levels • Concern: Fuel availability & pricing issues • Mitigation: De-blocking of coal reserves held by public sector, private participation through coal linkage / captive mines, enhanced coal production targets, advanced technologies 7 8

  16. Work to Continue on… • State bids - risk allocation between stakeholders • Fuel : tenure of commitment, price volatility (particularly imported fuel) • Escrow : capacity assessment of utilities • Transmission Network augmentation in time • Privatization of distribution ? • Discoms efficiency

  17. AT&C Int. Dep. & Return O&M Total Fuel Interest O&M Return & dep High AT&C Losses – Bane of India’s Power Industry . . . ------------------Generation--------------- -----------------T & D--------------- . . . Pace of improvement to be accelerated for sustainability Source: NTPC

  18. Thank You

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