Market Structure & Regulation of Infrastructure

Presentation on

India’s Power Sector

( Thermal & Hydro)

By

Group 1

Bharat Agarwal 01Harish Daryani 17Anagha Deshpande 18Varun Doshi 19

Outline

1. India’s Power Industry – Statistics

2. Market Structure

3. Policy & Regulations

4. Power Trading

5. Reform Measure

6. Company Analysis : NHPC / NTPC

7. Financial markets

INDIAN POWER INDUSTRY• Increased private participation since passage of

Electricity Act ‘03

- Mar ‘03: 8.66 %

- Mar ‘10: 18.2 %

• Conducive policy environment

• Focus on clean & efficient tech , renewable power

CAPACITY

• Conventional Capadded during 09-10: 9,585 MW

• Installed Cap as of Mar ‘10: 1,59,398 MW

• Positives:11th Plan generation thrice that of the 10th Projects behind schedule (now under construction)

during 12th Plan

• Negatives:Inadequate equipment capacityFuel and manpower shortages

CAPACITY DISTRIBUTION

49.81

31.99

18.2

Sector Distribution

State Central

Private64.2

8

23.13

9.74

2.86

Installed Capacity Distribution

Thermal Hydro

Renewables Nuclear

POLICY AMENDMENTS• No international bidding for procuring equipment for

projects awarded through tariff based competitive bidding

• No condition for interstate sale of power

• Amendments extended to brownfield expansions of existing power plants

• 2.5 % duty for brownfield expansion projects

TRANSMISSION• 236,430 ct. km of lines

• 305,550 MVA /14,000 MW of substation cap

• Growth Rate:

Transmission lines - 6.2 %

Transmission cap - 5.8 %

• Investment by Power Grid Corp. (PGCIL): Rs. 147.1 bn

• Estimated inter-regional transfer cap in ‘12: 32650 MW

DISTRIBUTION• Infrastructure:

6.9 million ct. km of lines284,365 MVA of distribution transformer cap

• Annual rate of growth: 2.07 % & 7.65 % respectively

• Issues: rampant power thefts, technical issues, corruption, dilapidated & inadequate networks

• Programs to tackle issues:Restructured Accelerated Power Development and Reform

Programme (R-APDRP)Rajeev Gandhi Grameen Vidyutikaran Yojana(RGGVY)

MARKET STRUCTURE

• Policy

• Regulations

• Generation

• Transmission

• System Operations

• Distribution

• Trading

• Centre

• MOP

• CEA

• Central • Generating Units

• CTU

• Appellate Tribunal

• CERC

• State

• State Government

• SERC

• Some• Private • Players in• Generation

• & • Distribution

• IPPs• GENCOs

• STU

• Plan

• Appeal

• Trading Licencee

• NRLDC • RLDC • SLDC

• Distribution • Licencee

• Trading Licencee

• Appellate Tribunal

ROLES OF VARIOUS PLAYERS

Central & State Government

• National Electricity Policy & National Tariff Policy

• National Policy on Rural Electrification

• Rules & procedures for implementing provisions of

Electricity Act ‘03

ROLES OF VARIOUS PLAYERSCERC & SERC

• Fixing tariff

• Regulating inter-state transmission tariff & trading

margins

• Granting licenses for transmission & trading

NDLC• Data gathering and monitoring the National Grid

POLICY AND REGULATIONElectricity Act, 2003• Non – discriminatory open access in transmission• SERCs to follow competitive bidding process• CERC to advise GOI on promoting competition• Controlling abuse of market power

National Electricity Policy• Village electrification• Per capita consumption of 1000 kwh by ‘12• Installed cap over 200,000 MW by ‘12• Energy efficiency/conservation 15% by ‘12• Quality & reliable power supply

POLICY AND REGULATIONTariff Policy

• Competitive bidding of tariffs of gener & trans projects

• Reduction of cross subsidy

• Enabling choice through distribution level open access

• Time bound introduction of Multi – Year – Tariff structure

• Project affected family to get 100 unit of electricity free

of cost for 10 years

• 1% free power towards local area development

POLICY AND REGULATION

Mega Power Project Policy

• Zero custom duty on import of capital equipment

• Increased external commercial borrowing (ECB) limits

• State implementation support

• Decreased import duty on fuel (coal and liquid fuel)

• Tax holiday

POLICY AND REGULATIONUltra Mega Power Projects• Large scale cap addition• PFC is the nodal agency for setting up SPV for projects• Power ministry to co-ordinate with other ministries & states for

Coal block allocationEnvironment and forest clearancesFacilitating power purchase agreements (PPAs)

•PFC responsible for facilitatingBidding process, land acquisitionClearances and approvals

Power Trading• Power trading worth Rs. 192.17 bn was carried

out in year 2009.• Still in the nascent stage and only 5 players

contributes to 83% of total transactions.• This Market is miniscule with only 4.5% of total

power generated being traded.• It has grown at the rate of 23% over last

quarter.• CERC is planning of key amendments in the

existing regulation in interstate trading license.

Reform Measures• Restructuring of state electricity board.

E.g. 1. Punjab SEB. 2. Meghalaya SEB.

• Major fund allocation is done to reduce the distribution loss from 32-35% to about 15%.

• The government has a target of 100% electrification by 2012,under its power for all scheme.

• As of March 2010 only 84% villages are electrified which still leaves around 95K villages unconnected to grid.

NHPC• Largest hydro power generator in India.– Total no. of plants – 13

– Installed capacity – 5,175 MW.

– Under Construction – 4,622 MW.

– Awaiting Clearance – 8,481 MW.

– Under survey & investigation – 5,755 MW.

NHPC• Plans to diversify into other fuel alternatives

like wind, solar and gas based plants.• Have undertaken works for rural electrification

under RGGVY.• Have formed consortium with NTPC and TCS to

set up national power exchange for power trading.

• IPO in Aug 2009 received overwhelming response with subscription over 23 times.

• By offloading 10% equity government raised 1.12 Bn.

NHPC Financials

2005 2006 2007 2008 2009

EPS (Rs) 0.73 0.73 0.83 0.9 0.96

PAT (%) 37.08 37.63 41.4 33.22 32.42

ROCE (%) 5 4.72 5.77 6.18 6.13

RONW (%) 4.66 4.66 5.58 5.81 5.98

LT D/E 0.48 0.45 0.45 0.62 0.67

TAT 0.07 0.07 0.08 0.09 0.09

UMPPState Location Award Status

Jharkhand Tilaiyya Reliance

UP Sasan Reliance

AP Krishnapatnam Reliance

Gujrat Mundra Tata Power

Chattisgarh Akaltara

Not yet awarded

Karnataka Tadri

Maharashtra Giriye

Orissa Lankahuda

Tamil Nadu Cheyyur

NTPCCapacity:

• Largest power producer : Installed cap - 31704 MW

Coal based plants - 15 - 24885 MW

Gas based plants - 7 - 3955 MW

JV’s with others - 4 - 2484 MW

• Generated 218 BU’s - 90% PLF Vs Nat Avg. 77 % PLF

• Under construction - 18 - 17830 MW

• Under bidding - 7092 MW

• Under feasibility study - 15000 MW

NTPC

Raw Material Strategy:

• Model coal supply agreement - Coal India Ltd - 20 yrs

• Developing 4 captive coal blocks - Cambay Basin

• Stake in IVL - International coal venture for acquisition of

overseas coal mines

• Long term contract with GAIL for gas - 2mmscmd

NTPC

Expansion plans:

• Tender issued for 9 supercritical eqpt - 5940 MW- Oct’09

• 2nd tender for 9 supercritical eqpt - 7200 MW soon

• Plans of 2000 MW Nuclear cap - JV with NPCIL by ‘17

• Plans to double cap to 71000 MW by 2017 ( 12th plan )

NTPC Financials 2005 2006 2007 2008 2009 2010 Industry

EPS (Rs) 6.72 6.67 7.85 8.40 9.34 10.59 NA

P/E 12.75 20.09 19.08 23.45 19.29 18.50 21.52

PAT (%) 25.55 24.16 20.92 19.88 19.44 16.33 15.32

ROCE (%) 14.14 15.11 15.63 15.72 12.96 17.10 8.79

RONW (%) 14.85 14.86 14.50 14.36 14.40 14.11 9.07

LT D/E 0.42 0.43 0.47 0.50 0.54 0.61 0.75

CR 1.65 1.86 2.15 2.51 2.72 2.57 1.59

ICR 4.47 4.69 5.49 6.33 5.63 6.32 2.96

DEBT Markets

• Relatively easier to fund expansion plans

• Commercial banks - biggest financers

11.8 % of total OS loans to all industries in 08-09 up from 5%

in 98-99

46.1 % of total OS loans from Infra sector

• PFC, REC, IDFC other major financers

PFC - Rs. 258 Bn as of 09-10REC – Rs. 223 Bn as of 08-09 IDFC – Rs. 103 Bn as of 09-10 IIFCL – Rs. Rs. 36 Bn as of Feb’10

DEBT Markets

• Lending skewed towards generation

thermal & state power companies

• Lending nearly at PLR : 11 - 12 %

• Active bond market – NTPC , PFC , REC Subscribed by PF , Pension , Gratuity, Insurance Interest rate 7 – 8 % , 15 years

• In 09-10, Rs. 122 Bn of private debt placement

• Constraints for private companies to raise funds limited appetite for long term issues

DEBT Markets

• ECB under stress due to global crisis

RBI relaxed scope & definition of Infra for ECB

Raised $2.91 Bn in 09-10 - Increase of 40% over 08-09

• WB , ADB, IFC providing loans & technical assistance to aid

reforms

• Export credit agencies (ECAs) finance import of eqpt from

home country EXIM bank of Korea financed $500 Mn for Mundra UMPP

Equity Markets

• Four IPO’s – Rs. 133 Bn in 09-10

Adani (+) ,Indiabulls (-) , JSW (+), NHPC (-)

• FPO’s – NTPC ( Rs. 83 Bn), REC ( Rs. 36 Bn)

• Private Equity – Generation & Equipment

Invested Rs. 35.5 Bn in power in 09-10

IDFC PE - $75 Mn in Green Infra Fund

Temasek - $200 Mn in GMR Energy

Equity Markets

• Emerging trend in investment in Project SPV

• QIP’s

KSK Energy Venture Rs 5.15 Bn in Nov’09

GMR Infra Rs 14 Bn in Apr’10

Investment -> Way Forward

• Attractive investment opportunity -> huge power

shortage

• Avantha , Orient green – looking for funds

• PE & Project SPV investments to rise

Concern is valuation differentials

Investment -> Way Forward

• Interest rated expected to rise above PLR

Project structuring & Promoter background is key

• Steps for long term funding IIFCL take out financing Govt Infra Fund

THANK YOU !!!