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India Utilities
Macro Issues Loom Large;Industry Begging for Reforms
Three key conclusions from our trip: We ended our
week-long trip on Friday after a series of meetings with
ministry officials, government planning agencies,
industry consultants, corporates and other market
participants.
Coal supplies a key constraint: Categorization of
mining areas into go and no-go areas and introduction of
CEPI affected coal production. The result: the F2012
coal production target has been scaled down from 520
mt to 447 mt. The embargo is still on with the Ministry of
Environment and Forests, though a Group of Ministers
has been set up to look into the matter. Fuel supply
agreements may now carry a guarantee clause of only
50%, down from 90% earlier – thus increasing coal
supply risks. Railways are another problem due to
capacity constraint and slow turnaround time. Future
allocation of blocks will be through competitive bidding,
for which guidelines are being finalized.
Distribution segment remains worrisome: The
Ministry of Power believes that state utilities need to
introduce more reform measures to improve their
financial health. The revised APDRP scheme will allow
loans to state utilities to be converted into a grant only if
reform measures are sustained for five continuous years.
However, the underlying assumption was that state
utilities are too big to fail and the Government of India
will take adequate measures to keep them afloat.
Private developers have not scaled down capacity
addition plans: While industry risks have increased, we
did not see any scale-down of plans by most private
developers. The large developers still have ambitious
targets for the next 5-10 years, though visibility on
development projects still remains low. However, the
interesting change was that the recent weakness in
merchant rates has forced developers to consider tying
up merchant capacities on medium- to long-term PPAs.
Merchant estimates range from Rs 3.75-4/unit in the
long term.
Key highlights from our meetings are as follows:
Ministry of Coal (MoC)
• Categorization of mining areas into go and no-go areas
affected extension of existing mines and greenfield
projects. As a result, F2012 coal production target has
decreased from 520 mt to 447 mt.
• CEPI was a big issue as it affected seven coalfields,
which hit production. While the embargo is still on with
the Ministry of Environment and Forests (MoEF), a
Group of Ministers (GoM) has been set up to look into
the matter. The group has had one meeting with no
conclusion; however, MoEF needs to come back with
some resolutions and policies for the next meeting.
• For the fuel supply agreement (FSA), the ministry is
thinking of guaranteeing only 50% of the total coal
requirement, down from 90% earlier. Also there could
be a differential pricing mechanism for different
segments.
• MoC will prioritize clearances for linkages before it
lobbies for clearances for private blocks.
• Railways are a problem due to non-availability of
wagons/ rakes and slow turnaround time at
loading/unloading sites. It seems the railways are
planning to induct more wagons, double-lining the rail
network and working on the east-west corridor. Pit
head plants are being given serious thought to avoid
railway issues. Better mechanization and introduction
of GPS can reduce theft of coal while in rail transit.
• Future allocation of blocks will be through competitive
bidding, for which guidelines are being finalized.
• 26% sharing of mining profits is being looked at
seriously.
Ministry of Power (MoP)
• Pushing capacity addition and the private sector. 74
GW of capacity is under construction ,for which
financing has been tied up. MoP will soon start working
on the 12th plan and some preliminary work on the 13th
plan.
• MoP is in close dialogue with MoC and MoEF as coal is
an issue. There has been some success in getting coal
blocks cleared recently.
• Some success has also been achieved in privatizing
the transmission segment.
• Distribution is worrisome – state utilities need to do
more as they are not healthy. In the revised APDRP
scheme, loan to state utilities will convert into a grant
only if reform measures are sustained for five
continuous years.
• MoP expects power demand to pick up by March 2011
due to summer and then state elections. Pressure is
mounting on SEBs to provide power and the phase of
current low tariffs is over as state governments will
have to change their mindset towards tariffs and push
reforms. MoP is seeing realization among states for
taking reform measures.
CEA
• MoEF seems to be softening its stand now.
• 80 GW is under construction and it does not see any
issue on Chinese equipment if developers have done
their diligence before ordering.
• An additional 60 mmscmd of gas will be available by
2015, of which 70% could be for the power sector.
• A national electricity fund is being mulled to attract
investment in distribution.
• More clarity on SEB losses will be available by May
2011 from the Shunglu committee report.
Ministry of Environment and Forests (MoEF)
• MoEF believes that time taken to get environment
clearances is almost the same across the world.
However, India is turning from a ‘soft state’ to a ‘hard
state’.
• The GoM will not change laws but will see how to sort
out issues administratively.
• On CEPI, the state pollution control boards need to sit
with polluters and see how they can reduce pollution.
CEPI moratorium has been lifted for 13 projects.
Feedback Ventures – Industry Consultant
• Expects capacity addition of 45-50 GW in the 11th plan
and about 60-80 GW in the 12th plan.
• Expects merchant rates to be volatile depending on
capacity addition and state elections. Merchant rates
should be at 25% premium to long term rates in the
longer term.
• Does not have a grasp on latent demand, demand met
through back-up devices such as inverters and diesel
generating sets. However, believes deficit numbers are
definitely under reported as unscheduled cuts are not
factored in.
• Funding should be available, though sectoral limits of
banks may be an issue.
• Rs500 bn scheme introduced under R-APDRP for IT
enabling of distribution network. This will ensure some
measures on the reform front.
• Expects 2015 to have base load surplus capacity
though peak deficits may continue.
CERC
• No issues on NTPC and PGCIL signing PPAs ahead of
introduction of competitive bidding.
• Current tariff regulations maybe tightened in next policy
which will be effective April 2014.
• With respect to regulatory norms for pricing of captive
coal production (especially those of NTPC), CERC is
unsure on whether a separate coal regulator will be set
up or it will come under its purview.
NDPL – a Delhi distribution company
• Since privatization of the distribution circle in 2002,
NDPL has reduced losses from 53% to about 14-15%
now. The plan for the next four years may be to reduce
losses to 9-10%, though this is still under finalization.
• Key issue has been deferment of tariff increases as a
result, of which receivables of about Rs16 bn are now
equivalent to net worth. A tariff hike of 50-60% would be
required to wipe this out.
• Delhi tariff has only increased by 3-4% CAGR in the
last eight years or so.
Powergrid Corporation (PGCIL)
• PGCIL will spend Rs510-520 bn in the 11th plan as
against its original target of Rs 550 bn.
• The 12th plan target is about Rs1 trn. It has signed
agreements worth Rs1.2 trn before competitive bidding
was made mandatory. This will be spent over 5-7 years
and includes Rs580 bn for connecting 9 UMPPs,
Rs370 bn for other generation linked projects and
Rs250 bn for system strengthening.
• It expects capitalization of CWIP to start increasing
from F2013 onwards – this could be Rs140-150 bn.
• Don't see much risk from competitive bidding as
transmission spans the country, whereas generation
can be more localized.
Lanco
• Will be at 4 GW by Apr/May 2011 and the long term
strategy is to be at 15 GW by 2015.
• Has a 1,000-member EPC team, which can take up
external projects also.
• Rising coal costs will take up tariffs in the country and
state elections too will change the scenario.
• Amarkantak is getting 70% linkage coal while the
balance is through e-auction and imported. Udupi is
fully imported with pass-through and Anpara is
domestic with full pass-through.
• Lanco will consider tying up Kondapalli II on long term
bid (currently fully merchant).
• Expects an overall ROE of 20-25% across portfolio.
Dongfang India
• Dongfang has won 28 GW of orders in India till date.
• It has set up a service centre in Kolkata for spare parts
and training.
• Signed a bulk order with Abhijit group for 10 units of
660 MW. Pricing for this transaction is not known.
• Key differentiator is delivery timeline and not really
price. However, Indian margins are lower than those
that Dongfang earns outside India.
• There are now fewer Chinese workers at Indian sites as
scope has reduced and more Indian companies have
learnt how to handle Chinese equipment.
• Low coal quality is not an issue as there are plants in
China too that operate on similar specs.
• It may look at an Indian partner for setting up an
equipment manufacturing facility.
Jaiprakash Power Ventures
• Company expects 2200 MW of operational capacity by
December 2011, 4180 MW by December 2013 and
7820 MW by December 2014.
• Some capacity from the first 250 MW of Karcham
Wangtoo has been tied up on a short term PPA for the
months of April and May 2011 at Rs5.6-6.5/unit. The
company may look at tying up almost 50% of Karcham
on long term PPA beyond F2012.
• Work on the Karchana project is held up due to local
protest on land compensation; however, increase in
project cost will be a pass-through as it was a Case 2
bid. The company has not seen any issue on Bara yet
on the same account.
• On funding, it needs US$1.5 bn of equity, of which half
will be through internal accruals. The balance may
need to be raised, of which some could come through
sale of treasury stock (371 mn shares).
Indiabulls Power
• Net worth is Rs39 bn and capex for both phases of
Amravati and Nashik is Rs270 bn.
• Land, water, coal linkage and financial closure is
available for both phases aggregating 5,400 MW.
• Expects Amravati I first unit by May 12 and each unit 2
months thereafter. Expects Nashik I first unit by Sep 12
and each unit 2 months thereafter. An additional 200
acres of land has been taken in Nashik from the SEZ.
• Management is positive on receiving its entire coal
requirement from Coal India.
• It may soon sign a Case I bid with MSEDCL at
Rs3.42/unit for 950 MW from Nashik I with full fuel pass
through. The company is not in a hurry to tie up offtake
for the phase 2 projects.
• Equity requirement is Rs60 bn of which Rs40 bn is
available on the balance sheet, some will be funded
from internal accruals, some from sub debt of Rs10 bn
and some from merging the Raigarh SEZ.
Kalpataru Power
• The group orderbook is Rs100 bn of which Rs54 bn is
in power transmission alone
• Has presence in Algeria, Qatar, Kuwait but nothing in
Libya, Jordan and Egypt.
• Recent wins have been in Congo, Kenya, Adani Tiroda,
Philippine.
• 85-90% of transmission orderbook has price variable
clauses.
• Company has also been developing an orderbook with
railway projects.
Reliance Infrastructure
• Distribution license in Mumbai is not an issue as assets
are owned by the company.
• Tariff increase in Mumbai will enable recovery of past
dues in next 2-2.5 years.
• Delhi Airport Express Line commenced operations and
the company expects 35k-40k commuters daily. It has
also signed up 15% of the real estate area at about
Rs625/sq ft/month. The equity IRR expectation is
22-23% from this project.
• Mumbai Metro I commissioning is expected by
Sep/Dec 11 and equity IRR expectation is 20%.
• 10 road projects will start generating revenue by March
2012.
• As of now, belief is that the Mumbai Sea Link project
will happen, as it has signed concession agreement.
Reliance Power
• Installed capacity estimates are 600 MW for F2011,
3,433 MW for F2012, 5,393 MW for F2013 and 16,738
MW for F2014.
• For the Rosa I plant, it has received approval from
UPPCL to buy coal from outside the linkage as well.
About 60% is currently from linkage, 20% from
e-auction or washery rejects and 20% from imports.
• The company’s mine plan has been approved for 40
mtpa for Tilaiya. As a result, it now has approval for 65
mtpa (including Sasan).
• Reliance Power had been working for the last two years
to get funding from Chinese banks and institutions.
These loans have a 6- to 12-month moratorium after
commissioning and are repayable within 8 to 12 years.
These loans are LIBOR-linked.
• About 12 GW of capacity will be on Case 2 bids, 12 GW
on Case 1 bids, 5.8 GW are regulated (ROE based)
and 2 GW will be merchant where it will look at short to
medium term bids.
• The company may consider a MDO arrangement for
mining coal in Indonesia.
• While there is enough equity available on the balance
sheet, the company is in discussion with banks for
securitization and may also consider monetizing CERs.
Adani Enterprises and Power
• The group will have 130 mt of domestic coal mining
(through MDO), 20-25 mt from Sumatra, 60 mt from
Australia and 10 mt from Indonesia (Bunyu).
• Bunyu coal costing is US$15-16/t of production cost,
US$10-11/t of freight charges and US$10/t of profit
margin for AEL.
• Bunyu production in F2012 will be 6 mt and will be
10-11 mt for F2013.
• Will place equipment order with Shanghai Electric in
the next six months for Chhindwara, Dahej and
Bhadreshwar projects.
• 9,240 MW will be installed by 2013 and vision is to
touch 20 GW by 2020.
GMR Energy
• 823 MW is current installed capacity, 2 GW is under
construction, 5.6 GW is under development.
• Expects 55-60% of portfolio to be thermal, 20-25% gas
and balance as renewables. About 65-70% of the
portfolio will be under PPA and balance merchant.
• Expect merchant rates to range between Rs3.75-4/unit.
• Will have clearer picture on gas supply by May/June
2011.
• Coal from Indonesia will have a GCV of 4,500 kcal/kg
and will have a FOB price of US$37-38/t.
• Pricing for South African coal block has not been
finalized yet; the GCV is 5,500 kcal/kg.
• Currently has a plant in GMR Infra (Island Power
Singapore) which may be restructured into GMR
Energy.
Tata Power
• First unit of the Mundra UMPP is expected in
September 2011 and the full plant by December 2012.
• First unit of the Maithon plant is expected in Mar/Apr
2011 and the second unit four months thereafter.
• Installed capacity will be 8.6 GW by F2013. Pipeline
projects aggregate 9.4 GW.
• Cash flows from the Indonesian coal mines have
started again; all past tax dues have been settled by the
coal companies.
• KPC and Arutmin coal production is expected to reach
100 mt in 5 years.
• The Olympus Capital deal was terminated as lender
approval was not obtained.
• There are no timelines yet for projects based on captive
coal blocks (Tubed and Mandakini).
Essar Power
• Current installed capacity is 1.6 GW. 8 GW of capacity
is under various phases of implementation and 1.8 GW
is under development.
• Long term, the company will have 75% under PPA and
balance merchant. Its long-term merchant estimate is
Rs4/unit.
• Mahan, Ashok and Chakala coal blocks are currently
under no-go areas.
• Working on road and port development in Indonesia.
• Landed cost in India for Indonesian coal will be US$45/t
for 5400 GCV.
• Mozambique mine is still at early stage.
• It is looking for more coal blocks outside India.
Orient Green Power
• Current operational capacity is 213 MW which
comprises of 172.5 MW of wind and 40.5 MW of
biomass capacity.
• Plans to increase capacity to about 1050 MW by F2013
of which about 816 MW will be wind, 219 MW of
biomass and 15 MW of small hydro.
• In biomass the execution risk and gestation periods are
low. The plants have higher auxiliary consumption of
10%, heat rates of 4000 to 4200 and have run at upto
92% PLF with an average of 80%. GCV of biomass
ingredients range between 1500 to 2500 kcal/kg.
Variable cost per unit ranges between
Rs2.75-3.25/unit.
• Execution risks are low as construction period is short.
Capex for biomass projects in 47.5-55 mn/MW while for
wind it could be Rs70 mn/MW.
• Company has been buying wind turbines from Gamesa,
Vestas, GE, Suzlon and Shriram Leitner.
• The grid tariff available for biomass projects varies
between Rs4 to Rs5 per unit. The company expects to
get ROE upwards of 20% (pre-tax). The tariff for wind
projects is decided by state electricity commissions and
varies between Rs3.39-5.1/unit.
• Renewable Energy Certificates (REC) can also be an
added revenue stream when they start trading on the
power exchanges. CERC has fixed the trading price of
RECs between Rs1.5-3.9/unit.
CLP India
• CLP India currently has a 655 MW gas plant in Gujarat
and a wind capacity of 480 MW, which is likely to go up
to 650 MW soon. It is also constructing a 1,320 MW
coal plant at Jhajjar (Haryana) where the first unit will
be commissioned in January 2012 and the second unit
three months thereafter.
• While the company will still have interest in all fuel
types, it will participate more in coal. It will be bidding
for the upcoming UMPPs in Orissa and Chhattisgarh.
• The company has had preference for Case 2 bids to
circumvent land issues. However, it will increasingly
look at Case 1 bids as well.
• At Jhajjar, it will get capacity charge at Rs0.92 per unit
and variable charge at Rs2.07 per unit, thus giving a
levelized tariff of Rs2.99 per unit. Additional land is also
available at site, where brownfield expansion is
possible at a later stage. Phase II of Jhajjar may likely
be gas capacity.
• The company’s vision is 20 GW of capacity in India by
2020 of which it expects 5 GW to be from renewables.
• It plans to add 300 to 350 MW of wind capacity every
year.
• The company has been bidding for transmission
projects as well, though it has been unsuccessful so far.
It will also consider bidding for domestic coal blocks.
• There are no immediate plans for an IPO.
Power Exchange of India
• The volumes sold on Power Exchange have been
increasing. The change in UI regulations with increased
penalties for overdrawing has also contributed to
boosting the volumes on Power Exchange but the UI
mechanism continues to be exploited as a real time
market.
• Monthly growth in trading through the exchanges is 6%.
• By now there are more than 600 participants on the
Power Exchange with the number of Open Access
customers witnessing significant increase. However,
only a small number of participants account for bulk of
the trading.
• The exchange expects open access customers to grow
a lot more as more and more states grant open access.
The current open access customers are all from Tamil
Nadu, Punjab and Haryana.
• REC trading is slated to start from March 2011 and will
be held once per month.
Suzlon Energy
• Its order book is increasing in India while overseas has
been weak. The US market has declined by 50% while
Europe has stagnated.
• It has made 1 GW of additions in India in 9MF11 and
expects competition to have made an equal number,
thus maintaining its 50% market share. It expects to
add 700 MW in F4Q11.
• Its order book as of date is 2,578 MW, of which 1,624
MW is from India and 954 MW international. RePower
orderbook is 2,458 MW. Recent wins include 150 MW
from Vedanta Group and 1 GW from Caparo Group.
• It expects to gain from REC trading.
JSW Energy
• Expects to reach 3,140 MW by Dec ember2011, of
which 56% will be merchant and the balance on PPA.
34% of this capacity will be based on domestic fuel
while the balance from imported coal. In F2012, 6 mt
will be imported of which 1 mt will be from SACMH, 2 mt
from Indonesia (Sungai Belati) and 3 mt from the spot
market.
• Currently it owns about 55% in SACMH (South African
coal mines) and will increase its holding through an
open offer. It expects FOB price of US$75-80 per ton
for GCV of 6000 kcal/kg.
• The CIC Energy acquisition is dependent on certain
conditions such as Government of Botswana approval
on mining license, water and tax approvals, termination
of some existing agreement and setting up a power
plant in Botswana.
• There are 2.6 bn tons of measures coal reserves in the
CIC coal block with GCV of 5500-5900 kcal/kg and low
sulphur content. 900 mn to 1 bn tons of these reserves
are extractable.
• The Botswana coal would need rail infrastructure to be
put in place for evacuation of coal. The rail line would
have to pass through Namibia and the coal would have
to be exported from the Western cost of Africa.
• The company is looking for smaller coal block
acquisitions to meet short and medium term
requirements.
• For F2011 merchant rates are expected to be
Rs4.8-5/unit. For F2012 the estimate is
Rs4.25-4.5/unit.
• Vision is to reach 12 GW of capacity by 2016.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Utilities
Macro Issues Loom Large;Industry Begging for Reforms
Three key conclusions from our trip: We ended our
week-long trip on Friday after a series of meetings with
ministry officials, government planning agencies,
industry consultants, corporates and other market
participants.
Coal supplies a key constraint: Categorization of
mining areas into go and no-go areas and introduction of
CEPI affected coal production. The result: the F2012
coal production target has been scaled down from 520
mt to 447 mt. The embargo is still on with the Ministry of
Environment and Forests, though a Group of Ministers
has been set up to look into the matter. Fuel supply
agreements may now carry a guarantee clause of only
50%, down from 90% earlier – thus increasing coal
supply risks. Railways are another problem due to
capacity constraint and slow turnaround time. Future
allocation of blocks will be through competitive bidding,
for which guidelines are being finalized.
Distribution segment remains worrisome: The
Ministry of Power believes that state utilities need to
introduce more reform measures to improve their
financial health. The revised APDRP scheme will allow
loans to state utilities to be converted into a grant only if
reform measures are sustained for five continuous years.
However, the underlying assumption was that state
utilities are too big to fail and the Government of India
will take adequate measures to keep them afloat.
Private developers have not scaled down capacity
addition plans: While industry risks have increased, we
did not see any scale-down of plans by most private
developers. The large developers still have ambitious
targets for the next 5-10 years, though visibility on
development projects still remains low. However, the
interesting change was that the recent weakness in
merchant rates has forced developers to consider tying
up merchant capacities on medium- to long-term PPAs.
Merchant estimates range from Rs 3.75-4/unit in the
long term.
Key highlights from our meetings are as follows:
Ministry of Coal (MoC)
• Categorization of mining areas into go and no-go areas
affected extension of existing mines and greenfield
projects. As a result, F2012 coal production target has
decreased from 520 mt to 447 mt.
• CEPI was a big issue as it affected seven coalfields,
which hit production. While the embargo is still on with
the Ministry of Environment and Forests (MoEF), a
Group of Ministers (GoM) has been set up to look into
the matter. The group has had one meeting with no
conclusion; however, MoEF needs to come back with
some resolutions and policies for the next meeting.
• For the fuel supply agreement (FSA), the ministry is
thinking of guaranteeing only 50% of the total coal
requirement, down from 90% earlier. Also there could
be a differential pricing mechanism for different
segments.
• MoC will prioritize clearances for linkages before it
lobbies for clearances for private blocks.
• Railways are a problem due to non-availability of
wagons/ rakes and slow turnaround time at
loading/unloading sites. It seems the railways are
planning to induct more wagons, double-lining the rail
network and working on the east-west corridor. Pit
head plants are being given serious thought to avoid
railway issues. Better mechanization and introduction
of GPS can reduce theft of coal while in rail transit.
• Future allocation of blocks will be through competitive
bidding, for which guidelines are being finalized.
• 26% sharing of mining profits is being looked at
seriously.
Ministry of Power (MoP)
• Pushing capacity addition and the private sector. 74
GW of capacity is under construction ,for which
financing has been tied up. MoP will soon start working
on the 12th plan and some preliminary work on the 13th
plan.
• MoP is in close dialogue with MoC and MoEF as coal is
an issue. There has been some success in getting coal
blocks cleared recently.
• Some success has also been achieved in privatizing
the transmission segment.
• Distribution is worrisome – state utilities need to do
more as they are not healthy. In the revised APDRP
scheme, loan to state utilities will convert into a grant
only if reform measures are sustained for five
continuous years.
• MoP expects power demand to pick up by March 2011
due to summer and then state elections. Pressure is
mounting on SEBs to provide power and the phase of
current low tariffs is over as state governments will
have to change their mindset towards tariffs and push
reforms. MoP is seeing realization among states for
taking reform measures.
CEA
• MoEF seems to be softening its stand now.
• 80 GW is under construction and it does not see any
issue on Chinese equipment if developers have done
their diligence before ordering.
• An additional 60 mmscmd of gas will be available by
2015, of which 70% could be for the power sector.
• A national electricity fund is being mulled to attract
investment in distribution.
• More clarity on SEB losses will be available by May
2011 from the Shunglu committee report.
Ministry of Environment and Forests (MoEF)
• MoEF believes that time taken to get environment
clearances is almost the same across the world.
However, India is turning from a ‘soft state’ to a ‘hard
state’.
• The GoM will not change laws but will see how to sort
out issues administratively.
• On CEPI, the state pollution control boards need to sit
with polluters and see how they can reduce pollution.
CEPI moratorium has been lifted for 13 projects.
Feedback Ventures – Industry Consultant
• Expects capacity addition of 45-50 GW in the 11th plan
and about 60-80 GW in the 12th plan.
• Expects merchant rates to be volatile depending on
capacity addition and state elections. Merchant rates
should be at 25% premium to long term rates in the
longer term.
• Does not have a grasp on latent demand, demand met
through back-up devices such as inverters and diesel
generating sets. However, believes deficit numbers are
definitely under reported as unscheduled cuts are not
factored in.
• Funding should be available, though sectoral limits of
banks may be an issue.
• Rs500 bn scheme introduced under R-APDRP for IT
enabling of distribution network. This will ensure some
measures on the reform front.
• Expects 2015 to have base load surplus capacity
though peak deficits may continue.
CERC
• No issues on NTPC and PGCIL signing PPAs ahead of
introduction of competitive bidding.
• Current tariff regulations maybe tightened in next policy
which will be effective April 2014.
• With respect to regulatory norms for pricing of captive
coal production (especially those of NTPC), CERC is
unsure on whether a separate coal regulator will be set
up or it will come under its purview.
NDPL – a Delhi distribution company
• Since privatization of the distribution circle in 2002,
NDPL has reduced losses from 53% to about 14-15%
now. The plan for the next four years may be to reduce
losses to 9-10%, though this is still under finalization.
• Key issue has been deferment of tariff increases as a
result, of which receivables of about Rs16 bn are now
equivalent to net worth. A tariff hike of 50-60% would be
required to wipe this out.
• Delhi tariff has only increased by 3-4% CAGR in the
last eight years or so.
Powergrid Corporation (PGCIL)
• PGCIL will spend Rs510-520 bn in the 11th plan as
against its original target of Rs 550 bn.
• The 12th plan target is about Rs1 trn. It has signed
agreements worth Rs1.2 trn before competitive bidding
was made mandatory. This will be spent over 5-7 years
and includes Rs580 bn for connecting 9 UMPPs,
Rs370 bn for other generation linked projects and
Rs250 bn for system strengthening.
• It expects capitalization of CWIP to start increasing
from F2013 onwards – this could be Rs140-150 bn.
• Don't see much risk from competitive bidding as
transmission spans the country, whereas generation
can be more localized.
Lanco
• Will be at 4 GW by Apr/May 2011 and the long term
strategy is to be at 15 GW by 2015.
• Has a 1,000-member EPC team, which can take up
external projects also.
• Rising coal costs will take up tariffs in the country and
state elections too will change the scenario.
• Amarkantak is getting 70% linkage coal while the
balance is through e-auction and imported. Udupi is
fully imported with pass-through and Anpara is
domestic with full pass-through.
• Lanco will consider tying up Kondapalli II on long term
bid (currently fully merchant).
• Expects an overall ROE of 20-25% across portfolio.
Dongfang India
• Dongfang has won 28 GW of orders in India till date.
• It has set up a service centre in Kolkata for spare parts
and training.
• Signed a bulk order with Abhijit group for 10 units of
660 MW. Pricing for this transaction is not known.
• Key differentiator is delivery timeline and not really
price. However, Indian margins are lower than those
that Dongfang earns outside India.
• There are now fewer Chinese workers at Indian sites as
scope has reduced and more Indian companies have
learnt how to handle Chinese equipment.
• Low coal quality is not an issue as there are plants in
China too that operate on similar specs.
• It may look at an Indian partner for setting up an
equipment manufacturing facility.
Jaiprakash Power Ventures
• Company expects 2200 MW of operational capacity by
December 2011, 4180 MW by December 2013 and
7820 MW by December 2014.
• Some capacity from the first 250 MW of Karcham
Wangtoo has been tied up on a short term PPA for the
months of April and May 2011 at Rs5.6-6.5/unit. The
company may look at tying up almost 50% of Karcham
on long term PPA beyond F2012.
• Work on the Karchana project is held up due to local
protest on land compensation; however, increase in
project cost will be a pass-through as it was a Case 2
bid. The company has not seen any issue on Bara yet
on the same account.
• On funding, it needs US$1.5 bn of equity, of which half
will be through internal accruals. The balance may
need to be raised, of which some could come through
sale of treasury stock (371 mn shares).
Indiabulls Power
• Net worth is Rs39 bn and capex for both phases of
Amravati and Nashik is Rs270 bn.
• Land, water, coal linkage and financial closure is
available for both phases aggregating 5,400 MW.
• Expects Amravati I first unit by May 12 and each unit 2
months thereafter. Expects Nashik I first unit by Sep 12
and each unit 2 months thereafter. An additional 200
acres of land has been taken in Nashik from the SEZ.
• Management is positive on receiving its entire coal
requirement from Coal India.
• It may soon sign a Case I bid with MSEDCL at
Rs3.42/unit for 950 MW from Nashik I with full fuel pass
through. The company is not in a hurry to tie up offtake
for the phase 2 projects.
• Equity requirement is Rs60 bn of which Rs40 bn is
available on the balance sheet, some will be funded
from internal accruals, some from sub debt of Rs10 bn
and some from merging the Raigarh SEZ.
Kalpataru Power
• The group orderbook is Rs100 bn of which Rs54 bn is
in power transmission alone
• Has presence in Algeria, Qatar, Kuwait but nothing in
Libya, Jordan and Egypt.
• Recent wins have been in Congo, Kenya, Adani Tiroda,
Philippine.
• 85-90% of transmission orderbook has price variable
clauses.
• Company has also been developing an orderbook with
railway projects.
Reliance Infrastructure
• Distribution license in Mumbai is not an issue as assets
are owned by the company.
• Tariff increase in Mumbai will enable recovery of past
dues in next 2-2.5 years.
• Delhi Airport Express Line commenced operations and
the company expects 35k-40k commuters daily. It has
also signed up 15% of the real estate area at about
Rs625/sq ft/month. The equity IRR expectation is
22-23% from this project.
• Mumbai Metro I commissioning is expected by
Sep/Dec 11 and equity IRR expectation is 20%.
• 10 road projects will start generating revenue by March
2012.
• As of now, belief is that the Mumbai Sea Link project
will happen, as it has signed concession agreement.
Reliance Power
• Installed capacity estimates are 600 MW for F2011,
3,433 MW for F2012, 5,393 MW for F2013 and 16,738
MW for F2014.
• For the Rosa I plant, it has received approval from
UPPCL to buy coal from outside the linkage as well.
About 60% is currently from linkage, 20% from
e-auction or washery rejects and 20% from imports.
• The company’s mine plan has been approved for 40
mtpa for Tilaiya. As a result, it now has approval for 65
mtpa (including Sasan).
• Reliance Power had been working for the last two years
to get funding from Chinese banks and institutions.
These loans have a 6- to 12-month moratorium after
commissioning and are repayable within 8 to 12 years.
These loans are LIBOR-linked.
• About 12 GW of capacity will be on Case 2 bids, 12 GW
on Case 1 bids, 5.8 GW are regulated (ROE based)
and 2 GW will be merchant where it will look at short to
medium term bids.
• The company may consider a MDO arrangement for
mining coal in Indonesia.
• While there is enough equity available on the balance
sheet, the company is in discussion with banks for
securitization and may also consider monetizing CERs.
Adani Enterprises and Power
• The group will have 130 mt of domestic coal mining
(through MDO), 20-25 mt from Sumatra, 60 mt from
Australia and 10 mt from Indonesia (Bunyu).
• Bunyu coal costing is US$15-16/t of production cost,
US$10-11/t of freight charges and US$10/t of profit
margin for AEL.
• Bunyu production in F2012 will be 6 mt and will be
10-11 mt for F2013.
• Will place equipment order with Shanghai Electric in
the next six months for Chhindwara, Dahej and
Bhadreshwar projects.
• 9,240 MW will be installed by 2013 and vision is to
touch 20 GW by 2020.
GMR Energy
• 823 MW is current installed capacity, 2 GW is under
construction, 5.6 GW is under development.
• Expects 55-60% of portfolio to be thermal, 20-25% gas
and balance as renewables. About 65-70% of the
portfolio will be under PPA and balance merchant.
• Expect merchant rates to range between Rs3.75-4/unit.
• Will have clearer picture on gas supply by May/June
2011.
• Coal from Indonesia will have a GCV of 4,500 kcal/kg
and will have a FOB price of US$37-38/t.
• Pricing for South African coal block has not been
finalized yet; the GCV is 5,500 kcal/kg.
• Currently has a plant in GMR Infra (Island Power
Singapore) which may be restructured into GMR
Energy.
Tata Power
• First unit of the Mundra UMPP is expected in
September 2011 and the full plant by December 2012.
• First unit of the Maithon plant is expected in Mar/Apr
2011 and the second unit four months thereafter.
• Installed capacity will be 8.6 GW by F2013. Pipeline
projects aggregate 9.4 GW.
• Cash flows from the Indonesian coal mines have
started again; all past tax dues have been settled by the
coal companies.
• KPC and Arutmin coal production is expected to reach
100 mt in 5 years.
• The Olympus Capital deal was terminated as lender
approval was not obtained.
• There are no timelines yet for projects based on captive
coal blocks (Tubed and Mandakini).
Essar Power
• Current installed capacity is 1.6 GW. 8 GW of capacity
is under various phases of implementation and 1.8 GW
is under development.
• Long term, the company will have 75% under PPA and
balance merchant. Its long-term merchant estimate is
Rs4/unit.
• Mahan, Ashok and Chakala coal blocks are currently
under no-go areas.
• Working on road and port development in Indonesia.
• Landed cost in India for Indonesian coal will be US$45/t
for 5400 GCV.
• Mozambique mine is still at early stage.
• It is looking for more coal blocks outside India.
Orient Green Power
• Current operational capacity is 213 MW which
comprises of 172.5 MW of wind and 40.5 MW of
biomass capacity.
• Plans to increase capacity to about 1050 MW by F2013
of which about 816 MW will be wind, 219 MW of
biomass and 15 MW of small hydro.
• In biomass the execution risk and gestation periods are
low. The plants have higher auxiliary consumption of
10%, heat rates of 4000 to 4200 and have run at upto
92% PLF with an average of 80%. GCV of biomass
ingredients range between 1500 to 2500 kcal/kg.
Variable cost per unit ranges between
Rs2.75-3.25/unit.
• Execution risks are low as construction period is short.
Capex for biomass projects in 47.5-55 mn/MW while for
wind it could be Rs70 mn/MW.
• Company has been buying wind turbines from Gamesa,
Vestas, GE, Suzlon and Shriram Leitner.
• The grid tariff available for biomass projects varies
between Rs4 to Rs5 per unit. The company expects to
get ROE upwards of 20% (pre-tax). The tariff for wind
projects is decided by state electricity commissions and
varies between Rs3.39-5.1/unit.
• Renewable Energy Certificates (REC) can also be an
added revenue stream when they start trading on the
power exchanges. CERC has fixed the trading price of
RECs between Rs1.5-3.9/unit.
CLP India
• CLP India currently has a 655 MW gas plant in Gujarat
and a wind capacity of 480 MW, which is likely to go up
to 650 MW soon. It is also constructing a 1,320 MW
coal plant at Jhajjar (Haryana) where the first unit will
be commissioned in January 2012 and the second unit
three months thereafter.
• While the company will still have interest in all fuel
types, it will participate more in coal. It will be bidding
for the upcoming UMPPs in Orissa and Chhattisgarh.
• The company has had preference for Case 2 bids to
circumvent land issues. However, it will increasingly
look at Case 1 bids as well.
• At Jhajjar, it will get capacity charge at Rs0.92 per unit
and variable charge at Rs2.07 per unit, thus giving a
levelized tariff of Rs2.99 per unit. Additional land is also
available at site, where brownfield expansion is
possible at a later stage. Phase II of Jhajjar may likely
be gas capacity.
• The company’s vision is 20 GW of capacity in India by
2020 of which it expects 5 GW to be from renewables.
• It plans to add 300 to 350 MW of wind capacity every
year.
• The company has been bidding for transmission
projects as well, though it has been unsuccessful so far.
It will also consider bidding for domestic coal blocks.
• There are no immediate plans for an IPO.
Power Exchange of India
• The volumes sold on Power Exchange have been
increasing. The change in UI regulations with increased
penalties for overdrawing has also contributed to
boosting the volumes on Power Exchange but the UI
mechanism continues to be exploited as a real time
market.
• Monthly growth in trading through the exchanges is 6%.
• By now there are more than 600 participants on the
Power Exchange with the number of Open Access
customers witnessing significant increase. However,
only a small number of participants account for bulk of
the trading.
• The exchange expects open access customers to grow
a lot more as more and more states grant open access.
The current open access customers are all from Tamil
Nadu, Punjab and Haryana.
• REC trading is slated to start from March 2011 and will
be held once per month.
Suzlon Energy
• Its order book is increasing in India while overseas has
been weak. The US market has declined by 50% while
Europe has stagnated.
• It has made 1 GW of additions in India in 9MF11 and
expects competition to have made an equal number,
thus maintaining its 50% market share. It expects to
add 700 MW in F4Q11.
• Its order book as of date is 2,578 MW, of which 1,624
MW is from India and 954 MW international. RePower
orderbook is 2,458 MW. Recent wins include 150 MW
from Vedanta Group and 1 GW from Caparo Group.
• It expects to gain from REC trading.
JSW Energy
• Expects to reach 3,140 MW by Dec ember2011, of
which 56% will be merchant and the balance on PPA.
34% of this capacity will be based on domestic fuel
while the balance from imported coal. In F2012, 6 mt
will be imported of which 1 mt will be from SACMH, 2 mt
from Indonesia (Sungai Belati) and 3 mt from the spot
market.
• Currently it owns about 55% in SACMH (South African
coal mines) and will increase its holding through an
open offer. It expects FOB price of US$75-80 per ton
for GCV of 6000 kcal/kg.
• The CIC Energy acquisition is dependent on certain
conditions such as Government of Botswana approval
on mining license, water and tax approvals, termination
of some existing agreement and setting up a power
plant in Botswana.
• There are 2.6 bn tons of measures coal reserves in the
CIC coal block with GCV of 5500-5900 kcal/kg and low
sulphur content. 900 mn to 1 bn tons of these reserves
are extractable.
• The Botswana coal would need rail infrastructure to be
put in place for evacuation of coal. The rail line would
have to pass through Namibia and the coal would have
to be exported from the Western cost of Africa.
• The company is looking for smaller coal block
acquisitions to meet short and medium term
requirements.
• For F2011 merchant rates are expected to be
Rs4.8-5/unit. For F2012 the estimate is
Rs4.25-4.5/unit.
• Vision is to reach 12 GW of capacity by 2016.
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