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Key Inputs for

th XII

Plan

Financing of Power Sector


Central Electricity Authority Government Of India

Agenda
Sector Profile
Magnitude of Investment Funding Sources and Issues

Power Sector Profile


A LL INDIA DEFICITS IN POWER
20 15

Percent

10 5
Energy Def icit Peak Def icit

0
1998 -99 2000 -01 2002 -03 2004 -05 2006 -07 2008 -09

Energy availability has increased by 32.7% in the past 5 years but

demand 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.

Need to Accelerate Power Sector Growth


Growth in GDP and Gross Power Generation
15.00 Grow th in Gross Generation 10.00 Grow th in GDP

Percent

5.00

0.00 199900 200001 200102 200203 200304 200405 200506 200607 200708* 200809*

For India to grow @9% p.a. its power sector must also grow at

7.2% p.a (XIIth Plan projects electricity use elasticity wrt GDP at 0.8) But over the last 5 years, Gross Power generation has grown by only 5.89% pa NEP objective : Power for all by 2012

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

Magnitude of Investment
(Rs crore)
Plan Generation Transmi ssion 1,40,000 2,40,000 Distributi R&M Total on etc 3,09,077 18,104 10,59,515 4,00,060 11,35,142
XIth Plan 5,91,734 XIIth 4,95,082 Plan

XIth Plan availability assessed at Rs 6,37,873 crore Leaving 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

External Funding (USD mn)

FDI
1600 1400 1200 1000 800 600 400 200 0 2006-07

Ext. Comm. Borrowings

Funds Available to the power sector in the past


Domestic Funding (Rs.Cr)
Bank Credit

2007-08

2008-09

30000 25000 20000 15000 10000 5000 0 2006-07 2007-08 2008-09

Pvt. Placement (debt) Public & Rights Issues

Source : Economic Survey 2008-09.

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 stances Poor health of distribution segment
Let us examine these issues in some detail

Restrictive RBI guidelines for Sectoral and Group exposure

Funding Issues Banks & NBFCs


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 for

bank loan completions banks are delaying disbursal of sanctioned loans Government borrowing crowding out private sector borrowers
Duty and Tax regime not conducive to innovative infrastructure

lending repetitive stamp duty discourages take-out financing

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

Funding Issues FDI


Government Policy allows 100% FDI in all segments Yet share of power sector in FDI to infrastructure sectors

increased 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

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 cost

escalation 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

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 starved

for funds

Risk appetite of traders curbed by cap on trading margins in

bilateral markets Long term price hedging instruments do not exist in the power markets necessary as more merchant capacities come on stream Disinvestment proceeds not being available for investment in the sector

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

Thank you

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