ABC POWER LTD

Executive Summary 1. ABC Power Ltd (ABC ), a special purpose vehicle (SPV) acquired by

Rastriya Power Ltd (RPL) of Rastriya Group, is implementing a 3960 MW (6 x 660 MW) super critical technology, imported coal based Ultra Mega Power Project (UMPP) at Krishnapatnam, District Nellore, Andhra Pradesh (AP). 2. The project was awarded to ABC by Power Finance Corporation Limited (PFC) on behalf of Ministry of Power (MoP), Government of India (GoI) through tariff based competitive bidding at an evaluated levelised tariff of Rs.2.33/kWh. The Letter of Intent (LoI) was issued to RPL on November 30, 2007 and the Share Purchase Agreement (SPA), effecting the transfer of 100% equity in ABC to RPL, was signed on January 29, 2008. 3. ABC has executed a 25 year Power Purchase Agreement (PPA) with 11 procurers from 4 states (AP-40%, Karnataka-20%, TN-20% and Maharashtra20%) for sale of power. The payment security mechanism envisages establishment of irrevocable Letter of Credit (L/C), escrow of incremental receivables (from the designated date) of the procurers and the provision of third party sale in case of default by the procurers. 4. The entire land required for the project, estimated at 2625 acres, has been identified at the bidding stage itself and ABC is presently in possession of about 70% of total land. As per the PPA, the responsibility of acquiring the land lies with the lead procurer, though ABC has been extending its support in expediting the process of land acquisition. The balance requirement of land is expected to be handed over to ABC shortly. 5. The entire coal requirement of the project, estimated at about 14.81 million tonnes per annum (mntpa) at 80% PLF [GCV of coal: 4150 kcal/kg and Gross Station Heat rate: 2245 kcal/kwh], would be sourced through long term coal

supply agreement with Rastriya Coal Resources Private Ltd. (RCRPL, 100% subsidiary of RPL) at a fixed price of USD 27.59/tonne during FY 2013 (first year of operations) with escalation of 2.5% p.a. RCRPL intends to secure the coal requirement of ABC , through combination of acquiring economic rights in coal mines in Indonesia as well as entering into long term off-take agreements. 6. The coal from the mines (being developed by RCRPL) would be transported to the load port in Indonesia [through combination of trucks (road 180 km) and barges (river - 230 km)] and then through Capesize Vessels to discharge port in Krishnapatnam. ABC proposes to enter into a long-term agreement with Rastriya Natural Resources (Singapore) PTE [RNRS, a wholly owned subsidiary of Rastriya Natural Resources Ltd. (RNRL)] for transportation of coal. The coal would be transported through conveyors (about 3 km) from Krishnapatnam port to the project site. 7. The raw water requirement for the project, estimated at around 36000 m3/hr, would be met from seawater from Bay of Bengal (1.5 km from the site). ABC would set up desalination plant to meet the fresh water requirement of the plant. 8. The project would be implemented by way of a fixed term and fixed lumpsum price Engineering, Procurement and Construction (EPC) contract with a consortium of M/s Rastriya Infrastructure Ltd. (RIL) as principal contractor and Rastriya Infra Projects International Ltd. (RIPIL, an offshore subsidiary of RIL). RIL would have the single point responsibility for discharge of obligations of the contractors under the contract. The EPC contractor proposes to source the Boiler, Turbine and Generator (BTG) package from Shanghai Electric Group Company Limited, China (SEC), an original equipment manufacturer. [RASTRIYA group is also sourcing BTG package from SEC for Sasan UMPP (super-critical), Rosa Power Supply Company Ltd. and Butibori power plant (sub-critical units)]. 9. The first unit of 660 MW would be commissioned in 42 months from the financial closure (July 2009) and each subsequent unit would be commissioned at
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an interval of 3 months. The COD of the Power station (all units) is envisaged at March 31, 2014, six months ahead of schedule as per PPA. 10. The power to be generated from the project would be evacuated through 3 double circuit transmission line of 400 KV, which would be connected to the national grid. As per PPA, the procurers are responsible for ensuring the timely completion of the transmission facilities. Power Grid Corporation of India Ltd (PGCIL) has carried out power evacuation study and is in the process of laying necessary power evacuation facilities & transmission lines. 11. The cost of the project, estimated at Rs.17607 crore, is proposed to be financed with equity/quasi equity of Rs.4402 crore and Debt of Rs.13205 crore (RTL: Rs.7743 crore and FCL/ECBs: USD 1125 Mn equivalent to about Rs.5462 crore), at DER of 75:25. The entire equity/quasi equity would be brought in by RPL. The foreign currency loan requirement is proposed to be sourced from ADB (USD 125 Mn), IIFCL (USD 500 Mn) and international market (USD 500 Mn). While FC component of the project is being independently arranged by the company, it has appointed IDBI Bank (IDBI) as sole arranger for tying-up the entire rupee debt component. ABC proposes to avail part of RTL by way of buyer's credit to the maximum extent of USD 350 Mn. 12. The flash report was discussed by the Credit Committee (CC) at its meeting held on June 24, 2008 whereat the consensus was while the proposal may be taken up for detailed appraisal, the commitment to the project could be restricted to Rs.1500 crore, a part of which could later be sold down. Accordingly, it is proposed to sanction financial assistance by way of RTL of Rs.1500 crore (including sub-limit of Rs.1500 crore for Letter of Credit (LC) /Buyer's credit (BC)) to the proposed project. Further, pending financial closure, the company may be permitted to draw upto Rs.1000 crore by way of LC/BC subject to furnishing of corporate guarantee of RPL. 13. The financial indicators of ABC on completion of the project are satisfactory. The project IRR (post-tax) and average DSCR of the company are
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satisfactory at 12.58% and 1.49 respectively. The sensitivity analysis also indicates that the company would be able to absorb moderate adverse variation in the critical projected parameters. The asset coverage (both fixed and current assets) and security margin on completion of the project (2014) work out to 1.27 times and 21% respectively. 14. The proposal complies with all internal & prudential exposure norms except internal group exposure norm.

PART I - PROMOTER / COMPANY ASSESSMENT Promoter / Company Background Project Background 1.01 Ministry of Power (MoP), Government of India (GoI), proposes to develop Ultra Mega Power Projects (UMPPs) each with a size of about 4000 MW using super critical technology on Build, Own and Operate (BOO) basis through tariff based competitive bidding. The projects would be located either at pitheads or near ports. As on date, MoP plans to develop 9 UMPPs (five imported coal based and four domestic coal based) in the country. The projects were initially developed through shell companies incorporated as wholly owned subsidiaries of PFC primarily to expedite the implementation by obtaining various clearances and linkages for project development. 1.02 ABC Power Ltd (ABC ), was established to implement 4000 MW imported coal based power plant at Krishnapatnam, Andhra Pradesh. ABC has executed the PPA (on March 23, 2007), Default Escrow Agreement and Agreement to Hypothecate Cum Deed of Hypothecation (between March 28, 2007 and April 09, 2007) with 11 procurers (from AP, TN, Karnataka and Maharashtra) and Port Service Agreement (PSA) with Krishnapatnam Port Company Ltd (KPCL) on March 23, 2007 for handling of imported coal. The project was awarded to RPL on November 30, 2007 as the levelised tariff quoted by RPL at Rs.2.33/kWh, was the lowest amongst all the qualified bidders [The other qualified bidders were M/s Larsen & Toubro Ltd (levelised tariff of Rs.2.69/kWh) and Sterlite Industries Ltd (levelised tariff of Rs.4.19/kWh)]. Share Purchase Agreement (SPA) was executed on January 29, 2008, consequent to which ABC became the wholly owned subsidiary of RPL. Salient features of SPA are given in Annexure-1.

Promoter's Background 1.03 Rastriya Power Limited (RPL) was incorporated by RASTRIYA Group in order to develop, construct and operate power projects domestically and internationally. RPL was originally incorporated in 1995 as Bawana Power (P) Ltd. Subsequently, its name was changed to Rastriya Delhi Power (P) Ltd., Rastriya Egen (P) Ltd., Rastriya Energy Generation (P) Ltd. and Rastriya Energy Generation Ltd (REGL) in February 1995, January 2004 and March 2004 respectively. In July 2007, the name was changed to RPL and a fresh certificate of incorporation issued. 1.04 RPL, on its own and through its subsidiaries, is currently developing 15 medium and large sized power projects with a combined planned installed capacity of 28320 MW (Western India: 12220 MW; Northern India: 9080 MW; Southern India including ABC : 4000 MW and North-Eastern India: 3020 MW). These power projects are planned to be diverse in terms of geographical location, fuel type (coal:14620 MW, gas:10,280 MW and hydel:3420 MW), fuel source & offtake arrangement and each project is planned to be strategically located in close proximity to the source of fuel or load centre. The power generated would be sold under a combination of long-term and short-term PPAs to state owned/private distribution companies/ industrial consumers 1.05 Analyses of working results and financial position of RPL for the last two years ended March 31, 2008 are given in Annexure-2, summary of which is as under: Working results: (Rs. crore)
For the year ended March 31, Total Income (TI) PBIT Interest Operating profit PAT 2007 2 1 1 0.5 0.2 2008 133 107 6 101 95

Income mainly consists of dividend income and profit on redemption of mutual funds
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Financial position (Rs. crore)

As on March 31, Net fixed assets (including capital WIP) Investments Current Assets Current Liabilities Long Term Loans Net Worth Share capital Reserves & Surplus 2007 117 41 46 4 0 200 200 0 2008 127 8490 5350 425 0 13543 2260 11283

Investments mainly include investments in Rastriya mutual funds (Rs.8380 crore) and Rosa Power Supply Company Ltd. (Rs.110 crore) Current assets mainly include advances to subsidiaries Current liabilities and bank balances mainly include unclaimed share application money refund of Rs.359 crore. Pursuant to the sanction by Hon'ble High Court of Mumbai to the scheme of amalgamation, the assets and liabilities of the erstwhile Rastriya Public Utility Private Ltd.[RPUPL, incorporated to engage in the business of executing EPC contracts which has not commenced operations] were transferred to RPL w.e.f. September 29, 2007. In terms of the scheme (one share of RPL for one share of RPUPL), 100 crore equity shares of Rs.10/each of RPL have been allotted to the shareholders of erstwhile RPUPL. RPL, in January 2008, raised Rs.11563 crore through IPO [26 crore equity shares of Rs.10 each at a premium of Rs.440 per share (Rs.420 for retail individuals)] for financing equity contribution of RPSCL (1200 MW), VIPL (300 MW), SPL (3960 MW), MEGL (1200 MW) and USHPPL (400 MW). The surplus amount out of IPO along with promoters contribution of Rs.2000 crore brought in before IPO would be utilised to part-finance the construction and development of the other power projects including ABC . Company Background: 1.06 ABC was set up by PFC to implement 4000 MW super-critical technology

and imported coal based power plant in Krishnaphatnam, AP. Subsequent to execution of SPA on January 29, 2008 and payment of Rs.253.49 crore (Rs.195.73 crore for entire land of 2625 acres, Rs.20 crore for R&R package and Rs.37.76

crore for administrative expenses and consultancy services) to PFC as consideration for purchase of shares at par and for taking over of all assets and liabilities of ABC , the entire 50,000 shares of ABC held by PFC has been transferred to RPL and ABC became the wholly owned subsidiary of RPL.

Financial Position of ABC : 1.07 Since the company has not started any manufacturing, trading or production activity, no Profit & Loss Account was prepared till date. The expenditure incurred till date was shown under Capital Work in Progress. The financial position is as under: As on March 31, Net Block Capital WIP Investments Current assets Current liabilities Unsecured loans Net worth Share capital Share application money Less: Loss & Misc. exp. not w/o
# Provisional

2007 0.01 3.32 0 37.86 41.44 0 (0.25) 0.05 0 (0.30)

(Rs. crore) 29-01-2008 # 2008 0.01 107.22 31.67 144.41 0 0.05 216.27 1030.06 248.20 2.41 0 257.03 (0.25) 1022.30 0.05 0.05 0 1025.05 (0.30) (2.80)

# 30-09-08 140.73 836.43 0.07 1031.23 14.55 971.36 1022.55 0.05 1025.05 (2.55)

Net block mainly consists of land (Rs.140 crore) Capital work-in-progress mainly includes advance against capital contracts (Rs.785 crore), legal & professional charges (Rs.28 crore), interest & finance charges (Rs.8 crore), salaries (Rs.2 crore) consultancy charges, survey & investigation charges, administrative & misc. expenses (Rs.13.43 crore) Investments mainly includes investments in wholly owned subsidiary viz. Coastal Andhra Power Infrastructure Ltd. (CAPIL, formerly known as Rastriya Health Science Ltd.) of Rs.5 lakh Current assets mainly include inter corporate deposit (ICD) to CAPIL of Rs.1025 crore which will be liquidated in due course of time to meet the project expenditure. Unsecured loans represent ICD from RPL of Rs.971 crore.

Management, Organisation setup & Shareholding Pattern of ABC Management 1.08 The Articles of Association of ABC provide for a minimum of 3 and a maximum of 12 Directors on the Board of the company. The Board of ABC presently comprises three directors. 1.09 The Board needs to be broad-based by induction of professional/

independent directors. A suitable condition has been stipulated in this regard. Further, a condition for appointment of one Institution/Bank nominee in case of default has been stipulated. 1.10 None of the companies, in which directors of ABC are associated as promoters or as directors, is in the RBIs (i) wilful defaulter list (non suit-filed accounts) as on June 30, 2008; (ii) defaulters list (non-suit filed accounts) as on March 31, 2008, (iii) CIBILs Wilful Defaulters' List (suit filed accounts) of Rs.25 lakh and above as on September 30, 2008, (iv) CIBILs Defaulters' List (suit filed accounts) of Rs.1 crore and above as on September 30, 2008 and (v) Caution Advice Organisation set up 1.11 ABC has appointed the key executives for the development of the project, who would be assisted by a team of professionals at various levels specializing in critical functions related to design & planning, management of contracts, finance & accounts as also human resources and administration: Shareholding Pattern: 1.12 The authorized share capital of the company as on March 31, 2008 was Rs.6000 crore comprising 600 crore equity shares of Rs.10/- each. The subscribed and paid-up share capital of the company as on September 30, 2008 was Rs.5 lakh, which was entirely held by RPL (including its nominees).

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Compliance with Corporate Governance norms & International Financial Reporting Standards (IFRS) 1.13 ABC , being a new company and 100% subsidiary of RPL, not listed on

Stock exchanges, the corporate governance norms & IFRS are not applicable. The common loan agreement to be signed between the ABC and the lenders would have clause regarding compliance of corporate governance in case of listing of shares in stock exchanges. Affiliated / group companies Rastriya Group 1.14 Rastriya Group is one of the major private sector business houses in India. It has business interests in diverse areas such as telecommunications (Rastriya Communications Ltd. RCoL), financial services [Rastriya Capital Ltd. (RCL), Rastriya Mutual Fund (RMF), Rastriya General Insurance (RGI)], generation & distribution of electricity [Rastriya Power Ltd, BSES Yamuna Power Ltd and BSES Rajdhani Power Ltd), infrastructure [Rastriya Infrastructure Ltd. (erstwhile Rastriya Energy Ltd)] and media & entertainment (Adlabs Films Ltd.).

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Criteria for Target Client Selection under PFS: 1.15 The company's eligibility for RTL under PFS is as under:
Remarks New company. Promoter's track record is satisfactory. May be treated as complied with. No Parameters Norms 1 Profitability In view of high risks, Bank will associate itself with only those greenfield projects whose promoters have impeccable track record and demonstrated ability to withstand shocks. 2 Credit Normally A, BBB Rating depending on merits putting adequate mitigating measures in place. 3 Interest To be acceptable. Coverage 4 5

Risk Department (RD) has assigned rating of 'BBB' to the proposal.

6 7

Interest cover as on March 31, 2015 (first full year of operations) would be comfortable at 1.89 times. Complied with. Leverage Debt to Equity of Max 3:1 DER for the project is 3:1. for infrastructure and 1.50:1 Complied with. for others Current To be acceptable The current ratio as on March 31, Ratio 2015 (first full year of operations) would be at 2.62. (excluding cash balances, CR works out to 1.33) Complied with. Promoter 20 to 30% 25%. Contribution Complied with. Credit No known wilful default by The track record of assisted History the company or group companies in the group is satisfactory with no wilful default. Complied with.

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PART II TECHNICAL ASSESSMENT Project Structure 2.1 The contractual structure of the proposed power project is as under:

EPC Contractor EPC Contract Share Purchase Agreement PFC

Sponsor Equity Contribution Lenders Financing Agreements Lenders Substitution Rights CAPL Procurers

Coal Supply Agreement Fuel Supplier Port Services Agreement Contract of Affreightment Oceanic Freight Provider Default Escrow Agreement Power Purchase Agreement Default Escrow Agreement

Port Operator

Escrow Agent

Location: 2.02 The project would be located near Krishnapatnam village in the Nellore

District of coastal Andhra Pradesh. The site is generally plain with minimum undulations. The elevation of site varies between 1.5 m and 3.0 m above Mean Sea Level (MSL) in the main plant area requiring leveling, filling and grading to an extent of about 1 to 2 m. The site is well connected both by road and rail network. The nearest railway station and Airport at Venkatachalam and Chennai are about 23 km and 170 km respectively from the proposed site. The nearest National Highway (NH-5) is about 25 km from the project site. The nearest seaport i.e. Krishnapatnam port, about 3 km from the project site, is connected to NH-5

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through a two-lane road, which is proposed to be expanded to a four lane road. The proposed project site has been selected based on the following advantages: proximity to the coast therefore water requirements can be met easily proximity to the Krishnapatnam port area enabling easy transportation of imported coal well connected by rail & road network site does not fall under forest area project affected families are very less compared to other sites & hence minimal R&R issues no impact on ground water potential of the area as the project does not envisage any ground water usage 2.03 However, as the site is located close to Bay of Bengal which is cyclone prone area, wind velocity may go from 50 kmph to 165 kmph for 2-3 days in a year. The Krishnapatnam region, during 1977 to 1992, faced 41 cyclones (13 of these were of severe nature with wind speeds exceeding 87 kmph). As per wind and cyclones map of India, Krishnapatnam falls in Zone-5 (high damage risk zone) with a wind speed of 50 m/sec (180 kmph). The site comes under seismic Zone III. No earthquake has so far occurred in this area. The plant buildings and structures would be designed for the maximum wind velocity and seismic codal stipulations. The high tide level (HTL) and low tide level (LTL) with respect to Chart Datum (CD) are 1.2 M and 0.5 M respectively. The Safe Ground Level (SGL), being worked out considering drainage system, would be much above the HTL. The inundation and run-up limits at Krishnapatnam coast measured during post Tsunami (December 26, 2004) are 200 m and 2.5 m respectively w.r.t CD. As the plant is located around 1.5 km from seacoast, SGL fixed is such that there is no fear of risk due to Tsunami. A pre-disbursement condition has been stipulated that Lenders' Independent Engineer (LIE) shall review the adequacy of design of plant buildings and structures and the company shall resolve/take necessary steps to resolve issues, if any, arising out of the same to the satisfaction of IDBI/Lenders.

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Land: 2.04 The land required for the plant and supporting facilities is estimated at 2625
A P Genco Land 38 Total (Acres) 1586 318 330 215 176

acres. The break-up of the same is as under:

Particulars Private Government Endowment Land Land Land Power plant 1113 247 226 including greenbelt Township 171 147 Ash disposal I 3 289 Ash disposal II 105 110 Land Corridors 158 18 (coal conveyor, plant approach road, water in-take pipelines, and ash disposal pipelines) Total 1550 522 515

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2625

2.05

As per PPA, procurers are required to handover possession of land for

power station, water intake pipeline and fuel transportation system within 6 months from the effective date (January 29, 2008), which can be extended by another 6 months after which ABC may terminate the PPA. ABC has already paid Rs.195.73 crore to PFC for acquisition of entire land. Presently, it is in possession of about 1830 acres (70% of the requirement) of land as under:
Particulars Private Government Endowment Land Land Land Power plant 1102 243 0 including greenbelt (99%) (98%) (0%) Township 171 108 (100%) (73%) Ash disposal I 0 0 Ash disposal II 105 100 (100%) (91%) Land Corridors 1 0 (0.6%) (0%) Total 1379 451 0 (89%) (86%) (0%) A P Genco Land 0 0 (0%) Total (Acres) 1345 (70%) 279 (87%) 0 205 (95%) 1 (0.5%) 1830 (70%)

(Figures in bracket represent percentage acquired)

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2.06

As per land acquisition act, ABC has received permission from Hon'ble

High Court of AP in June 2008 for acquisition of endowment land. District Administration has initiated land acquisition process and is expected to be completed by March 2009. GoAP approval is awaited for taking possession of AP Genco land. The balance Govt. land and private land required for the project are expected to be acquired/taken possession during first/second quarter of CY 2009. A pre-disbursement condition has been stipulated that the company shall obtain the possession of the critical land required for construction work and smooth implementation of the power project, as certified by the LIE; it shall also initiate the process for obtaining the balance land as required for smooth implementation of the project. 2.07. As part of ABC ash corridor land lies in APGENCO territory and part of APGENCO coal conveyor land lies in ABC 's territory, both have entered into an MoU on May 20, 2008 for sharing the corridor land. Technology 2.08 The plant would have six units of 660 MW each using super-critical technology. Sub-critical and super critical conditions refer to behaviour of water at the critical point (i.e., 225.5 ata, 374o C) where there is no distinction between vapour and liquid phases and density of two phases is equal. The sub-critical power plants of 500 MW capacity operates with turbine inlet steam conditions of 170 ata at 537o C / 537o C reheat. Super-critical power plants normally operate at steam pressure of 240-250 ata. The main steam temperature and reheat steam temperature is in the range of 535-565oC. A comparison of sub-critical and supercritical technology is as under:
No 1 2 3 4 6 7 Parameter Circulation Boiler Pressure Range Temperature Range No of Reheat Cycle Efficiency Sub Critical Natural/Assisted Drum Type Up to 180 bar Up to 535o C Single 30-37% HHV Supercritical Forced Once through (Drum less) 246 to 300 bar 546o C to 600o C Single/Double in excess of 42-45% HHV

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No 8 9 10 11 12 13 14

Parameter Emission Levels CO2 Emission Levels SOX Fuel Consumed /kWh Operating flexibility Start up/ shut down time Response for load variance O& M manpower

Sub Critical Base Base Higher Base Larger Base Base

Supercritical 8% to 10% less 9% to 11% less Lesser Greater Flexibility Lesser Better Skilled manpower

2.09

The supercritical system has the following advantages:

enhanced plant efficiency minimize discharge of pollutants to the environment less fuel consumption for the same output adoption of once through boiler (boiler drum separating liquid and vapour in case of sub-critical system does not exist here) technology, which has advantage of operational flexibility to respond quickly to load changes & grid fluctuations, sliding pressure operation and shorter start-up times. Power plants in India based on Super Critical Technology 2.10 In view of the above advantages, the focus is now shifting towards establishing power plants based on super critical technology in India. NTPC is already implementing two power plants (Sipat & Barh) of 660 MW units on supercritical technology. All the UMPPs would be based on super-critical technology. Technical arrangements: EPC Contract 2.11 ABC proposes to execute the project through a fixed term and fixed lumpsum price EPC contract with a consortium of M/s Rastriya Infrastructure Ltd. (RIL) and Rastriya Infra Projects International Ltd. (RIPIL, an offshore subsidiary of RIL). The company has finalized the draft term sheet for EPC contract, brief details of which are given in Annexure-3. The company is in the process of negotiating and finalizing the terms of EPC contract. The EPC contract would have provisions for furnishing performance guarantees, payment of liquidated
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damages (LD) for delay in commissioning and shortfall in performance. The LD for delay in commissioning would be equal to the LD payable by ABC to procurers. It would also have incentives for early completion of the project. A precommitment condition has been stipulated that the company shall finalise and enter into a term sheet with EPC contractor, which would, inter alia, include scope of work, price, payment terms and performance guarantees in respect of the capacity, heat rate, boiler efficiency, auxiliary power consumption, emission norms etc. of power plant and desalination plant output. Further a predisbursement condition has been stipulated that the company shall enter into a fixed-term, fixed lump-sum price EPC contract for the project. The EPC contract for the project (including the technical specifications of BTG contract and desalination plant contract to be entered into by RIL with original suppliers) shall be reviewed by LIE/LLC and the company shall carry out necessary changes/ modifications to the same, if recommended by LIE/LLC and deemed necessary by IDBI/the lenders. Related party transactions 2.12 As the EPC contract would be awarded to the promoter/group companies, it has to be ensured that related party transactions are transparent, on arms-length basis and on commercial considerations. It is stipulated that LIE would verify all the related party transactions and certify that they are at market related prices. Further, a pre-disbursement condition has been stipulated that ABC shall provide an undertaking that none of the related party transactions pertaining to the project is/ or would be prejudicial to its interest and ensure that execution/renewal of all MoUs/contracts involving group companies have been/ would be approved by the Audit Sub Committee of the company's Board

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Profile of EPC contractor Rastriya Infrastructure Ltd. (RIL) 2.12 RIL (erstwhile Rastriya energy Ltd.), the flagship company of the RASTRIYA Group, is Indias largest integrated power utility company in the private sector. Along with its affiliates, it has a significant presence in power generation (941 MW), transmission [473 ckt-km, 220 kV transmission lines from Dahanu power station to distribution circles in Mumbai under operation, Western region system strengthening scheme (1550 km) and Parbati koldam transmission project are under implementation], trading (over 1 Bn units in FY 2008) and distribution (over 5000 MW) of power. It is also implementing (i) five toll-road projects, (ii) developing Mumbai metro (Versova-Ghatkopar) & Delhi metro rail projects and (iii) 100-storied tower and business centre in Hyderabad. During FY 2008, RIL has earned net profit of Rs.1085 crore on a turnover of Rs.7501 crore. EPC division of RIL: 2.13 The EPC Division of RIL, set up in 1966, has been associated with the development of 44 power sector projects in the last ten years. It has undertaken and successfully commissioned the following major projects: 2 x 250 MW coal-based Thermal Power Station at Dahanu, Maharashtra; 2 x 300 MW Yamunanagar Thermal Power Station for Haryana Power Generation Corporation Limited (HPGCL); 220 MW dual fuel based (natural gas & liquid fuel) Combined Cycle Power Plant at Samalkot, Andhra Pradesh; 165 MW liquid-fuel based combined cycle power project at Kochi in Kerala with an aero-derivative unit of 40 MW; and 106 MW Combined Cycle Power Plant of Gujarat State Electricity Corporation Limited at Dhuvaran, Gujarat 2.14 It is presently associated with the development of power projects of various capacities, including:

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6 x 660 MW pit-head coal and supercritical technology based UMPP for Sasan Power Limited. 2 x 600 MW Hisar Thermal Power Station for HPGCL; 2 x 600 MW Raghunathpur Thermal Power Station for Damodar Valley Corporation. 4 x 100 MW Urthing Sobla Hydro Electric Project in Uttaranchal; 2 x 210 MW Parichha Thermal Power Station for Uttar Pradesh Rajya Vidyut Utpadan Nigam - Civil works; 2 x 250 MW Parichha Thermal Power Station for UPRVUNL - Balance of Plant, Civil and Structural works; Main Electrical System Packages for 2 x 220 MW Nuclear Power Plant at Kaiga, Karnataka and 2 x 220 MW Nuclear Power Plant at Kota, Rajasthan for Nuclear Power Corporation of India Limited; More than 7000 Village Electrification, commissioning of new 52 GSS & Augmentation of 82 GSS under RGGVY Project; Changeover from overhead to underground Transmission Lines under Ranchi beautification scheme for Jharkhand State Electricity Board; 110 kV Switchyard and Revamping of Electrical System in the State of Tamil Nadu for Chennai Petroleum Corporation; and 220 kV D/C transmission lines Project from Panarsa to Nalagarh for AD Hydro Power Limited. RIL's Implementation strategy for the project Consultancy arrangements: 2.15 The Detailed Project Report (DPR) for Krishnapatnam UMPP (4000 MW) was prepared by M/s Water and Power Consultancy Services (India) Ltd. (WAPCOS) as technical advisor to ABC during the bidding stage (in November 2006). Subsequent to the award of the project, RPL has not prepared/revised DPR. As RPL/RIL has not implemented power projects of higher capacity based on super-critical technology, it has engaged the reputed consultants for the following services to assist them in implementation of the project:
Consultant Black & Veatch, USA Scope of Services i) Pre-award & post award engineering review for Boiler Turbine & Generator (BTG) ii) Consultancy on critical issues of the project like - high moisture coal study

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Consultant

Development Consultants (P) Ltd., Kolkata

STUP, India

Toshiba Power Systems Company Ltd. (TPSC), Hyderabad

Scope of Services - coating & painting for coastal environment - desalination study & technology selection - sea water intake & coal unloading options - any future need based requirement iii) Balance of Plant (BOP) Engineering - Review of Design Basis Reports (DBRs) & technical specifications of critical packages i) Preparation of DBRs and Technical Specification of all BOP packages (including Mechanical, Civil & structural, Control & Instrumentation & Electrical) ii) Review of engineering documents during detailed engineering for all BOP packages iv) Detailed Engineering of complete civil & structural works for the project i) Preparation of DBR, Technical Specifications and Bill of Quantity (BOQ) for Chimney. ii) Detailed Engineering and preparation of Released for Construction (RFC) drawings for Chimney. i) Detailed Engineering, Preparation of DBR, Technical Specifications, RFC drawings and BOQ for Civil, Architectural and Structural Works of BTG Area.

2.16

RIL, in order to complete the project within the scheduled time and price,

proposes to implement the project through various packages and sub-packages viz. studies & investigations, site enabling facilities, piling works, civil works, procurement packages, mechanical, electrical, control & instrumentation, etc. The list of packages is given in Annexure 4. RIL/ABC has already awarded contracts for carrying out various technical studies viz. Topographic survey, Soil investigation study, Sea water intake/outfall study, Oceanographic cum hydrological survey, Desalination plant study, etc., (brief details of various studies are given in Annexure-5). It has received most of the draft/ final study/ investigation reports, the recommendations of which would be suitably incorporated during design and construction stage of the project. RIL has already recruited 15 senior executives from various functional areas from the industry to formulate strategy and implementation methodology. RIL has already established
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engineering team for the project with more than 50 senior engineers headed by Executive Director (Technical). It has deployed about 100 personnel at the site to carryout the initial site enabling works. It proposes to recruit additional manpower in phased manner and deploy about 320 people during construction stage. A predisbursement condition has been stipulated that the LIE shall review the past track record/experience of RIL in executing power projects and its capability for executing the current project. Major Plant & machinery: Boiler, Turbine and Generator (BTG) 2.17 RIL proposes to source 6 x 660 MW super-critical technology based BTG package from M/s Shanghai Electric Group Company Ltd. (SEC), China. Steam Generator (Boiler) 2.17.1 The steam generators shall be of two pass design, radiant, single reheat, once through, water tube, direct pulverized coal fired, dry bottom type, balanced draft furnace, balanced draft suitable for outdoor installation. The main indicative parameters at 100% Boiler Maximum Continuous Ratings (BMCRs) are as follows:
Super Heater (SH) steam flow Steam Pressure & Temperature at SH outlet Reheater (RH) steam flow Steam Pressure & temperature at RH outlet 2134 tph ~ 257 kg/cm2/ 571oC 1752 tph 45.94 kg/cm2/ 569oC

Turbine: 2.17.2 The steam turbine shall be tandem compound, single reheat, regenerative, condensing, multi cylinder design with separate or combined HP-IP and separate LP casings, nozzle / throttle governing and directly coupled with the generator suitable for indoor installation. The indicative steam turbine parameters are as under:
Indicative Steam Turbine Parameters Output under Economic Maximum Continuous Rating (EMCR) (Guaranteed output load) at Generator terminals Duty Conditions 660 MW (In case of static excitation system, the EMCR output at generator terminals shall be 660 MW plus

22

Indicative Steam Turbine Parameters

Duty Conditions excitation power requirement at EMCR). Turbine throttle steam pressure ~ 246.7 kg/cm2 Turbine throttle Main steam/ Reheat Steam ~ 56 OC / 566 OC temperature Turbine speed 3000 rpm Condenser pressure Design 76 mm Hg De-mineralized (DM) water make up to 2.25% of throttle steam flow. thermal cycle under EMCR condition Final feed water temperature (at 100% 295 OC +/- 5 OC TMCR condition)

Generator 2.17.3 Each generator will be 2-pole, 50 Hz machine directly coupled to the turbine with a maximum continuous rating of 776 MVA (660 MW at 0.85 pf lag @ 3000 rpm) measured at generator terminals. The stator winding of the generator shall be cooled by means of de-mineralized water, passing through hollow stator conductors. The stator core and the rotor shall be cooled by hydrogen. Boiler Feed Pump 2.17.4 Three boiler feed pumps (BFPs) of 50% capacity each would be installed. Out of three BFPs, two would be horizontal, multistage, centrifugal type turbine driven boiler feed pumps with individual suction booster pump. Third BFP would be motor driven pump for start up, low load operations as also for emergency situations. Electrostatic Precipitators (ESP) & Chimney 2.17.5 Electrostatic precipitators (6 nos. with four passes and each pass with 4 or 5 fields) with an efficiency of not less than 99.82% shall be installed along with each boiler. ESP would comply with the particulate emission restrictions of 50 mg/Nm3 within Pollution Control Board's requirements (150 mg/Nm 3). Three multi-flue (two bi-flue & one single flue), 275 metre high, steel lined reinforced concrete chimney is envisaged for dispersion of effluents Condensing Equipment 2.17.6 The condensing equipment would comprise individual surface condensers for each of LP turbines. Each condenser would be of single pass design with two
23

cooling water compartments and single shell construction. The condenser would be provided with titanium tubes. Also, 3x50% capacity condensate extraction pumps would be there to extract condensate from the hot well i.e. bottom part of the condensers. Three 50% vacuum pumps would be provided to create and maintain vacuum conditions in each of the condensers during start-up and to remove the non-condensable gases liberated during normal operation. Condenser would be provided with on line tube cleaning system. Balance of Plant (BOP) 2.18 The major BoP envisaged for the project are Coal handling system, Fuel oil handling system, Plant water system, Ash handling system, Compressed air system, Electrical system, 400 kV switchyard for evacuation of power and Fire protection system. A condition has been stipulated that ABC shall award contract for packages (other than EPC contract) as may be required and ensure that all key contractors required for the implementation of the project have been identified and the agreements with them finalized within 12 months from the date of first disbursement. Profile of SEC (BTG supplier): 2.19 Shanghai Electric Group Company Ltd. (SEC), a subsidiary of Shanghai Electric (Group) Corporation [a state-owned enterprise established in People's Republic of China (PRC)], is presently engaged in the design, manufacture and sale of products and the provision of related services in the power equipment, electromechanical equipment (elevators, machine tools, etc.), heavy machinery equipment (nuclear plant), transportation equipment (metro rail cars, diesel engines), and environmental protection industry products (solar energy, sewage water treatment, desulphurisation and denitration business). There are 3 listed companies and 132 joint ventures within the SEC Group. During FY ended December 2007, it earned net profit of about Rs.3080 crore (RMB 4.3 Bn at conversion rate of Rs.1 = RMB 0.1393 on January 22, 2009) on total income of

24

about Rs.40,480 crore (RMB 56.4 Bn). Power equipment and Electromechanical equipment division accounted for about 82% of income. 2.20 SEC has established JVs with SiemensWestinghouse and has set-up major manufacturing factories as Shanghai Turbine Company Limited, Shanghai Turbine Generator Company Limited, and Shanghai Power Equipment Company Limited, which can design and manufacture upto 1000 MW grade fossil fuelled or nuclear power generator and main auxiliaries, large capacity fossil fuelled turbine and combined cycle units. Its Shanghai Boiler Works had technology transfer from ABB-CE and had long-term technology cooperation with Foster Wheeler, Alstom etc. SEC has been accredited with the international ISO 9001 Quality Assurance System and is authorized to apply ASME stamp on the pressure vessels. During FY2007, SEC has strengthened its manufacturing capacity of high-end power generation equipment (600-1000 MW super-critical/ultra super critical Units) and its annual production capacity has increased over 30,000 MW. During FY2007, sale of 600 MW Units accounted for about 75% of total sales of 24390 MW. It has pending orders for power generation equipment valued over RMB 120 Bn (Rs.86000 crore). SEC has so far supplied power generation equipment with a total capacity of about 60,000 MW to users in China, Southeast Asia, South Asia and Middle East. SEC's experience (submitted to CEA) of super-critical/ultra super-critical units is as under:
Operating Units 600 MW super-critical 660 MW super-critical 660 MW ultra super-critical 1000 MW ultra super-critical Nos 18 4 2 Year of commissioning 2005-2006 2006-2007 2006 Ordered/under erection 46 8 6 16

2.21

In India, it has supplied BTG package (2x300 MW) to Yamunanagar TPP

which has been commissioned in 2007; contracted to supply BTG packages with aggregate capacity of 15840 MW (7650 MW of sub-critical units of 135/300/600

25

MW units and 7920 MW super critical units of 660 MW) to RASTRIYA Group (SPL, ABC , RPSCL and Butibori), Jindal group, DVC and Hisar. Keeping in view that SEC's super-critical units are commissioned during 2006/2007 and its operational performance over the long term has not been established, a predisbursement condition has been stipulated that the LIE shall review the past track record/experience of BTG vendor in delivering equipment of similar unit size and technology.
Inputs for power generation

2.22

The main inputs for generation of power are coal and water. The steam

generator is designed for 100% coal firing and start-up with secondary fuel/startup fuel like LDO/HFO. Coal: 2.23 The coal requirement for the power plant of 3960 MW would be about proposes to source coal through long-term fuel supply 14.81 mntpa at 80% PLF [GCV: 4150 kcal/kg; Gross Station Heat Rate: 2245 kcal/kWh]. ABC agreement with Rastriya Coal Resources Private Ltd. (RCRPL, 100% subsidiary of RPL) over the term of the PPA. RCRPL intends to secure the coal requirement of ABC , through a combination of acquiring economic rights in coalmines in Indonesia as well as entering into long-term off-take agreements. Coal mine acquisition structure 2.23.1 RCRPL has entered into an Investment Agreement (IA) on March 14, 2008 with three coal concession companies viz., PT Brayan Bintangtiga Energi (BBE), PT Sriwijaya Bintangtiga Energi (SBE) and PT Sugico Pendragon Energi (SPE) and shri Kokos Leo, the majority shareholder of the coal companies for acquisition of 100% economic interest derived in these coal companies. The coal concessions are located in Musi Rawas region, South Sumatra province, Indonesia spread over a total area of 40,000 ha (BBE 16240 ha, SBE 20,020 ha and SPE 3720 ha). The concessions are at a distance of about 220-250 km from the nearest port

26

Bengkulu. Each of the coal companies holds Mining Authorizations /Permits known as Kuasa Pertambangan (KP). 2.23.2 As per IA, RCRPL has undertaken the technical due diligence (to ascertain the presence of coal deposits and economic viability of these deposits) and legal due diligence of the Coal concessions/companies. RCRPL has issued a letter to the coal companies confirming its intent to proceed ahead with acquisition and final definitive documentation is expected to be completed by March 2009. Each coal company (after obtaining the approval of the issuer of its KP) shall transfer the KP to the relevant PT Newco (newly incorporated company owned by shri Kokos Leo). The shares of PT Newcos shall be transferred to a local Indonesian national/company (local share purchaser) nominated by RCRPL. RCRPL (or its nominees) shall enter into Share Pledge Agreement/other agreements with local share purchaser to ensure that it becomes entitled to the entire economic benefit deriving from the mining activities. RASTRIYA Group is in the process of establishing a PMA (foreign investment) company [approval for which has been received from Investment Coordinating Board of Indonesia on November 18, 2008] which would enter into mining services agreement with PT Newcos. It will go for public issue on the Jakarta Stock Exchange after minimum 12 months of operation. After listing, it will acquire all the shares of the three PT Newcos Share from Purchase Share Pledge & Agreement the local share purchaser and thus obtain complete control of the KPs. The
Personal Guarantees, schematic layout of the proposed structure Local Share is as under: POA Purchaser/ company 100% ABC Power Ltd Exclusive off-take KP 27 Local Government Rastriya ADAG Conditional

100% after listing PT PMA Mining Services

100% (Reduction in holding after listing)

PT Newco 1/2/3

Mining Services Agreement

Coal Mine Development Current status 2.23.3 RCRPL has initiated the due diligence process to ascertain the presence of coal deposits in the concessions and also the quality of coal (BBE concession would be developed first, followed by SBE and SPE). It has engaged the services of various consultants [John T Boyd (Australia) Pty Ltd. and Martson & Martson Inc., USA] and contractors for undertaking preliminary survey & review of coal concessions, detailed exploration, coal sampling and analysis. RCRPL would establish an organization in Indonesia for the initial development and operations of concessions. It has already recruited team of geologists and mining engineers for supervision of the technical due diligence process. It proposes to commence coal production by June 2011 and achieve full capacity by December 2012. The proposed mine development plan of RCRPL is as under:
Month January 2009 February 2009 March 2009 June 2009 Nov 2009 Dec 2009 March 2010 Dec 2010 June 2011 Dec 2012 Activity Geological Report leading to estimation of coal resources, reserves and quality Preparation of Detailed Mining Plan Signing of definitive documentation for acquisition of economic interest in coal concessions Approval of Mining Plan by local Indonesian government Selection and Appointment of Contractors for Mining Equipment ordering for mine infrastructure development & operations Land acquisition for starting coal production Obtain all statutory Clearances and Approvals Equipment delivery for mine infrastructure development & operations Start of Coal production Mine production reaches full capacity

Third Party Mining Contractor

28

2.23.4 RCRPL proposes to engage the services of a reputed international Mining Contractor (MC) for development and operations of concessions in view of the following advantages: All major investments including capital expenditure towards mining equipments will be incurred by the MC. This not only reduces RASTRIYA Groups investments but also reduces future risks related to ownership and maintenance of capital intensive assets. Contract mining provides better cost control, which is critical for the project. Flexibility in production as the MC will be paid on per metric tonne of coal and per cubic meter of overburden removed. Reduced manpower and hence reduced operational risks. Access to contractors experience - Industrial relations & country and local knowledge Mine owner can focus on core activity. The MC can provide economies of scale and expertise. Coal analysis: 2.23.5 RCRPL had engaged the services of Marston & Marston Inc, USA (Marston) for undertaking a preliminary survey, desktop data review and validation of BBE coal concession estimated inferred coal resources of 125 million tonnes (mnt) of low rank coal to approximately 100 m below surface and further 110 mnt of inferred coal to lie from 100 m to 200 m below the surface. The size of the inferred resources is likely to be increased by 100% or more after a systematic drilling and analysis program has been carried out. Total moisture ranges from 24.32%-48.06% (average: 37.9%). Ash ranges from 1.34%- 22.02% (average: 6.84%). Calorific value ranges from 2822 to 5460 kcal/kg (average: 3679 kcal/kg). The sulphur is low (<0.2%). The suggested stripping ratio is around 5 bcm/tonne (volume of overburden in m3 removed to the tonnage of coal mined). Martson recommended detailed exploration plan (179 exploration holes and 27 partially cored holes) to ascertain the coal resources and quality. RCRPL, based on the recommendation, drilled so far 103 boreholes (including 23 cored holes) and

29

based on the analysis of 30 samples, estimated the coal characteristic (the exact coal characteristic would be finalised on conclusion of exploration works) as under:
No.
1. 2. 3. 4. 5.

Coal Quality Parameter Gross Calorific Value (on as received basis) (Kcal/kg) Total Moisture (on as received basis) - (%) Inherent Moisture (on air dried basis) - (%) Ash (on as received basis) (%) Sulphur (on as received basis) (%)

Range 4,015 4,512 29.98 39.78 11.52 15.83 0.85 8.56 0.07 0.30

2.23.6 Based on the data gathered during the detailed drilling program, Marston would prepare coal resources and reserves report furnishing inter alia coal reserve statement, coal quality, detailed geological report, estimate of coal resources, mining method analysis, equipment selection analysis, scheduling and sequencing analysis and project economic study. 2.23.7 As the moisture content of the Indonesian coal is high, in order to study the impact of high moisture coal on efficiency of steam generator and the overall efficiency of thermal generation, ABC has visited two power plants in USA, which uses high moisture lignite and sub-bituminous coal and also had discussion with reputed consultant in this field, Black & Veatch (B&V), USA. B&V expressed that there are several power stations operating in USA with subbituminous coal whose moisture content is similar to Indonesian coal and there would not be any difficulty in designing power station to burn an Indonesial subbituminous coal with moisture content in the range of 33.3-41%. The furnace size of the power plant would be slightly more and such proven size furnaces are available with all manufacturers. The proposed boiler design from SEC for the project would have heat release rate in furnace section of 1.95 lakh kcal/hr/sqm and furnace volume of 21433 m3 (against 1.74 lakh kcal/hr/sqm and 21462 m3 respectively of 660 MW Doosan boilers for Indian coal and 1.63 lakh kcal/hr/sqm and 24272 m3 respectively of 800 MW BHEL boilers). 2.24 A pre-disbursement condition has been stipulated that the company shall ensure that RCRPL/its nominees (i) finalise coal mine acquisition structure
30

(including payments to coal concession companies, royalty payment, if any, to Indonesian Government) and coal mine development plan, (ii) obtain all key required approvals/ clearances for mining (iii) furnish a certificate from a duly accredited agency certifying the minimum coal reserves and quality in the proposed coal mines so as to operate the plant for a minimum period of 15 years from project COD and (iv) execute firm agreement with coal concession companies and their promoter(s) for acquisition of 100% economic interest derived in these coal companies. The agreements/ related documents/ mine development plan/ approvals/ etc. shall be reviewed by LIE & LLC and the company shall make necessary changes/ modifications to the same if recommended by LIE/ LLC and deemed necessary by IDBI/ lenders. Coal Supply Agreement (CSA) 2.25 ABC proposes to enter into long term CSA (inline with PPA term) with RCRPL for supply of 15 mnt of coal at a price of USD 27.59 per tonne for delivery during FY 2013, which will be escalated @ 2.5% p.a. The salient features of draft CSA are given in Annexure 6. A pre-commitment condition has been stipulated that the company shall enter into a firm long term Coal Supply Agreement (CSA) with RCRPL for supply of coal (required for minimum PLF of 80%) to the satisfaction of lenders, which shall be reviewed by LIE & LLC and the company shall make necessary changes/ modifications to the same, if recommended by LIE/ LLC and deemed necessary by IDBI/Lenders. Coal transportation arrangements: 2.26.1 ABC proposes to enter into a long term agreement with Rastriya Natural Resources (Singapore) PTE (RNRS, a wholly owned subsidiary of Rastriya Natural Resources Ltd.) for transportation of coal through Capesize Vessel (of 180,000 dwt or above) from load port (s) in Indonesia to discharge port in Krishnapatnam. Assuming 335 days operations, vessel carrying capacity of 1,60,000 tonne of coal and round trip time for a vessel of about 22 days [with distance of 1780 nautical miles, ship speed of 13 knots/hr for loaded voyage and
31

14 knots/hr for ballast voyage, loading and discharging rate of 35,000 tpd and 40,000 tpd respectively, bunkering time of 0.45 days, port margin of 12 hrs each at load and discharge port, contingency of one day], one cape-size ship could carry about 2.44 mnt per annum. RNRS would charter about 6-8 capesize ships (to carry about 14.6-19.5 mnt) on a long-term basis. 2.26.2 RCRPL, with technical inputs from M/s Oldendorff Carriers GmbH & Co. KG (who has a proven track record in planning and designing maritime logistics transportation solutions for over 90 years) has finalized the following transportation mode as the most economical and feasible option: (i) Transportation by road (using trucks) from BBE and SBE concession till Muara Penekal (distance of 180 km and 120 km respectively from BBE and SBE concessions)

(ii) Barging (through 5000 DWT self propelled barges) along Musi river from Muara Penekal till the Capesize Vessel loading point near Bangka island (237 km) [Muara Penekal to Palembang is about 107 Km, Palembang to Pilot station is about 110 km and Pilot station to capsize port is about 20 km] (iii) Construction of 3 km long Capesize Pier at T.Berani& T.Kelian on Banka Island (which has better soil conditions for construction of port compared to the estuary of the Musi river) going directly into the sea. No dredging is anticipated in this area for construction. The indicative route map is as under:

32

Infrastructure development for coal transportation: Existing facilities 2.26.3 BBE concession has a flat terrain covered with wild trees and few burnt trees. SBE concession has flat terrain covered with palm oil trees. The existing road network is insufficient to transport 20 mnt of coal per year. The existing railway line from Bukit Asam coal mines near the town Muara Enim to Palembang has a capacity of approximately 2 mnt p.a. Musi river, which reaches closest to the concession areas has minimum draft of 3.5 m upto Muara Penekal. The width of the river ranges between 150 and 200 m upto Palembang, which is adequate for unobstructed passing of self-propelled barges with 2-way traffic. As the river bends in many places and due to restricted length of the barges, it is not feasible to employ pusher tugs with two coupled barges. The existing traffic along the river is about 2 mnt p.a. Proposed infrastructure facilities

33

2.26.4 As the existing infrastructure are inadequate, RCRPL proposes to develop the following facilities to transport 20 mnt of coal per annum from mine area to capsize port loading: 180 km new road network from mine area to barge load point 250 m long berth (to accommodate two barges at a time), space for storing about 5 lakh tonnes (one week of coal supply) of coal, two traveling loaders for loading of barges at the same time and bunker facility at barge loading area 3 km long Capesize Pier at T.Berani & T.Kelian on Banka Island barge discharge berths, grab discharge mechanism, bunker facility and coal storage space (to store about 3 million tonnes of coal) at capsize port area. The storage facility is required to be created to ensure a steady cargo flow for the Capesize loading, to take care of non-operations during the dry season (of 2 months), to avoid interruptions due to possible accidents on the river and to avoid waiting time for arriving barges (which would obstruct river transport chain) purchase 560 trucks [assuming capacity of each truck at 40 tonnes, average transportation distance of 150 km, truck speed of 50 kmph with 3 round trips per day] and purchase 35 barges including 5 spares [each barge round trip of 2.22 days (loading and discharging rate of 2000 tph and 1500 tph respectively, barge speed of 10 kmpr, one-way distance of 237 km), 5000 tonnes capacity, 300 days operation]

2.26.5 The construction of road network and port are expected to be completed by about 3.5 years while it would take about 2-3 years to build the barges. If there is any delay in the construction of port, coal can be unloaded temporarily using a transshipper or a floating crane terminal. The proposed coal transportation development plan (from mine to Indonesian port) of RCRPL is as under: Month Nov 2008 July 2009 Sep 2009 Activity Preliminary Feasibility Study for coal transportation (completed) Detailed Project Report for transportation solution Selection and appointment of contractors for transportation infrastructure
34

Month Oct 2009 Nov 2009 March 2010 Dec 2010 March 2012

Activity Equipment ordering for inland transportation infrastructure Obtain all statutory clearances and approvals Land acquisition / lease for road, barge jetty & port facilities Equipment delivery for inland transportation infrastructure Completion and commissioning of inland transportation Infrastructure

2.26.6 It is understood that PT Adaro, Indonesia has right to mine coal in the Tanjung district of South Kalimantan Province, Indonesia until 2022. It commenced production in 1992. It has been successfully hauling 50-55 mnt of coal per annum through truck/trailer for about 80 km (till Kelanis barge loading facility) and through barges (8000-14000 dwt) along the Barito channel (capacity of 60 mnt p.a.) to offshore transshipment site (250 km) or coal terminal (450 km). The coal transportation through road and river movement is well established in Indonesia and as such no problem would be envisaged in development of the proposed coal transportation network from mine areas to load port in Indonesia. A pre-disbursement condition has been stipulated that the company shall ensure that RCRPL/its nominees finalise coal transportation arrangements to transport coal from the coalmine(s) to load port, prepare detailed project report (DPR) for transportation network, obtain all required statutory approvals/clearances and tieup the entire fund requirement (equity/debt/etc.) for coalmine infrastructure development (road network, barges, port development, etc.). The DPR/ agreements/ related documents/ approvals/etc. shall be reviewed by LIE & LLC and the company shall make necessary changes/ modifications to the same if recommended by LIE/ LLC and deemed necessary by IDBI/Lenders. 2.26.7 The RASTRIYA group, taking into account its long term requirement of coal for its various projects and declining prices of coal, proposes to have combination of Indonesian coal mine development and long term (10-15 years) tie-up of coal from reputed suppliers. However, in order to implement the proposed project as per schedule, it has requested us to consider long-term tie-up
35

of coal as an alternative to the development of Indonesian coalmine and related infrastructure. Accordingly, the following pre-disbursement condition has been stipulated: In the event of the coal requirement for the project is being met from sources other than that of Indonesian coal mines being acquired by RCRPL/RASTRIYA Group, the following condition shall be applicable in lieu of pre-disbursement conditions mentioned in para 2.24 and 2.26.6 as above: The company shall have obtained and furnished from RCRPL (a) the long-term coal supply agreement entered into by RCRPL with the coal supplier(s) for supply of coal (required for minimum PLF of 80%) and (b) the coal sourcing plan of its supplier(s), which would inter alia include (i) coal reserves/quality/annual production and (ii) coal transportation arrangements from the coalmine(s) to load port etc to the satisfaction of IDBI/lenders. The above arrangements shall be reviewed by LIE & LLC and the company shall make necessary changes/ modifications to the same if recommended by LIE/ LLC and deemed necessary by IDBI/Lenders. Coal shipment from Load Port to Discharge Port Contract of Affreightment (CoA) 2.27 As mentioned earlier, ABC proposes to enter into long term (in line with PPA) Contract of Affreightment (CoA) with RNRS for transportation of coal through Capesize Vessel (of 180,000 dwt or above) from load port (s) in Indonesia to discharge port in Krishnapatnam at a freight rate of USD 7.25/tonne with builtin bunker adjustment factor as per standard practice followed by shipping companies. The salient features of draft CoA is given in Annexure 7. A predisbursement condition has been stipulated that the company shall enter into a Contract of Affreightment (CoA) with RNRS to the satisfaction of lenders, which shall be reviewed by LIE & LLC and the company shall make necessary changes/ modifications to the same if recommended by LIE/ LLC and deemed necessary by IDBI/Lenders. Inland Transportation arrangement (Krishnapatnam Port to Plant)

36

2.28

ABC

has entered into a Port Services Agreement (PSA) with

Krishnapatnam Port Company Ltd. (KPCL) on March 23, 2007 to use the facilities at the Port for handling imported coal. The port will be operational for a period of 320 days. The term of PSA is 25 years from the COD of power plant. KPCL shall make the terminal (2 berths suitable for maximum ship size of 180000 DWT with 18 m dredged depth, coal stackyard, equipment, dispatch system, etc.) available and operate it to enable the minimum guaranteed tonnage (12 mntpa) to be unloaded and handled at the terminal. ABC shall provide Notice To Proceed (NTP) to KPCL, specifying the date when the facilities need to be commissioned, which shall not be less than 33 months. If there is delay in commissioning of the facilities for a period of more than two months from the required date of commissioning, KPCL shall pay liquidated damages at the rate of Rs.50 lakh per day for the first month and Rs.1 crore per day thereafter until the facilities are commissioned. Based on the guaranteed unloading rate (40,000 tpd), both the berths together can handle the cargo volume upto 16 mnt in approximately 210220 days in a year. KPCL shall ensure storing of coal of at least 0.6 mnt in the Coal Stack yard. ABC shall pay to KPCL port dues (0.60 USD per GRT), berth hire charges (0.16 USD/GRT per day), coal handling charges (fixed charges Rs.207 crore p.a. and variable charges Rs.70/tonne of coal handled) and revenue share to GoAP (2.6% of gross turnover). ABC has option to enlist the services of KPCL for transportation of coal from coal stackyard to the power station by three km long conveyor system at additional cost. The salient features of PSA are given in Annexure 8. 2.29 It may be mentioned that the PSA was entered into before award of the project estimating the coal requirement of 12-13 mntpa (assuming PLF of 85% and GCV of coal of 6000 kcal/kg). With the present requirement of coal estimated at 15 mntpa (at 80% PLF and GCV of 4150 kcal/kg), the PSA needs to be modified with respect to the quantity of coal to be unloaded by the berths and stored (about 15 days requirement) at coal stackyard in the port. A pre37

disbursement condition has been stipulated that ABC satisfaction of lenders which shall be reviewed by the LIE. Krishnapatnam Port Development present status 2.30

shall amend the PSA

suitably (inter alia increasing the minimum guaranteed tonnage, etc.) to the

Krishnapatnam port is a deep-water all weather port being developed on a

Build, Operate, Share and Transfer (BOST) basis in a phased manner, under a concession awarded by GoAP. Krishnapatnam Port Company Ltd (KPCL), presently managed by Navyuga Group, has four berths (300 m each, 13 m draft to handle Panamax vessels upto 60000 DWT) to handle about 13.5 mntpa of cargo comprising coal, iron ore and general cargo. [Phase 1 (3 berths) was completed in July 2008 and Phase1A (fourth berth) in November 2008]. KPCL now proposes to implement Phase II of the expansion plan, which would include dredging upto 15 m/18m draft to accommodate capsize vessels of 180000 DWT and above, construction of additional 7 berths [4 for coal handling (including 2 for ABC ), 2 for general cargo and one for container cargo] to handle cargo capacity of about 41 mntpa. The cost of the project (Phase II) estimated at Rs.3870 crore is financed by equity share capital of Rs.878 crore, Senior Rupee Debt of Rs.2800 crore and Subordinated Debt of Rs.191crore. KPCL has already received sanctions aggregating Rs.2700 crore (Senior Rupee Debt: Rs.2575 crore and Subordinated Debt Rs.125 crore). IDBI sanctioned financial assistance of Rs.290 crore (Senior Rupee Debt of Rs.225 crore and Subordinated Debt Rs.65 crore) for the project. The project has thus achieved financial closure. The project is expected to be completed by December 2011. As first Unit of power project of ABC is expected to commence operations from December 2012, no problem is be envisaged in availability of berths for unloading of coal. Further, if there is any delay in completion of berths, ABC can import coal through Panamax vessels, which can be unloaded at the existing berths of KPCL. Secondary Fuel

38

2.31

It is envisaged that LDO/HFO would be used as the secondary fuel for

start-up operations and flame stabilization at lower load. The annual requirement of secondary fuel for the project, estimated at about 5100 tonnes, would be procured from refineries in Chennai/Vizag. The LDO/HFO would be transported to the plant site through rail/road tankers. As the quantity required is not large, it is envisaged that ABC would not have any difficulty in sourcing the same as well as in transporting it to the plant site Water 2.32 The total seawater requirement for the project, estimated at 36000 m3/hr (two-third for condenser cooling and one-third for fresh water production), would be drawn from the Bay of Bengal, which is 1.5 km from the project site. The water would be drawn through an intake pump house at seacoast and pumped to plant through required number of dedicated pipelines. Seawater would be used directly for condenser cooling. Fresh water produced from seawater, through a desalination plant, would be stored in desalinated water storage tank and used for other services such as demineralised water plant (for steam generator make-up, Hydrogen generation plant, chemical feed system, condensate polishing unit, etc.), coal handling/ash handling system, potable water for plant/colony, air conditioning system makeup and plant service water. The Transport, Roads & Buildings (Ports) Department, GoAP has given permission for the use of seawater. Water Intake/outfall mechanism 2.33 The seawater intake system envisaged for the power plant would be an open channel (approx. 100 m wide and 5 m deep) intake system with an on shore pump house. Breakwater would be constructed in the sea on the southern and northern side of the channel mouth to reduce the sedimentation. Through the open channel, the seawater shall be taken to the onshore seawater pump house located in the plant area. The velocity at the intake arrangement will be maintained between 0.3-0.45 m/sec to prevent marine life impingement on the intake screen. From the pump house, water will be internally distributed inside the plant through
39

pipelines for various processes such as Desalination, DM Water, Cooling water (CW), Service and Potable water requirements. From the on shore pump house, the seawater shall be pumped to the CW channel. The lowdown water from the CW system and the waste water from the desalination plant shall be pumped back to the sea after treatment at the sea water guard pond to meet the pollution control norms. The outfall point of the wastewater from the guard pond is suitably located away from the intake area to eliminate the re-circulation effect. The spent cooling water (about 25270 m3/hr), warmed to just above ambient seawater temperature, will be discharged into the sea through a discharge channel/pipe. The discharge point would be finalized (about 1.3 km from the shore at a depth of 6 m) so that the increase in temperature would be within Indian (7 oC above ambient at the receiving body) and World Bank limits (less than or equal to 3 oC at either the edge of the zone where initial mixing & dilution takes place or 100 m from the point of discharge). 2.34 ABC has appointed M/s Indomer Coastal Hydraulics Private Ltd. (authorized by Council of Scientific & Industrial Research to promote technology generated at National Institute of Oceanography (NIO), Goa) to review the survey reports, modeling study conducted by NIO and recommend the most optimized pipe route, intake & outfall point locations. ABC will finalise the intake/outfall locations on receipt of final report from the consultants, which is awaited. Desalination plant 2.35 M/s Black & Veatch has been appointed to carryout detailed technois presently evaluating of thermal desalination [Multiple Effect economic study to finalize the technology and potential locations for desalination plant. ABC Distillation (MED), which uses steam energy from turbine interstage] and Reverse Osmosis (RO, which uses electrical energy) processes for desalination of seawater. Both the technologies are proven, reliable and widely used worldwide and are supplied by major suppliers like M/s IDE Technologies Ltd., VA Tech Wabag Ltd., Degremont Ltd., Hindustan Dorr-Oliver Ltd., Paramount Ltd., Ion Exchange
40

(India) Ltd. and Thermax Ltd. On preliminary analysis, it has found RO to be better option. However, it has already discussed with BTG supplier to incorporate the additional requirement of steam quantity & quality and finalise the steam cycle on selection of thermal desalination process. 2.36 A pre-disbursement condition has been stipulated that the company shall finalise the water intake/outfall mechanism and desalination system, which shall be reviewed by LIE and the company shall make necessary changes/ modifications to the same if recommended by LIE/ LLC and deemed necessary by IDBI/Lenders. Power Evacuation System 2.37 The electricity generated at about 22 kV will be stepped up to 400 kV and connected to the 400 kV switchyard at the project site which will be evacuated as per PPA to AP (1520 MW), Karnataka (760 MW), TN (760 MW) and Maharashtra (760 MW). The procurers are responsible for (i) providing interconnection and transmission facilities to connect the power station to the grid system not later than the Scheduled Connection Date (i.e. 210 days before the Scheduled COD of the project), (ii) providing start-up power, (iii) payment of transmission charges and (iv) evacuation of infirm power subject to availability of transmission lines. Power Grid Corporation of India Ltd. (PGCIL), the central transmission utility (CTU), has the mandate of building the transmission lines and evacuation facilities on behalf of procurers. PGCIL, in January 2007, has carried out a study on evacuation of power from the project under long term open access and finalized the following scheme at an estimated cost of Rs.6800 crore:
1. Krishnapatnam Nellore 400 kV Double circuit (D/c) Quad line 30 km 2. Krishnapatnam Gooty 400 kV D/c Quad line 350 km 3. Krishnapatnam Chittoor 400 kV D/c 180 km 4. Chittoor Kolar 400 kV D/c Quad line 125 km 5. LILO of Raichur Gooty 400 kV D/c at Raichur (New) 2x30 km 6. Establishment of new 765/400 kV, 3x1500 MVA S/s at Raichur, Sholapur and Pune

41

7. Raichur (New) Sholapur 765 kV 2*S/c 250 km 8. Sholapur Pune 765 kV S/c 260 km 9. Pune Navi Mumbai 400 kV D/c 10. Narendra Kolhapur 400 kV D/c Quad Line 200 km 11. 1000 MW HVDC back-to-back link at Narendra (Southern region end) 12. Jeypore Bhadravati 400 kV D/c Quad with 50% compensation 360 km 13. Bhadravati Wardha 400 kV D/c Quad Line 130 km

2.38

In case any unit is not commissioned, due to unavailability of the

transmission system by the Revised COD i.e. COD as revised by ABC prior to Scheduled COD, the procurer(s) are required to pay to ABC an amount equal to that paid by the CTU / STU to the Procurers as per the terms of agreement entered into by the procurers with CTU / STU for establishment of transmission system for the period of delay up to scheduled COD. As per provisions of PPA, the procurers of ABC propose to enter into an Indemnification Agreement (IA) with PGCIL for the compensation towards delay/mismatch of commissioning of generating units vis--vis Associated Transmission System (ATS). As per IA, the defaulting party shall pay to the other party, interest during construction (IDC), incidental expenditure during construction (IEDC) and return on equity (RoE) from scheduled date to actual date of commissioning or one year whichever is less. A pre-disbursement condition has been stipulated that ABC shall ensure that the procurers of ABC shall enter into an Indemnification Agreement with PGCIL for the compensation towards delay/mismatch of commissioning of generating units vis--vis Associated Transmission System (ATS) as per the provisioning of PPA which shall be reviewed by LIE. Further, a condition has been stipulated that the company shall ensure procurers finalise and put in place the power evacuation arrangements as per the provision of the PPA i.e. at-least 210 days prior to COD of the project. A joint review mechanism between lead procurer/procurers and the company shall be put in place to review the progress in implementation of

42

development of associated transmission system, within six months from the date of first disbursement. Inputs during construction Construction & Start-up Power 2.39.1 The construction power requirement of the project envisaged at about 5-6 MVA would be availed at 33 kV voltage level from Brahmadevam 132/33 kV substation located at approximately 10 km from the plant. The construction power requirement has already been sanctioned by A. P. Southern Power Distribution Company Limited (APSPDCL). Start-up power at the project can be either 400 kV or 220 kV systems from the substation at Nellore (30 km from the site) Construction water 2.39.2 As per MoEF approval, no groundwater would be used for plant construction or operation. The construction water requirement (about 305 m 3/hr) would be met from fresh water supplied by Irrigation Department and a proximate surface water source. To meet the requirement during non-availability of the source, a raw water storage tank of adequate capacity would be provided. Permanent Township 2.39.3 About 550 dwelling units are proposed to be constructed for the project. Permanent Township for the project would be set up over 110 acres. Operation & Maintenance (O&M) arrangement 2.40 ABC proposes to carry out the O & M of the project in-house utilizing the technical support and training capability existing within the RASTRIYA Group. As the project would employ supercritical technology which is new to India, the plant operators of ABC would be provided requisite training in operating a supercritical power plant in tie-up with Original Equipment Manufacturers. ABC would enter into a strategic alliance with a major international power producer for providing necessary services so as to enable the company to employ the best international practices to operate the plant. All necessary programs (Environmental, health and safety compliance, spare parts identification and
43

procurement, inventory control and spares warehouse management, operations logs/reports etc) shall be established prior to commercial operation. Computerized Maintenance Management Systems (CMMS) supported by Condition Based Maintenance Systems (CBMS) and in-service inspection processes would be used to improve plant efficiency, reliability, operational safety as also to reduce frequency and severity of in-service machine failures and minimize operating cost. A suitable condition has been stipulated that the company shall make adequate arrangements for Operations and Maintenance (O & M) of the project including, inter alia, recruitment of qualified & experienced manpower, training of the O & M personnel, tie-up with the equipment supplier/EPC contractor for technical assistance at least one year prior to COD of the first unit. The O & M arrangements shall be reviewed by LIE to the satisfaction of IDBI/Lenders. Insurance Arrangement 2.41 ABC proposes to obtain insurance policies covering various risks during the construction and operation period of the project. The insurance during the construction phase would include insurance of all construction & erection risk, third party liability insurance, delayed & startup insurance and marine & cargo insurance. During operational stage of the plant, insurance policy as per the requirement of the project and in consultation with the Independent Insurance Advisor would be placed. The insurance would be in the joint name with lenders (co-beneficiaries) and shall be assigned in favour of the lenders. A precommitment condition has been stipulated that the company shall have appointed a Lenders Insurance Advisors (LIA) to review the insurance requirements for the project. Further, a condition for finalization of adequate insurance cover both during the construction and operations phase, as per the advice of LIA is also stipulated. Lenders' Independent Engineer
2.42

Asian Development Bank (ADB), which is considering foreign currency

loan of about USD 125 mn for part-financing the project, in consultation with
44

IDBI, has appointed M/s Mott MacDonald Private Ltd, India and Mott MacDonald Ltd., U.K as Lenders' Independent Engineer (LIE) on October 10, 2008 to carry out due diligence before financial closure (first phase). Mott MacDonald Ltd., U.K shall provide technical inputs relating to supercritical boiler and turbine technology and through M/s Dargo Associates, advice on coal sourcing, supply chain and transportation arrangements. The detailed scope of work for first Phase is given in Annexure-9. The scope of work for second & third phase (construction and operation period respectively) and selection of LIE would be decided later. A pre-commitment condition for appointment of LIE for the technical evaluation of the project (Phase-I) has been stipulated. Further, a pre-disbursement condition has been stipulated that the company shall resolve/take necessary steps to resolve issues arising out of the technical evaluation of the project by LIE. Lenders Legal Counsel (LLC) 2.43 Lenders Legal Counsels (LLC) is proposed to be appointed for carrying out the legal due diligence of the project. IDBI, in consultation with ADB, has finalized and in advanced stage of appointment of M/s Luthra & Luthra as the domestic Lenders' Legal Counsel (LLC). A pre-commitment condition for the appointment of LLC has been stipulated. D. 2.44 Implementation Schedule The project is proposed to be executed through a fixed term fixed lump sum

price EPC contract. As per PPA, ABC has to achieve financial closure and award EPC contract/ BTG package and issue NTP to the contractor within 12 months from the effective date (January 29, 2008) or 14 months from the date of issue of LoI (November 30, 2007) whichever is later. ABC has to achieve COD of the first unit not later than 69 months from the effective date and the fifth unit and power station within 93 months from the effective date (each Unit at an interval of 6 months). Accordingly, ABC has to achieve financial closure by January 2009, COD of first unit by October 2013 and the fifth unit & power station by September 2015. The financial closure date may be extended 'day for day' if the
45

land for power station is not handed over within 6 months from January 2008. The entire requirement of land is expected to be handed over by March 2009 and the company proposes to achieve financial closure by June 30, 2009. ABC proposes to achieve COD of first Unit within 42 months from financial closure and subsequent Units at an interval of 3 months as under: Particulars Financial closure COD Unit I COD Unit II COD Unit III COD Unit IV COD Unit V COD Unit VI & Station Timeline June 30, 2009 (tentative) December 31, 2012 March 31, 2013 June 30, 2013 September 30, 2013 December 31, 2013 March 31, 2014

It may be observed that the first unit and the entire power station are expected to be commissioned about 9 months and 6 months respectively ahead of schedule envisaged in the PPA. E. Overall Technical Assessment The coal-fired technology is one of the oldest and proven technologies for power generation. Super-critical thermal power plants are relatively new in India, but have been successfully operating in other countries. The super critical technology for power generation would improve efficiency and reduce emission. The project is proposed to be implemented through fixed time fixed price EPC contract with a consortium of RIL and RIPIL. RIL would be utilising the services of reputed consultants to carryout the critical studies, engineering review of BTG package, preparation of design basis reports, etc., to assist in implementation of the project. RIL would source BTG package from SEC China. SEC's super-critical/ultra super critical plants (660 MW 1000 MW) are successfully operating in China with availability in the range of 89-98%. Sasan UMPP is also sourcing BTG package from SEC. ABC proposes to source coal through long term fuel supply agreement with Rastriya Coal Resources Private Ltd. (RCRPL, 100% subsidiary of RPL) over the term of the PPA at a price of USD 27/tonne for FY 2013 with escalation of 2.5% p.a. RCRPL intends to secure the coal requirement of
46

ABC , through a combination of acquiring economic rights in coal mines as well as entering into long term off-take agreements. The coal would be transported by ships through long-term contract with Rastriya Natural Resources Singapore (100% subsidiary of Rastriya Natural Resources Ltd.) The raw water requirement will be met from Bay of Bengal. The company would set up desalination plant and DM plant to meet the requirement of desalinated water and DM water respectively O & M activities would be carried out by the company in-house with assistance from OEM suppliers and recruiting experts in the field of operation of super critical boilers & desalination plant. RASTRIYA Group has adequate experience in implementation and operation of thermal power plants. The project is considered technically feasible. ---

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PART III MARKET ASSESSMENT Power Scenario In India 3.01 The power generating capacity in India has increased from 1,362 MW in 1947 to about 1,45,627 MW as on August 31, 2008. The electricity generation during FY 2008 was about 704 billion units (BUs). The demand-supply gap has been increasing over the years due to various problems faced by the sector, with energy shortage and peak power shortage during FY 2008 at 9.9% and 16.6% respectively. To achieve 'power for all by 2012, GoI targets to add about 1,00,000 MW of generating capacity during X and XI Plans. It may be mentioned that during the last three 5 year plans (VIII, IX and X Plans), the aggregate capacity additions were about 56,618 MW against the target of 1,11,893 MW (achievement of about 50%) resulting in continued increase in energy and peak power deficit. As per 17th Electric Power Survey (EPS), energy demand at the end of XI Plan (2012) and XII Plan (2017) is estimated at 968 BU and 1392 BU respectively. Peak demand during the corresponding period is estimated at about 152 GW and 218 GW respectively. Projected Energy Requirement and Peak Load
Region Peak Load (MW) 2011-12 2016-17 2021-22 Northern 48,137 66,583 89,913 Western 47,108 64,349 84,778 Southern 40,367 60,433 80,485 Eastern 19,088 28,401 42,712 NE Region 2,537 3,760 6,180 All India 1,52,746 2,18,209 2,98,253 Energy Requirement (MU) 2011-12 2016-17 2021-22 2,94,841 4,11,513 5,56,768 2,94,860 4,09,805 5,50,022 2,53,443 3,80,068 5,11,659 1,11,802 1,68,942 2,58,216 13,329 21,143 36,997 9,68,659 13,92,066 19,14,508

Source: 17th EPS Capacity addition programme 3.02 As per CEA estimates, the likely capacity additions during XI th Plan (2012) are 86,965 MW (central-42013 MW, State-27952 MW, Private-17000 MW) as detailed below:

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Region Northern Western Southern Eastern North Eastern Total

Hydro 8,769 1,610 1,217 2,673 2,724 16,993 Coal 14,61 0 21,39 3 9,360 16,19 0 750 62,90 3

Thermal Gas Diesel 220 2,258 1,001 787 4,266 23 23

Nuclear Wind Total 14,830 23,651 10,361 16,190 1,560 66,592 440 0 2,940 3,380

Total 24,039 25,261 14,518 18,863 4,284 86,965

Source: CEA, Project Monitoring Cell However, considering the achievement of about 50% of the planned capacity during the last 15 years, it is unlikely that the envisaged capacity addition as mentioned above would be achieved and therefore, the energy and peak power deficit in the country is likely to continue for an extended period of time. 3.03 As the power generation from the project is proposed to be sold in Southern Region (SR) and Western Region (WR), the demand-supply position therein is analyzed as under: Power Scenario in the Southern Region (SR) 3.04 The total installed capacity in the SR as on November 30, 2008 was 40140 MW. During FY2008, SR registered energy and peak power shortage of 3.2% and 9% respectively. State-wise energy & peak power shortages during FY 2008 are as under:
Peak Demand (MW) AP 10,048 Karnataka 6583 Kerala 2918 Tamil Nadu 10,334 Pondicherry 276 Source: Ministry of Power State/UT Peak Deficit (MW) (886) (1016) (188) (1644) 0 Peak Deficit (%) 8.8 15.4 6.4 15.9 0 Energy Requirement (MU) 64,139 40,320 15,663 65,780 1840 Energy Deficit (MU) (2628) (1090) (379) (1826) 0 Energy Deficit (%) (4.1) (2.7) (2.4) (2.8) 0

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3.05

As per 17th EPS, projected energy and peak demand in SR is as under:

Peak Load (MW) 2008-09 2011-12 2016-17 11,160 14,155 21,845 6928 8486 13,092 3004 3392 4574 10,649 13,677 21,976 493 657 1061 32,234 40,367 62,548 Energy Requirement (MKwh) 2008-09 2011-12 2016-17 67,966 89,032 1,32,118 42,574 53,540 79,996 16,096 19,230 26,332 66,911 87,222 1,34,755 3242 4419 6868 1,96,789 2,53,443 3,80,069

State/UT AP Karnataka Kerala Tamil Nadu Pondicherry Total

Source: 17th EPS Power Scenario in the Western Region (WR) 3.06 The total installed capacity in the WR as on November 30, 2008 was 45,098 MW. During FY2008, WR registered energy and peak power shortage of 15.8% and 23.2% respectively. State-wise energy & peak power shortages during FY 2008 are as under:
State/UT Peak Peak Demand Deficit (MW) (MW) Gujarat 12,119 (3234) Chattisgarh 2421 (233) M.P. 7200 (764) Maharashtra 18,441 (4866) Daman & Diu 240 (25) Dadra & N. H. 460 (36) Goa 457 (49) Source: Ministry of Power Peak Deficit (%) (26.7) (9.6) (10.6) (26.4) (10.4) (7.8) (10.7) Energy Requirement (MU) 68,747 14,079 41,560 1,14,885 1774 3388 2740 Energy Deficit (MU) (11,133) (670) (5860) (21,039) (194) (16) (33) Energy Deficit (%) (16.2) (4.8) (14.1) (18.3) (10.9) (0.5) (1.2)

3.07

As per 17th EPS, projected energy and peak demand in WR is as under:

Peak Load (MW) 2008-09 2011-12 2016-17 12,422 14,374 19,670 2,769 3,565 5,375 7,501 8,462 11,772 18,859 21,954 28,348 579 778 1,266 374 552 857 551 721 1,083 39,513 47,108 64,349 Energy Requirement (M.U) 2008-09 2011-12 2016-17 73,497 85,445 1,19,083 16,977 21,785 33,076 42,680 49,338 70,445 1,13,878 1,25,661 1,67,227 3,580 5,042 8,204 2,038 3,005 4,890 3,425 4,583 6,880 256,075 294,860 409,805

State/UT Gujarat Chattisgarh M.P. Maharashtra Dadra & N. H. Daman & Diu Goa Total

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Capacity Addition Programme in SR & WR 3.08 As per CEA estimates, the likely capacity additions in SR and WR during XIth Plan (2012) are 14920 MW and 25261 MW respectively. Going by the past trend of capacity addition, it is possible that some of these capacities may not materialize as per schedule, leaving sufficient unmet demand for the proposed project to sell its capacity. Power off-take Arrangements 3.09 ABC has entered into 25 years PPA with 11 procurers in SR and WR on March 23, 2007 for sale of 100% of the power to be generated from the proposed project as detailed below:
No. I 1. 2. 3. 4. II 5. 6. 7. 8. 9. III IV State Andhra Pradesh (AP) AP Central Power Distribution Company Limited (APCPDCL) AP Southern Power Distribution Company Limited (APSPDCL) AP Eastern Power Distribution Company Limited (APEPDCL) AP Northern Power Distribution Company Limited (APNPDCL) Sub-total (I) Karnataka Hubli Electricity Supply Company Limited (HESCL) Bangalore Electricity Supply Company Limited (BESCL) Chamundeshwari Electricity Supply Company Ltd. (CESCL) Gulbarga Electricity Supply Company Limited (GESCL) Mangalore Electricity Supply Company Limited (MESCL) Sub-total (II) Tamilnadu - Tamilnadu Electricity Board (TEB) (III) Maharashtra- Maharashtra State Electricity Distribution Co. Ltd (MSESCL) (IV) Total (I+II+III+IV) Percentage 17.375 9.200 6.675 6.750 40.000 2.000 10.000 3.000 2.000 3.000 20.000 20.000 20.000 100.000

3.10

Summary of the PPA is given in the Annexure 10, salient features of

which are as under: (i) Term: 25 years from the Project COD. (ii) Tariff: The Tariff payment shall comprise of two parts: (i) Capacity Charge (CC) =Quoted non-escalable CC + Quoted escalable CC (ii) Energy Charge (EC) = Escalable EC + Non-escalable EC
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Escalable energy charge = summation of escalable (i) fuel energy (usd/kwh), (ii) transportation energy (usd/kwh) and (iii) fuel handling charges (Rs/kwh) Non-escalable energy charge = summation of non escalable (i) fuel energy (ii) transportation energy and (iii) fuel handling charges The CC would be fully payable for normative availability of 80%. ABC has quoted escalable CC of Rs.0.182/kwh and non-escalable CC in the range of Rs.1.001 0.318/kwh during the 25 years. ABC has quoted only non-escalable fuel energy charges (USD 0.01820-0.03898/kwh during the 25 years) and escalable fuel handling charges (Rs.0.034/kwh). The tariff of ABC , [assuming escalation rate for capacity charges & fuel handling at 4% p.a. and exchange rate of 1 USD = Rs.48 as on June 30, 2009 with rupee depreciation of 0.5% p.a.] during the term of PPA works out to be in the range of Rs1.814-3.870/kWh with levelised tariff of Rs.2.49/kWh [against levelised tariff of Rs.2.33/kWh evaluated by PFC based on escalation rate at 5.18% p.a. and exchange rate of 1 USD = Rs.39.32 with rupee depreciation of 0.74% p.a at the time of bid evaluation] (iii) Payment Security Mechanism

A 2-tier payment security mechanism is proposed comprising an irrevocable standby LC equivalent to 1.1 times the average monthly dues and escrow of the incremental receivables, to be effective as per the provisions of the PPA. (Incremental Receivables has been defined as the amount of the receivables, in excess of the amounts which have already been charged in favour of procurer's financing parties, executed prior to the Effective date, provided such charge shall be limited to the extent of their outstanding exposure as on the Effective date i.e. January 29, 2008). Accordingly, the Default Escrow Agreement along with the Agreement to Hypothecate cum Deed of Hypothecation, which together constitute the Collateral Agreement (CA) were signed on March 28, 2007. Under CA the procurers hypothecate an amount equivalent to the LC and the minimum flow in any month to the designated Escrow Account would be equal to the LC amount. ABC has first ranking charge on the revenues routed through Default Escrow

52

Account and the incremental receivables. Salient features of the Default Escrow Agreement and Agreement cum deed of Hypothecation are enclosed in Annexure 11. A condition has been stipulated that ABC shall agree to establish the satisfactory payment security mechanism including LC at-least one month prior to the scheduled COD of the first unit as per the provisions of the PPA. Further a predisbursement condition has been stipulated that LIE & LLC shall review the PPAs and the company shall take all necessary steps to resolve the issues raised if any, to the satisfaction of IDBI/Lenders. (iv) Third party sale In case of default by a Procurer, ABC has an obligation to offer 25 % of such default electricity to other non-defaulting Procurers, after providing at least 7 days notice to the defaulting Procurer. If the non-defaulting Procurers do not accept the offer, ABC would have the option to sell the power to third parties. (v) Event of Default /Termination The PPA provides for the termination in case of defaults by either party. There is a provision for sale of power to third party in case of termination of PPA due to procurers Event of Default (EOD). Further, in case of termination due to procurers EOD, procurers would have to pay capacity charges based on normative availability to seller for a period of 3 years from the 8 th day after expiry of consultation period (90 days). However, any excess realization over energy charges (of defaulting procurer) shall be used to reduce the capacity charges of the defaulting procurer. If ABC terminates the agreement before 3 years, procurer's liability to make capacity charges shall cease. In the event of continuing default by ABC , lenders have right to exercise substitution of ABC or procurers may require lenders to exercise the right to seek substitution of ABC for the residual period of PPA.

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Assessment of the adequacy of the Escrow Arrangement 3.11 At the instance of ABC , CRISIL has carried out the adequacy of the revenue stream of each of the procurer to support the payment obligation of the ABC s project through incremental receivables. CRISIL has estimated the incremental receivable based on the future revenue and cash flow of procurers by estimating consumer category-wise tariffs, sales, non-tariff income and subsidy. The incremental receivables of the procurers is projected based on net excess cash flows arrived after deducting expenses towards existing power purchase cost, fuel cost, O&M cost, interest, transmission charges and depreciation (as a proxy to loan repayment for the investments in distribution business) from gross revenues. CRISIL has assumed that all expenses as on FY 08 as existing charge or obligation of the procurer. Any additional revenue generated after the effective date is considered as first charge for ABC . 3.12 The cumulative incremental receivables (i.e. revenue through additional sales) during the period FY 2009 to FY 2014 and the payment obligation to ABC during FY 2014 as estimated by CRISIL are as under:
Procurer Maharashtra Tamil Nadu
BESCL CESCL GESCL HESCL MESCL

Amount available as 1st Payment obligation Escrow cover charge to ABC (A) to ABC (B) C=A/B (times) 14193.4 1266.4 11.20 8409.70 1266.4 6.64
4313.3 1065.2 939.0 1066.10 1273.20 633.20 190.00 126.60 126.60 190.00 6.81 5.60 7.42 8.42 6.70

Total Karnataka 8656.80 1266.40 Andhra Pradesh APCPDCL 3035.10 1100.2 APNPDCL 552.00 427.40 APSPDCL 1391.10 582.50 APEPDCL 1179.80 422.70 Total A.P 6158.00 2532.80 Source: CRISIL Report on Incremental Receivables.

6.84 2.76 1.29 2.38 2.79 2.43

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3.13

It may be observed from the above that the incremental receivables of the

procurers are sufficient to cover the entire liability towards ABC s project. The incremental receivables are expected to increase further due to following: The receivables that have already been charged are likely to be released after the repayment of the procurers' existing loan and interest liability resulting in the improvement of the amount available for escrow cover; Due to the limited information available in the public domain, it has been assumed that the entire existing receivables have been charged and no amount is available for ABC . It is likely that certain amounts from the existing receivables would also be available for ABC . 3.14 It may be mentioned that the above incremental receivable are estimated

assuming 92% collection efficiency for Maharashtra and 98% for AP, Karnataka and TN, phased reduction in T&D losses (through implementation of reform measures by the procurers) and achievement of efficient cost targets (including loss reduction trajectory). If there is any adverse variation on these parameters, the cash flows of the procurers could be stressed. This may result in default by the procurer to either its lenders or to the generators but not to the ABC since it is covered through escrow formulation that accounts only incremental receivables. However, the provision of third party sale in the PPA would substantially reduce the payment default risk of ABC to the lenders. Tariff competitiveness of the project 3.15 CRISIL has analysed the competitiveness of the project with respect to purchases from other power plants by procurers under merit order dispatch scenario for FY 2008. It has concluded that about 44% of the power is purchased at a variable price less than Rs.1.25/kWh and the balance 56% at variable price higher than Rs.1.25/kWh. As the levelised energy charges of ABC (as estimated by PFC at the time of award of the project) was Rs.1.25/kWh, ABC would have advantage over almost 56% of the power in the merit order dispatch with enough

55

margin to remain un-impacted by fluctuation in demand and supply. The statewise competitiveness of ABC under merit order scenario is as under:
Price Band Less than Rs.1/ unit Rs.1-1.25 /unit Rs. 1.26-2.0/unit More than Rs. 2.0/unit Total Maharashtra 16% 7% 60% 17% 100% (78943 MU) Advantage to ABC 77% over other suppliers % of total power purchased Tamil Nadu Karnataka 19% 36% 9% 13% 48% 27% 24% 23% 100% 100% (62151 MU) (40609 MU) 72% 50% AP 36% 55% 5% 4% 100% (50851 MU) 9%

3.16

It may be observed from the above that, ABC would have advantage over

almost 77%, 72% 50% and 9% of the power purchased in the merit order dispatch in the state of Maharashtra, TN, Karnataka and AP respectively. Earlier dispatch of power and price advantage reduce significant risk of default and provide priority to ABC over other power generating companies. 3.17 Considering significant power deficit situation in the country, expected power deficit situation in SR & WR, competitive tariff of the power generated from the project, expected superior dispatch position of ABC , satisfactory payment security arrangement being offered and the comfortable incremental receivable coverage, ABC generation. Overall Market Assessment The generation capacity in the country has grown at a CAGR of about 8% during the last fifty years. However, the envisaged capacity additions could not be achieved due to poor financial health of SEBs, non-reimbursement of subsidies by State Governments and less active participation by private parties. With slower growth in capacity additions, the demand-supply gap continued to increase. During FY 2008, the energy shortage and peak deficit in the country was at 9.9% and 16.6% respectively. SR faced energy shortage and peak deficit of 3.2% and 9% respectively and WR faced energy shortage and peak deficit of 15.8% and 23.2% respectively. may not find it difficult to sell its entire power

56

The entire power generated would be sold to 11 procurers for a period of 25 years from COD through long term PPA with two-tier payment security mechanism. The PPA has provision for third partly sale in case of default by any of the procurers. As per CRISIL study, escrow cover available for the project from the procurers would be comfortable. With control over price of imported coal and freight cost (RASTRIYA group controlling the entire economic interest of coal mines in Indonesia and ABC entering into long term fixed price agreement for coal supply and transportation), the cost of generation of power would be competitive (about 24-37 paise less than the tariff during the tenure of the loan). As there has been considerable power shortage in WR & SR, ABC may not face any difficulty in selling the entire power generated from the project through long-term competitive tariff [levelised tariff of Rs.2.49/kWh and variable tariff of Rs.1.43/kWh]. ---

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PART IV FINANCIAL ASSESSMENT A. 4.01 PROJECT COST The cost of the project has been estimated by the company at Rs.17607 (Rs.crore)
Project cost Land EPC Rupee FC component component 254 5728 7531 (1550) 40 692 40 6754 7531 316 166 2237 271 332 10076 7531 Total 254 13259

crore, details of which are as under:

Logistics for offshore supplies 40 Non-EPC items 692 Service tax & withholding tax 40 Total hard cost (A) 14285 Pre-operative expenses (B) 316 Financing cost (D) 166 Interest during construction (IDC) (C) 2237 Contingency (E) 271 Margin money for working capital (F) 332 Total Project cost (A+B+C+D+E+F) 17607 Capital cost per MW 4.36 Figures in bracket represent USD. ER assumed at 1 USD = Rs.48 (on Financial closure date of June 30, 3009) with rupee depreciation of 0.5% p.a.

Land (Rs. 254 crore) 4.01.1 The entire requirement of land admeasuring 2625 acres would be acquired by procurers and transferred to ABC as per PPA. As per SPA executed with PFC, ABC has already paid Rs.254 crore to PFC towards the cost of entire land (Rs.196 crore, about Rs.7.46 lakh/acre), R&R programme (Rs.20 crore) and administrative /consultancy services till transfer date (Rs.38 crore). The cost of land includes the cost of the main plant area, ash dyke area, colony area and intake water pipeline corridor. The cost of site development works has been included in the EPC cost.

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EPC cost (Rs. 13259 crore) 4.01.2 The EPC cost includes cost of civil works, BTG package, Balance of Plant (BoP) including coal-handling system, cooling tower, DM water system, etc. The break up of EPC cost comprising 5 contracts viz. Offshore equipment supply contract (USD 1503 mn), Offshore services contract (USD 47 mn), Onshore equipment supply contract (Rs.3448 crore), Onshore construction contract (Rs.1350 crore) and Onshore services contract (Rs.930 crore). The EPC price is inclusive of all taxes except service tax and withholding tax (Rs.40 crore) payable with respect to offshore services and shall be subject to obtaining all applicable fiscal benefits under the Mega Power policy. Non-EPC Cost (Rs.692 crore) 4.01.3 Non-EPC cost includes the cost of external fuel transportation system, water & ash pipelines, ash dyke, permanent township and transmission lines. However, it is understood from the company that a separate EPC contract would be executed with RIL for constructing some of these facilities at an appropriate time. Pre-operative Expenses (Rs. 316 crore) 4.01.4 Pre-operative expenses include administrative expenses (Rs.156 crore) , construction insurance (Rs.85 crore erection all risk insurance @ 0.25% of gross block, marine insurance @ 0.1% of imported components and advance loss of profit insurance @ 0.1% of gross profit during first full year of operations FY2015), O&M mobilization expenses (Rs.30 crore) and consultants/advisors fee (Rs.45 crore) Financing cost (Rs.166 crore) 4.01.5 Financing cost comprises upfront fees (@ 0.2% of rupee loans, 1% of FC loans and 0.7% of buyers' credit), syndication fee (0.225% of rupee loans) and commitment charges (same as syndication fee).

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Interest during construction (IDC) (Rs. 2237 crore) 4.01.6 IDC has been computed based on the capital expenditure phasing schedule over 57 months (from July 2009 to March 2014), DER of 75:25, upfront equity of 20%, rupee term loans (Rs.7743 crore) at an interest rate of 13% p.a., ECB loans (USD 1 Bn) at 9.735%, FC loan from ADB (USD 125 Mn) at 8.5% and buyers credit to be substituted by rupee loans during operations period (USD 350 Mn equivalent to about Rs.1700 crore) at 7.25% p.a. Letter of credit (LC) charges for imports and bank charges for DSRA has been assumed at 0.45% p.a. The year wise capital expenditure and means of financing thereof is estimated as under:
Capex Margin money for WC Total Equity Loans Total 2010 2367 2367 880 1487 2367 2011 2135 2135 245 1890 2135 2012 3937 3937 984 2953 3937 2013 6563 92 6665 1664 4993 6657 2014 2274 240 2514 628 1883 2511 Total 17275 332 17607 4402 13205 17607

Contingency (Rs.272 crore) 4.01.7 As the project would be implemented through a turnkey fixed-price fixedterm EPC Contract, no contingency provision has been provided for the EPC cost. However, a contingency provision of 10% of non-firm cost (preliminary & preoperative expenses, IDC and financing charges) of the project has been provided. A pre-commitment condition has been stipulated that the company shall obtain and furnish an undertaking from RPL that (a) increase in project cost on initial detailed review by LIE and (b) any cost overrun up to 10% of the total project cost (as reviewed by LIE), shall be met by RPL through additional promoters contribution without recourse to project assets in a form and manner acceptable to IDBI/Lenders. To meet any overrun beyond 10% of the total project cost, the company shall approach and submit to IDBI, a financial plan, acceptability of which would be at the sole discretion of IDBI.

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Margin money for working capital (Rs. 332 crore) 4.01.8 Provision for margin money has been estimated @ 25% of projected net working capital requirement during the first full year of operations (FY 2015) assuming receivables (1 month), fuel stock (2 month), fuel advance (10 days) and O&M spares requirement equal to 1% of the project cost. Expenditure incurred till date 4.02 As on September 30, 2008, ABC has incurred an expenditure of about Rs.976 crore on the project mainly towards acquisition of land (Rs.140 crore) and capital work in progress (Rs.836 crore including advance to capital contracts of Rs.785 crore) which has been met out of the equity share capital, share application money and inter corporate deposit from RPL. Mega Power Benefits 4.03 power Ministry of Power (MoP) vide its letter dt May 21, 2007 has certified that purchasing states have constituted their Electricity Regulatory the project is (i) an inter-state thermal plant of capacity of 1000 MW or more, (ii) Commissions with full powers to fix tariffs and (iii) these states undertake, in principle, to privatize distribution in all cities in their states, each of which has a population of more than one million, within a period to be fixed by the MoP. (conditions for compliance of mega power policy). Accordingly, the company has assumed the mega power benefits (exemption of customs duty and excise duty on equipment and material supply based on deemed export benefit) while estimating the cost of the project. A pre-disbursement condition has been stipulated that the company shall ensure that the approval for availing the mega power benefit is maintained in full force and effect.

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Project Cost comparison 4.04 The capital cost of ABC has been compared below with the capital cost of coal (Rs. crore)
Project Capacity Cost Cost per Envisaged (MW) MW COD Krishnapatnam UMPP (ABC ) 6 x 660 17275 4.36 Mar 2014 Sasan UMPP (SPL) * 6 x 660 16123 4.07 Mar 2013 Mundra UMPP $ 5 x 800 17024 4.26 Apr 2012 Jhajjar Power Ltd. (JPL) # 2 x 660 5488 4.16 May 2012 Jaiprakash Power Venture Ltd (JPVL) ** 2 x 660 5642 4.27 July 2012 Adani Power Ltd. (APL) *** 3 x 660 8267 4.18 Apr 2012 * excluding coal block development cost (including IDC) of Rs.3157 crore $ based on industry data & information memorandum # excluding flue gas desulphurisation plant cost of Rs.237 crore ** excluding cost of transmission line and purchase of railway wagon aggregating Rs.278 crore *** excluding cost of captive coal mining, railway siding and power transmission line aggregating Rs. 844 crore based power projects developed/ being developed using super-critical technology:

4.05

It may be observed that the capital cost of the project is marginally higher

than that of other projects mainly on account of higher exchange rate (Rs.48/USD) assumed on FC component and interest rate on loans (13% p.a. for RTL and 9.04% p.a. for FCL). In view of this, the hard cost of the above projects are compared as under:
Capacity Hard cost (Rs.cr) FC cost (Mn USD) Exchange rate (Rs/USD) Hard cost/ MW Hard cost/ MW at ER of Rs.48.59/USD ABC 3960 14285 1550 48.59 3.61 3.61 SPL 3960 13833 1843 43.21 3.49 3.74 Mundra 4000 14512 NA NA 3.63 3.63 JPL 1320 4426 686.6 45 3.35 3.54 APL 1980 7073 1437 39.85 3.57 4.21

4.06

It may be observed that the hard cost of the project is comparable to that of

other UMPPs and super-critical based power projects being developed. A precommitment condition has been stipulated that the company shall agree that the cost of the project shall be firmed up based on the review by LIE; if there is any
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reduction in project cost, equity and the loan amount would be reduced proportionately. A suitable condition for review of the project cost during implementation period has also been stipulated. B.
4.07

MEANS OF FINANCE
The cost of the project, estimated at Rs.17,607 crore, is proposed to be financed

with DER at 75:25 as under: Particulars Rs. Crore Percentage (%) Promoters Contribution 4402 25.0 - Equity Capital 2201 12.5 - Sub-debt 2201 12.5 Rupee Term Loans * 7743 44.0 Foreign currency loans 5462 31.0 - ECB/IIFCL (USD 1 Bn) 4856 27.6 - ADB (USD 125 Mn) 606 3.4 Total Debt 13205 75 Total 17607 100 * ABC has option to avail buyers' credit to the maximum extent of USD 350 Mn out of RTL facility Promoters contribution (Rs.4402 crore)

4.08

The entire promoters' contribution shall be brought in by RPL through a

mix of equity and quasi equity (in the form of subordinated unsecured debt/ preference shares). Of the total promoters contribution, RPL proposes to bring upto 50% by way of quasi-equity (sub-ordinate debt), which would not carry interest during the construction period and would not be repaid during the currency of senior loan. It would carry interest during the commercial operation period, payment of which would be subject to compliance of all financial covenants and restrictive payment conditions. A suitable condition has been stipulated in this regard. A pre-commitment condition has been stipulated that the company shall obtain and furnish an undertaking from the promoter (RPL) that RPL shall maintain minimum 51% equity in the company at all times and shall not

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sell quasi-equity to companies other than RASTRIYA group without written permission from IDBI/lenders during the currency of the debt. Estimates of availability of funds 4.09 As mentioned earlier, RPL, in January 2008, raised Rs.11563 crore through an IPO for financing equity contribution of six projects (ABC project not included). The surplus funds out of IPO proceeds along with Rs.2000 crore brought in by the promoters before the IPO would be utilised towards equity contribution of the proposed project. ABC has already received Rs.1025 crore (23.3% of promoter's contribution) from RPL as share application money and spent about Rs.980 crore on the project. A pre-commitment condition has been stipulated that the company shall obtain and furnish an undertaking from RPL that RPL shall obtain all statutory/ non-statutory clearances/approvals, if any required for utilisation of part of its IPO proceeds for the ABC 's project. The year wise requirement/ utilisation of RPL's equity contribution for various projects (including equity funding of cost overrun, if any, of 10% in case of Sasan and Krishnapatnam UMPPs and 5% in other projects as per undertaking furnished/ being furnished by RPL) has been estimated by the company as under: Requirement: (Rs.crore)
Projects/ (Equity%) 200 2010 2011 2012 9 Butibori (20%) 261 -153 104 Rosa II (20%) 423 -142 42 Rosa I (20%) 355 185 135 -Sasan (25%) 123 1652 1577 1 Shahapur (25%) 164 176 316 Urthing Sobla (25%) 12 164 344 Krishnapatnam (25%) 724 156 245 984 Total Equity 317 341 2667 3367 0 (figures in bold represents overrun equity funding) 2013 -151 -390 544 104 1664 2853 2014 ---1940 240 628 2808 1761 1761 2015 ----Total 518 758 675 6790 1440 624 6162 16967

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Availability: (Rs.crore)
Particulars 2009 2010 2011 Opening Cash 13550 10661 10964 Less Equity 3170 341 2667 Add: Interest # 281 619 498 Income (@ 6%) Add: Cash 0 25 92 Accruals * Closing Balance 10661 10964 8887 # Net of refund of share application money 2012 8887 3367 331 284 6135 2013 6135 2853 197 154 3633 2014 3633 2808 50 1081 1956 2015 1956 1761 12 1639 1846 Total 13550 16967 1988 3275 1846

* The projected free cash flow of the subsidiaries is estimated as under:

Projects Butibori Rosa II Rosa I Krishnapatnam Sasan Grand Total 2010 25 25 2011 92 92 2012 144 133 82 -75 284 2013 156 114 96 -39 -173 154 2014 184 119 97 -7 688 1081 2015 204 115 99 876 345 1639 Total 688 481 491 830 785 3275

4.10 It may be observed that against the total requirement of Rs.16967 crore (equity contribution of Rs.12533 crore and cost overrun, if any, of Rs.4434 crore), RPL's expected fund generation would be about Rs.18813 crore (IPO: Rs.11550 crore, Promoters equity: Rs.2000 crore, Interest income on cash balance: Rs.1988 crore, net cash flow from subsidiaries: Rs.3275 crore), leaving a surplus of Rs.1846 crore. Further, RPL is required to contribute about Rs.1100 crore as equity for coal mine and infrastructure development in Indonesia over the next 3-4 years. It may be mentioned that ABC has estimated the cash accruals of the above projects assuming that there would not be any time overrun, though projects may suffer cost overrun and entire free cash flow would be declared as dividend to RPL. Further, about 83% of free cash flow is expected to be available during FY 2014 and FY 2015 and about 50% would be from SPL and ABC (proposed project). If there is any delay in implementation of the projects, the cash generation would also get delayed, which may affect the

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timely availability of funds for the project. However, the above estimates assumes overrun equity funding of about Rs.4434 crore and interest income on cash balances conservatively @ 6% p.a. As all the projects are being implemented through fixed-time fixed-price EPC contracts, the possibility of cost overrun on all projects would be remote leaving additional funds available for financing the proposed project and coal mine infrastructure development project. Thus, RPL's fund position would be comfortable to finance the equity contribution of the project even if there is any delay/shortfall in availability of funds from operating subsidiaries. 4.11 A pre-commitment condition has been stipulated that ABC shall obtain and furnish an undertaking from RPL that RPL shall subscribe to the entire equity share capital (including quasi-equity) of the company, bring in atleast 20% of the same up-front and the balance 80% on pro-rata basis as per the requirements of the project. A pre-disbursement condition has been stipulated that the company shall demonstrate to IDBI that satisfactory arrangements have been made for tie-up of the entire equity (including quasi-equity) requirement arrived at on review of the project cost by LIE; ABC shall ensure that atleast 20% of envisaged promoter's contribution requirement arrived at on review of the project cost by LIE have been brought in up-front and spent on the project and provide suitable undertaking to bring in the balance 80% as per requirements of the project.. Debt (Rs.13205 crore) 4.12 The debt component of Rs.13205 crore is proposed to be tied up through a mix of RTL (Rs.7743 crore) and FCL/ECBs (USD 1125 mn equivalent to about Rs.5462 crore). While FC component of the project is being independently arranged by the company, IDBI has been appointed to tie-up the entire rupee debt requirement. The construction period for the power station from financial closure would be 4.75 years. The moratorium period for all loans would be 0.5 years. The

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interest rate and repayment of the loans would be as under:

RTL (Banks) RTL (FI) ADB IIFCL ECB (Rs.crore) (USD Mn) Amount 4243 3500 125 500 500 Interest rate (%) 13.00 13.00 8.50 9.82 9.65 Total Repayment 14.75 years 14.75 years 16.75 years 16.75 years 12.75 years Refinancing after 9.75 years 9.75 years 9.75 years 7.75 years Repayment till 70% 62% 62% 70% refinancing Bullet repayment 30% 38% 38% 30% Upfront fee 0.2% 0.2% 1% 1% 1%

4.13

The rupee loans from banks would carry fixed interest rate at IDBIs BPLR

(presently at 13.5% p.a.) prevailing on the date of first disbursement, payable monthly. Interest rate shall be reset after expiry of 12 months from the date of first disbursement and every 12 months thereafter during the currency of the assistance based on IDBI's BPLR prevailing at that time. Besides, the company would also pay to IDBI syndication fee of 0.225% of loans syndicated. 4.14 Keeping in view the present market conditions, if there is any shortfall in FC loans, the same would be tied-up as rupee loans to achieve financial closure. However, during 36 months from financial closure, the company would have the option for funding Debt by way of ECA/ ECB/ FCL to the maximum extent of 42% of total Debt (including ECB borrowings tied-up at the time of financial closure) without payment of prepayment penalty. Correspondingly, the RTL will get reduced to that extent on a pro rata basis. Security and Margin 4.15 The term loan and the working capital lenders [subject to the maximum limit of Rs.1400 crore (including non-fund based limit of Rs.400 crore)] would be secured by a first charge on all the immovable and movable assets of the company, present and future. The charge created or to be created would rank pari passu with the participating FIs/Banks. The total asset coverage (fixed assets and current

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assets) and security margin on completion of the project (March 2014) work out to 1.27:1 and 21% respectively, which is expected to increase over the years. Financing of coal mine development by RCRPL 4.16 As the entire requirement of coal for the project is proposed to be sourced from Indonesian coal mines, which is being developed by RCRPL (100% subsidiary of RPL), the capital cost and operating cost of coal mine development is estimated by the company as under: Capital cost
No Infrastructure Mn USD 1 Road transportation [road construction (USD 0.75 million/km), truck loading 225 facilities, land lease/purchase (385 Ha), trucks, control system, etc.] (entire fleet of 560 trucks would be replaced every two years financed through internal accruals 2 Barging [Barges, capital dredging, Discharging jetty, navigational aids, 265 cranes & conveyor system, storage facilities (land, payloaders, telestacker, conveyor system, fuel storage facility, office building), Barge loader, etc. 3 Capesize port [3 km pier, Stacker & Reclaimer, one ship loader, two tug 170 boats (90 T Bollard pull), one pilot boat, 10 MW power plant, coal storage area (60 Ha for 3 million tonnes), Payloaders, mobile crane, office building, fueling facility, etc.] Total 660

4.17

Based on the above capital cost and financing at DER of 70:30, the equity

requirement of RPL for coal mine development and inland transportation in Indonesia is estimated by the company at about Rs.1100 crore. RPL proposes to finance its equity through internal generations. It proposes to finalise the financing plan on completion of technical & legal due diligence of the coal companies/concessions. As the timely development of coal mine and transportation infrastructure in Indonesia is critical for the project, a precommitment condition has been stipulated that the company shall obtain and furnish an undertaking from the promoter (RPL) that RPL shall, in the event of sourcing the coal requirement of the project from Indonesian coal mines being acquired by it, arrange to fund the same and related infrastructure development so as to meet the coal requirement for commissioning of the project as per schedule,
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to the satisfaction of IDBI/Lenders; the company shall agree that LIE will monitor the progress in implementation of the coal mine and infrastructure development periodically on behalf of the lenders and report the progress directly to IDBI. Further, keeping in view that the coal mine development (including transport infrastructure) would also take about 3.5 years, a pre-disbursement condition has been stipulated that the company shall ensure that RCRPL/its nominees shall tieup the entire fund requirement (equity/debt/etc.) for coal mine infrastructure development (road network, barges, port development, etc.) which shall be reviewed by LIE. C. 4.18 PERFORMANCE INDICATORS Assumptions underlying the profitability estimate are given in Annexure

12. Projected profitability, projected cash-flow statement and projected balance sheets of the company are given in Annexures 13, 14 and 15 respectively. Summary of the profitability estimates and the key financial indicators on completion of the project are as under:
(Rs. crore)
For the year ending on March 31, Capacity (MW) Availability (%) PLF (%) Tariff (Rs./kWh) - Capacity charges - Variable charges 2013 3960 93 80 1.81 4 0.88 2 0.93 2 205 22 11 64 37 (79) -ve (42) 2014 3960 93 80 1.82 5 0.88 7 0.93 8 2863 857 30 927 525 (595) -ve (70) 2015 3960 93 80 2.62 8 1.20 0 1.42 9 7015 3517 50 1810 904 712 10 1616 1.67 2016 3960 93 80 2.64 5 1.20 8 1.43 7 7049 3437 49 1732 905 710 10 1615 1.36 2017 3960 93 80 2.54 8 1.21 6 1.33 2 6792 3079 45 1622 906 488 7 1394 1.28 2018 3960 93 80 2.59 1 1.22 5 1.36 6 6902 2932 42 1518 908 449 7 1357 1.27 2020 3960 93 80 2.68 0 1.24 3 1.43 7 7142 3098 43 1313 910 777 11 1686 1.47 2022 3960 93 80 2.63 1 1.11 9 1.51 2 7010 2729 39 1100 911 637 9 1548 1.44 2024 3960 93 80 2.730 1.139 1.591

Total income PBIDT PBIDT margin (%) Interest Depreciation PAT PAT margin (%) Gross Cash Accruals DSCR *

7198 2436 34 904 912 550 8 1462 1.52

* from first full year of operations with refinancing of debt. Assuming bullet repayment of loans at the end of 9.75 years from the moratorium period out of project

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cash flows (i.e., without refinancing of debt) except institutional tranche of Rs.3500 crore which would be repaid over 14.75 years, the average DSCR works out to 1.21 times.

Financial indicators on completion of the project (2014)

Total asset coverage (times) Margin on Security (%) DSCR (Project) - minimum * - Average (17 years) IRR (Post tax) (%)-Project * from first full year of operations. : : : : 1.27:1 21% 1.27 1.49 12.58%

Promoters undertaking to fund cash loss: 4.19 As the company is expected to incur cash losses from the commissioning of the first unit till project COD, a pre-commitment condition has been stipulated that ABC shall obtain and furnish an undertaking from RPL that RPL shall bring in additional funds by way of equity/quasi-equity, equal to the initial cash losses upto project COD (i.e., COD of last unit) for meeting the O&M and debt servicing requirements of the company, without recourse project assets in a form and manner acceptable to IDBI. Cost of coal 4.20 Though the company proposes to enter into long term CSA with group company at a price of USD 27.59 (during FY2013) with escalation of 2.5% p.a., the viability of the project depends on the coal production at an economic price. RASTRIYA group has estimated the cost of production of coal as under: Operating expenses per annum
No Infrastructure Mn USD 1 Road transportation [fuel @ 0.04 tons/100 km, road maintenance (8% 88 of capital cost), truck maintenance, repairs, salaries, insurance @ 0.5% of capital employed] escalated at 2.5% p.a. 2 Barging [Bunker, stores, barges crewing cost, repairs, site office 36 expenses, etc.] escalated at 2.55 p.a. 3 Capesize port [fuel, maintenance, crew expenses, manpower, power, 9 etc.] escalated at 2.5% p.a. Total 133

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4.21

Based on the above envisaged capital cost, financing structure (DER of

70:30, interest rate of 10% and loan repayment over 15 years) and operating expenses, the coal transportation cost has been estimated by RCRPL at USD 10.5/tonne of coal. The cost of mining coal is estimated at USD 10.5/tonne and other expenses (including royalty to Government) at USD 3/tonne. The aggregate coal cost from Indonesian mine to load port on FOBT basis works out to USD 24/tonne (on bid deadline date of October 24, 2007) which has been assumed in the financial model. Foreign Exchange Management: 4.22 As the proposal envisages sourcing of imported coal and tie-up of FC loans

to the maximum extent of about 42% of total debt, the foreign exchange management is critical for the company. As ABC would be entering into fixed price coal supply agreement, there would not be any price risk. However, as the cost of coal and transportation is denominated in USD, the company has to bear the forex risk on the same. Further, it has to bear the forex risk on servicing of FC loans. As electricity would be sold within India, there would not be any foreign exchange earnings. As the fuel energy charges are quoted in USD, the foreign exchange risk to that extent is pass through in the tariff. It may be mentioned that fuel energy income (where foreign exchange protection is available) constitutes about 50%-55% of total income while fuel cost (including transportation cost) constitutes about 40%-50% of total income during the currency of loans. The interest and principal repayment of FC loans constitutes about 7%-2.6% and 5%6% of total income respectively. Keeping in view that the interest includes hedging cost, the foreign exchange protected earnings (fuel energy income) would be more or less sufficient to meet the servicing of coal (including transportation) cost and principal repayment of FC loans. Thus the adverse rupee depreciation against USD may not materially affect the company in meeting USD denominated cash outflow of the company. However, a condition has been stipulated that the

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company shall put in place a suitable mechanism for hedging the risks (both interest rate and currency) in respect of the Foreign Currency Loan within 6 months from the date of first disbursement of the FCL CDM benefits 4.23 As the proposed project is based on the super critical technology, it would result in CO2 emission reduction and therefore, be eligible for incentives by way of carbon credits under Clean Development Mechanism (CDM) of Kyoto Protocol. The company has appointed Ernst and Young as the CDM consultant for the preparation of Project Design Documents (PDD). The CO 2 emission reduction [CERs -Certified Emission Reductions] is estimated at 2 mn CERs per annum (however for profitability estimates, it has been conservatively assumed as 1.5 mn CERs p.a. for 10 years. [CER rate and exchange rate have been conservatively assumed at Euro 9/CER & Rs.55/Euro respectively]. It may be mentioned that though the benefit under Kyoto protocol would expire by 2012 as per prevailing guidelines, the projected financials includes the benefit by way of sale of CER till FY 2022 as it can be reasonably assumed that the benefit will be extended after 2012.

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Sensitivity Analysis
No. Scenario 1 Base Case* 2 Increase in gross heat rate by 5% 3 Auxiliary consumption at 8% 4 Combination of 2 & 3 5 Inc. in hard cost by 10% (Rs.1662 inc.) 6 Plant availability at 75% 7 PLF at 65% 8 Dec. in calorific value of coal by 6% 9 Inc. in coal price by 10% 10 Coal price escalation at 4% p.a. 11 Inc. in O&M costs by 25% 12 Inc. in interest rate by 1% p.a. 13 No other income (CER, incentive & 1.43 1.21 11.94 interest income) 14 Rupee depreciation against USD at 1% 1.47 1.25 12.58 15 Inflation rate at 6% 1.47 1.25 12.38 16 All rupee funding (except USD 300 mn 1.42 1.23 12.65 from IIFCL and USD 125 mn from ADB * Gross heat rate: 2245 kcal/kwh, Aux. consumption: 6%, Calorific value: 4150 kcal/kg PLF:80%, Coal price on bid date USD 24/tonne with escalation of 2.5% p.a., Interest rate (construction RTL:13%, FCL:9.04% with 25 bps less during operation period), Inflation rate: 4%, ER: 1 USD = Rs.48/- with rupee depreciation of 0.5% p.a. DSCR) Avg. Min 1.49 1.27 1.38 1.20 1.41 1.21 1.30 1.15 1.36 1.16 1.35 1.16 1.43 1.23 1.35 1.19 1.32 1.17 1.24 1.09 1.43 1.23 1.41 1.20 Project Post-tax IRR (%) 12.58 11.62 11.82 10.81 11.40 11.22 12.04 11.34 11.06 10.38 12.07 12.61

4.24

It may be observed that the project would withstand all adverse scenarios

with comfortable DSCR. The sensitivity analysis on coal price escalation at 4% (instead of 2.5% assumed in base case) (scenario 10) indicates that the project IRR would be low at 10.38%. However, the average DSCR would be comfortable at 1.24 times. With the proposed mix of rupee/FC loans and fuel energy income quoted in USD, rupee depreciation against USD would not have any material impact on debt servicing ability of the company. It may be mentioned that DSCR is comfortable mainly due to repayment of about 62%-70% of loans during initial 9.75 years and the balance 38%-32% of loans would be repaid out of fresh borrowings. A condition has been stipulated that ABC shall agree that in case DSCR in any year exceeds 1.25 times, 50% of the additional cash flow (cash

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available above DSCR of 1.25) would be utilized for prepayment of unamortized portion of the debt. However, during last three years of repayment schedule, 75% cash surplus available beyond DSCR of 1.15 will be utilized for prepayment of unamortized portion of the Debt. A condition has also been stipulated that the company shall create Debt Service Reserve Account for two-quarter dues of the project lenders. D. RISK ANALYSIS 4.22 The analysis of various risks and proposed mitigation measures are as under:
Risk Allocated to Pre-construction Approvals / ABC Clearances Risk mitigation mechanism Most of the approvals (including MoEF clearance) had been obtained by ABC before the award of the project to RPL. The status of clearances is given in para 5.12 of the memorandum. A suitable pre-disbursement condition for obtention of clearances has been stipulated. The entire envisaged promoter contribution of Rs.4402 crore would be brought in by RPL as equity share capital/sub-debt out of funds brought in by the promoters and raised through IPO. A suitable pre-disbursement condition for subscription of 100% equity and up-front contribution of atleast 20% has been stipulated. As per the PPA, the entire land for the power station would be acquired by Procurers. ABC has already obtained possession of 1830 acres (about 70%) out of 2625 acres of land required for the project. A suitable pre-disbursement condition for acquisition of required land has been stipulated The project is proposed to be implemented through a fixedprice, fixed-term EPC contract, which has already been negotiated with RIL. It may be mentioned that the EPC cost in term of INR has been arrived at considering exchange rate of Rs.48/USD on financial closure (June 30, 2009) with rupee depreciation of 0.5% p.a. Besides, a contingency of about 10% of the non-firm cost (Pre-operative expenses, IDC and financing charges) has been provided in the project cost. The major portion of foreign currency expenditure is proposed to be met out of FC borrowings to mitigate exchange rate risk. Further, the promoters, would furnish an 74

Promoters' Contribution

RPL

Construction risks Land Procurers/ ABC availability

Project cost overrun

ABC / RIL

Risk

Allocated to

Time overrun ABC / RIL/ Insurer

Evacuation facilities

Procurers

Force Majeure

ABC / Insurer

Risk mitigation mechanism overrun undertaking to the extent of 10% of the project cost, in a form and manner acceptable to IDBI/Lenders. The EPC contract would provide for penalties / LDs in case of a delay in completion of the project. As per EPC agreement to be executed, COD would be achieved ahead of the PPA requirement. Further, based on the recommendation of the LIA, suitable insurance may also be obtained to cover for delays in the project implementation. Appointment of a LIA has been stipulated as a pre-commitment condition. The procurers shall be responsible for providing interconnection and transmission facilities to connect the power station to the grid system not later than the Scheduled Connection Date (i.e. 210 days before the Scheduled COD of the project). As mentioned earlier, if there is any delay in commissioning of transmission system, PGCIL shall pay to the Procurers interest during construction (IDC), incidental expenditure during construction (IEDC) and return on equity (RoE) from scheduled date to actual date of commissioning or one year whichever is less, which would be passed on to ABC as per PPA. A suitable condition for execution of the agreement between procurers and PGCIL has been stipulated. Suitable insurance covers would be obtained to cover for force majeure events based on the recommendations of the LIA. If any force majeure event occurs during construction period, the scheduled COD would be extended for a reasonable period of time.

Post construction
Regulatory Risk ABC / Procurers ABC has been awarded the project in accordance with Competitive Bidding Guidelines. Hence, tariff payable would be as per the quoted tariff. PPA has already been entered into with various DISCOMS committing the off-take of power. Tariff of the project has already been adopted by CERC and hence there is no uncertainty in this regard. Year on year approval is not required. ABC / RIL As per PPA, full tariff shall be recoverable at normative availability of 80%. As all the generating stations of RASTRIYA group are operating at availability in excess of 90% no problem would be envisaged in maintaining minimum plant availability of 80%. The sensitivity analysis on decrease in plant availability to 75%, the average DSCR for the project would be comfortable at 1.35 times ABC / RIL The EPC contract to be entered into between ABC and RIL would provide for performance guarantees on the key operational parameters such as heat rate, net energy output,

Plant Nonavailability

Plant operational performance

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Risk

Allocated to

Technology risk

BTG supplier/ RPL/ ABC

Fuel supply

RCRPL/ ABC

Fuel RCRPL/ transportation shipping company/ KPCL/ ABC

Increase in fuel price

RCRPL

Risk mitigation mechanism auxiliary power consumption, etc. along with LDs for shortfall in performance. Further, the EPC contract would provide for defect liability period of 1 year from the date of commercial operation. Super critical technology (though new to India) is a proven technology and number of power plants in the world is operating successfully using this technology. In view of high efficiency, low emission norms, etc. all UMPPs are envisaged to be implemented using super-critical technology in India. Besides the UMPPs, a number of Indian developers including NTPC Limited are developing projects using super-critical technology. The equipment for the project would be sourced from SEC China, one of the leading equipment suppliers in China. ABC proposes to enter into a long term CSA with RCRPL for the entire requirement of coal. RCRPL has entered into an investment agreement to obtain the exclusive rights for acquisition of greenfield coal concessions in Indonesia. Preliminary studies of these mines are currently being conducted and documentation to acquire these mines is in process. From Indonesian Mines to Indonesian Port: RCRPL would be responsible for transportation of coal from mines to port in Indonesia, a distance of around 420 km and loading it onto ABC designated vessels. RCRPL proposes to create the required infrastructure for inland transportation of the coal from the mine mouth to the port in Indonesia. From Indonesian Port to Krishnapatnam Port: ABC would enter into a CoA with a Shipping Company that would take the entire responsibility of transportation of coal from Indonesian port to Krishnapatnam at a pre-agreed freight. Transportation from Krishnapatnam Port to Plant stockyard. ABC has already entered into a Port Services Agreement with Krishnapatnam Port Company Ltd. for the use of port facilities for unloading and handling the imported coal. Coal from the port will be transported to the plant by 3 Km long conveyor belt. The CSA with RCRPL at a price of USD 27.59 per tonne (during FY 2013) with escalation of 2.5% p.a and CoA with RNRS at a fixed price with adjustment for bunker variation would be executed. As RASTRIYA group would be having 100% economic interest over coal concessions, increase in fuel price would be mainly on account of expenses on

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Risk

Allocated to

O & M risk

ABC

Off-take risk

Procurers/ ABC

Payment security

Procurers/ ABC

Risk mitigation mechanism contract mining which would be adequately covered by 2.5% p.a. escalation in dollar terms provided in CSA. As per PPA, fuel energy charges are quoted in usd/kwh, the exchange rate on the same would be a pass-though. Further, sensitivity analysis on increase in fuel price by 10%, the average DSCR for the project would be comfortable at 1.32 times. The O & M of the project would be carried out by the company in-house utilizing the technical support and training capability existing within the RASTRIYA Group. The plant operators of ABC would be provided requisite training in operating a supercritical power plant in tie-up with Original Equipment Manufacturers. ABC would enter into an alliance with a major international power producer for providing necessary services so as to enable the company to employ the best international practices to operate the plant. A suitable condition for O&M arrangement has been stipulated. ABC has entered into a 25 year PPA with distribution licensees in the sate of AP, Karnataka, TN and Maharashtra for sale of entire power. The procurers are required to pay capacity charges even in case of no dispatch. The PPA also provides for minimum off-take guarantee of 65% of the contracted capacity on an annual basis failing which they shall be liable to pay penalty. Further, in the event of default the company has an option to sell to third party. As per CRISIL study, 56% of power purchased by the procurers is at a variable cost higher than that of ABC , the power generated from the project would be comfortably placed in the merit order dispatch sequence. Keeping in view the significant power shortage in the states of procurers, ABC is not expected to face any difficulty in selling the entire power generated from the proposed project. The PPA provide for two tier payment security mechanism by way of a revolving, irrevocable LC equivalent to 1.1 times the monthly payment and a default escrow arrangement based on incremental receivables equivalent to the amount of LC. Procurers have agreed to grant first ranking pari-passu charge on Incremental Receivables. CRISIL study has concluded that incremental receivables of each of the procurers are adequate. Further, PPA provides for third party sale in case of default by the procurers. As the quoted tariff is competitive, the possibility of default by the procurers is remote. In addition, a suitable condition for maintenance of debt service reserve (DSRA) for 2 quarters

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Risk Interest rate

Allocated to

Refinancing

Force Majeure

Termination risk

Exchange risk

Risk mitigation mechanism dues (excluding bullet repayment) has been stipulated to mitigate the payment risk to lenders. ABC As loans carry interest rate with yearly reset option, any adverse movement in interest rate would affect the profitability/ cashflow of the company. Sensitivity analysis on increase in interest rate by 1% indicates comfortable average DSCR of 1.41 times. ABC / lenders The Project has been awarded in accordance with Competitive Bidding Guidelines. To match the cash flow, the project is in requirement of long-tenure loans. The bankers are however not able to cater to such a requirement in the current market scenario. Hence, refinancing of a portion of the loans is envisaged in the financing structure (in form of a bullet tranche) after 10 years from the commencement of repayment. The term of the PPA is 25 years from COD of the power station and with a long tail of around 14.75 years after the primary repayment period, the refinance risk is considered manageable. Procurers/ ABC ABC would be fully covered in case of Direct Non-Natural / Insurer force majeure event (if the plant availability drops to 80%) as the procurer shall be liable to pay capacity charge based on deemed availability of 80% after the cessation of force majeure event in the form of increased capacity charge as determined by CERC. Further, in case of Indirect NonNatural Force Majeure (if the plant availability drop to 60%), procurer shall compensate ABC by way of debt servicing subject to the maximum of capacity charges based on the normative availability. In case of natural force majeure events, ABC would be protected by way of suitable insurance covers, as no Capacity Charge is payable by the Procurers. ABC / Procurers The PPA provision for third party sale in case of termination of PPA due to procurers event of default mitigates the termination risk considerably. Also during such event, procurers would have liability to pay capacity charges based on normative availability to seller for a period of 3 years from the 8th day after expiry of consultation period. Further, in the event of continuing default by ABC , lenders have the right to exercise substitution of ABC or procurers may require lenders to exercise the right to seek substitution of ABC for the residual period of PPA to secure repayment of remaining debt from ABC . ABC / Procurers A substantial portion of the foreign exchange component of the EPC cost would be met through FCL. The project cost

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Risk

Allocated to

Change in law

ABC /Procurers

Risk mitigation mechanism and the profitability estimates are based on exchange rate of Rs.48/USD (on financial closure) and 0.5% rupee depreciation. As non-escalable fuel energy charges are quoted in USD, the foreign exchange risk to that extent is pass through in the tariff. The foreign exchange protected income would be more or less sufficient to meet USD denominated coal cost (including transportation) and principal repayment. Sensitivity analysis on rupee depreciation of 1% against USD indicates comfortable average DSCR of 1.47 times. A condition has been stipulated that the company shall put in place a suitable mechanism for hedging the risks (both interest rate and currency) in respect of the Foreign Currency Loan within 6 months from the date of first disbursement of the FCL. The PPA allocates the risk of (i) change in law (ii) change in interpretation of any law (iii) change in any consents, approvals or licenses, which results in any change in cost of or revenue of proposed project (iv) change in the (a) declared price of land for the project or (b) cost of implementation of R&R package of the land for the project or (c) cost of implementing EMP for power station and (v) non extension of exemption under Section 80 IA of the Income Tax Act to the procurers both during operation period as well as construction period by way of either compensation payment or increase in capacity charges. During the construction period, any cumulative change in cost of project on account of change in law to the extent of Rs. 50 crore would be adjusted as increase in non-escalable capacity charge by 0.267% During the operation period, only those impacts of change in law resulting in change in revenue of more than 1.00% of LC amount would be considered and compensation would be determined by CERC

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Overall Financial Assessment The project is being implemented by Rastriya group having adequate experience in implementing the power projects. The Group is financially resourceful and no difficulty is envisaged in raising the promoters' contribution. The hardcost of the project (Rs.3.61 crore/MW) is comparable that of all other UMPPs and other super-critical technology based power plants being financed recently. RPL would provide cost overrun undertaking to the extent of 10% of project cost. The project would be implemented through fixed term fixed lump-sum price EPC contract to be executed with a consortium of RIL and RIPIL The project is proposed to be financed with DER of 75:25; the entire promoter contribution would be brought in by RPL (Rs. 4402 crore) by way of equity/ quasi equity. RPL has already brought in Rs.1025 crore as share application money and the company has incurred about Rs. 980 crore on the project. A pre-disbursement condition for upfront infusion of promoters contribution to the extent of 20% has been stipulated. IDBI has been mandated to tie-up the entire rupee debt requirement for the project Projected profitability parameters and financial indicators are satisfactory. The average DSCR and IRR (Post-tax) of the project at 1.49 times and 12.58% respectively are satisfactory. The sensitivity analyses also indicate that the project would be able to absorb moderate adverse variations in the critical projected parameters. The project is considered financially viable. ---

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PART V SOCIO ECONOMIC IMPACT ASSESSMENT A. 5.01 ECONOMIC CONSIDERATIONS The project is in the nature of infrastructure development and will have

multiple linkages with the local economy. Further, the project would be able to reduce the demand-supply gap in the country/SR/WR and facilitate the industrial activity. B. 5.02 SOCIAL CONSIDERATIONS The project will generate employment opportunities in the category of

semi-skilled and unskilled workers, benefiting the local population of the area. The project would provide employment to around 5100 people (including 100 company employees) and about 1050 people (including 550 company employees) during construction and operation period respectively. The implementation of the project on 2625 acres of land requires relocation of people in 4 villages with total project displaced families (PDF) of about 190 [2 villages (160 PDF) in main plant area and 2 villages (30 PDF) in ash pond area]. Resettlement and Rehabilitation (R&R) program is being carried out as per R&R Policy 2005 of AP Government under the supervision of District Administration. Government of AP has devised common R&R program for three projects (ABC , APGenco's 1600 MW power plant and Krishnapatnam Port) and has allocated 19 acres of land for construction of alternative accommodation for PDF of ABC project. The plots for all PDFs have been allotted and the company has already commenced construction of houses. The common facilities viz. school buildings, temple, electricity & water supply arrangements, etc., are being created by district administration. The company has already paid Rs.20 crore to the District administration towards the cost of R&R programme, which has been included in the project cost. C. 5.03 ENVIRONMENTAL CONSIDERATIONS The project site is partly agricultural and partly waste land, with isolated

pockets of habitation. There are no important historic places, sanctuaries, biosphere reserves, national parks etc. in the area. Also, no forestland is involved in
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the area. The major potential environmental impacts of project are air quality decline, greenhouse gas production, liquid waste effluent quality, thermal pollution from the discharge of spent cooling water and ash disposal. The company would take suitable environmental protection and waste management measures to comply with the regulatory requirements. The proposed methods of treatment of various effluents are as under: Emissions 5.04 The major pollutants emitted (in flue gas) by coal combustion in the plant are NOx, SO2, Suspended Particulate Matter (SPM) and CO 2. NOx emissions will be minimized by the use of advanced design low NO x burners and the provision of of over-fire air ports in the boiler furnace. The power plant will use coal with low sulphur content (not exceeding 0.6%) to reduce SO 2 emission. Further, there would be provision for installation of flue gas desulphurization (FGD) at a later stage, if required, to remove SO2 from the flue gas before discharging to atmosphere. The SPM level from the chimney will be controlled (less than 50 mg/Nm3 for all loads) using Electrostatic Precipitators (ESPs) having collection efficiency of at least 99.9%. For better dispersion of pollutants, flue gases will be discharged through two tri-flue stacks (each 275 m high). The predicted worstcase ground level concentration (GLC) of ambient air quality (including incremental GLC due to emission from the proposed power plant) for each pollutants would be within the maximum limits [SO 2 & NOx : 80 microgram/m3 and SPM : 200 microgram/m3] stipulated in Indian standards and World Bank guidelines. The project's super critical boilers are expected to produce 27.5 mnt of CO2 equivalent gas p.a. (against 29.5 mnt expected using sub-critical boilers) resulting in reduction of emissions of about 2 mnt of CO2 gas p.a. Liquid Effluent 5.05 Effluent from the plant will comprise (i) blow down from water systems, (ii) liquid waste from the water treatment plant and desalination plant, (iii) waste water from the fuel oil handling area, (iv) wash water and drainage from the coal
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stockyard, (v) decanted water from the ash dyke and (vi) service and wash water from various other plant facilities. Water treatment system (consisting of oil traps, oil-water separators, settling ponds and filters) would be provided in each area and treated effluent would be fed into a common process plant "Central Monitoring and Treatment System (CMTS). The treated effluent (meeting CPCB and World Bank quality standards) will be either recirculated for usage or discharged into the sea through the discharge system. Solid Wastes (Ash handling system) 5.06 Ash will be the only solid waste of the power plant. The total quantity of ash generated by the project (3960 MW @ 80% PLF) would be about 1.19 mntpa (fly ash 70%, bottom ash 20% and coarse ash 10%) assuming maximum ash content of 8%. The ash disposal system would consist of fly ash/coarse ash extraction system (collected from Air Preheaters, flue gas ducts and ESPs in dry form), bottom ash extraction system, transportation of bottom ash through pipelines (in slurry form) or trucks (dewatered bottom wash) to ash pond. Ash would be utilized as per MoEF guidelines (10% during first year and progressively increased to 100% during the 10th year). ABC has identified about 250 acres of land for ash disposal. The ash pond would be divided into three lagoons, two would be used for ash filling and the third small lagoon would be used for collecting the decanted water. The decanted water would be treated and disposed of to sea along with other effluents. The ash dyke would be designed assuming 90% PLF and maximum ash content of 8%. The ash pond area would be adequate to receive the ash for more than 30 years considering full fly ash utilization from 10th year. Efforts will be made by the company (as per state government guidelines) to utilize the fly ash to maximum extent possible in various applications such as brick manufacturing, as a building material product, as a road making material, in soil stabilization, in cement industries, etc. This will reduce the requirement of land for disposing the ash and thereby minimizing secondary

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pollution like fugitive emission, ground leachate, water pollution, etc. in the proposed power plant. Noise Pollution 5.07 The operation of the power plant will generate noise from the steam turbine generators and other rotating equipment, combustion-induced noises, flowinduced noises, and steam safety valves. The steam turbine generators will be housed in closed buildings to reduce noise transmission to the outside environment. The inlet air and exhaust gas streams will be provided with silencers for noise reduction. Maintenance and operating personnel working in the plant will be provided with adequate protective equipment. All the equipment in the power plant is designed and operated for a noise level not exceeding 75 decibels acoustic (dB[A]) measured at a distance of 1.5 m from the equipment. Also, all measures will be taken to keep noise levels at the plant boundary within stipulated limits Coal dust suppression 5.08 ABC would install (i) dust extraction system (cyclones, wet scrubbers, fans, collecting hoppers, filters, hoods, ducts, dampers and drain pipes) in the crusher house of the coal handling plant and (ii) dust suppression sprinkler system (swiveling and wide-angle full-cone spray nozzles) in the coal stockpile yard to reduce coal dust emissions. Green Belt development 5.09 The Green Belt will be developed in and around the boundary of the plant covering about one third of the total project area to reduce fugitive dust emissions, reduce noise, establish some ecological values, improve the aesthetic quality of the site and improve the quality of wasteland. Green Belt is also proposed to be developed surrounding the Ash Handling Areas, Effluent Treatment Plant and the available open areas in the plant. D. 5.10 ENVIRONMENTAL & SOCIAL IMPACT ASSESSMENT STUDY The environmental and social impacts of the Project were assessed in six

separate but related studies: (i) rapid environmental impact assessment (EIA)
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conducted by the Environment Protection Training and Research Institute, Hyderabad (EPTRI, MarchMay 2006), (ii) comprehensive EIA conducted by EPTRI (March 2006 to March 2007), (iii) socioeconomic study conducted by the Water and Power Consultancy Services (India) (December 2006), (iv) comprehensive marine EIA conducted by the NIO (October 2006 to April 2007), (v) coastal fumigation study carried out by TCE Consulting Engineers (July 2007), and (vi) thermal bioassay studies to assess impacts on marine biotic communities conducted by the NIO (July 2007). During the environmental and social assessments, a public hearing was held on January 6, 2007 and consultation was subsequently conducted in affected villages. The project received environmental clearance from the Ministry of Environment and Forests (MoEF) on October 23, 2007 based on the rapid EIA. Environmental Management Plan (EMP) 5.11 ABC , based on recommendations of above studies, would establish an appropriate project environmental management system and EMP to effectively manage environmental and occupational health and safety aspects during construction and operation. The EMP will set out all major management measures and a monitoring program to be implemented by contractors during construction under ABC supervision and by ABC personnel during project operation as routine and integral activities. Summary of potential impacts and mitigation measures proposed to be implemented by the company are given in Annexure 16. ABC will establish an Environment Management Division (EMD), which will be responsible for managing environmental, occupational health, and safety concerns during project construction and operation. EMD will implement an environmental monitoring and evaluation (EME) programme and submit quarterly environmental performance reports to regulatory agencies and lenders. The Project would fully comply with relevant national laws and regulations regarding the environment, health, and safety. As per MoEF clearance, the cost of environmental protection

85

measures would be Rs.790 crore. ABC has indicated that the same has been included in the project cost. E. 5.12
Sr. No 1. 2. 3. 4. 5. 6. 7. 8.

STATUS OF APPROVAL/CONSENTS The current status of the key statutory/regulatory approvals and clearances
Approvals / Clearances Concerned Dept Required Incorporation of Company Registrar of Companies Commencement of Registrar of Companies Business Certificate Ministry of Environment Environmental Clearance & Forests (MoEF), GoI Approval to use sea water Transport, Roads & for condenser cooling & Buildings (Ports) make-up water Department, GoAP NOC for Chimney height Airport Authority of India clearance Mega Power Project Status Ministry of Power, GoI NOC for setting up of Forest Department, GoAP Power Plant CRZ clearance MoEF, GoI No Objection Certificate Ministry of Defence, GoI (NOC) NOC from Indian Space Department of Space, GoI Research Organisation Consent to Establish AP Pollution Control thermal power plant Board

is given below:
Obtained On August 24, 2006 August 29, 2006 October 23, 2007 February 2007 May 18, 2007 May 21, 2007 April 4, 2007 May 6, 2008 September 18, 2007 October 10, 2007 June 26, 2008 21,

9. 10.

5.13 A pre-disbursement condition has been stipulated that the company shall obtain all necessary statutory/ non-statutory clearances/ approvals for the project (including mega power benefits and revision of environmental clearance/CRZ clearance/other clearances, if any, on account of change in contracted capacity, water intake/outfall points/etc.), as required and applicable up to the relevant stage and agree to maintain them in full force and effect at all times during the currency of the loan, which shall be reviewed by LIE.

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