DEVELOPMENT OF ULTRA MEGA POWER PROJECTS A MAJOR

DEVELOPMENT OF ULTRA MEGA POWER PROJECTS A MAJOR INITIATIVE UNDER POWER SECTOR REFORM Presented By: Shyam Wadhera Chairman Sasan Power Ltd & Coastal Gujarat Power Ltd. Director (Projects) Power Finance Corporation Ltd. 22 nd January 2007

POWER INFRASTRUCTURE IN INDIA (As on Oct, 2006) Total Generation Capacity 1, 27, 673 MW Comprising of : Hydro 33, 600 MW (26%) Thermal 83, 982 MW# (66%) Nuclear 3, 900 MW (3%) Renewables 6, 191 MW (5%) # (Coal 69, 198 MW, Gas 13, 582 MW and Oil 1202 MW) (15, 431 MW) (41, 673 MW) (70, 569 MW) In addition to above captive generation capacity of appx. 41, 000 MW.

GROWTH OF POWER SECTOR IN INDIA Census Results 1990 -91 2000 -01 2004 -05 PLF (%) 57. 1 69. 0 74. 8 Energy Shortage (%) 7. 9 7. 8 7. 3 Peaking Shortage (%) 16. 7 12. 3 11. 7 to 42. 0 56. 0 - Rural Households Coverage (%) 31. 0 43. 8* - Households Access Electricity (%) *To electrify these rural households ( 78 mn) in next five years, Rajiv Gandhi Gramin Vidyutikaran Yojana has been launched.

PER CAPITA CONSUMPTION OF ELECTRICITY IN INDIA Growth pattern over years (kwh/ year) 606 In 1950 Electricity consumption per capita was 15 kwh In 2012 it is projected at 1000 kwh. Brazil : 2070 China : 1200 Thailand : 2000 Malaysia : 3000

CHALLENGES AND P 0 LICY RESPONSES l l l l Eliminating Shortages- Peaking 11. 2%, Energy 7. 1%. l Adding 1, 000 MW capacity by 2012. l Stepping up Public Investments. l Nurturing Private Sector- Present share 11%. l Electricity Act – 2003 and National Electricity Policy. Rural Electrification- 56% Rural households yet to be electrified Financial Viability- SEB losses though reducing , yet very high. Improving quality of supply. Completion of electrification in next five years- Rajiv Gandhi Gramin Vidyutikaran Yojana launched. Total Village Electrification by 2010. Distribution Reforms : Reduction in Aggregate Technical and Commercial (AT&C) losses.

VISION FOR POWER SECTOR l By year 2012 : l Per capita availability 1000 units. l Installed capacity over 200, 000 MW. l Spinning reserves 5%. l Minimum lifeline consumption of one unit per household per day. l Inter-regional transmission capacity: 37, 000 MW. l Energy efficiency/ conservation savings about 15%. l Quality and reliable power supply.

ELECTRICITY ACT 2003 – Salient Features • The Act creates a liberal and transparent framework for power development. • It facilitates investment by creating competitive environment and reforming distribution segment of power industry. • Entry barriers removed / reduced • • • delicensed generation. • freedom for captive generation including group captive. • trading recognised as an independent activity. • open access in transmission already in place. Open access to consumers above 1 MW within five years from Jan 2004 (date of enforcement of amendment to Electricity Act). Multiple licenses in distribution.

ELECTRICITY ACT 2003 - Implementation l Most of the Rules (required to be framed by Central Govt. ) notified. l Open Access in transmission notified by CERC : Jan, 2004 l Guidelines for determining tariff through competitive bidding notified: Jan 2005 l National Electricity Policy announced: Feb, 2005 l Regional Power Committees for all the 5 regions established: May 2005 l Appellate Tribunal for Electricity : Operational July, 2005. l Electricity/Tariff Policy notified : Jan 2006 l Guidelines for private investment in transmission: April 2006 l Several SERCs have initiated action for open access in Distribution.

LAUNCHING OF ULTRA MEGA POWER PROJECTS The Govt. Of India is committed to add 100, 000 MW by 2012 to meet its mission of Power to All. This requires significant capacity addition during remaining period of 10 th Plan & entire 11 th Plan, which may not be possible from the ongoing and new generation projects already identified. As such there is need to develop large capacity generation projects at the national level to meet the requirement of number of states. The Ultra Mega Projects are proposed to be taken up under the competitive bidding guidelines and will enable establishment of large capacity through private investments.

AGENCIES INVOLVED l l l Ministry of Power l Policy Interventions l Inter-Ministerial co-ordination l State Government support Central Electricity Authority l Site selection l Resolution of Technical Issues Power Finance Corporation Ltd. l Nodal agency for setting up Shell Companies (SPVs) for each project. l Managing the bid process.

DEVELOPMENT OF ULTAR MEGA POWER PROJECTS THROUGH COMPETITIVE BIDDING CONCEPT l Setting up of large projects of 4000 MW at a single location: ensuring economies of scale l Award of projects to developer through tariff based competitive bidding : ensuring cheaper power l Utilisation of super critical technology: ensuring higher efficiency and lower CO 2 emissions APPROACH l Guidelines for determination of tariff through bidding process were issued on 19 th January, 2005 under Section 63 of the Electricity Act, 2003. These provide for procurement of power by Distribution Licensees through competitive bidding l Separate SPVs for each project to undertake project development activities including bid process management on behalf of procurers

Contd…. . DEVELOPMENT OF ULTAR MEGA POWER PROJECTS THROUGH COMPETITIVE BIDDING TECHNICAL FEATURES l Utilisation of higher efficiency super critical technology with unit size of 800 MW l Station capacity of about 4000 MW (5 x 800 MW) l Flexibility re: unit size to be permitted, subject to meeting thermal efficiency requirements FINANCIAL ASPECT l For achieving financial closure, past experience highlights critical importance for Government intervention to: l secure reliable fuel supply. l obtain environmental clearances. l land acquisition and resolution of R&R issues. l co-ordination with states & bulk power purchasers.

ROLE OF MINISTRY OF POWER Ministry of Power to be facilitator for co-ordination with concerned Ministries/ agencies and State Govts. for ensuring: l Coal block allotment for pithead projects l Environment/ forest clearances l Facilitate acquisition of land l Required support from State Govt. & its agencies

ROLE OF SHELL COMPANIES (SPVs) l l l To acquire land for the project and coal mine taking contribution from procurers against land cost Allocation of coal blocks for pit-head projects. Allocation of water by the State Govt. for pit-head locations To get approval for use of sea water from Maritime Board/ other Govt. Agencies for coastal locations Statutory clearances from Mo. EF/ Civil Aviation/ Defence etc. To obtain various approvals from the central government and state government as are required to be obtained for the project and coal mines

…contd ROLE OF SHELL COMPANIES (SPVs) l Shell Companies to take action for (contd. ): l Appointment of Consultants to undertake studies/ surveys and preparation of bankable project report l Appointment of Consultants for International Competitive Bidding (ICB), document preparation & evaluation l Appointment of Rating Agencies for Green Field Project Rating l Tie up for off-take/ sale of power to distribution utilities. l To finalise Rf. Q/ Rf. P documents in consultation with states/ bidders To carry out Rf. Q/ Rf. P process and award of project Shell Company will be transferred to the successful bidder for execution of project. l l

BIDDING PROCESS l Notice inviting Expression of Interest(Eo. I) l Two stage bidding process l Request For Qualification (RFQ) containing qualifying criteria l Request For Proposals (RFP) from the qualified bidders High Level Committee consisting of l Member(Thermal) CEA, Director (Projects) PFC and Representatives of FIs (MD SBI, MD IDFC and MD IDBI) for selection of Consultants and Qualifying/ shortlisting Bidders Evaluation Committee consisting of l l l Chairperson/ CEO of the Bank/ FI, Chairperson CEA, CMD PFC & Representative of the power purchasers for

PAYMENT SECURITY MECHANISM As Condition in PPA : l Letter of credit (LC) by distribution utilities l Escrow on the receivables of distribution utilities In the event of default by any procurer : l Other procurers have the first right to buy power share for which payment default has occurred. l In case of unwillingness of other procurers to buy default power, the same can be sold in the All India market through prevailing open access in transmission either directly or through traders. l If any further power share is still unsold, direct supply to HT consumers as per provisions of the Electricity Act 2003 to be accepted upfront (7 Purchasing States in Sasan and 5 in Mundra have initialed PPA on 9/10/06 and confirmed power allocation / PSM)

WAY AHEAD FOR ULTRA MEGA POWER PROJECTS Looking at the Success of two initially identified Ultra Mega Thermal Power Projects, one at Sasan in M. P. (Pithead) and other at Mundra in Gujarat (coastal), it has been proved that it is possible to overcome the hindrances being faced by large generation projects in getting the clearances and awarding them on tariff based competitive bidding. The present model adopted by PFC can be repeated by power procurers which in turn would additional generation capacity to the Nation at most competitive tariff in minimum time. In addition to above Ministry of Power is also taking steps for bringing up large Hydro Projects and large size Transmission Projects on the fast track similar to Ultra Mega Power Projects(Thermal).

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