2_Session 1_Finacing of PS_ Sangeeta Verma

7/31/2019 2_Session 1_Finacing of PS_ Sangeeta Verma

1/15

Key Inputs for XIIth Plan

Financing of Power Sector

Central Electricity AuthorityGovernment Of India


2/15

Agenda Sector Profile

Magnitude of Investment

Funding Sources and Issues


3/15

Power Sector Profile

ALL INDIA DEFICITS IN POWER

0

5

10

15

20

1998-99 2000-01 2002-03 2004-05 2006-07 2008-09

Percent

Energy Deficit Peak Deficit

Energy availability has increased by 32.7% in the past 5 years butdemand continues to outstrip supply

Nearly 600 million Indians do not have access to electricity

AT&C losses currently exceed 30% for the country as a whole.


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Need to Accelerate Power

Sector GrowthGrowth in GDP and Gross Power Generation

0.00

5.00

10.00

15.00

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08*

2008-

09*

Percent

Growth in Gross Generation Growth in GDP

For India to grow @9% p.a. its power sector must also grow at7.2% p.a (XIIth Plan projects electricity use elasticity wrt GDP at0.8)

But over the last 5 years, Gross Power generation has grown byonly 5.89% pa

NEP objective : Power for all by 2012


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Targeted Growth of Generation

XIth Plan target is 78,700MW

XIIth Plan target is 1,00,000 MW

Current investment focus is on Generation

Investment in Sub-transmission and Distribution is lagging

However, for smooth functioning of the sector Investment

should be in the ratio 2:1:2


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Magnitude of Investment(Rs crore)

Plan Generation Transmi

ssion

Distributi

on

R&M

etc

Total

XIth Plan 5,91,734 1,40,000 3,09,077 18,104 10,59,515

XIIth

Plan4,95,082 2,40,000 4,00,060 - 11,35,142

XIth Plan availability assessed at Rs 6,37,873 croreLeaving a gap of Rs 4,21,642 crore of which

Debt gap 269,067 Equity gap 152,575

Even bigger gap in XIIth Plan unless greater mobilization is

achieved


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0

200

400

600

800

1000

1200

1400

1600

2006-07 2007-08 2008-09

External Funding (USD mn)

FDI Ext. Comm. Borrowings

0

5000

10000

15000

20000

25000

30000

2006-07 2007-08 2008-09

Domestic Funding (Rs.Cr)Bank Credit

Pvt. Placement(debt)

Public & RightsIssues

Funds Available

to the power sector

in the past

Source : Economic Survey 2008-09.


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Issues in Brief

Bank Credit to Power sector

Subject to sectoral and group exposure limits

The growth of credit has slowed down from 68% in 2007-8

34% in 2008-09

Term Lending Institutions constrained by prudential norms

FDI -Shy because of insufficient return on equity

Raising resources through Public offers- captive to political stancesPoor health of distribution segment

Let us examine these issues in some detail


9/15

Funding Issues

Banks & NBFCs Restrictive RBI guidelines for Sectoral and Group exposure PFC and REC also constrained by prudential exposure norms

for Groups and Companies

Leading to difficulties in UMPP lending

Worldwide liquidity crunch has created adverse conditions forbank loan completions

banks are delaying disbursal of sanctioned loans Government borrowing crowding out private sector

borrowers

Duty and Tax regime not conducive to innovative infrastructurelending

repetitive stamp duty discourages take-out financing


10/15

Funding Issues

Banks & NBFCs contd

PFC and REC have to seek RBI approval to raise External

Commercial Borrowing

Cautious about lending to projects coming through the MOU

route.

Insistence on PPAs creates difficulties for IPPs and MPPs Banks and NBFCs comfortable only with PPAs with ultimate

offtakers- not traders


11/15

Funding Issues

FDI Government Policy allows 100% FDI in all segments

Yet share of power sector in FDI to infrastructure sectorsincreased only marginally from 16% to 18% over 2006-9. By

contrast FDI to Telecommunications is more than 47% Paradox explained by:

low regulatory returns on equity

lack of politico-administrative support on containment of

commercial losses Lack of payment security

These issues relate equally to domestic private

investment


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Other Issues impacting Funding

Poor financial health of state sector utilities

State utilities not allowed return on equity

States are taking a long time to finalize Case I bids

Developers unable to achieve financial closure Power offered in one bid cannot be bid elsewhere

Delays in land, forest and environmental clearances lead to costescalation

Appropriate fiscal incentives not available to channelise savings Long term funds available with PFs, Pension and Insurance Funds

are not being tapped

RBI guidelines restrict use of ECB proceeds for rupee

expenditure


13/15

Other Issues impacting Funding contd. Developers continue to be risk averse - seek non-recourse

financing

Capital is being raised for greenfield projects only

Refurbishment/technology upgrade of state assets is starvedfor funds

Risk appetite of traders curbed by cap on trading margins inbilateral markets

Long term price hedging instruments do not exist in thepower markets necessary as more merchant capacitiescome on stream

Disinvestment proceeds not being available for investment

in the sector


14/15

Green Shoots Equity markets have witnessed surging demand for new

paper - NHPC, Adani Power oversubscribed

Successful QIP by established players

Lanco on July 31st $150 m

With the right policy initiatives, fiscal and regulatory as

well as distribution reforms it should become a very

exciting and sought after sector for investment


15/15

Thank you

Documents

2_Session 1_Finacing of PS_ Sangeeta Verma