Indian Power Sector- Performance, Challenges and

Opportunities

Hitesh Sachdeva,
Head, M&A and Private Sector Solutions Group
CRISIL Risk and Infrastructure Solutions Ltd.
October 8th, 2009

CRISIL Infrastructure Advisory

Specialized Infrastructure Advisory division of CRISIL Risk & Infrastructure Solutions

Limited, 100% subsidiary of CRISIL Limited

CRISIL is the worlds 4th largest rating agency and Standard & Poors is its majority
stakeholder

We are a 100 plus strong team comprising Economists, Chartered Accountants, MBAs,
Urban Planners and Corporate Finance professionals

We actively operate and track opportunities in Middle East, Africa & Asia

We have a proven ability in successfully executing Infrastructure related transactions in

the following domains:

Energy &
Mining

2.

Oil & Gas

Coal
Metals & Minerals
Power & Utilities

Transport &
Logistics
Roads
Ports
Aviation Warehousing
Railways Supply Chain

Real Estate &

City Services
Construction
Special
Economic
Zones (SEZ)

Water
Sanitation
Urban
renewal

Key Messages
Legal framework has successfully evolved to provide business environment
conducive to competition
Private Sector Investment has been witnessed all across the value chain
However, Actual capacity addition has fallen short of targets consistently
Accelerated Capacity Addition requirements have thrown up multiple
challenges
The challenges throw up multiple opportunities for international investor
participation

3.

Legal framework has successfully evolved to provide business

environment conducive to competition
Generation
De-licensing can
implementation

Distribution
lead

to

much

faster

Freedom to construct, operate and maintain

Captive Power Plants
Only tariffs for sale to regulated utilities
under the jurisdiction of appropriate
regulators. The tariffs for captives and open
access entitled customers can be negotiated.

All future power procurement by distribution licensees is to be on tariff-based

bidding basis
Parallel networks have been allowed to be set up
Distribution licensees can appoint distribution franchisees
Consumers with more than 1 MW load will be allowed open access by January 2009
Tariffs are to be rationalised in a phased manner with transparent subsidy
payment requirements

Enabling provisions for the development of

renewable power generation

Transmission
To provide non-discriminatory open access
Transmission and load dispatch function to be separated to avoid conflict of interests
Transmission licensees are barred from participating in trading activities

Trading
Made a licensed activity
Encouragement for setting Power Exchanges
Will encourage merchant power plants to sell power through exchange

4.

Private Sector Investment has been witnessed all across the value
chain
Generation:
Over 60 GW of capacity addition is already under development
Four Ultra Mega Power Projects (4000 MW each) have been
awarded. Two have achieved Financial Close

Transmission:
The first Independent Power Transmission Company (IPTC) has
been awarded through tariff based bids (USD 300 Mn)
Bidding process for more than 17 transmission systems
underway.
State-level transmission projects are also to be awarded on
competitive bidding basis.

5.

Private Sector Investment has been witnessed all across the value
chain
Distribution:
Some state utilities have attained turnaround in operations and
financial performance
T&D and commercial losses of utilities have reduced in most states.
The Distribution Franchisee Model, which envisages involving the
private sector in improving efficiencies in distribution, has been
successfully implemented in various areas in Maharashtra and Madhya
Pradesh

Trading:
The trading market has grown exponentially in the past few years.
Today, it accounts for almost 7% of the electricity market.
The power exchange initiative has become a reality and two exchanges
are operational in the country

6.

Actual capacity addition has fallen short of targets

Last three plans have seen actual capacity addition almost 50% of the target
Better performance expected in the XIth plan
Close to 50000 MW expected
More than 60% of the target

However the shortfall still shows the challenges the sector is facing

7.

Key challenges

Generation

~160
~160 GW
GW of
of capacity
capacity requirement
requirement
in
in next
next 77 years
years

Fuel/ Resources

Fuel
Fuel capacity
capacity consistent
consistent with
with generation
generation
targets
targets of
of 160
160 GW
GW in
in both
both plans
plans

Transmission

8.

Inter-regional
Inter-regional Networks
Networks of
of 50
50 GW
GW
to
to be
be created
created

Equipment

Doubling
Doubling of
of equipment
equipment capacity
capacity for
for both
both
generation
generation and
and transformation
transformation

Financing

Financing
Financing Requirements
Requirements of
of
USD
USD 25
25 Bn
Bn every
every year
year

Generation Building a sustained momentum

Status
Status

The
The achievement
achievement in
in 11
11thth five
five year
year plan
plan will
will surpass
surpass precedence
precedence but
but still
still fall
fall
short
short of
of targets
targets

Investment
Investment
Highlights
Highlights

Huge
Huge Demand
Demand Growth
Growth
Multiple
Multiple sale
sale options
options
Improving
Improving creditworthiness
creditworthiness

Challenges
Challenges

Creating
Creating ~25
~25 GW
GW of
of new
new capacity
capacity every
every year
year
Replace
Replace old
old capacity
capacity and
and add
add spinning
spinning reserve
reserve

Key
Key
Investment
Investment
Areas
Areas

Thermal
Thermal GenerationGeneration- Supercritical
Supercritical tech
tech order
order of
of the
the day
day
Hydel
Hydel Generation:
Generation: 150
150 GW
GW potential,
potential, only
only 33
33 GW
GW exploited
exploited so
so far
far
Natural
Natural GasGas- Indigenous
Indigenous gas
gas finds
finds open
open up
up new
new avenues
avenues
Cleantech
Cleantech

9.

Fuels Creating commercial fuel supply projects

Status
Status

Coal
Coal contributes
contributes 53%
53% of
of fuel
fuel mix
mix and
and will
will grow
grow in
in short
short term
term

Investment
Investment
Highlights
Highlights

256
256 BT
BT of
of coal
coal reserves,
reserves, 40
40 BT
BT awarded
awarded to
to private
private sector
sector
Natural
Natural Gas
Gas to
to provide
provide valuable
valuable peaking
peaking power
power

Challenges
Challenges

Create
Create 300
300 MT
MT of
of additional
additional coal
coal availability
availability
Diversify
Diversify fuel
fuel mix
mix

Key
Key
Investment
Investment
Areas
Areas

Commercial
Commercial coal
coal mining
mining
Natural
Natural GasGas- NELP
NELP VIII
VIII
Logistics
Logistics and
and evacuation
evacuation infrastructure
infrastructure

10.

Transmission Inter-regional generation imbalances require transmission

highways
Status
Status

Less
Less than
than 20
20 GW
GW of
of inter-regional
inter-regional Capacity
Capacity

Investment
Investment
Highlights
Highlights

Independent
Independent Power
Power Transmission
Transmission Company
Company model
model off
off the
the ground
ground
Annuity
Annuity Model
Model of
of development
development assures
assures returns
returns

Challenges
Challenges

Upgrade
Upgrade to
to >> 50
50 GW
GW inter-regional
inter-regional evacuation
evacuation
Creating
Creating High
High Voltage
Voltage Evacuation
Evacuation Networks
Networks

Key
Key
Investment
Investment
Areas
Areas

11.

Inter-regional
Inter-regional evacuation
evacuation IPTC
IPTC Projects
Projects
Intra-state
Intra-state power
power transmission
transmission projects
projects

Equipment Doubling EPC as well as transformation capacity

Status
Status

BHEL
BHEL constitutes
constitutes 60%
60% to
to 70%
70% of
of BTG
BTG capacity
capacity
Chinese
Chinese equipment
equipment gaining
gaining share
share

Investment
Investment
Highlights
Highlights

Domestic
Domestic manufacturing
manufacturing given
given policy
policy benefits
benefits
Lower
Lower commodity
commodity prices
prices are
are now
now reflected
reflected in
in competitive
competitive EPC
EPC prices
prices

Challenges
Challenges

Equipment
Equipment supply
supply to
to cater
cater to
to approximately
approximately 25,000
25,000 MW
MW of
of capacity
capacity per
per year
year

Key
Key
Investment
Investment
Areas
Areas

Preference
Preference for
for supercritical
supercritical
Equipment
Equipment supply
supply for
for coal
coal mining
mining
T&D
T&D Equipment
Equipment
Balance
Balance of
of Plants
Plants

12.

Financing Facilitating USD 25 Bn every year

Status
Status

Investment
Investment
Highlights
Highlights

Challenges
Challenges

Key
Key
Investment
Investment
Areas
Areas

13.

Debt
Debt Financing
Financing primarily
primarily INR
INR Term
Term Loans
Loans
Reduced
Reduced access
access to
to foreign
foreign debt,
debt, higher
higher spreads
spreads
Sound
Sound Contractual
Contractual Framework
Framework
Adequate
Adequate Payment
Payment Security
Security
High
High growth
growth leads
leads to
to better
better returns
returns

Debt
Debt Funding
Funding of
of USD
USD 18
18 Bn
Bn an
an year
year
Primary
Primary Markets
Markets gaining
gaining momentum,
momentum, however
however majority
majority of
of players
players find
find access
access
to
equity
as
difficult
to equity as difficult

FC
FC Loans
Loans
Equipment
Equipment Credit
Credit Finance
Finance
Private
Private Equity
Equity at
at venture,
venture, growth
growth and
and mature
mature stages
stages

Key challenges

Generation

~160
~160 GW
GW of
of capacity
capacity requirement
requirement
in
in next
next 77 years
years

Fuel/ Resources

Fuel
Fuel capacity
capacity consistent
consistent with
with generation
generation
targets
targets of
of 160
160 GW
GW in
in both
both plans
plans

Transmission

14.

Inter-regional
Inter-regional Networks
Networks of
of 50
50 GW
GW
to
to be
be created
created

Equipment

Doubling
Doubling of
of equipment
equipment capacity
capacity for
for both
both
generation
generation and
and transformation
transformation

Financing

Financing
Financing Requirements
Requirements of
of
USD
USD 25
25 Bn
Bn every
every year
year

Thank you

15.

CRISIL Risk and Infrastructure Solutions Limited

A Subsidiary of CRISIL Limited, a Standard & Poors company
16.

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