Sources Of Fund In Indian Power Sector

OBJECTIVE Each research study has its own specific purpose. It is like to discover to Question through the application of scientific procedure. But the main aim of our research to find out the truth that is hidden and which has not been discovered as yet. My research study has two objectives:•

PRIMARY OBJECTIVE: By this project I try to find out various sources of who are directly or Indirectly Financing in Indian Power sector. Like which are the organization give fund what are the types of fund are given to the organization is try to find out by this project.

•

BROAD OBJECTIVES: -

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The various schemes given by the lending organization to the power sector company.

•

To find out what amount of fund come by the organization from their own source

•

To analyze the process of apprizing of loan by lender

•

To find out what amount of fund come from institutional investor.

•

Try to find out what are the stander rates for financial ratio of the Power Company.

•

Try to find out what is the financial position of the various company compare to the stander.

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• METHODOLOGY For fulfilling the objective of this project I fellow qualitative and quantitative analysis. • Qualitative Research:In my research I go through various lending company who giving loan to this sector. So this based on all qualitative data whatever I get from Internet, various Journal and Interview taken personally. In short, in Qualitative research I know what is the behavior of the organization for lending the money. • Quantitative research:Quantitative research is based on the measurement of quantity or amount. It is applicable to phenomena that can be expressed in terms of quantity. So in my project by using the numerical data I try to find out the financial position of power Sector Company. •

Information Sources:For collecting primary data I conducted a designed questionnaire method to collect data regarding appraisal process and Fund raising process. For that I collect three person interviews. For secondary data I use various books, Newspaper, Journal, Company’s website, and one paid databases website.

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COMPANY PROFILE Abir Infrastructure Pvt Ltd is one of the fastest growing infrastructure developers in India dealing in construction and infrastructure projects. It was incorporated in 2005. Previously its name is Abir construction Pvt Ltd. This company is specialized in Engineering and Construction. Abir Infrastructure Pvt Ltd is actively engaged in the construction of Civil and Structural works for Thermal power project as well as Hydro Power projects including Roads, Bridges, Head Race Tunnels, Dams, Underground Power Houses and other infrastructure works. Abir currently engage in the execution of Hydro Electric Power projects in Himachal Pradesh, Sikkim, Arunachal Pradesh and Meghalaya, and Thermal Power projects in Andhra Pradesh and Chhattisgarh. Abir is a team of more than 1000 skilled and qualified people spread across multiple Project site as well as head office. It is the dedication and commitment of our multi-talented and skilled manpower which has resulted in making Abir one of the most preferred companies in the infrastructure sector. • • •

Vision:- To be among the top five Infrastructure companies of the world Mission:- To provide construction and contract services for executing infrastructure projects efficiently, through optimization of time and cost Project:- The Major project of Abir Infrastructure Pvt.Ltd. are as fellow.

Sl.No

Name & Type of the Project

Location

1.

Teesta-III Hydro Electric Project

Sikkim, India

2.

Malana-II Hydro Electric Project

Himachal Pradesh, India

3.

Sainj Hydro Electric Project

Himachal Pradesh, India

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4.

Patikari Hydro Electric Project

Himachal Pradesh, India

5.

Kynshi – I Hydro Electric Projects

Chattisghar, India

6.

Demwe Hydro Electric Project

Arunachal Pradesh, India

7.

Emra Hydro Electric Project (I&II)

Arunachal Pradesh, India

8.

Bhavanapadu Thermal power Project

Andhra Pradesh, India

9.

Yamne Hydro Electric Project

Meghalaya, India

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INDIAN POWER SECTOR Power is one of the prime movers of economic development. The level of availability and accessibility of affordable and quality power is also one of the main determinants of the quality of life. In India the process of electrification commenced almost with the developed world, in the 1880, with the establishment of a small hydroelectric power station in Darjeeling. However, commercial production and distribution started in 1889, in Kolkata. In the year 1947, the country had a power generating capacity of 1,362 MW. Generation and distribution of electrical power was carried out primarily by private utility companies such as Calcutta Electric. Power was available only in a few urban centers; rural areas and villages did not have electricity. After 1947, all new power generation, transmission and distribution in the rural sector and the urban centers came under the purview of State and Central government agencies. State Electricity Boards (SEBs) were formed in all the states. Legal provisions to support and regulate the sector were put in place through the Indian Electricity Act, 1910. Shortly after independence, a second Act - The Electricity (Supply) Act, 1948 was formulated, paving the way for establishing Electricity Boards in the states of the Union. In 1960s and 70s, enormous impetus was given for the expansion of distribution of electricity in rural areas. Since then, almost all new investment in power generation, transmission and distribution has been made in the public sector. Most of the private players were bought out by state electricity boards. The power Sector has been receiving adequate priority ever since the process of planned development began in 1950. The Power Sector has been getting 18-20% of the total Public Sector outlay in initial plan periods. Remarkable growth and progress have led to extensive use of electricity in all the sectors of economy in the successive five years plans. Over the years the installed capacity of Power Plants has increased to 100,000 MW on March, 2000 from meagre 1362mw in 1947. Similarly, the electricity generation increased from about 5.1 billion units to 420 Billion units. The per capita consumption of electricity in the country also increased from 15 kWh in 1950 to about 338 kWh in 1997-98, which is about 23 times. In the field of Rural Electrification country has made a tremendous progress. About 85% of the villages have been electrified except far-flung areas in North Eastern states, where it is difficult to extend the grid supply. And now India has become sixth largest producer and consumer of electricity in the world equaling the capacities of UK and France combined. The number of consumers connected to the Indian power grid exceeds is 75 million. However, the achievements of India's power sector growth looks phony on the face of huge gaps in supply and demand on one side and antediluvian generation and distribution system on the verge of collapse having plagued by inefficiencies, mismanagement, political interference and corruption for decades, on the other. Indian power sector is at the cross road today. A paradigm shift is in escapable- for better or may be for worse.

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SWOT ANALYSIS OF INDIAN POWER SECTOR:•

Strength:•

• •

Developing Economy: -After Liberalization, Privatization & Globalization Indian Economy goes up. The GDP rate is also very high. For the continuation of the system and developing the system huge power is needed. But presently power scenario is 1, 48,265.41 M.W. So coup up with that, Economic development Power sector is need. Government Decisions: - India Government also directly and indirectly help Power sector. The recent price increases, Tax benefits, subsidies on LPG etc provided to the power sector .

Weakness:•

•

Crude prices: - For running Gas based Thermal Power plant, they gets gas from various companies like ONGC, Reliance Petroleum Ltd etc. But this company brings crude foreign. In India nearly 70% of crude requirements are fulfilled by imports and this figure is likely to increase going forward. Crude prices have breached the $45 barrier again and are likely to remain at around $40 per barrel range. This is the main Problem for Power sector. Lack of freedom: - Although the government has decided to provide autonomy to power sector companies to increase power potential in the country, though continue to remain under the government controlled price mechanism. For that the power company do not gets any freedom in this sector.

• Opportunity:•

Natural Gas: - Natural gas has the potential to be the fuel of the future with demand outpacing supply by more than two times. Such high scarcity of natural gas provides a big opportunity for oil companies. The below mentioned table indicates the allocation to the various core sectors and the shortage faced by them, thereby giving an idea of the potential for growth.

• Threats :•

•

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Competition: - Now days Public as well as Private sector also come in the power sector. By this the power company faces a huge competition. For that general production process gets hampered. Continuing government interference: - For developing any power project state and central government create many hazardous situations. For planning, procurement, and process government create various norms and rules. For this process become hampered.

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For running any business money is necessary, without that any operation cannot be going. So we can say for any kind of business finance can be treated as life blood of the business. For in Power sector finance i.e. is a very important thing. As we know India is the 3 rd biggest power generated country among ASIA but till now a day’s power supply is under crisis. In every year India face a huge deficit in demand - Supply of Power. Till now there are many villages that are to be electrified. For that we need more power generation station. It can be Thermal Power; can be Hydro Power and Nuclear Power. As par new police of Government of India Public as well as Private both the sector can be setup their power station. EIILM

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Under public sector some main organization are:-

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National Thermal power corporation Ltd. (NTPC Ltd.)

•

National Hydroelectric Power Corporation Ltd. (NHPC Ltd.)

There are some organizations which are established under private sector. Like

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Reliance Power

•

Tata Power

•

Jaypee hydro

etc.

Apart from these two there are some organizations which are established under public-private collaboration, like:-

•

Satluj Jal Vidyut Nigam Ltd.

•

Tehri Hydro Development Co. Ltd.

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Apart from this organization there are some organizations which are help to supply the power in all over the country. This are

a. Power Grid Corporation

b. Power trading corporation.

c. Indian Energy Exchange Ltd.

By this all of this organization is try to develop more power generation and its distribution in India. For execute this type project any organization need finance and for that in India basically two types of Finance is available. 1. DEBT FINANCE. 2. EQUITY FINANCE.

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DEBT FINANCE

:- Its means that When a firm raises money for capital or capital expenditures by selling bonds, bills, to individual or institutional investors, or Directly taking loan from any Individual or institution is called debt financing. Among the Debt Finance there are several methods like, Selling Debenture, Bonds and taking Term Loan, project Finance etc. For the Term Loan, Project Finance there is various type of organization for who is providing financing a project. But in the broad sense we can categorize this in mainly three head. a. Term lending Institution – This institute are providing long term loan for a project. b. Banking Institution- These are generally Public and Private Bank. c. Other Financing Institution- This are generally Non-banking financial Institute and Some

Foreign Institute.

Under term lending institution •

• • •

• •

Power Finance Corporation (PFC) Rural Electrification corporation (REC) India Infrastructure Finance corporation (IIFCL) Indian renewal energy development agency limited (IREDA) Infrastructure Development Finance corporation (IDFC) PTC India Financial Services Ltd

Banking Institution:EIILM

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• Andhra Bank • IDBI Bank • State Bank of India

Other Financing Institution:• • • •

Asian Development Bank GE energy financial services SREI Financial services World Bank

POWER FINANCE CORPORATION (PFC)

•

•

About The Organization:- Power Finance Corporation was set up in July 1986 as a Financial Institution (FI) dedicated to Power Sector financing and committed to the integrated development of the power and associated sectors. The Corporation was notified as a Public Financial Institution in 1990 under Companies Act, 1956. The Corporation was registered as a Non Banking Financial Company by RBI and has been conferred with the status of Nav-Ratna PSU by Govt. of India on 22nd June, 2007. Product & Service: - PFC is providing large range of Financial Products and Services like Project Term Loan, Lease Financing, Direct Discounting of Bills, Short Term Loan, Consultancy

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Services etc. for various Power projects in Generation, Transmission, and Distribution sector as well as for Renovation & Modernization of existing power projects. But in broad head generally two types of product is available I. Fund based Product II. Non Fund based Product. Among Fund based product are those by which PFC give various type of Loan to various organization. The main fund based products are:1. Project term loan 2. Short term loan 3. Medium short term loan to equipment manufacturers4. Lease finance scheme 5. Debt refinancing scheme 6. Project rupee bridge loan scheme 7. Mini short term loan Now the all Fund Based Products of power Finance Corporation are describe in details.

Project Term Loan • • •

•

Purpose: - To provide finance to all types of projects in state & private sector like Power generation , Power transmission, Power distribution, renovation & modernization, updating, environment up gradation, metering, etc. Eligible entities: - The entities engaged in power generation, power transmission, power trading, power distribution or any combination of these activities including captive / co-gen power producers. Extent of assistance :• Central / State sector entities - Up to 70% of the project cost • Reforming State sector entities - Up to 80% of the cost of project. • Private sector entities - Up to 50% of the project cost. Interest rates & Other charges :• Interest rates as notified by the Corporation from time to time. Special interest rates are also available for loans exceeding Rs. 700 cr. for generation projects in state sector and Rs. 500 cr. in private Sector.

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•

Interest rates prevailing on the date of disbursement(s) shall be applicable. Incentive / rebate available for timely payment of dues for state/ central sector utilities. Penal interest payable on default-payments. • Upfront fees as may be applicable for respective borrowers from time to time. • Processing fee, Lead fee & facility Agent fee for private sector entities as applicable from time to time. Disbursement mechanism: - Disbursement will be made, against BILLs, as per the ‘Disbursement Schedule’ submitted by the borrower. In case of Small Loans (below Rs. 20 cr.), simplified disbursement procedure is applicable. In the case of private sector borrower, disbursement is made through Trust and Retention Account mechanism. Interest payment: - Interest is to be paid quarterly, on standard due dates. Repayment :- Repayment is to be made in maximum years of • •

•

• •

Type of Projects

3 Years

10 Years

Private Sector

Reset Clause

Reset Clause

Hydro Generation Project

20

15

12

Thermal Generation Project

15

15

12

Studies, Consultancy,

5

5

5

15

12

10

Training, R&D. All other Projects •

Security requirements :✔ State / Central government or bank guarantee or charge on assets, for state and central sector entities, while charge on project assets for others. ✔ Letter of Credit or Tripartite Escrow Agreement amongst the borrower, the bank and PFC for state and central sector entities while Trust and Retention Account mechanism for others. ✔ Corporate and / or personal guarantee of the promoters for private sector, if the outcome of appraisal establishes a requirement for the same. ✔ Other securities, as may be necessary.

Short Term Loan •

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Purpose: - To provide finance to the existing borrowers in the State / Central Sector to meet their immediate requirement of funds. The Rupee loan under the scheme shall be provided for purchase of fuel for power plant, purchase of consumables, essential spares, emergency procurement for generation plant and T&D network in the nature of repair & maintenance work, purchase of power, against receivables of transmission entities on account of wheeling charges. Page 13

•

Eligible entities :- All the existing state / central sector borrowers (who have outstanding amounts under long term loans-project finance) and who are not declared defaulter by PFC. • Extent of assistance: - Rs.150 crores to Rs.300 crores depending upon reforming status of the borrowing entities as per policy applicable. • Tenor: - The loan under the scheme shall not exceed one year from the date of Disbursement. • Interest rate & other charges: - As notified by the Corporation from time to time. • Repayment period :✔ Option-I : Loan will be sanctioned for a tenor of 30 days to 180 days in multiples of 30 days with option to roll over. ✔ Option-II: Loan will be sanctioned for a tenor up to one year. Loan shall be repaid through EMI. First EMI shall commence after two months. • Security :✔ Tripartite Escrow account agreement in the prescribed format where the sanctioned amount is up to 50% of sanction limit. ✔ Where sanctioned amount is more than 50% of sanction limit in addition to escrow account, charge on assets / govt. guarantee will also be required. • Validity of loan: - The entire loan amount shall be drawn within 45 days from the date of sanction.

Debt Refinancing Scheme •

Purpose :- This scheme envisages to provide financial assistance to the borrowers, who have borrowed funds from other lending institution(s) at a higher rate of interest and now wish to replace with lower interest rate with the assistance of PFC. By this scheme, the borrowers may reduce their cost of borrowing.

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•

•

Eligible entities: - Commercial entities engaged in generation, transmission, distribution of power or any combination of these activities including captive power producers and infrastructure projects with backward / forward linkage to power projects. Extent of assistance:Central / State sector entities Private sector Thermal generation projects

• • •

Up to 70% of the project cost

Up to 20% of the project cost

Hydro generation projects

Up to 25% of the project cost

Other projects

Up to 50% of the project cost

Interest Rate: - As notified from time to time for project term loans. Disbursement mechanism: -Disbursement will be made in lump sum to the bank/lending agency whose dues are prepaid. Repayment :- Repayment is to be made in maximum years of :3 Years

10 Years

Reset Clause

Reset Clause

Hydro Generation Project

20

15

12

Thermal Generation Project

15

15

12

5

5

5

Type of Projects

Studies, Consultancy,

Private Sector

Training, R&D, S&I, Computerization, EIILM

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Meters All other Projects

•

15

12

10

Security requirements:✔ Letter of Credit or Tripartite Escrow Agreement amongst the borrower, the bank and PFC for state and central sector entities while Trust and Retention mechanism for others. ✔ State / Central Government / Bank guarantee or charge on project assets, for state and central sector entities, while charge on project assets for others. ✔ Corporate and / or personal guarantee of the promoters for private sector, if the outcome of appraisal establishes a requirement for the same. ✔ Pledge of shares, assignment of contracts.

Rural Electrification Corporation (REC)

•

Objective of REC:-The main objective of Rural Electrification Corporation is to finance and promote rural electrification projects all over the country. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them. REC provides loan assistance to State Power Utilities for investments in rural electrification schemes through its Corporate Office located at New Delhi and 17 field units (Project Offices), which are located in most of the States. The Project Offices in the States coordinate the program of REC’s financing with the concerned State Power Utilities and facilitate in formulation of schemes, loan sanction and disbursement and implementation of schemes by the concerned State Power Utilities.

•

Product & Service: - REC offers various types of debt financing to Public & Private sector. These are like • Loan for Government/Public Sector/SEB • Loan for Private IPP's • Loan for Short Term Loan • Loan for Debt Refinancing The role of Transmission & Distribution Division is to:• To assess financial requirements of Power Utilities in the country in T&D sector

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• • •

•

To appraise and sanction T&D Schemes posed to REC for financing. To monitor T&D Schemes (Physical as well as Financial monitoring) To evaluate impact of T&D schemes • The T&D programmed has so far been the single major contributor to the business of REC. Category of schemes Financed under Transmission &Distribution: - In context of Transmission & Distribution of Power there are several schemes of Financing by the Rural Electrification Corporation. Now we are discussing these schemes.

Now we will discuss some schemes of financing for Transmission & Distribution of power in details.

Sl.No (i)

Category Project system Improvement

(ii)

Purpose To strengthen and improve the sub transmission and Distribution system in the designated area.

Meters, Transformers, For procurement and installation of meters, etc transformers etc.

Distribution schemes

S.No

Category

Purpose

(i)

Project system

For evacuation of power from new generating stations and to strengthen/improve the existing transmission system in the

Improvement: P:SI

designated areas.

Transmission Schemes •

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System Improvement: – To overcome the system deficiencies and to improve the quality and reliability of power supply, REC finances System Improvement schemes, based on Page 17

•

•

system studies of an electrical distribution network considering present status of system capacities, connected demand, voltage profiles and level of losses, together with scope for future load growths. System deficiencies and weaknesses are identified and suitable solutions identified. This broadly includes creation of new sub-stations and feeders, augmentation of existing capacities of sub-stations and feeders, installation of capacitors, provision of efficient and tampers proof meters. Intensive Electrification: – The scheme for intensive electrification of electrified villages has been termed as Projects Intensive Electrification. Schemes under this activity mainly aim at intensive electrification of already electrified villages. The basic purpose is to cover intensive load development for providing connections to rural consumers in already electrified villages equipment and technologies which help in energy savings and improving the quality of power supply. This results in the supply of better quality and more reliable power to the consumers and increased revenue to the Power Utilities. Pump set Energization: – REC started this program to provide funds for schemes for energizing of pump sets, in order to facilitate agriculture. Thus the schemes are termed as Special Project Agriculture (SPA). Since the start of the program, till March 07, loan assistance of Rs. 5616 crore has been sanctioned under this program.

Apart from that REC give some Loan for development of Electrification. CATEGORY

PURPOSE

Project Household Electrification

Accelerated Electrification of one Lakh villages and one crore households

Project Village Electrification

Aims at Electrification of unelectrified villages in a selected designated area

Project Hamlet Electrification

Aims at Electrification of unelectrified hamlets by release of Household, Street Light and other connections

Project Intensive Electrification Project Pump sets

To cover intensive load development for providing connections to rural consumers in already electrified areas Aims at energization of pump sets

Project system Improvement

To strengthen and improve the transmission, sub transmission and distribution system in the designated area

Project Comprehensive System Improvement

To meet system inadequacy of entire system from LT Distribution to Sub transmission and transmission level of a given geographical area

Short Term Loan

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To provide finance to the Power Utilities and State Governments to meet their working Page 18

capital requirement for different purposes, such as purchase of fuel for power plant, purchase of power, purchase of material and minor equipment, system and network maintenance including transformer repairs, etc.

Debt Refinancing

The Scheme aims to facilitate reduction of the cost of borrowings of State Power Utilities/highly rated private power utilities by repaying their high cost term loans raised from other Banks/Financial Institutions for eligible projects/schemes.

Financing Equipment manufacturers

To provide Short term Loan/Medium term loan to the manufacturers of Power/Electrical material for power project.

India Infrastructure Finance Company Limited (IIFCL) EIILM

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•

About the Organization:- India Infrastructure Finance Company Ltd. (IIFCL) was incorporated on January 5, 2006, under the Companies Act 1956, as a wholly Government owned Company with an authorized capital of Rs. 2000 crore and paid-up capital of Rs. 1000 crore. Besides, the resource-raising program of the Company would have sovereign support, wherever required.

•

Business Performance (as on March 2008):Within a short span of its inception, the company has expanded its activities and has sanctioned financial assistance of Rs 183.80 billion to 86 projects involving a total project cost of Rs1435.11 billion. Out of the 86 projects which have been sanctioned, 71 projects have achieved financial closure and documents have been executed. This 86 assisted projects are spread across 19 states of the country.

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Infrastructure Projects Scheme • •

•

•

• •

Funding of IIFCL: - The IIFCL shall be funded through long-term debt raised from the open market or foreign currency debt. Eligibility: - The IIFCL shall finance only commercially viable projects. In order to be eligible for funding under this Scheme, a project shall meet the following criteria:A. The project shall be implemented by: • A Public Sector Company; • A Private Sector Company or Public-Private Partnership initiative. A. The project should be from one of the following sectors: • Road and bridges, railways, seaports, airports, inland waterways and other transportation projects; • Power generation, transmission, and distribution; • Urban transport, water supply, sewage, solid waste management and other physical infrastructure in urban areas; • Infrastructure projects in special Economic Zones. Lending Terms :- The IIFCL may fund viable infrastructure projects through the following methods:• Long Term Debt; • Midterm project Finance for 10 years: • Any other mode approved by Government from time to time. Other Condition:• The total lending by the IIFCL to any Project Company shall not exceed 55% of the Total Project cost. • Loans will be disbursed in proportion to debt disbursements from financial institutions. • The rate of interest charged by IIFCL shall be such as to cover all funding costs including administrative costs and guarantee fee, paid by IIFCL. • The charge on project assets shall be equal with project debt. • The IIFCL, the Lead Bank and the Project Company shall enter into a Tripartite Agreement for the purposes of this scheme. Recovery Process: - Recovery of loans advanced by IIFCL shall be the responsibility of the Lead Bank. Recovery of IIFCL loans shall be equal to with project debt of the Lead Bank and FI consortium has been recovered. Review of the Scheme: - The Scheme may be reviewed by the Government at the end of 5 years or earlier if required.

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IIFCL’s Refinance Scheme • Objective: - The primary objective of IIFCL’s refinance scheme is to facilitate the flow of funds in an increasing manner for the development of infrastructure in the country. Under the scheme IIFCL will provide refinance for term loans sanctioned by Banks for only new commercially viable projects in road and port sectors.

• Eligibility: -The main characteristics of the scheme are:– 1. Refinance would be provided to Banks for new commercially viable infrastructure projects. 2. Refinance would be made available to new projects only for which bids are submitted on or after 31.01.2009.

3. Refinance would be made available to those new projects which are approved by Public Private Partnership Approval Committee (PPPAC) under the guidelines for Formulation, Appraisal and Approval of PPP Projects and/or by the Empowered Institution under the guidelines for Financial Support to PPP in infrastructure.

• Extent of Refinance: - IIFCL shall provide refinance upto 60% of the loans provided by the Banks to infrastructure projects in the roads and port sectors.

• Rate of Interest: - The IIFCL rate of refinance at present would be 7.85% p.a. • Tenor of Refinance: - Tenor of refinance shall be 10 years. • Repayment: - Total repayment of refinance amount within a period of 10 years. •

Other Terms:1. No Upfront fee to be levied. 2. Prepayment of refinance instalment is permitted only in cases where the borrowing units have prepaid the corresponding loan instalments. 3. Time limit for refinance is within three months from the date of each disbursement. 4. Failure to service interest or debt would attract the provisions of the General Agreement, which involves levy of additional interest.

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Indian Renewable Energy Development Agency Ltd

•

About the Organization:- Indian Renewable Energy Development Agency Limited (IREDA) was established on 11th March, 1987 as a Public limited Government Company under the Companies Act, 1956 and it promotes, develops and extends financial assistance for Renewable Energy and Energy Efficiency/Conservation Projects. IREDA has been notified as a “Public Financial Institution” under section 4 ‘A’ of the Companies Act, 1956 and registered as Non-Banking Financial Company (NFBC) with Reserve Bank of India (RBI). • SECTORS ELIGIBLE FOR ASSISTANCE :• Small Hydro Power • Medium & Large Hydro Projects above 25 MW • Wind Energy • Bio-Energy • Solar Energy • Energy Efficiency & Energy Conservation • Bio-fuel / Alternate Fuel • New & Emerging Technologies • Developmental Activities/ New Initiatives There are several schemes for financing by IREDA. These are • Project Financing • Equipment Financing • Energy Centers • Renewable Energy / Energy Efficiency Umbrella Financing • Non-conventional Energy Technology Commercial Fund Scheme • Additional / Bridge Loan against SDF Loan.

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•

Sector

Interest Rate (%) p.a

Maximum Repayment Period [Years]

Minimum Promoter’s Contribution (%)

Term Loan/lending Norms of IREDA

(i) Small Hydro upto 25 MW Capacity

12.15 to 13.15

10

30

Up to 70 % of total project cost

(ii) Hydro above 25 MW ( in consortium / co financing with other Banks/FIs)

12.15 to 13.15

15

30

Up to 50 % of total project cost

Remarks

IREDA will finance above 25 MW in consortium / cofinancing with other FIs/Banks and can also take up position of lead institution.

Project Financing:- This schemes is for Hydro Energy

.

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Renewable Energy-Energy Efficiency Umbrella Financing •

•

Background: - IREDA has launched the Renewable Energy-Energy Efficiency Umbrella Financing Scheme for those organizations who have good existing network to serve individual/retail customers who do not full fill IREDA’s legal eligibility criteria and are scattered over large rural/semi-urban areas. Objectives:1. To supplement IREDA’s current lending operations by spreading the customers/user base through the development of an appropriate Micro financing Network.

2. To facilitate the Micro Lending capabilities of IREDA. • Eligibility :- State Financial Corporation’s (SFCs), Industrial Development Corporations (IDCs), Technical Consultancy Organizations (TCOs), Non Banking Financing Companies (NBFCs), State Nodal Agencies (SNAs), Business Development Associates (BDAs) , Scheduled banks and Non-Governmental Organizations (NGOs) which are otherwise legally eligible to borrow from IREDA and full fill the other eligibility norms detailed in Financing guidelines. • Lending Terms And Conditions :Line of credit : Minimum Rs. 25.00 lakhs and maximum Rs. 1 crore. The financing norms applicable for this scheme are shown in the table given below Sector Interest Repayment Moratorium Lending Norms of IREDA Rate*(%) period (Max yrs) (Years) NRSE & Energy efficiency

10.00 ( for line of credit mobilization advance)

10

2

50% of total sanctioned Line of Credit as Mobilization advance balances 50% after evidence of proper utilization of mobilization in advance.

•

Procedure For Application: - The eligible applicant will submit an application in the prescribed format of IREDA along with business plan and other enclosures. Applications for a line of credit will be appraised based upon the criteria prescribed by IREDA. IREDA will review application and sanction the line of credit based on the qualification criteria: or reject the application, if not found suitable. • Security:1. Bank Guarantee / Pledge of FDR from a Scheduled Commercial Bank ‘ 2. State Government Guarantee. EIILM

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3. Unconditional and irrevocable guarantee of All India Financial Institution with “AAA” or equivalent rating. • Disbursement: - IREDA will disburse 50% of the line of credit as Mobilization advance after signing of Loan Agreement and creation of security. • Concessions Provisions: - Front end Fee, Inspection charges, Legal charges (other than incurred for recovery), expenditure on Nominee Directors are not applicable to this scheme. • Special Conditions:- If the borrower conducts no business (submits no evidence of utilization of mobilization advance to IREDA) within a period of 12 months from the date of disbursement of mobilization advance, then the line of credit sanctioned would automatically be cancelled. In that event, Mobilization advance drawn from IREDA along with interest shall be refunded within 30 days of expiry of said one year.

Infrastructure Development Finance Company

IDFC Incorporated on 1997 in Chennai. It establish under recommendation of the expert group on commercialization of infrastructure project. It’s basically financed in the infra structure project in the India. Up to 31st march2007 IDFC already financed 332 projects which can be aggregating Rs 220400 million. EIILM

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For developing the Infrastructure in India IDFC give some focus area for developing there project. • • • •

Energy/Power sector Transportation Communication Sector Urban & Rural Infrastructure Development.

Among them IDFC give a priority to Power sector. They believe In India there are lots of opportunity in the power sector. By utilize that opportunity the government of India want to develop 100,000 MW by 2012.Out of which of 23,000 MW would be in the private sector. For boost up this sector, especially the private sector, IDFC has several fund based products for developing the project. These are like:• • • • •

•

•

Project Finance Senior Debt Mezzanine Debt Private equity Project Finance: - In India for developing any large project huge finance is needed. For the supply the fund in this type of project term lending institute is establish. In the IDFC for project financing loan is given. In this scheme IDFC give long term loan to the financing company for fulfillment of the project. In this regard IDFC give term loan for any Power/Energy company. This loan is provided Public as well as Private sector to development a project. In this scheme loan is provided for 10-12 on a long term basis. The rate of interest is varied time to time. Apart from the financial help in this scheme IDFC also provided advice to this company.

Senior Debt: - Senior debt is the largest components in their financial portfolio. According to them more than 80% loan given by them is provided under this scheme. The senior debt scheme is a squired loan, given by pledge for buying or accruing fixed assets for any project. The rate of Interest of the senior loan scheme is fixed rate basis. It’s also re evaluated after every five year and that time the rate can be change. The loan taker can get a opportunity to raised the loan time to time up to a certain extend at that time. Mezzanine Debt: - Basically It is an equity-based options, Mezzanine debt is actually closer to equity .In order to re financing in a project IDFC using this loan scheme. This is the scheme by the when IDFC giving loan to any organization who are already financed ,that time for re

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•

financing IDFC take some equity of that company and as hypothecated and give them the loan. The risk involvement on this loan is very high. In IDFC this loan only provided to the Senior Debt holder. Private Equity: - To bust up the private sector in this sector IDFC lunge Private equity. By this option IDFC underwrite of equity share of any company. It’s a type of equity financing. IDFC by its subsidiary organization that is Investment development fund and IDFC PE ltd sponsor the investor to raising fund. This raised Rs 2740 Core up to 31st March, 2007 .Apart from underwriting the share now days IDFC also directly take part in the Initial Public offering (IPO’s) for raising the fund by the company.

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PTC India Financial Services Ltd

PTC India Financial Services Ltd (PFS) is promoted by PTC India Ltd (PTC) as a special purpose investment vehicle to provide total financial services to power projects in generation, transmission, distribution. PFS also provides Fun based as well as Non-fund based financial services for projects growth and development. It is incorporated under the Companies Act 1956, and registered with RBI as a NBFC. The vision of PTC India Financial Services Ltd (PFS) is to be the most preferred financial services partner in the entire energy value chain. PFS strongly believes in partnering and forging strong relationship with credible stake holders to provide complete financial services for all links in the energy value chain. In its pursuit to be the most preferred financial services partner in energy sector, PFS offers a wide range of financial products and services structured according to the nature of project, profile of promoters, risk analysis and the specific requirement of the project. PFS offers financial assistance to projects in this sector is mainly falls into two categories. • • •

Lending Equity Investments

Lending: - PFS offers debt assistance to projects subject upto certain limits. PFS structure the debt assistance taking into consideration factors like needs of the borrowing entity, the market conditions, regulatory requirements, risks and rewards from the projects. PFS offers the following debt instruments: • Term Loans • Bridge Loans • Supplier’s Credit • Bill Discounting

PFS also considers mezzanine funding debt against promoter’s contribution in equity or in any other form depending upon the requirements of the project

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PFS extends finance assistance to all kinds of borrowing entities in the public as well as private sector in the entire energy value chain. However, the priority of PFS would be private sector, followed by Joint sector/ Government sector projects. The interest rate to be charged by PFS shall take into account the cost of funds of PFS, rates being charged by other institutions/bank, and condition of the financial market While providing for a reasonable margin, PFS may provide for charging differential interest rate form the borrowers depending upon the type of project, and grading based on the entity appraisal. •

Equity Investments: - The equity investment in a project is focused on the side of promoter. This fund is given by after judging the track record, good growth prospects and clearly defined exit routes from the project. Investment horizon tends to focus on the short to medium term. We also provide the last mile equity to power projects as and when required depending upon the project viability, its progress and our investment guidelines. Investment decision depends upon the valuation offered by the project. For the purpose PFS undertakes requisite due-diligence and assessment of the techno-economic viability of the proposal. FS sees value in small and upcoming developers with promise and viable project and help them by sharing risk and adding credibility by participation in equity.

The nature and the extent of participation in equity may vary from project to project. PFS would not normally take stake below 10% in equity of any project. The participation in equity can also be structured in the form of joint venture with PFS taking the role of a strategic investor or a financial partner.

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Among the banking institution the banks which provided finance are as fellow.

ANDHRA BANK

•

•

About the Organization: - Andhra Bank was founded by Dr.Bhogaraju Pattabhi Sitaramayya. The Bank was registered on 20th November 1923 and commenced business on 28th November 1923 with a paid up capital of Rs 1.00 lakh and an authorized capital of Rs 10.00 lakh. One of the largest banking networks in India with more than 1400 branches in India. Product &services:- In Andhra there are various type of product for financing for long term financing. Andhra bank provided various type of loan from meeting day to day expenses to long term finance. Among those the product are as fellow:• • • • •

•

•

Working Capital Loans Term Finance Bridge Loans Project Finance Infrastructure Project Finance

Working Capital Loan: - Every organization requires money to meet the day to day business operations, for purchasing stocks and for acquiring raw materials for processing and conversion to finished goods. Andhra Bank provides finance to purchase inventory directly by providing funded .Andhra Bank also provides receivables finance to provide liquidity to the customers. Term Finance: - It is a traditional activity by Andhra Bank. The Bank is providing term loans to meet capital expenditure for acquisition of fixed assets/expansion of existing activity/swapping existing high cost debt. Bank is providing both funded and non funded limits under term finance. • • •

•

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Funded limit to meet cost of civil/ Infrastructure works, acquisition of assets etc. Non Funded limits for import/purchase of machinery deferred payment of taxes. The repayment period is designed in ease terms extending from 3 years to 15 years including gestation period basing on the credit rating of the customer. Bridge Loans: - Andhra Bank is sanctioning Bridge Loans as an interim finance against expected inflow of funds. Bridge Loans can be broadly categorized into two types, with or without the commitment of another Bank/Financial Institution. Bridge loans could be sanctioned against expected equity issues/flows, against the expected proceeds of NonPage 31

Convertible Debentures, External commercial Borrowings, Global Depository Receipts and/or funds in the nature of Foreign Direct Investments also. The Bridge Loans are repayable within one year. •

Project Finance: - Andhra Bank is providing project finance to set up new projects .But now a day’s the bank giving loan existing projects also. The Bank will be providing fee based technical consultancy services to projects in course of time. It is generally given for more than 12 years for a long term basis, and interest rate is varied time to time.

•

Infrastructure Project Finance:-In India development is an important thing. Keeping in view the tempo in infrastructure projects, Andhra Bank is providing finance to borrower companies engaged in: •

Developing

•

Operating and maintaining

•

Developing, operating and maintaining any infrastructure facility that is a project in any of the following sectors: 1. A road project, including toll road, a bridge or a rail system; 2. A highway project including other activities being an integral part of the highway project' 3. A port, airport, inland waterway or inland port; 4. An industrial park or special economic zone ; 5. Generation, transmission and distribution of power

Industrial Development Bank of India EIILM

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•

About the Organization :- The Industrial Development Bank of India Limited commonly known by its acronym IDBI is one of India's leading public sector banks and 4th largest Bank in overall ratings. RBI categorized IDBI as "other public sector bank". It was established in 1964 by an Act of Parliament to provide credit and other facilities for the development of the fledgling Indian industry. It is currently the tenth largest development bank in the world in terms of reach with 871 ATMs, 504 branches and 316 centers. Some of the institutions built by IDBI are The National Stock Exchange of India (NSE), The National Securities Depository Services Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL) IDBI Bank, as a private bank after government policy for new generation private banks.

•

Product & Services:•

Project Finance.

•

Infrastructure Finance.

•

Working Capital.

•

Direct Discounting Bills

•

Advisory Services.

•

Project Finance Scheme: - Under the Project Finance scheme IDBI Bank provides finance to the company for Industrial, commercial and Infrastructure projects. The Bank provides project finance in both rupee and foreign currencies. IDBI Bank follows the Global Best Practices in project appraisal and monitoring and has a well-diversified industry portfolio. IDBI Bank has signed a Memorandum of Understanding (MoU) with LIC in December 2006 for undertaking joint and take-out financing of long-gestation projects, including infrastructure & Power projects.

•

Infrastructure Finance: - IDBI Bank has been actively participating in structuring and financing of infrastructure projects in the areas of power, telecom, roads, seaports as well as Special Economic Zones. The Bank has also taken initiatives in funding modernization of airports, besides part-financing development of international airports and seaports under the Public-Private Partnership route. The Bank is also a member of the Core Committee of the Government set up for finalization of the Ultra Mega Power Projects. IDBI Bank interacts with Government and other stakeholders and market participants, on policy and operational issues, facilitating smooth flow of funds to infrastructure sector.

•

Working Capital Finance Scheme: - Working Capital facility is provided to the industry to finance day-to-day needs. For production, funds are generally required for purchase of raw materials, stores, fuel, for payment of labor, for storing finished goods till they are sold out & for financing the sales by way of sundry debtors / receivables. For that Cash Credit facility is granted to the customers to bridge working capital gap. They also Bank also provides short

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term loan facility for a period of up to 1 year for the purpose of bridging temporary cash flow mismatches arising due to various reasons like non-realization of receivables in time etc. •

Direct Discounting of Bills Scheme: - For financially sound machinery / equipment manufacturer, who wish to promote sales, IDBI Bank provides deferred credit facility for sale / purchase of indigenous machinery / equipment under its easy to operate direct discounting scheme. Assistance would be 100% of the total value (including insurance, taxes & freight). Discount rate would be as prevalent at the time of discounting of bills, depending on monthly / quarterly / half-yearly/ yearly payments and according to temporal profile of bills.

State Bank of India

•

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About the organization: - State bank of India is one of the oldest bank and largest commercial bank in India in terms of profits, assets, deposits, branches and employees. The Page 34

•

•

•

•

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bank traces its ancestry back through the Imperial Bank of India to the founding in 1806. The Government of India nationalized the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India. The State Bank Group, with over 16000 branches, and 52 branches or offices in 32 countries. It has branches of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los Angeles, Maldives, Muscat, New York, Osaka, Sydney, and Tokyo.It has a market share among Indian commercial banks of about 20% in deposits and advances, and SBI accounts for almost onefifth of the nation’s loans. The State bank of India is 29th most reputable company in the world according to Forbes. Product & Services: - SBI provide various range of product for long term debt. • Working Capital Finance Project Finance • Deferred Payment Guarantees • Structured Finance • Corporate Term Loans Working Capital Finance: - Assistance extended both as Fund based and Non-Fund based facilities to Corporate Partnership firms, Proprietary concerns .Working Capital finance extended to all segments of industries and services sector such as Infrastructure, IT etc. SBI offers working capital finance to meet the entire range of short-term fund requirements that arise within a corporate day-to-day operational cycle. SBI’s working finance products comprise a spectrum of funded and non-funded facilities ranging from cash credit to structured loans, to meet the different demands from all segments of industry, trade and the services sector. Funded facilities include cash credit, demand loan and bill discounting. Nonfunded instruments comprise letters of credit (inland and overseas) as well as bank guarantees (performance and financial) to cover advance payments. Project Finance: - The SBI has formed a dedicated Project Finance Strategic Business Unit to assess credit proposals from and extend term loans for large industrial and infrastructure projects. In general, project finance covers green field industrial projects, capacity expansion at existing manufacturing units, construction ventures or other infrastructure projects like Power Generation & transmission, Road, etc, capital intensive business expansion and diversification as well as replacement of equipment may be financed through the project term loans.

Eligibility:• The infrastructure: - The project cost is more than Rs 100 Crores. The proposed share of SBI in the term loan is more than Rs.50 cores. • The commercial: - The minimum project cost is Rs. 200 crores. The minimum proposed term commitment is of Rs. 50 cores from SBI. Page 35

•

Deferred Payment Guarantees: - This loan is given for support purchase of capital equipments for a long term Industrial or Infrastructure project.SBI can extend deferred payment guarantees to Industrial projects or Infrastructure project for obtaining imported equipment.

•

Structured Finance: - SBI structured finance involves assembling unique credit configurations to meet the complex fund requirements of large industrial and infrastructure projects. Structured finance can be a combination of funded and non-funded facilities as well as other credit enhancement tools, lease contracts for instance, to fit the multi-layer financial requirements of large and long-gestation projects.

•

Corporate Term Loan: - To support capital expenditures for setting up new ventures as also for expansion, renovation etc. The SBI corporate term loans can support the company in funding ongoing business expansion, repaying high cost debt, technology up gradation, R&D expenditure, leveraging specific cash streams that accrue into company, implementing early retirement schemes and supplementing working capital. The bank’s corporate term loans are generally available for tenors from three to five years.SBI corporate term loans may carry fixed or floating rates. Again, these rates will be linked to the bank’s prime lending rate.SBI corporate term loans can have a periodic repayment schedule, as required by the client. The repayment mode may be linked to the cash accruals of the company.

There is some Other Institute who is provided finance to Indian Power sector. Among these NonBanking Financial Institute, Foreign Institute are popular. These are like:•

Asian Development Bank

•

GE energy financial services

•

SRIE Finance

•

World Bank

Asian Development Bank

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The ADB is the leading promoter of energy privatization in Asia and the Pacific. Through energy sector reform programs, the ADB requires countries to privatize state-owned electricity utilities and promote foreign investment in energy generation, transmission and distribution. The ADB believes that private sector participation in the energy sector will relieve governments' debt burdens and allow scarce resources to be allocated to social sectors such as health and education. Yet in India, the ADB's advice has led to escalating energy costs for consumers, increased debt burdens for the government, and increasing windfalls for the private sector. In the energy sector, multinational corporations are the only ones that seem to benefit from the ADB's advice. While the IMF and World Bank try to promote Power G,T,& D under government sector , the ADB has tended to focus privatization in the energy sectors The ADB has promoted energy sector reform in countries like India, Pakistan and Tajikistan, etc . ADB's advice is encouraging private companies to invest in and construct power plants. They have argued that involving the private sector run in better way and the organization get benefits at little risk. In order to attract private capital, ADB suggest governments have signed agreements with independent power producers (IPPs) in which economic risks and responsibility are unevenly borne by governments. In some cases, governments have signed contracts that guarantee payment even if there is no demand for electricity. In effect, economic risk has been transferred to the consumers who are forced to subsidize private investment through levies, taxes, price increases and debt repayments. The private sector, in these cases, has received a disproportionate share of profits and privileges. In India, the ADB's promote the energy sector reform by subsidize tariff for poor citizens and to farmers in Madhya Pradesh. To fulfill the loss of ADB-funded $250 million in power sector in India. In October 2000, the ADB approved another loan of $250 million for the establishment of a national grid for interstate power transmission and extended a partial credit guarantee for raising another $120 million from commercial banks. The ADB's support of Power grid, the state company overseeing the unification of the national grid, is part of a move to encourage private sector involvement in the power sector. ADB also provide a policy loan of US$150 million and an investment loan of US$200 million to support a sector development program for the first phase of reforms. In November 2005 Asian Development Bank (ADB) financing $400 million upgrading of India’s national power transmission grid. For that ADB provided loan to Power Grid Corporation of India for expand the capacity of the national transmission grid. ADB support to POWERGRID establishing a national grid.ADB also helps Indian government achieve its objective of providing 100% electrification by 2012. The loan carries a 20-year term, including a grace period of five years. Interest is based on ADB’s LIBOR-based lending facility. The project is expected to be completed by June 2009.

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Apart from Grid development ADB gives loan for Gujarat power reforms. Asian Development Bank, as per the request of the Central Government, has agreed to give $350 million to Gujarat government. The Government has to give interest @ 7-8 on ADB’s LIBOR-based lending facility. Out of that money Gujarat Government spent $150 million for reorganizing the Generation and $ 200 million for modernization of transmission and distribution equipment in the State power sector. For boosting up in the power sector in North East India ADB provide loan $1,400 million for development projects. For that purpose ADB also give two phase’s loan $300 million will be given in 2006 and the second $200 million in 2008 for development of total infrastructure like Road, Urban area for helping to development of that project. ADB also gives assistance to PFC Clears Rs 750 by giving Loan to them. For by this loan PFC can helps India’s power sector reform. To reform PFC gives loan to the state electricity boards which are undergoing restructuring. The loan will have a maturity period of 20 years including a grace period of five years on ADB’s LIBOR-based lending facility. Though ADB gives his helping hand but some people things this will harm in the power sector. According to Mr.K.R. Unnithan General Secretary, Kerala state Electricity Board Officer’s Association "Government's willingness to tow the ADB line”. The ADB's plan was to transform the power supply service in the State into a highly profitable commercial activity .They also try to make SEB into a companies. These companies would then be privatized and, gradually, the sector would be freed of the controls of the Regulatory Commission too. Ultimately, electricity supply would be totally at the mercy of the market forces. He also said that Government, for the sake of a Rs. 3,000crore loan, was mortgaging the hard-earned right of the citizens to be the masters of their own destiny. The interest on this loan was to be returned in dollars. The effective interest rate, therefore, would be very high since the rupee-dollar exchange rates were constantly changing to the disadvantage of the rupee. So in a nutshell we can say ABD is a good source for rising fund in the power sector. But in the present situation it’s may be a problem to rising any fund due to political hazard. So we should twice before raising fund for ADB.

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SREI Infrastructure Finance Ltd.

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•

About the organization:-Srei Infrastructure Finance Ltd. is one of India's leading Non Banking Financial Institutions and the only private sector infrastructure financing NBFI. It commenced its operations in 1989 with the objective of actively participating in nation building process and was visionary in selecting Infrastructure sector as its principal growth area. Today, Srei has developed expertise in financing of infrastructure equipment (for construction, mining, oil & gas, power and others), infrastructure projects, infrastructure development and advisory in all verticals of infrastructure. With a customer base of over 15,000, over Rs. 8,000 crore in Assets under Management and total capital base of over Rs. 700 crore, Srei today has emerged as the largest player in a fiercely competitive market of infrastructure equipment financing. Product & Services:- SREI Infrastructure provided number of product & Services to the infrastructure company. Among these some are Fund based and some are non fund based Product. These are • •

•

Infrastructure Equipment Finance Infrastructure Project Finance

Infrastructure Equipment Finance: - It can be classified into two broad head. •

Infrastructure Equipment Finance: - It is the largest business division of the company. In fact, Srei today, holds a leading position in the construction equipment financing industry in India. The division’s primary activity is the leasing and hire purchase of infrastructure, construction equipment and machineries to various construction companies and small and medium scale enterprises engaged in civil and mechanical construction. • Asset Finance:-The Asset Finance Division caters to the equipment finance requirements of the infrastructure industry. Srei's financial products cater to the widest spectrum of users ranging from First time users and buyers to the largest corporate construction houses and project developers. Srei has played a leading role in mechanization of this industry and is considered a pioneer in introducing new technologies and finances the largest range of imported sophisticated equipment for infrastructure industry. The Product offerings of Srei can be broadly classified as:  New equipment Financing  Used Equipment Financing  Operating leases •

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Infrastructure Project for power Project: - A significant portion of Srei's portfolio is deployed in the Energy sector with a focus on eco-friendly power. Apart from conventional Gas and Coal-based power projects, Srei has assisted Captive Power plants utilizing waste Page 39

•

byproducts and non-conventional energy projects. We provide our services for Greenfield power projects, capacity expansions, and modernizations. Srei's asset-financing approach and ability to offer a package of fund and non-fund facilities enables sponsors to procure key equipment in the early stages of project development and substantially reduce implementation time and risks. Products & Services • Lease of power plant equipment • Letters of Credit for import of equipment • Foreign currency loans for imported equipment • Project Advisory Services • Debt Syndication • Rupee Term loans.

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WORLD BANK

The World Bank has been associated with the Indian power sector for several decades. The Bank not only provided fund for the project, but also provided technical assistance for the developing a project. The Bank has main two institutes by which they can provide fund for any project. These are •

•

The International Bank for Reconstruction and Development (IBRD) The International Finance corporation (IFC)

Over the few years the maximum fund (around 60%) for power transmission sector is given by World Bank. But now a day’s World Bank giving fund for restructuring on the hydro and renewal energy sector. According to a senior energy specialist of World Bank “The World Bank maximum funding for power project has been in the Transmission segment (Power Grid Corporation).It also provided several SEB for restructuring their power sectors”. According to World Bank the biggest beneficiary of the fund provided by them in India is Power Grid Corporation. In October, 2008 the bank approved $400 million loan to the company for 30 years including 4 years grace period .Prior to that in 2003 World Bank (IFC) provided $75 million loan to Tata Transmission Line Ltd the 1st ever private transmission project in India. In 2006 World Bank also give $450 million for Power System Developments Project in transmission segment. In 2008 World Bank approved $600 million to power Grid Corporation for restructuring the interregional power transmission project during the 11th Five year Plan (2007-2012) .This loan was blocked by a government of India guarantee. Apart from the funding in the transmission sector World Bank also finance in generation sector. In September 2007 World Bank approved $400 million for expansion of Satluj Jal Vidyut Nigam for developing of 412 MW Hydro power project in Himachal Pradesh. Prior to that in 2003 World Bank also financed in $49 million for 192 MW project in Himachal Pradesh. In that loan the financing is made on the basis $42 million as a debt fund and $7 million as a equity fund. In the year 2000 World Bank also financed with the Indian Renewable Energy Development Agency Limited (IREDA) for developing small hydro project. In this scheme World Bank allow $130 million to IREDA. In addition to that amount World Bank also provided $5 million for Environment EIILM

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restructuring. In 2008 World Bank also provides $450 million for Power plant of Tata power company, the loan has 20-year tenor. World Bank is also financed in the State Electricity Board for restructuring in the energy sector especially in distribution sector. As an example World Bank provided $180 million to Rajasthan government for power sector restructuring .Similarly World Bank also provided some fund Andhra Pradesh, Uttar Pradesh, West Bengal in the same category. This fund is basically provided for development of power distribution sector in the rural area. In a nutshell we can say World Bank take a huge role in the Indian power sector. World Bank provided various fund, technical help in the power sector at a 360o basis. That is World Bank provided fund for Generation, Transmission and Distribution sector. It’s also provided some fund in the state level directly for restructuring their power sector. According to some senior personnel of the bank “World Bank also provided fund, technical assistance and Guarantee for achieving the mission ‘Power for All by 2012’ by Indian government”.

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Project Appraisal Process is Done By Financing Institute The following aspect is judge at the time of Project Appraisal process by CRISEL & ICRA for debt financing behalf of PTC, REC, SBI, IDBI, etc.

Eligibility • • •

Regional Development Rational use of energy, efficiency Environmental protection

Technology and Design • • • • • •

Project Definition Viability and performance Adaptation to technical progress Local-specific requirements Appropriate technical capacity Life expectancy

Economic & Financial Viability • • • •

Cost effectiveness Financial internal rate of return Economic internal rate of return Pay-back period

Investment Cost

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• • •

Local and foreign currencies Phasing of expenditure Cost justification

Market prospects • • • •

Demand pattern Degree of competition Tariff level and structure Product quality

Legal Framework • • • •

Policies, public acceptance Licensing Environmental compatibility Procurement

Time Schedule • • • • •

Preparation of feasibility studies Environmental studies Licensing requirements Time needed for procurement Local conditions (climatic, etc)

Promoter’s standing • • • •

Management capability Business strategy Financial robustness Access to loan securities

Environmental Compatibility • • •

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Direct, indirect, long-distance effects Preventions Compliance with international standards

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EQUITY FUND Apart from debt financing Power Company gets finance Equity financing also. Like NTPC, NHPC, Reliance Power get fund from selling Equity. In the power sector, the return on equity is

•

•

Promoter’s Equity and Internal Accruals: - Most project developers invest some amount of the total project cost as promoter’s equity to be able to earn the minimum return on equity and raise the required debt. Many CPSUs, including National Thermal Power Corporation (NTPC) are increasingly relying on internal accruals for investing equity in new projects. Primary/Capital Markets:-In recent times, power sector companies have been raising funds from primary markets through Initial Public Offerings (IPOs). Almost all IPOs of power companies in the last two to three years have met with an overwhelming response from investors or have been performing well in the stock markets. Some of the successful IPOs have been those

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•

•

of CPSUs like NTPC, and NHPC, private developers like TATA POWER, JP Hydro and Reliance Power. Many power companies are expected to launch their IPOs in the coming years. NTPC is also planning to come out with a follow-on public offer. Qualified Institutional Placements: - Another source of equity, which is increasingly being tapped by power sector companies, is private placement with qualified institutional investors. For instance, GVK Power & Infrastructure Limited (GVKIL) and Kalpataru Power Transmission raised USD 300 million and USD 85 million respectively through this route in May 2007 and September 2006 respectively. PTC India also rose around USD 29 million through this route in January 2008 by allotting shares to institutional buyers like LIC and Morgan Stanley, among others. Equity Funds:- Specialized equity funds such as India Development Fund by Infrastructure Development Finance Company (IDFC) have been set up to invest in equity in private sector power sectors. The India Power Fund by PFC which was expected to be launched in 2004 is however, yet to start operations. India Infrastructure Finance Company Limited (IIFCL), Citigroup, Blackstone have also instituted a USD 5 billion India infrastructure financing initiative for investing in infrastructure projects. PTC India’s investment arm PTC Financial Services also plans to pick up equity in power projects through an Energy Equity Fund.

MUTUAL FUND One of the major ways of raising the fund in the power sector is Mutual Fund .Mutual funds constantly come out with different schemes. . Infrastructure funds are part of a mutual fund category called thematic funds. While sector specific funds invest in particular sectors like information technology, power, oil and gas, etc, thematic funds invests in themes like infrastructure, consumption-led categories like the retail industry and outsourcing companies. Today, there is a huge buzz about the Great Indian Gold Rush and its three themes •

Infrastructure,

•

Consumption,

•

Outsourcing

Of these three, Infrastructure funds have caught the fancy of a lot of mutual funds; many new funds have been launched in this category in the last couple of years. Now a day’s various financial companies like ICICI Prudential Mutual Fund, Birla Sun life Mutual Fund, Tata Mutual Fund, UTI, and Reliance Mutual Fund comes to this sector. These EIILM

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companies are raising fund from market and invest in this sector. These companies basically issue an open-ended equity funds; this means you can invest in them whenever you like. Mutual fund companies are also trying to enhance the sources of fund in Infrastructure as well as power sector. Some funds have concentrated holdings this means they have invested in a fewer number of stocks, but have put more money in each stock than the others. For example Prudential's infrastructure fund is the most concentrated with as few as 34 stocks. Tata Mutual Fund in this order, are the most diversified and have more number of stocks. The common stocks that most of these infrastructure funds have invested in are Reliance, BHEL, NTPC and Power Grid, etc. some time these mutual fund companies are also given fund to various Financial Institute .As an example IDFC Mutual fund raised fund from market for Infrastructure Development Finance Company, by this the mutual fund company helps for raising fund in the Indian infrastructure sector. This Fund are generally apply in the stock market, but some companies like Reliance Mutual Fund, Birla Sun life Mutual Fund ,TATA Mutual Fund etc also Invest in the Derivative market ,i.e. Future Market, Forward Market and Option Market.

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FINANCIAL STUDY OF SELECTED POWER COMPANIES To study and analyze the power sector better, the comparative and analytical study of the Top 4 and Bottom 4 listed firms of power sector in India are done. The firms are chosen based on their sales turnover. The below are the firms selected by us for the study, TOP 4 •

NTPC

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Reliance Energy

•

Tata Power

•

Power Grid

BOTTOM 4 •

JP Hydro

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Energy Develop

•

KSK ENERGY

•

Indowind Energy

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RATIO ANALYSIS Financial ratio analysis can reveal much about a company and its operations. However, there are several points to keep in mind about ratios. First, a ratio is a "flag" indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of a company's management and economic circumstances, financial analysis can tell much about a corporation. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right depends on the perspective of the analyst and on the company's competitive strategy. Third, financial ratios are meaningful only when compared with some standard, such as an industry trend, ratio trend, a trend for the specific company being analyzed, or a stated management objective. Key Ratios Debt-to-equity ratio: A debt-to-equity ratio, which is the total debt of an entity divided by the total equity of that entity, is a measure of the use of leverage or a measure of risk. Leverage is the use of other people's money to make money.

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The greater an entity's debt-to-equity ratio, the greater is the opportunity for high returns for that entity. The debt-to-equity ratio is also a measure of risk since the more debt that is used, the greater the risk that the entity might be forced to liquidate and go out of business. Long Term Debt-to-equity Ratio: It is a capitalization ratio comparing long-term debt to shareholders' equity. It’s a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation. It is also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as companies. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt.

Current Ratio: An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. Turnover Ratios: Interest Cover Ratio: It is a ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. EIILM

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Fixed Asset Turnover: A long-term, tangible asset is held for business use and not expected to be converted to cash in the current or upcoming fiscal year, such as manufacturing equipment, real estate, and furniture. A high fixed asset turnover is preferred since it indicates a better efficiency in fixed assets utilization. Inventory turnover: It’s a ratio showing how many times a company's inventory is sold and replaced over a period. This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in selling its product. Possessing a high amount of inventory for long periods of time is not usually good for a business because of inventory storage and obsolescence costs.

Debtors Turnover Ratio: Indicates the relation between net credit sales and average accounts receivables of the years. It’s also known as debtors’ velocity. This ratio indicates the efficiency of the concern to collect the amount due from debtors. It determines the efficiency with which the trade debtors are managed. Higher the ratio, better it is as it proves that the debts are being collected very quickly. ROCE: Return on Capital Employed (ROCE) is used in finance as a measure of the returns that a company is realizing from its capital employed. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital. RONW:

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Return on Net Worth is the ratio of net income after taxes to total net worth at the end of the year. This ratio indicates the return on stockholder's total equity. Also known as Return on equity which measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

RATIO ANALYSIS OF INDUSTRY Though the value of debt to equity ratio depends on overall financial situation, goals, employment security, risk aversion, tax implications, etc., the value of debt to equity ratio in Indian power industry is 0.75 which shows that there is 75 paisa debt for every 1 rupee of share holders’ funds which is not a very high value and firms are moderately strong to meet the repayment requirements. The long term debt equity ratio (0.73) is nearly equal to the debt- equity ratio which shows that the companies of this sector are able to fulfill its long term repayment requirements as efficiently as other liabilities and the business is not at high risk.

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In case of current ratio the rule of thumb says that the current ratio should be at least 2, but in power industry the current ratio of 1.59 shows that it is less than required value, thus it is seen that this industry should increase current assets and should control the current liabilities. In the power industry the value of inventory turnover ratio of 14.2 can also be said in the form of 365/14.2 = 25.7 days. The ratio shows a relatively high stock turnover which would seem to suggest that the business deals in the field which require fast moving of its product i.e. electricity. Generally, the higher the firm’s total asset turnover, the more efficiently its assets have been utilised. Always high fixed assets turnovers are preferred since they indicate a better efficiency in fixed assets utilization. In case of Indian power industry a very low value (0.47) of fixed asset turnover shows that the fixed assets of the industry have not been utilized efficiently. The value of interest cover ratio is 2.96 is very impressive in Indian power sector. It shows that the firms in the industry are strong enough to pay the interest expenses timely. The value of Return on capital employed (8.79) is not very good return but with the high value of interest cover ratio and slightly lower value of debt to equity ratio in the industry the return on capital is in the moderately good condition.

RATIO ANALYSIS OF THE INDIVIDUAL COMPANIES NTPC Limited In NTPC the debt-equity ratio has not changed since 2004 as the values the change is only 0.01 during 2004 to 2006 and the change is 0.07 during next two years. This shows the lower level of financial leverage which is not a good sign for the company. However company’s profitability determines the debt equity ratio yet the high profitability of the company do not suggest such a lower value of debt equity ratio. EIILM

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Current ratio of the company is showing U-shape trend during 2004 to 2008 and like previous days company has again reached to good liquidity position. The fixed asset turnover ratio has shown 50% growth in last 5 years but it is still low and company should maximize its asset utilization. A high debtor turnover ratio is showing the good debt collection ability of company. Interest cover ratio of the company is continuously increasing showing that the company is becoming stronger in the ability of meeting interest expenses. RATIO ANALYSIS OF NTPC NTPC NTPC NTPC NTPC 2004 2005 2006 2008 Debt-Equity Ratio 0.42 0.42 0.43 0.50 Long Term Debt-Equity Ratio 0.42 0.42 0.43 0.50 Current Ratio 2.39 1.65 1.86 2.23 Fixed Assets 0.49 0.55 0.60 0.72 Inventory 10.75 12.84 12.92 14.21 Debtors 2.92 24.65 24.00 17.62 Interest Cover Ratio 2.46 4.47 4.69 6.33 PBIDT (%) 54.72 43.06 42.66 38.38 ROCE (%) 17.24 14.14 15.11 15.72 RONW (%) 13.03 14.85 14.86 14.36 Inventory turnover of the company is showing the increasing capability of selling the product but ITEM

at the same time it can be observed that company’s profitability is decreasing and this trend can be attributed to the fact that company is not using debt efficiently to enhance the business. As it is known that shareholder’s expectations are quite higher than the interest on debt. The return on capital employed and return on net worth are good in NTPC but it is not increasing; we can see slight decrease in the return.

Reliance Energy Limited After increasing continuously the debt equity ratio of Reliance Energy has slipped between 2006 and 2008 and it is also very low, thus it suggests that with the two digit rate of return on net worth company can think to raise the finance, so that by starting new projects profitability can be improved. Current ratio is satisfactory for the company and it has good ability to meet current liabilities. EIILM

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Ratio Analysis of Reliance Energy ITEM

Reliance

Reliance

Reliance

Reliance

2004 2005 2006 2008 Debt-Equity Ratio 0.39 0.62 0.67 0.58 Long Term Debt-Equity Ratio 0.39 0.54 0.50 0.51 Current Ratio 1.47 2.23 2.64 2.41 Fixed Assets 0.93 0.96 0.87 1.12 Inventory 38.82 18.16 11.91 20.75 Debtors 6.75 5.94 3.91 4.80 Interest Cover Ratio 6.97 4.80 5.07 4.73 PBIDT (%) 22.96 23.92 33.42 27.36 ROCE (%) 10.13 8.52 9.68 9.80 RONW (%) 10.61 9.98 10.79 11.48 The fixed asset turnover has increased slightly but company should still do efforts to increase the utilisation of its fixed assets. Inventory turnover is lower now as compared to 2004; however it is not very low as electricity is fast selling product. Interest cover ratio and debtor turnover ratio are going down which is not good sign for the company and it is showing company’s falling ability to meet the interest expenses and collecting the receivables from debtors. The profitability is satisfactory which can be seen in PBIDT and RONW of the company.

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TATA Power Company Limited The profitability of TATA Power is going down which can be seen by

PBIDT%, ROCE and

RONW. However the debt to equity ratio of the company is very low but with the decreasing rate of return it cannot think for debt to increase the ratio. Inventory turnover ratio and the debtor turnover ratio have not changed significantly and they are showing stability of the firm. The decreasing current ratio is not a good signal for suppliers and creditors of the company, but at the same time company’s lenders can see the positive thing in the form of increasing interest cover ratio. The return of the company is not very high but with the sales turnover ratio size, company comes into top 5 companies of power sector in India. Ratio Analysis of TATA Power ITEM Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio PBIDT (%) ROCE (%) RONW (%)

Tata Power 2004 0.42 0.42 1.52 0.78 13.15 5.27 3.59 31.90 14.70 10.78

Tata Power 2005 0.45 0.45 1.66 0.72 12.90 5.56 3.78 27.50 9.81 7.37

Tata Power 2006 0.53 0.52 2.00 0.80 12.36 5.21 4.42 22.10 8.99 8.70

Tata Power 2008 0.47 0.43 1.81 0.93 13.65 4.11 4.57 18.28 7.67 8.12

The fixed assets of the company are not being utilized efficiently so there is scope for the company for enjoying the operational leverage and the profitability can be improved.

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Power Grid Corporation of India Limited In Power Grid Corp. the debt to equity ratio is higher than that of NTPC but it is still not very good. The company can take advantage of financial leverage as its profitability is very high. However the return on capital employed and return on net worth are not good as compared to NTPC. The decreasing current ratio during the last 5 years is showing increasing current liabilities of the company which in turn has lowered company’s liquidity. Ratio Analysis of Power Grid Corporation ITEM Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio PBIDT (%) ROCE (%) RONW (%)

Power Grid

Power Grid

Power Grid

Power Grid

2004

2005

2006

2008

1.46 1.46 1.28 0.12 12.66 2.12 1.72 102.15 8.55 9.23

1.47 1.44 0.81 0.12 13.19 5.37 2.11 94.16 8.01 8.99

1.50 1.44 0.57 0.13 17.26 8.10 2.23 90.95 8.95 10.65

1.69 1.62 0.59 0.14 21.35 5.80 2.43 91.41 9.82 12.99

In Power Grid we can observe very low fixed asset turnover ratio which tells the under utilization of company’s fixed assets. The increasing Interest cover ratio is showing company’s increasing capability of paying the interest which is a good sign for company’s future financing ability in the financial market. A high debtor turnover ratio is showing the good debt collection ability of company.

Jaiprakash Hydro-Power Limited EIILM

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Looking at the good profit % and good rate of return (RONW and ROCE) we can say that company should take advantage of financial leverage and should improve its capital structure balance in the form of debt and equity. As the company’s debt to equity ratio is going down it can be said that the overall cost of capital is increasing in the form of dividends and other expectations of shareholders. Company’s inventory turnover is showing exceptional movement downward in the year 2005. Ratio Analysis of Jaiprakash Hydro

ITEM Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio PBIDT (%) ROCE (%) RONW (%)

JAYPEE

JAYPEE

JAYPEE

JAYPEE

2004

2005

2006

2008

2.13 2.12 0.91 0.36 2,857.33 6.01 1.48 88.46 12.50 11.48

1.95 1.79 0.93 0.19 214.03 2.42 1.44 87.33 11.38 9.23

1.72 1.46 0.97 0.17 59.82 1.68 1.85 83.54 11.14 12.49

1.02 0.88 1.91 0.18 53.78 1.31 2.73 103.17 13.91 15.80

Interest cover ratio has grown and reached to a satisfactory level providing good signal to the lenders. Fixed assets of the company are under utilized as the fixed asset turnover ratio is very low. Debtors turnover ratio is coming down which is an alarming situation for the company to recover the debts given outside. Profit is however showing rosy picture but return is not growing in accordance with it which shows company’s lesser ability to retain the earnings.

Energy Development Company Limited

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Debt to equity ratio of the company is going continuously down even after the increase in the return and profitability (except 2008). Thus the company should improve the balance of the capital structure and should enjoy the financial leverage. Exactly same trend can be seen in the long term debt to equity ratio of the company between 2004 and 2008. Sharply falling current ratio is a worrying situation of the company showing its inability to meet the current liabilities. It’s a negative signal for the supplier and creditors. Ratio Analysis of Energy Develop Co. Energy

Energy

Energy

Energy

ITEM

Devlop.Co

Devlop.Co

Devlop.Co

Devlop.Co

Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio PBIDT (%) ROCE (%) RONW (%)

2004 1.09 1.09 18.50 0.16 9.92 9.59 1.34 80.25 9.67 4.68

2005 0.91 0.91 27.62 0.19 12.41 3.74 2.62 88.24 13.42 14.60

2006 0.60 0.60 2.55 0.28 20.12 2.24 7.11 90.60 14.88 17.97

2008 0.00 0.00 1.10 1.23 109.57 5.56 49.84 36.78 26.72 20.39

Looking at fixed asset turnover ratio we can say that the company has increased the utilization of fixed assets due to which it has become able to increase the rate of return (ROCE and RONW). In 2008 company’s profit % has gone down significantly but returns has been increased and inventory turnover has boosted which shows the firm’s ability to sell effectively and retain the earnings.

KSK Energy Ventures Limited The ratio analysis of the company showing that company is facing a very tough time now and not a single indicator is providing satisfactory picture of the financial health of the company. Debt equity EIILM

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ratio is going down because return on investment is going down and also the profit 5 is going down. Long term debt to equity ratio is also showing similar trend to the debt to equity ratio. Significant downward movement of the current ratio is showing company’s decreasing ability to meet current liabilities. Even after efficiently utilizing the fixed assets company is not able to increase the earnings which can be seen in the form of higher fixed asset turnover ratio and very low return on net worth (RONW). Ratio Analysis of KSK Energy ITEM

KSK Energy

KSK Energy

2006 2008 Debt-Equity Ratio 0.83 0.49 Long Term Debt-Equity Ratio 0.80 0.33 Current Ratio 3.78 1.45 Fixed Assets 7.75 11.65 Inventory 0.00 0.00 Debtors 0.00 0.00 Interest Cover Ratio 6.08 1.58 PBIDT (%) 148.22 98.62 ROCE (%) 14.98 7.86 RONW (%) 18.47 3.31 In such a condition cannot go for debt also. Rather than using financial leverage and operational leverage company should improve debtor turnover ratio and inventory turnover ratio. So the financial health of the company can be improved. Also we can see that no lender will allow debt to this firm easily because the interest cover ratio has come down significantly.

Indowind Energy Pvt.Limited Indowind Energy has been able to increase its profitability during last 5 years but this company comes in bottom 5 companies due to its sales turnover size. Company is continuously increasing the value of debt to equity ratio by increasing the debts and enjoying the financial leverage but its value

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is still very low which shows the future scope of increasing the debt. But company presently is not in a condition of increasing the debt because of its lower rate of return on capital employed. Ratio Analysis of Indowind Energy ITEM

Indowind

Indowind

Indowind

Indowind

2004 2005 2006 2008 Debt-Equity Ratio 0.09 0.15 0.19 0.78 Long Term Debt-Equity Ratio 0.09 0.15 0.19 0.69 Current Ratio 1.99 3.11 8.27 5.46 Fixed Assets 2.63 0.93 1.08 0.47 Inventory 0.00 4.55 3.49 1.31 Debtors 15.06 7.84 4.54 2.06 Interest Cover Ratio 2.43 2.22 2.31 3.76 PBIDT (%) 14.96 51.37 46.89 49.39 ROCE (%) 11.47 17.79 17.20 6.34 RONW (%) 11.59 12.60 12.05 4.30 Current ratio of the company has been increasing sufficiently which is a good indication for the suppliers and creditors. Inventory turnover ratio and debtor turnover ratio are not showing positive trend and it is not good for the financial health of the company. Interest cover ratio of the company has grown slightly showing satisfactory condition to the lenders of the company. However the profit % has been increasing but company is not able to retain the earnings as we can see it in the form of decreasing ROCE and RONW.

COMPARATIVE RATIO ANALYSIS OF TOP COMPANIES

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ITEM Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio PBIDT (%) ROCE (%) RONW (%)

STANDE NTPC Power Grid R

Reliance

Tata Power

0.75

0.50

1.69

0.58

0.47

0.73

0.50

1.62

0.51

0.43

1.59 0.47 14.20 4.65 2.96 35.38 8.79 9.07

2.23 0.72 14.21 17.62 6.33 38.38 15.72 14.36

0.59 0.14 21.35 5.80 2.43 91.41 9.82 12.99

2.41 1.12 20.75 4.80 4.73 27.36 9.80 11.48

1.81 0.93 13.65 4.11 4.57 18.28 7.67 8.12

The debt to equity ratio in the industry is 0.75 which is a moderately good value and can be taken as a base to analyze different companies within the industry. As in case of NTPC (0.50), Reliance Energy (0.58) and TATA Power (0.47) the value of debt to equity ratio is low, showing a very low risk of business and an opportunity of financial leverage. The only thing to be considered is that this excess equity is assumed as an interest bearing debt by Central Electricity Regulatory Commission, thus bringing down the effective ROE. In case of Power Grid Corp the value is more than double the industry average which shows a higher value of debt to equity ratio. Central Electricity Regulatory Commission (CERC) requires the debt-equity ratio of 2.33 for the purpose of tariff determination, whereas the current debt-equity ratio of Power Grid is 1.69 which should be improved. We can also see the similar values of long term debt to equity ratio and overall debt to equity ratio for each of the top five companies, which show that in NTPC (0.50), Reliance Energy (0.51) and TATA Power (0.43) the value of long term debt to equity ratio is low, showing a lower level of financial leverage. In case of Power Grid Corp. the value is more than double the industry average which shows a higher level of firm’s financial leverage. The policy of Power Grid Corp. can be beneficial to the shareholders in long run but at the same time it enhances the risk involved in the business. In case of current ratio the current assets should meet current liabilities at least twice. In NTPC (2.23) and Reliance Energy (2.41) we can see the favorable value of current ratio which shows EIILM

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that both the firms are strong enough to meet their current liabilities but in TATA Power (1.81) current ratio is moderately low. In case of Power Grid (0.59) the value of current ratio is very low showing that the firms are not able to handle the current liabilities efficiently. Looking at the values of fixed asset turnover we see that Reliance Energy (1.12) and TATA Power (0.93) have higher value of fixed asset turnover comparative to the industry which shows the optimality of utilization of fixed asset of these companies, in NTPC (0.72) the value is still higher than industry but not impressive. The value of fixed asset turnover is exceptionally low in case of Power Grid Corporation (0.14) which is the indication of improper utilization of company’s fixed assets. Power Grid and Reliance Energy have high value of inventory turnover ratio which shows their high efficiency of selling, while NTPC and TATA Power have inventory turnover values nearly equal to the industry average (14.2) which is also good indication in selling efficiency. A high interest cover ratio of companies shows higher ability to meet interest expenses. However the interest cover ratio is high in all the 4 companies, the value of this ratio in NTPC (6.33) is exceptionally high showing the strong ability of companies to meet interest expenses. The debtor’s turnover ratio is high in all the companies and it is exceptionally high in NTPC (17.62) which shows that debts are collected very quickly. NTPC is leading the industry because return on capital employed ROCE (15.72) and return on net worth RONW (14.36) are also very high in case of NTPC. Power Grid Corp and Reliance Energy are also showing satisfactory value of these parameters while TATA Power is showing moderately low returns as compared to industry average.

PBIDT % is

highest in case of Power Grid Corp (91.41%) and the second position is held by NTPC with 38.38% among all the 4 companies.

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COMPARATIVE RATIO ANALYSIS OF BOTTOM COMPANIES KSK

ITEM

STANDER

Jaypee

Eng. Dev

Debt-Equity Ratio Long Term Debt-Equity

0.75

1.02

0.00

0.49

0.78

0.73

0.88

0.00

0.33

0.69

1.59 0.47 14.20 4.65 2.96 35.38 8.79 9.07

1.91

1.10

1.45

5.46

0.18

1.23

11.65

0.47

53.78

109.57

0.00

1.31

1.31

5.56

0.00

2.06

2.73

49.84

1.58

3.76

103.17

36.78

98.62

49.39

13.91

26.72

7.86

6.34

15.80

20.39

3.31

4.30

Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio PBIDT (%) ROCE (%) RONW (%)

Energy

Indowind

In the bottom 4 companies we can see that Indowind Energy and Jaiprakash Hydro has the debt equity ratio slightly higher than the industry average which shows that the debt is not high; however it depends on many factors like the interest rate, profitability etc. yet it is in the easily acceptable range KSK Energy has very low debt equity ratio which shows that these companies have opportunity to increase the debt to maximize the profit without affecting the debt equity ratio adversely. In case of

long term debt-equity ratio we can observe that Indowind Energy and

Jaiprakash Hydro have its value near to the industry standards while KSK has comparatively very low value of it. Thus we can see here the lack of financial leverage in the bottom companies of power sector. Among the bottom four companies current ratio is highest in case of Indowind Energy (5.46) showing its strong capability to meet current liabilities quickly. As the industry average (1.59) in case of current ratio is not strong enough, we can observe that Jaiprakash Hydro has the value near 2 which is favorable but others still need to increase the current ratio especially Energy Develop Co and KSK Energy. An interesting comparison can be seen in the fixed asset turnover ratio of the bottom companies. It can be clearly seen that the industry average is 0.47, Indowind Energy is equal to it, Energy Develop co is higher and Jaiprakash Hydro is lower than the industry average while EIILM

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KSK (11.65) has exceptionally high ratio among all bottom four companies. The inventory turnover ratio is very low in Indowind Energy and KSK Energy while it’s favorably high in Jaiprakash Hydro (53.78) as compared to the Industry average on the other hand it’s exceptionally high in Energy Develop Co (109.57) which shows its very high capability to replace or sell the inventory. Looking to the interest cover ratio we see that all the bottom four companies which were taken for the study have the value of it greater than 1.5 so the performance of none of these is questionable in terms of interest cover but we can see a big difference among all these. KSK Energy has marginally acceptable value (1.58), Jaiprakash Hydro and Indowind Energy are near to the industry average i.e. appreciable value. Energy Develop Co (49.84) has very high values which show their very high capability of the interest coverage. Looking to debtors’ turnover ratio we observe that the industry average is at 4.65, Indowind Energy, Jaiprakash Hydro and KSK Energy are not good in collecting the debt as they have very low values while the performance of Energy Develop Co is very good in this field which have high value of debtors turnover ratio. Return on capital employed is highest in Energy Develop Co (26.72%) showing a good opportunity for the stakeholders and shareholders. Jaiprakash Hydro (13.91%) is also showing good return on the capital employed. Indowind Energy and KSK Energy have lower return than industry average. A nearly similar variation can be seen in the return on net worth RONW. However the profitability is good in each of these companies as compared to the industry average of PBIDT% yet Energy Develop. Co is showing least profitability while Jaiprakash Hydro (103.17) and KSK Energy (98.62) are showing very high PBIDT% or a very high profitability. Thus it is seen that every industry has different kind of strength and weakness in the power sector. This analysis is done taking into account one parameter at a time; a complexity of analysis is obvious when we take more than one parameters at a time.

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FINDINGS •

Strength in the sector: - After judging all those data I can found that Indian power sector is very strength in all the aspect. There are various organizations including Private Sector, public Sector, and private-public collaboration sector are directly or indirectly related with section. According to the ratio analysis of those 8 companies, I can say that, the maximum companies have adequate fund as well as working capital in their account.

 Adequate capital Availability:- Through this project I also find that there are huge of fund is

available in the market for this sector, and which can be easily obtainable. As a matter the power company can easily raised fund from the market through debt or equity capital.  High interest rate: - After judging this project I found that interest rate charging by those

lending organization is comparatively very high. The organization charge 10-13% per annum as interest on the loan amount. In some cases they charge more rate of interest even at 15% per Annam. Apart from this they also charge upfront charges and various duties from applicant.  Huge difference in sanction and Disbursement: - In this project I can found that the there is

a huge difference between total sanctioning amount and total disbursement amount. In this sector there are many company who are sanctioning there loan from a lending organization, but they did not withdrew their money from loan account. As a affect the amount of sanction to amount of disbursement is made a huge difference.

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LIMITATION  Lack of private sector: - In this power sector private organization are very less. Maximum

organization is belonging from public sector. Though in recent days many private organization are coming but no such private organization is there for funding in this sector.  Long Process: - For getting a loan from any financial organization is a very long process. For

doing all those thing like project valuation, Project appraisal etc. take a very long time. As an example REC take more than 2 month for sanctioning of any loan.  Government Interference: - The central government is directly interfering in this sector

through rules and regulation. As a result private organization, who are penetrate into in this sector, they may be loose their interest in this area.  High rate of Taxes: - For developing any power project there are various plant are imported

from outside India. For that a huge amount of tax should be paid as a custom duty. As a result the net cost price goes up. Apart from this sales tax, Income tax rate is also very high. So that, power Sector Company has to paid a huge amount of tax to the government.  Lack of proper planning: - For develop of any project we shod need a proper planning. But

some time there is lake of planning in this sector. Like we can said Teri Hydro project has not made in proper way so it took near about 10 year to build that project. In case of DHABAL POWER Plant government of Maharashtra did not fellow a proper plan, so they face a huge loss.

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RECOMMENDATION TO THE GOVERNMENT Better facility- The government should try to give better facility to the power sector

•

•

•

company. They also try to reduce various causes for establishing a power project. Apart from central government all state government also take initiative to establish a separate organization who give more fund in this sector. As an example I can said all state government can establish a Power Finance company like Tamilnadu Power Finance Corporation. The government can also try to establish more and more SEZ for the power sector like Jamnagar Power SEZ. Development in Infrastructure: - Generally hydro power project are built up in the hilly area. So for develop the project infrastructure development of those area is needed. So for that government should try to develop that area for boost up this sector. Tax benefit: - For developing of this sector government should give more tax relief to the power company by which this power company can earn more profit. Like if a power company develop a power project on BOT basis then the company get maximum of 10 years tax holiday in BOT contract. But government should try to give more benefit to this organization, even though they should reduced the tax rate. Apart from this, government also try to cut down rate of Custom duty, Sales tax rate for attract more and more company in this sector. Open door policy: - For more fund in this sector government should try to raise more from outside of India. For that government should take open door policy by which government can raised their fund by FDI and FPI also. TO THE FINANCIAL INSTITUTION

•

Lower rate of Interest:- The lending company should down their rate of interest. Generally the rate of interest is lays between 11%-13%, But this rate should cut down below 10 %.Then many company can take loan from this lending company.

•

Lower upfront charges: - Apart from interest the lending company are also charge some upfront charge like project evaluation charges, project appraisal charges for giving loan. And many times this rate goes up beyond 10%, which is a huge for a project finance or long term loan. So Financial Institution should think about this matter and take a fixed amount as upfront charges.

•

Easy availability:-The lending company should try to give loan simple basis. In present situation PFC takes minimum 2-3 month for sanctioning a loan. But should its try to cut shout

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this time consuming process. Apart from that this financial institution should also try to make this process make more essayer by which this process can go faster. •

More collaborate with Lead Financer: - In the project financing generally more than one lending organization come to give loan to the organization. As result there is one lead financer who gives maximum amount and other give fewer amounts for built up the project. So it can see that the lead financer charges a high rate of interest on the loan given than the co financer. As a result the difference between the interest rate goes up. TO THE POWER COMPANY



More Public Issue: - The power company should go through more and more public issue. By issuing share in the market they can raised more and more fund at lower cost.



Issue more Bond & Debentures: - Power companies can also issue debenture or bonds for raising debt capital by which they can raise debt fund in lower rate of interest on the very easy way.



Utilize the Loan sanctioning amount: -whatever amount sanction by lending company for a power project that amount should be disbursed by this power company. Then they can use maximum amount for developing the project.



Share issue in foreign country: - After the globalization, power company can issue there share in foreign country also. As an example KSK POWER Ltd , Suzlon issue there share European market. So Power company especially private sector can go for that and raised fund from the market.

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CONCLUSION The power sector has registered significant progress since the process of planned development of the economy began in 1950. Hydro -power and coal based thermal power have been the main sources of generating electricity. Nuclear power development is at slower pace, which was introduced, in late sixties. The concept of operating power systems on a regional basis crossing the political boundaries of states was introduced in the early sixties. In spite of the overall development that has taken place, the power supply industry has been under constant pressure to bridge the gap between supply and demand. Power development is the key to the economic development. The power Sector has been receiving adequate priority ever since the process of planned development began in 1950. The Power Sector has been getting 18-20% of the total Public Sector outlay in initial plan periods. Remarkable growth and progress have led to extensive use of electricity in all the sectors of economy in the successive five years plans. Over the years (since 1950) the installed capacity of Power Plants (Utilities) has increased to 89090 MW (31.3.98) from meager 1713 MW in 1950, registering a 52d fold increase in 48 years. Similarly, the electricity generation increased from about 5.1 billion units to 420 Billion units – 82 fold increases. The per capita consumption of electricity in the country also increased from 15 kWh in 1950 to about 338 kWh in 1997-98, which is about 23 times. In the field of Rural Electrification and pump set energization, country has made a tremendous progress. About 85% of the villages have been electrified except far-flung areas in North Eastern states, where it is difficult to extend the grid supply. The government of India has taken various steps to enable the growth in capacity. The Planning Commission has set a target to add 78 GW of capacity in the fiveyear plan for 2007–2012. As of March 2009, 12,467 MW has already been commissioned. This growth is also accompanied by a growth in transmission capacity, and the transmission sector is witnessing increased private participation from both international and domestic companies with orders for transmission network strengthening worth USD$3 billion being placed on them in January to March 2009 alone. The implementation of the government sponsored Restructured Accelerated Power Development and Reforms programmed (R-APDRP) for a power distribution utility is also currently underway.

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Being a student of hard-core FINANCE back ground, I felt a new dimension doing this project. All that I learnt in the text books came up lively in front of my eyes. Honestly enough, knowing the source of fund for the birth of any and every sector is the prime task of a Finance Manager, because it is Finance and only Finance which helps an organization to reach its goal in the production sector. Doing this project, I got a clear and vivid understanding of the actual corporate scenario and realized very well how the GREEN NOTES play an important role in the organizations. Finance, which forms to be a pillar of any organization makes it possible to achieve what the organization wants keeping in mind that no misuse of fund is done and proper investment is done in the proper sector.

Apart from these technical issues, this project helped me a lot in the following ways; 1. Get a real corporate experience of working under the sun 2. Helped me to understand the Indian Power Sector more closely 3. Tuned me with the Financial Strategies of the Companies 4. Helped me to understand the real fund allotment and approval structures 5. Gave a vivid idea of Indian Power Sector’s past and future 6. It helped to get a clear conception of Project Estimation and Financing Policies 7. Finally it helped me to link the definitions of Finance with the practical work experience So in concluding, we can say that this project helped me a lot in different spheres which would be an asset for the rest of my professional life.

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REFERENCES Books Overview of Power Sector in India-A Report Publisher- India Core Publishing Year of Published2005 Power Sector Reforms: Indian Experience Author: Leena Mary Eapen. Publisher: Icfai University Press Year of Published:- 2006 Indian Power Sector- Challenge and Response Author R V Shahi Publisher: Excel Books Year of Published:-2006

REPORT EIILM

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• • •

• • •

Power Sector analysis and Project Economics By Abhishek Anand Power Sector Financing in India and Key Issues- Yasir Altaf Comparative Analysis Of Share Price of Power And Infrastructure Sector Companies-By Apurv Gourav Power Industry Analysis- IIPM, Chennai Power Industry Analysis-Alliance Business School, Bangalore Power In India – 2008- Power Line

WEBSITE Official website of:• • • • • • • • • • • • • • • • • • • • • •

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Power Finance Corporation (PFC) Rural Electrification corporation (REC) India Infrastructure Finance corporation (IIFCL) Indian renewal energy development agency limited (IREDA) Infrastructure Development Finance corporation (IDFC) PTC India Financial Services Ltd Andhra Bank IDBI Bank State Bank of India Asian Development Bank SREI Financial services World Bank NTPC Reliance Energy Tata Power Power Grid JP Hydro Energy Develop KSK ENERGY Indowind Energy Abir Infrastructure Pvt.Ltd. Crisil Research

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Year

Sanctions

Disbursement

2003-04

16472

8974

2004-05

18753

9405

2005-06

22502

11681

2006-07

31146

14055

2007-08

69498

16211

ANNEXURE Total Sanction & Disbursement by Power Finance Corporation (Amount:-Rs. In Cr.)

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Total Sanction & Disbursement by Rural Electrification Corporation

Year

Sanction

Disbursement

2002-03

727.262

92.32

2003-04

12994.67

3859.21

2004-05

9088.38

4364.151

2005-06

11641.55

4265.51

2006-07

24230.28

8651.002

2007-08

41755.17

10923.002

(Amount:-Rs. In Cr.)

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Total Sanction & Disbursement by IIFCL (Amount: Rs.in Cr.) Year

Sanction

Disbursement

2006-07

8,453

7,523

2007-08

9,913

8822.57

2008-09

9,429

7826.07

Sanction and Disbursement by IREDA (Amount: Rs. In Millions)

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Sector

Wind

Other

Total

Sanction

25480

48990

74,470

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Disbursed

15030

22830

37,860

Sanction and Disbursement by PFS Ltd (Amount: Rs in Cr)

Total

Renewal Energy

Other Sector

876

721

155

Sanction & Disbursement by IDBI Period

Sanction

Disbursement

1998-1999

23745

14470

1999-2000

26966

17059

2000-2001

28711

17500 (Amount: Rs.in Cr.)

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Sanction & Disbursement by IDFC (Amount: Rs.in Cr.) Year

DISBURSEMENTS

APPROVALS

2004-05

1,639

2,079

2005-06

2,101

3,339

2006-07

2,918

4,982

2007-08

2,461

6,064

2008-09

1,865

2,180

Disbursement by Srei Finance Ltd (Amount: Rs.in cr.) Year

2008-09

2007-08

2006-07

2005-06

Disbursemen ts

6,620

5,736.93

3,500

1715

Fund Raised By Mutual Fund Company FUND NAME EIILM

Rs. in Cr. Page 79

AIG Infrastructure and Economic Reform Fund

27.14

Birla Sun Life Infrastructure Fund

73.03

ICICI Prudential Infrastructure Fund

494.15

Kotak Indo World Infrastructure Fund

23.58

Reliance Diversified Power Sector Fund

939.53

TATA Infrastructure Fund

64.91

Fund Raised By the Company Company

31.03.2006

31.03.2007

31.03.2008

PTC

248.247

265.572

1479.556

Power Grid

9963.18

10926.07

13754.17

Reliance Power

102.411

200.055

13542.67

Tata Power

4980.22

5457.34

7519.22

NTPC

52638.6

48596.8

52638.6

Jaypee Hydro

703.7

903.24

1030.37

CESE

652.58

2371.34

4882.89

(Rs.in cr)

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COMMENTS

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