The document discusses catalyzing investment in India's power sector. It outlines key challenges like power deficits and delays in capacity addition. It discusses the role of organizations like Power Finance Corporation in funding projects to strengthen infrastructure and develop ultra mega power projects. It also examines risks associated with large power projects and mechanisms to mitigate issues like fuel supply, payment delays, and foreign exchange fluctuations. Finally, it explores various sources of financing for the power sector, including equity, debt, capital markets, multilateral institutions, and hybrid financial structures.

1. 1
Address on
Catalyzing Investment in Power Sector
At
National Power Conference – Ambitious Mission and Major Challenges
Hotel Le Meridien - New Delhi
(4th December 2009)
by
Saurabh Agarwal
Vice-Chairman, Indian Institute of Finance, Delhi, INDIA
Managing Director, Edge India Publishing Pvt. Ltd., Delhi, INDIA
Saurabh Agarwal, Catalyzing Investment in Power Sector

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Acknowledgement
The author gratefully acknowledge the technical support of Indian
Institute of Finance and Faculty of Management Studies (DU). We
would specially like to thank Prof. J. D. Agarwal (IIF), Prof. Manju
Agarwal (DU) and Prof. Madhu Vij (FMS) who have inspired me in
many ways to work on this complex issue.
We would also like to convey our thanks to Prof. Aman Agarwal (IIF),
Prof. Yamini Agarwal (IIF), Prof. Deepak Bansal (IIF), Prof. P. S.
Raghav (IIF) and Prof. Amba Jindal (IIF), Prof. P. K. Jain (IIF) and
Prof. Megha Agarwal (DU) for giving me their suggestions and
comments.
The views and reviews presented in the presentation are views and opinions of the
author, based on his research and do not depict institutional or countries views or
of the institutions the author is associated with. All errors and omissions are our
own.
Saurabh Agarwal, Catalyzing Investment in Power Sector

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 Section I: Overview
 Section II: Role of Power Finance Corporation
 Section III: Ultra Mega Power Projects and Risk
 Section IV: Fundamentals
 Section V: Private Equity and Venture Capital
 Section VI: Financing Perspective
 Section VII: Conclusion
Focus
Saurabh Agarwal, Catalyzing Investment in Power Sector

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Growth rate in Power Generation (In 2008-09 vis a vis 2007-08)
•Thermal - 5.6 percent
•Hydro - -8.4 percent
•Nuclear - -12.3 percent
Overall positive growth rate of 3 percent attributed to Thermal
Generation
Higher Growth Rate in Private Sector as compared to Central
and State Sectors
Saurabh Agarwal, Catalyzing Investment in Power Sector
Overview

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 Power Deficit
All India Peak Shortage Declined (narrowing of gap between
growth in peak demand and peak demand met)
Energy Shortage Increased (Overall growth in requirement is 5.1
percent whereas availability 3.8 percent)
Maximum shortage in western and north-eastern regions
 Power Supply Position
Shortage of Coal, Lignite and delay in commencement of newly
commissioned units
Saurabh Agarwal, Catalyzing Investment in Power Sector
Overview

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Overview
 Capacity Addition
78700 MW Capacity addition required as per the Eleventh
Five Year Plan to make available 1000 units per annum per
capita to achieve target set by National Electricity Policy
 Reasons for Underachievement of Capacity Addition
• Delayed and Non Sequential supply of material by
suppliers
• Shortage of Skilled Manpower
• Contractual Disputes
• Delay by Executing Agencies

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 Accelerated Power Development Reforms Programme (APDRP)
was Launched in 2002-03 as additional central assistance to
states for strengthening and upgrading sub-transmission and
distribution systems
 Primary objective of APDRP is to minimise aggregate technical
and commercial losses (AT&C)
 Secondary objective to improve quality and reliability of supply
 Power Finance Corporation is the nodal agency for
operationalizing the APDRP
 PFC has approved 599 projects at the cost of Rs. 1,947.70 crores
Role of Power Finance Corporation
Saurabh Agarwal, Catalyzing Investment in Power Sector

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Ultra Mega Power Projects (UMPPs)
Development of Coal Based UMPPs with capacity of 4000 MW
in nine different States
PFC is the nodal agency providing operation framework to the
UMPPs
UMPPS operating as 100% owned subsidiaries
Rural Electrification
• Rajiv Gandhi Grameen Vidutikaran Yojana implemented
• Has electrified 59,882 villages and connections to 53.78 lakh
BPL households
UMPPs and Rural Electrification

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Fuel Risk
-The Dollar Price of coal will be indexed to multiple international
coal price indices
-Acquisition of Coal Mines internationally ( Eg. 30% Equity
stake acquired by Tata Power in two major Indonesian thermal
coal producing companies)
-Foray in Shipping business to mitigate fuel transport risk and cut
transport cost
Payment Risk
-PPA to provide security to the project company by letter of credit
and escrow mechanism (Eg. Mundra UMPP )
-PPA to provide operation of default escrow account in favour of
seller
UMPPs and Risk Mitigation

10. Saurabh Agarwal, Catalyzing Investment in Power Sector
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-On Failure to realise payment possibility of selling 25% of the
contracted power to other parties
Demand Risk
-Payment must be made whether or not output is deliverable
(Take or Pay Provision)
Foreign Exchange Risk
Payment in Foreign Currency for Engineering Procurement
Construction (EPC) Contracts to be managed by loan tie ups with
funding agencies like IFC and ADB
Political Risk
Support by Central and State Government and Agencies like IFC
and ADB reduces Political Risk
UMPPs and Risk Mitigation

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 Indian Energy Exchange (IEX), Delhi started operations in
June 2008
Introduction of Term-Ahead Market, the new segment with day-
ahead contingency, intra-day, daily and weekly contracts.
 Power Exchange India (PXIL), Mumbai started operation in
October 2008
The above two exchanges are involved in Power Trading
enabling resource optimisation
 Merchant Power Plant - Hydel Policy 2008
Power Exchange & Merchant Power Plant
Saurabh Agarwal, Catalyzing Investment in Power Sector

12. Saurabh Agarwal, Catalyzing Investment in Power Sector
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Fundamentals
Equity
The subscribed equity base ranges from Rs. 4.23 Cr. (
DPSC) to Rs. 12300.7 Cr. (NHPC).
Promoters Stake (%)
It ranges from 33 (Tata Power) to 94 (Nayveli Lignite)
Book Value
Ranges from Rs. 17.8 (NHPC FV =Rs.10) to Rs. 499.9
(Reliance Infra. FV =Rs. 10)
Return on Net Worth (%)
Ranges from 0 (BF Utilities) to 16.3 (Energy
Development Corporation)

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Fundamentals
Sales/ Var. (%)
Ranges from -34 (BF Utilities) to 0 (Adani Power and
Reliance Power) to 112 (KSK Energy Ven.)
Net Profit
Ranges from Rs. -1.5 Cr. (Adani Power) to Rs. 8221.4 Cr.
(NTPC)
EPS
Ranges from Rs. 0.10 (GVK Power Infra.) to Rs. 47.4
(Reliance Infra)

14. Saurabh Agarwal, Catalyzing Investment in Power Sector
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52 Week High/Low
With Maximum volatility for BF Utilities (1990/268),
Reliance Infra (1374/354) and Tata Power (1457/532)
&
Minimum volatility for NHPC (40/33) and Surya Chak
Power (22/8)
P/E Ratio
Highest for BF Utilities (482.6) and lowest for CESC
(10.6) and having an industry average of Rs. 21.7.
Fundamentals

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Fundamentals*
Debt Equity Ratio
The Debt Equity ratio for most of the companies is less than 1
except Power Grid Corporation (1.8)
Return on Capital Employed
Only 7 out of 15 companies showed a return on capital
employed of more than 10 percent
Notes
-For the Overview Section Data has been taken from Economic Survey 2008-09
-Data for the Fundamental section has been taken from Capital Market Sept 21 - Oct 04, 2009 Issue from a
sample of 19 Listed Power Generation and supply companies and for current slide taken from India Infoline

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Venture Capital

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Financing
-Equity Finance
-Debt Finance
Domestic Capital Market
Indian Financial Institutions
International Finance
-Multilateral Institutions
-Export Credit Agencies (ECA)
-External Commercial Borrowing (ECB)
-Syndicated Loans
-Private Placement
-Global Depository Receipts
-Hybrid Financial Engineered Products/ SPVs

18. Saurabh Agarwal, Catalyzing Investment in Power Sector
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Conclusions
-Wide Gap between Thermal, Hydro and nuclear capacity
-Climate and Power
-Control over self appointed Guardians of environment
-Increased role of Private Players
-Development of Organisational Strategy to reduce the gap
between Past Public sector employees and new Private Sector
owners
-Performance Oriented Budgetary Contributions to State
Electricity Boards
- Change in Accounting system to more focussed Cost and
Management Accounting
-More focus on Innovative ways to finance Renewable energy
generation

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Thank You
for
your Patience
If you have any unanswered Questions . You can reach us at
sa@financeindia.org
Saurabh Agarwal, Catalyzing Investment in Power Sector