1. Removing Roadblocks in Generation – Towards 24 Hour Power Supply Association of Power Producers 19 Dec 2011

2. Several Initiatives to Improve Access of Electricity in Rural Areas Electricity Act 2003 and National Electricity Policy – decentralised distributed generation Rajiv Gandhi Grameen Vidyutikaran Yojana However, 56% of rural households and 400 million people without electricity access Per capita consumption of India @ 778 kwh as compared to 2471 kwh of China Electrified rural areas get 6-8 hours of supply with poor quality of service 2 24 hours supply appears to be a distant dream as long as basic power generation issues are not tackled

3. Indian power sector is passing through a very critical phase and the current situation is the outcome of inaction on the part of the Govt and exuberance on part of some of the private players 3

4. The major bottlenecks are Fuel – shortage of domestic coal and pricing of imported coal and blended power Land Acquisition Issues Environmental Issues Poor Financial Health of Distribution Utilities 4

5. 5 Installed Capacity (MW) Coal 62% Coal 65% Coal 63% Coal 59% Coal 54% Coal 55% Coal 62% Biggest Challenge Being Faced by Developers - Fuel Rest Coal has remained and is expected to remain the dominant fuel by far. With 74% of the 12 th Plan additions being based on coal, coal share of the total generation portfolio is expected to be 62% by the end of 2017

6.  Estimated domestic coal requirement for the power sector in FY 12 is 455 MT (as per CEA) and availability is around 402 MT (including all sources). Therefore the current deficit of coal is 53 MT for power sector in FY 12 leading to a stranded capacity of ~13000 MW Shortage of Domestic Coal 6 Looking at the fact that 74% of the 12 th Plan capacity addition (of 100,000 MW) is based on coal, it is estimated that the total coal deficit will be 292 MT by the end of 2017

7.  Case I linkage coal based projects – At the time of bidding, tariff quoted by developer was on the domestic linkage coal price and LOAs once issued assures the holder of ‘100% of the quantity as per the normative requirement’ as per the New Coal Distribution Policy. However, Coal India Ltd’s failure to meet its commitments under LOA has resulted in Case I developers unable to meet their obligations under PPA as there is no provision in PPA to provide for escalation in case coal is arranged through e-auction or through imports.  Case 2 linkage coal based projects – Same situation, however incase the design specifications of the boilers limit the acceptance of imported coal beyond 10-15%, the developer would not be able to meet the normative capacity availability requirement of 85%  Imported coal based projects – Shortage of coal in India and China and the resource nationalism exhibited by coal exporters such as Indonesia and Australia has led to steep increases in coal prices on a global level. How Is This Impeding Country’s Generation Portfolio 7 Stranded assets post 2009: Ratnagiri (JSW), Babandh (Lanco), Amarkantak (Lanco), Tiroda (Adani), Jhajjar (CLP), Bara (JP) etc Projects based on Imported Coal: Mundra (Tata), Krishnapatnam (Reliance), Udupi (Lanco) Projects based on Blended Coal: Aravali (NTPC JV), Sipat (NTPC)

8. Capacity Contracted Under Competitive Bidding 8 Competitive Bidding (Total Capacity Contracted: 41615 MW) Case – I (15275 MW) Captive Coal block based (2330 MW) 2008 (1320 MW) 2010 (1010 MW) Domestic Linkage Coal Based (10045 MW) 2006 (2200 MW) 2007 (1841 MW) 2008 (2404 MW) 2009 (1000 MW) 2010 (2600 MW) Imported Coal based (2900 MW) 2006 (1000 MW) 2009 (300 MW) 2010 (1600 MW) Case – II (10340 MW) Linkage Coal Based (10340 MW) 2006 (1100 MW) 2008 (4620 MW) 2009 (4620 MW) UMPP (16000 MW) Type of BiddingTypes of ProjectsPPAs signed in the year

9. Logistical Issues Is Imported Coal A Viable Option Resource Nationalization – Indonesia, Australia, South Africa Forex Outgo – Coal Import Bill could touch Rs 150,000 Cr Price Volatility – Global Coal Markets Technical Limitations – Equipment design Energy Security 9 Restrictions on export, additional customs and duties etc Almost 1/3 rd of current crude import bill Distribution utilities to get exposed to fluctuating price risks Most plants can take up to 28% imported coal max

10. Suggested Measures to Increase Domestic Coal Short Term Diversion of e-coal (12% ) to the stranded projects Expedite decisions related to mines in No Go Areas/CEPI Expedite linkage for 12 th Plan Projects and make priority solely based on project preparedness criteria To make coal FSA regime in accord with New Coal Distribution Policy (NCDP) Pricing of surplus production from captive mines Medium Term E-auction of captive coal blocks Setting up regulatory body Linkage Optimization Long Term Allow merchant mining by private players 10

11. Land Acquisition Issues Requirement of 80% Consent Acquisition by Private Companies for Public Purpose Preparation of social impact assessment Ban on Acquisition of irrigated multi crop land Return of land after 5 years if not used  Draft Land Acquisition and Rehabilitation & Resettlement bill introduced for public comments by GoI in July 2011 11 It is estimated that land will move up from a historical 5-8% of total project cost to as high as 30% of total project cost

12. 12 Proposal Received by Govt SIA conducted by Appropriate Govt Appraisal of SIA Report by Expert Group Verification of public purpose legitimacy and 80% consent, Approval of SIA Report Publication of Preliminary Notification Preparation of Draft R&R Scheme Draft Declaration and Publication of R&R Scheme No timelines mentioned 12 months Practically, the affected families cannot give the consent unless the details of the rehabilitation and resettlement benefits are known Legitimacy of public purpose should be identified at an early stage to avoid wastage of effort Public Hearing for SIA Public Hearing Activity Flow of the Land Acquisition Process Needs Review In case notification is not issued within 12 months, SIA will be deemed to have lapsed Award 12 months 24 months The process as chalked out today is cumbersome and creates ambiguity. A review is needed to ensure efficient implementation of projects

13. Environmental Issues Issues Regulatory Framework No-Go Areas CEPI Notification Clearance Process 13

14. Precarious Position of Distribution Utilities Precarious Position High AT&C Losses Revenue Gap 14

15. ● AT&C losses at ~30% is amongst the highest in the world, when compared to South East Asian nations which had 5-8% losses in 2007 and Brazilian utilities which averaged 15% in 2005 ● Reasons vary from combination of LT-HT lines and improper load management to unmetered supplies, faulty meters and electricity theft Losses At the current level the losses are likely to reach Rs 80,000 Cr by end of 2012 and Rs 116,000 Cr by end of 2015 15  APDRP intended to reduce losses of utilities to 15%, improve financial viability of Discoms and improve quality of supply  Re-launched as R-APDRP in XI FYP, the program focused on actual, demonstrable performance in terms of sustained loss reduction

16. ● In most states, tariff increase has been inadequate to cover the cost increases witnessed by the utilities. ● While the average cost of supply (all-India) level increased from Rs. 2.64 per unit to Rs. 4.81 per unit i.e. an increase of 82%, the increase in revenue has been only 56% (due to low tariffs). ● The revenue gap increased from 38 paise per unit in 2006-07 to 127 paise per unit in 2009-10 implying losses for the utilities. Increasing Revenue Gap 0.38 0.48 0.75 Tariff Below Cost of Supply 16 Source: Report of High Level Panel on Financial Position of Distribution Utilities, Dec 2011 1.27