TABLE OF CONTENTS(Experience Based) Chapter No. Subject Page No.

1.0 Executive Summary2.0 Introduction

a. Objectives (for gaining maximum experience and exposure in the company)

3.0 Industry Profilea. Review of literature on the industryb. Major Companiesc. Growth chart – past and projections for futured. SWOT etc.

4.0 Company Profilea. Review of literature on the companyb. Historical analysisc. Growth Chart – past and projections for futured. SWOT etc.

5.0 Issues and challenges facing the organization 6.0 Reflections on what has been learned during the

placement experience7.0 Recommendations8.0 Bibliography9.0 Annexure

a. Tablesb. Graphs

10.0 Case Study (minimum 10 pages)11.0 Synopsis of the project (150-200 words)

EXECUTIVE SUMMARY

The project was undertaken at TATA Power company Ltd. In NOIDA in the Finance department and the project I undertook was ‘Project Finance”. Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds.

As the project taken was in a power company the project finance was related to the upcoming maithon thermal power project undertaken by TATA power in a joint venture with Damodar Valley Corporation for a 1000 MW thermal power plan at Maithon site in the State of Jharkhand. The power from the Maithon project is to be exported to power deficit western and northern states and for meeting the requirements of damodar valley corporation.

The TATA power Ltd. Is the largest private sector power utility with an installed capacity of over 2300 MW. The company has emerger as a forerunner in the indian power industry with a track record of great performance, Customer care and sustained growth. TATA power has presence in all the other kinds of power generation types such as solar power, hydro and wind and transmission and distribution.

The electricity sector in india is the world’s 6th largest energy consumer. About 65% of the electricity consumed in india is generated by thermal power plants and around 22% is generated through hydropower plants. As the economy of india has been growing at a faster rate the energy needs are also growing at at an average rate of 3.6% per annum over the past the 30 years. The project was undertaken to know how the project financing of long term projects in the power industry and and also in other industries done . The project will help me understand why some projects were a success while others failed. The knowledge base is required to design the contractual agreements to support the project financing issues for the host government legislative provisions, public and private infrastructure partnership, public private financing structures, credit requirements of lenders, how to determine the project’s borrowing capacity, how to measure the cash flow from a particular project and how to use them to measure the expect rates of return, taxes and analytical techniques to validate the project feasibility.

SALIENT FEATURES OF PROJECT FINANCE

1. Project finance is used to describe a range of financing arrangements, which is actually a century old financing technique which predates corporate finance.

2. The lenders finance the project looking at the creditworthiness of the project, not the creditworthiness of the borrowing party. The repayment of the loans is made from the earnings of the project.

3. Project financing is also known as “limited recourse” financing as the borrower has a limited liability. The security taken by the lenders is largely confined to the project assets.

4. another important feature of project financing is that it is highly leveraged as debt usually account for 65% to 80% of the total capital capital.

5. These projects are highly capital intensive in nature.6. the number of participants is generally high. Even if one finds around 10 participants, it is very normal.

7. it is generally costlier than corporate financing because of the greater need for information, monitoring and contractual agreement.

Now, from the above two salient features of project financing, we see that the lender finance the project looking at the creditworthiness of the project and not the creditworthiness of the borrowing party, so we will also understand what exactly are the things the bank look into to measure the creditworthiness of the project.

OBJECTIVES

To gain knowlwdge about the whole finance industry as a whole and especially about long term projects financing.

To gain knowledge about the work culture as a whole and understand why has organizations like TATA been able to write success stories for such a long time as it is one of the oldest private sector companies in india.

To practically understand what are the steps undertaken to decide the correct financing mix for a particular project both long term and short term to broaden the horizon of my knowledge in the field of finance.

The long term project financing is also important from the point of view of the devising the incentive and penalty mechanism to ensure performance of a particular project so it will also help me understand that. As there is always a possibility that the projects are not completed on time because of soe unforeseen event which could be like political disruption or any natural disaster.

To understand what are the future prospects of the company and how does it take the challenges (mainly financial) faced by them. For eg- when TATA motors was asked to leave singur in West Bengal what kind of business continuity plans were made then.

To gain maximum exposure while working in the company.

INDUSTRY PROFILE

THE INDIAN POWER INDUSTRY

The electricity sector in india is the world’s 6th largest energy consumer. About 65% of the electricity consumed in india is generated by thermal power plants and around 22% is generated through hydropower plants. As the economy of india has been growing at a faster rate the energy needs are also growing at at an average rate of 3.6% per annum over the past the 30 years. According to a research report published by Citigroup Global Markets, India is expected to add up to 113 GW of installed capacity by 2017.

The Ministry of Power is the apex body responsible for coordination administration of the electrical energy sector in India. Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC) , National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). The PowerGrid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid.

The Ministry of Power provides funding to national schemes for power projects via Rural Electrification Corporation Limited (REC Ltd) and Power Finance Corporation Limited (PFC Ltd) These Central Public Sector Enterprises provide loans for both public sector and private sector companies/ projects involved in building power infrastructure.Total Installed Capacity (as on 28-02-2011) is 171,926.40 MW.

The data below are in MW

The Government of India has an ambitious mission of POWER FOR ALL BY 2012. This mission would require that the installed generation capacity should be at least 200,000

MW by 2012 from the present level of 167278.36MW. Power requirement will double by 2020 to 400,000MW.

The government had earlier planned to add 78,000 MW of power capacity by the end of the 11th Plan, which the Planning Commission had scaled down to 62,000 MW.

The average per capita consumption of electricity in India is estimated to be 704 kWh during 2008-09. However, this is fairly low when compared to that of some of the developed and emerging nations such US (~15,000 kWh) and China (~1,800 kWh).The world average stands at 2,300 kWh .

The entire value chain of the power sector is dominated by the central and state sector utilities. For instance, in the generation space, out of the overall capacity of 152 GW, the share of central and state utilities stands at 49.8 GW and 76.6 GW, respectively; and that of private sector stands at 25.8 GW. Even, of the 78.7 GW planned capacity additions during the 11th five-year-plan, central and stateutilities together are estimated to add nearly 63.7 GW5.

The story remains pretty much the same in power transmission and distribution space. The central and the state utilities own nearly 40 percent and 60 percent,respectively of the total transmission lines of 2.7 million circuit kilometers (ckm). Power Grid Corporation of India Ltd (PGCIL), the central transmission utility (CTU), is the largest transmission company in India.

RULES AND REGULATIONS GOVERNING THE POWER SECTOR

MEGA POWER POLICY

1. Inter-state and Inter-regional mega power projects are proposed to be set up both in the public and private sectors. In the public sector, the National Thermal Power

Corporation (NTPC) and Damodar Valley Corporation (DVC) would be setting up the following projects: Kahalgaon Stage II (1500 MW),North Karanpura STPP(2000 MW), Barh STPP(2000 MW), Maithon Project (1000 MW) and Cheyyur (1500 MW). In addition, NTPC would be expanding the four gas based plants, namely, Anta, Auriya, Kawas and Gandhar to an additional capacity of 1300 MW each.

2. In the private sector, in addition to Inter-regional Hirma (6 x 660 MW) project in Orissa, the following projects are also proposed to be taken up: Cuddalore (1000 MW) - based on a blend of domestic and imported coal; Krishnapattanam (1500 MW) - based on a blend of domestic and imported coal; Pipavav (2000 MW) - based on imported coal and Narmada ( 1000 MW, which could be expanded to 2000 MW ), based on LNG. Two or three more projects based on LNG, may be developed on the Western coast later.

3. The Standing Independent Group (SIG) which had been constituted by the Government of India in November, 1997, to establish parameters for negotiation of large power generation projects would initially be the apex body to oversee the implementation of the mega private power projects.

4. A Power Trading Company (PTC) would be established with majority equity participation by Power Grid Corporation of India Ltd. (PGCIL), along with NTPC, Power Finance Corporation (PFC) and other financial institutions. Concerned State Governments/State Electricity Boards (SEBs) would also be co-opted, if found feasible. The PTC would purchase power from the identified private projects and sell it to the identified State Electricity Boards. As power would be sold to the States, the concurrence of the concerned State Governments would be taken.

4. A pre-condition would be that the beneficiary States should have constituted their Regulatory Commissions with full powers to fix tariffs as envisaged in the Central Act. They would also have to privatize distribution in the cities having a population of more than one million.

5. The import of capital equipment would be free of customs duty for these projects. In order to ensure that domestic bidders are not adversely affected, price preference of 15% would be given for the projects under public sector, while deemed export benefits as per the EXIM policy would be given to domestic bidders for projects both under public and private sector. The domestic bidders would be allowed to quote in US Dollars or any other foreign currency of their choice.

Changes in Deemed exports benefits(as discussed in the meeting on 15th march 2011 ):

1. Issue of deemed exports benefits in case of imports made by the project authority was discussed and it was decided that if the bills of entry is in the name of the project authority then the deemed exports benefits would not be available.

2. It was clarified that any supplies made to the project authority by an entity other than the contractor or the main contractor or the sub contractor shall not be eligible for deemed exports benefits.

3. Regarding the refund of terminal excise duty for non-mega power projects it was clarified that FTP clearly stipulates that TED is not available for such supplies.

7. The projects would be offered to the developers only after all the clearances/land have been obtained so that projects can start soon after they are granted to the most competitive bidder. The environmental clearance would be given in two phases by the Ministry of Environment and Forest - the site clearance being given initially.

8. In addition, the income-tax holiday regime would be continued with the provision that the tax holiday period of 10 years can be claimed by a promoter in any block of 10 years, within the first 15 years.

The tax regulations come under sec 80 IA of the income tax .

Sec 80 IA deals with the deductions in respect of the profits and gains from industrial undertaking or enterprise engaged in infrastructural development or power generation.

A deduction of an amount equal to 100% of the profits and gains is allowed under the section. The deductions will also be given if it undertakes substantial renovation and modernization of the existing transmission or distribution lines.the company can enjoy the deductions if it is set up in any part of India for the generation or generation and distribution of power and it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March 2011

9. It is visualised that the country would be adding 15,000-20,000 MW of capacity through this policy at the most competitive tariffs payable by State Electricity Boards and consequently by consumers.

ULTRA MEGA POWER PROJECTS

Government of India has envisaged capacity addition of 100,000 MW by 2012 to meet its mission of power to all. It needs huge capacity addition during 10th & 11th plan, which is not feasible from the ongoing and proposed new projects already identified. As such there is need to develop large capacity projects at the national level to meet the

requirements of a number of states under the competitive bidding guidelines dispensation.Ultra Mega Power Projects are steps in that direction. Recognizing the fact that economies of scale leading to cheaper power can be secured through development of large size power projects using latest super critical technologies.The Ultra Mega Power Projects with each having a capacity of minimum 4,000 MW, would have scope for expansion in future as well. The size of these projects being large, they will meet the power needs of a number of states through transmission of power on regional and national grids.

MAJOR PLAYERS

Adani Power LtdThe Company was incorporated as Adani Power Limited on August 22, 1996 and received a certificate of commencement of business on September 4, 1996. The Company became a private limited company on June 3, 2002 and the name of the Company was subsequently changed to Adani Power Private Limited. The RoC issued a fresh certificate of incorporation on June 3, 2002.The company is promoted by Gautam S. Adani, Rajesh S. Adani and Adani Enterprises Limited.

Birla Power Solutions LtdBirla Power Solutions (BPSL) was established in April1984 in collaboration with globally renowned Yamaha Motor Company, Japan, by the dynamic visionary late Ashok Birla. The company has many a firsts to its credit. It was the first company to manufacture portable generators in India in 1986. The company has the expertise of manufacturing 2-stroke as well as 4-stroke engines. The company is presently producing a wide range of

generators catering to the power requirements of 500W to 40KW being fuelled by variety of fuel options like kerosene, petrol, diesel, LPG, CNG, biogas, etc. It was the first company to roll out self-start gensets and became the first company to launch emission compliant generators under the brand name -- Birla Ecogen -- once again taking a step ahead, to launch low-noise gensets, complying with phase-II noise norms and entering a new era of silent technology gensets.

DLF Power LimitedDLF Power is engaged in the business of generation, storage and supply of power. It operates five power plants in the country. The aggregate installed capacity of these power plants is 55 MW. It supplies electricity mainly to Central Coalfields Ltd and Assam State Electricity Board. The electricity generated is also used for captive purpose by the holding company, DLF Ltd for the development of large SEZ, townships and infrastructural projects. For FY07, its Profit after Tax grew by 5% over the previous year and stood at Rs 63 mn.

Jaiprakash Power Ventures LtdJaiprakash Hydro Power (JHPL), incorporated in 1994, is part of Jaypee group that has a turnover of $650 million.

JHPL is subsidiary of Jaiprakash Associates (JAL). JAL is a merger between Jaiprakash Industries (JIL) and Jaypee Cement (JCL).

NHPC Ltd.NHPC Company was incorporated on November 7, 1975 under the Companies Act as a private limited company under the name National Hydro Electric Power Corporation Private Limited. The company was converted to a public limited company with effect from April 2, 1986. The promoter of the company is the President of India acting

through the MoP, GoI and currently holds 100% of the paid-up share capital of the company.

NTPC LimitedNTPC, India's largest power company, was incorporated on November 7, 1975 to accelerate power development in India. Today, it has emerged as an ‘Integrated Power Major’, with a significant presence in the entire value chain of power generation business.

Power Grid Corpn. Of India LtdPower Grid Corporation of India (PGCIL) is one of the largest transmission utilities in the world. PGCIL, incorporated in 1989, was earlier known as National Power Transmission Corporation. In the year 1980 the Rajadhyayaksha Committee on power sector reforms submitted report to the Government of India (GoI) expressing a need of reforms in the Indian power sector.

Reliance Power LtdReliance Power was incorporated as Bawana Power Private Limited on January 17, 1995, its name changed to Reliance Delhi Power Private Limited by a special resolution of the members passed at the EGM on February 1, 1995. On January 23, 2004 the Name got changed to Reliance EGen Private Limited by a special resolution of the members passed at the EGM. On March 5, 2004 the name changed to Reliance Energy Generation Private Limited by a special resolution of the members passed at the EGM. Finally on July 4, 2007 the name got changed to Reliance Power Limited by a special resolution of the members passed at an EGM.

Suzlon Energy LimitedSuzlon energy is leader in wind energy in the India, which is world’s fifth largest wind energy market .The company, which was established in 1995, now has global presence in five continents with manpower of over 13,000 people located in 14 countries. Its business model has range of services that include development, manufacturing, marketing, EPC project delivery & operations and maintenance of wind turbine generators around the world.

Tata Power Company LimitedTata Power, erstwhile known as Tata Electric, pioneered the generation of electricity in India nine decades ago. The company started as Tata Hydroelectric Power Supply Company in 1911, it got its new status with the amalgamation of two entities viz, Tata Hydroelectric Power Supply Company and Andhra Valley Power Supply Company in 1916. Today, it is the country's largest private power utility, established as a licensee in Mumbai and with ambitious expansion plans from being essentially Mumbai-centric to a major national player, not only in the fields of Power but also in Energy and Broadband Communication.

Torrent Power AEC LimitedTorrent Power (TPL) is engaged in generation, transmission and distribution of power. Torrent forayed into the power segment by acquiring management control of Surat Electricity Company in 1996-97. Later in 1998-99 it acquired management control of Ahmedabad Electricity Company (AEC).

COMPANY PROFILE

Type Public (BSE: 500400)

Industry

Electricity generation

Electricity transmission

Electricity distribution

Founded 1911

Founder(s) Dorabji Tata

Headquarters Mumbai, Maharastra, India

Key people Ratan Tata Chairman [1]

Revenue18,985.84 crore (US$4.21 billion) (2009-

2010)[2]

Net income2,147.53 crore (US$476.75 million)(2009-

2010)[2]

Employees 3809 (2010)

Parent Tata Group

Website www.tatapower.com

VISION

To be the most admired Integrated Power and Energy Company deliveringsustainable value to all stakeholders.

MISSION

We will become the most admired Company delivering sustainable value by:- Being the supplier and partner of choice- Achieving excellence in safety, operations and project management- Focusing on the culture of sustainability

- Ensuring growth and delivering value to all stakeholders- Caring for the community

JOURNEY

Tata Power's journey over the past nine decades has been a fascinating saga of pioneering initiatives; responsible business practices that have a minimalimpact on the environment; and initiating several socioeconomic changes in our community. In our quest to deliver sustainable energy, we are spreading our footprint nationwide, setting new benchmarks for operational efficiencies, investing in global resources and redefining paradigms. Our focus on building lasting and trusting relationships with our customers, partners and employees, and our legacy of caring for our communities, remains the bedrock of our continued sustainability. We aim to energise consumer lifestyles by providing sustainable. We hope to inspire efficient use of energy and endeavour to educate our customers, and the world, about the benefits of implementing energy conservation practices. We are committed to developing our business in a way that adds value to our local communities. Also, we aim to set higher benchmarks in terms of development standards, and in the implementation of cutting-edge eco-friendly technologies and processes of energy management. As we strive to lead the reform process for sustainable power, we are also committed to safeguarding the environment for future generations. After all, it was way back in the 1900s,that, our Founder, Jamsetji Tata, vowed to provide the country and its people with cheap, clean, and abundant power. Tata Power continues to make good on that promise and takes pride in lighting up lives! power.

OVERVIEW

Tata Power today, is India's largest integrated private power and Energy Company and has an installed generating capacity of about 3000 MW and a presenceacross the entire value chain in power generation(thermal, hydro, solar, wind and geothermal) transmission, trading and distribution. The Company has a great track record for its performance, customer care and is a frontrunner in introducing state-of-the-art power technologies. The Company has successful public-private partnerships in generation, transmission, and distribution such as the 'North Delhi Power Limited' with Delhi Vidyut Board for distribution in North Delhi, 'Power links Transmission Ltd.' with Power Grid Corporation of India Ltd. Forevacuation of power from Tala Hydro Project in Bhutan to Delhi, and 'Maithon Power Ltd.' with Damodar Valley Corporation for a 1050 MW Mega Power Project.

Our Pioneering Initiatives Bringing the first 800 MW Thermal unit to India basedon super-critical technology

for Mundra UMPP Commissioning the first 500 MW Thermal Unit in India Commissioning the first 150 MW Thermal Unit in the country Touch-screen based Distributed Digital Control and Energy Management Systems Computerised Grid Control and Energy Management Systems 220 KV Transmission Lines on Four-Circuit Towers 220 KV Underground Cable Transmission Network Flue Gas Desulpharisation plant using sea water Operators Training Simulators for 150 MW, 500 MW Thermal Power Plants and Switchyard Operations Fly-ash Aggregate plant of

200,000 tonne per year to convert fly-ash into useful building material 150 MW Reversible Hydro Pumped Storage Unit

INDIA'S LARGEST PRIVATE SECTOR POWER PRODUCER

Tata Power generates about 3000 MW of power from energy sources like thermal (coal, gas, oil), hydroelectric, solar, wind and geothermal energy. The Company has been associated with the growing legacy of Mumbai as a business city for over nine decades. Mumbai's growth has literally been powered by Tata Power's reliable power supply. Tata Power has now spread its footprint across the country and overseas. Outside Mumbai, the Company has generation capacities in the states of Jharkhand, West Bengal, Gujarat, and Karnataka and a Distribution Company in Delhi. The thermal power stations of the Company are located at Trombay in Mumbai, Jojobera in Jharkhand, Haldia in West Bengal, and Belgaum in Karnataka. The hydel stations are located in the Western Ghats of Maharashtra and the wind farms in Maharashtra, Karnataka, and Gujarat. An optimum mix of hydel and thermal capacities enables the company to supply power at competitive tariffs to its customers. At 1.8% the Company's transmission and distribution losses in Mumbai is among the lowest in the country.

INDIA'S LEADING PRIVATE TRANSMISSION PLAYER The 51:49 joint venture with Power Grid Corporation of India for the 1,200 km Tala Transmission Project: Power links Transmission Limited (Power links) is India's first transmission project to be executed as a Public- Private-Partnership. Power links transmit power from the Bhutan based Tala Hydroelectric Project (in Nilgiri, West Bengal), through the Eastern/North-Eastern Region of India to Mandola in Uttar Pradesh (near New Delhi) a total distance of 1,200 km. Ten States (West Bengal, Bihar, Jharkhand, Sikkim, Punjab, Haryana, Uttar Pradesh, Jammu & Kashmir, and Delhi) benefit from this project, which transfers about 3000 MW of regional power. Maintaining an average availability of 99.7%, the project is an important link in the national power grid and is the first inter-state transmission project that has beenimplemented through the Public-Private-Partnership route. Powerlinks has also balanced the ratio between thermal power and hydel power in the eastern region of India. Tata Power's transmission operations in Mumbai License Area stretch from Colaba in South Mumbai to Bassein Creek in North Mumbai and to Vikhroli in North-East Mumbai (bypassing Bhandup and Mulund).

Mumbai Consumer BaseEnsuring Uninterrupted Power Supply Tata Power has a consumer base of over 85,000 direct customers in Mumbai and on, average about 12,000 million units (MU) are sold in a year. Some of our bulk consumers include BEST, Railways, Port Trust, BARC, Refineries and other important installations in Mumbai.As in all parts of the business, improvement in operational efficiency is a key focus area. Tata Power has taken a number of initiatives to improve the quality and reliability of its

power supply. The Company is also expanding its consumer base to embrace medium-sized industries and large commercial and residential complexes in Mumbai.

DELHI CONSUMER BASEThe Company’s partnership for distribution with the State Government of Delhi for its North Delhi consumers, the North Delhi Power Limited (NDPL), is the only success story of privatization in India. This company serves over 1 million consumers (from a population of 4.5 million) spread over in an area of 510 sq. kms and has a peak load of 1050 MW.

INTERNATIONAL OPERATIONS

The company has executed overseas projects in the Middle East, Africa and South East Asia including the Jebel Ali ‘G’ station (4 x 100 MW + desalination plant) in Dubai, Al-Khobar II (5 x 150 MW + desalination plant) and Jeddah III (4 x 64 MW + desalination plant) in Saudi Arabia, Shuwaikh (5 x 50 MW) in Kuwait, EHV substations in UAE and Algeria, and power plant operation and maintenance contracts in Iran and Saudi Arabia.

Strategic Electronics Division

The firm's Strategic Electronics Division (SED) has engaged in defence systems and engineering for over four decades. It works with the MoD and laboratories to provide products and solutions for the defence requirements of the country.

It has already cleared the Joint Receipt Inspection (JRI) for the first two lots of Pinaka launchers and command posts; the third and fourth lots have successfully undergone factory acceptance tests. It has recorded significant success in the offsets opportunity with five orders worth about Rs. 13 crores from IAI, Israel. Phased deliveries have already started. Phase II of Bengaluru factory upgrade is underway.

CORPORATE SOCIAL RESPONSIBILITY

Tata Power is committed to setting high standards in its pursuit of social responsibility and remaining sensitive to the issues of resource conservation, environment protection and enrichment and development of local communities in its areas of operations. The company has a simple philosophy that guides its activities in these matters, “Giving back is a means towards going ahead".

Our widespread programmes on biodiversity conservation, afforestation, pisciculture, family planning, health services, primary and secondary education and many more have made inroads into the tiny hamlets and tribal regions of our hydro catchment areas and it is our endeavour to light up these dark and narrow streets to new dawns.

SWOT ANALYSIS OF TATA POWERStrengths

Cost advantage Superior technology Company has sufficient coal reserves

to serve its upcoming power projects after acquiring 30% equity stake in Bumi resources, which secures 88% of its requirement.

Experience Human Resource capability

Weaknesses

Low market share Capacity creation time is very high

(gestatation period)

Opportunities Emerging markets and expansion

abroad Product and services expansion Increasing demand Alternative sources of power

generation Acquisitions and mergers As indo-US deal is concluded this

would open up opportunitiesin the nuclear power business for private sector companies

Big push to Hydro - 162 projects = 50,000 MW identified.

Joint ventures possible with CPSUs eg NTPC & States – NTPC financially strengthened by one-time settlement scheme

Threats External changes (government,

politics, taxes, etc) Price wars Highly capital intensive Any delay in project implementation Increase in interest rate. Free market Low barriers Globalization

STRENGTHS

Cost advantage- TATA power is the biggest private player in the power sector so, achieving economies of scale will be comparatively easy in the companies.

Superior technology- The company’s huge financial resources can be used to buy the best technology to make full use of whatever the company is into, whether nuclear power or thermal or wind power generation.

Resources of thermal power generation- Company has sufficient coal reserves to serve its upcoming power projects after acquiring 30% equity stake in Bumi resources, which secures 88% of its requirement.

Experience- TATA power has been serving india for nearly a century now and has great experience in this field.

Human Resource capability- The human resurce which the company has is from the best institutions of inda and world with good experience in their respective fields which is one of the biggest strengths of the organization.Another quality of the human resource is that the turnover percentage of the company is low comparing it to the industry as a whole.

WEAKNESSES

Low market share- One of the biggest weaknesse of the organization is that the company has fairly low market share. The power industry has largely been dominated by the public sector moreover the high investment cost and the high gestation period also deter the company to have a low share of market share even after so many years after its inception.

Capacity creation time is very high- The capacity creation time of a power plant is also very high because of which the company has wait for long to start new projects moreover there are a lot of government regulation governing the power industry because of which even to start a power plant the company has t o take a lot of permission because of again there are a lot of delays.

OPPORTUNITIES

Emerging markets and expansion abroad- there are a lot of ambitions and plans the government of india has proposed in order to increase its per capita power generation because of which the company has been able to take benefits from them moreover the countries around india are also developing companies which also a have similar plan to expand their power generation capacities because of which the company has high chances of expansion.

Product and services expansion- the Indo-US nuclear deal has opened up new avenues of investment for the company and the company being the largest power company in India can capitalize on the opportunity given to the company.

Increasing demand- The per capita electricity in india is also very low comparing it to the rest of the world and the people of the country want to increase this level of demand moreover as the economy of India is growing and has also become the 11th argest economy of the world there will be high demand of electricity in the coming future also. So the company can capitalize on it as well.

Alternative sources of power generation- The company can also look for new avenues such as wind power generetion, solar power generation in which the company has not really started working whereas other companies like suzlon and the like are working on it as these are renewable sources of energy.

Acquisitions and mergers- the company can also look for getting into acquisions and megers in order to take advantage of the current situation. In this way the company will be able to acquire a larger size and it can take advantages of the Mega power policy of the government in which if the company generates power above a certain limit it can avail some concessions and advanteges.

Any delay in project implementation- It is also possible that there might be delays in the project implementation and execution in land acquisition and other regulations which are important to be undertaken without which the company might not be able to commence business. THREATS

External changes (government, politics, taxes, etc)- the external environment of the company i.e consisting of the go0vernment, politics, taxes etc. are volatile in nature, and there are possibilities that theses rules and regulation might change any time. For eg. there has been some changes in the deemed exporter benefit which were earlier availaible to the power companies are not being given now.

Price wars- After globalisaton and liberalisation ther is always a possibility that the new and big players might might enter the industry because of which the sector which is not that price sensitive right now might become price competitive which might affect their revenues.

Highly capital intensive- the work done is power industry is highly capital intensive because of which so a lot of machine acquisition also takes place before everything starts.

Interest rates- there is always a possibility that the government might increase or decrease the interest rates depending on the policy the government want o follow. In case there is high inflation in the economy the policy makers might chose for a higher interest rates and the cost of the project might again fluctuate.

ISSUES AND CONCERNS GOVERNING THE ORGANISATION

1. Converting a loss making sector requiring massive budgetary support into a profitable, self-sustaining consumer oriented operation. And for this the electricity act of 2003 was also passed. Salient features are:

Licensing free generation from except for hydro projects Open access to transmission lines Trading of power permitted under a specific license Central Government to prepare National Electricity Policy and Tariff

Policy Strict anti-theft provisions.

2.

Another challenge facing the organization and the industry is that the per capita power consumption comparing it to developing countries like china and developed countries like US, UK, Canada are also dismally low. In order to increase this per capita consumption some real and fast actions are required to

be taken but unfortunately the regulations don’t allow the companies to expedite the process.

3.

Another issue faced by TATA power is of the losses it makes when the power is not subsidizes. So in order to make profit in the power sector there is a lot of money which has to be incurred by the government on subsidies. These subsidies are subject to changes according the earnings made by the government, so it is very important that whatever is done it is done at minimal costs.

4. Political stumbling blocks- coalition government, one of the major concerns facing the organizations is that the governments in india if changes they might bring a completely new power policy which might again lead to changes in the long term plans of the company. Formulating these long term plans also involves a lot of time and money so it might prove to be a very costly affair for the company.

5. Change in social behaviour – some events might happen because of which there might be a complete change in the social behavior of the people or the

environment. For eg. After the tsunami which came in japan this year which lead to the destruction of the nuclear power plant in fukushima has suddenly risen the concerns that whether we should also go for nuclear power or not. Everybody was in the favour of the nuclear power before what happened in japan but ow suddenly there have been concerns that if the something similar happens in india because both the countries have faced tsunami in the recent times, will inida being a new flanged economy, a novice in nuclear power generation should go for nuclear power?????

6. Land acquisition- another concern is about the acquisition of the land because TATA group has a very strict code of conduct and it doesn’t get into any unethical activities such as bribing the government officials , so a lot of time is wasted in the acquisition of the land.

7. R&R- R&R means relocation and rehabilitation. This is another concernt faced by the project company because relocation of the people is not that easy everywhere and a lot lot of time and money is incurred in this. It was found that the cost of R&R was around 2-3% of the project cost.

8. TATA Power gives a lot of attention on the safety of the employees working in the project site and for this purpose they even have a team who are entrusted with the responsibility of taking care of the safety of the people working at site.

9. Another concern is that the company has to maintain good relation with the state electricity boards which might lay down some diferent rules and regulations to be followed by the TATA power which may affect the long term goals of he company.

LEARNINGS FROM THE PROJECT

1. Contract- The common loan agreement consist of the following:

The contract is divided into different subheadings

Article I

1.1 Definitions and interpretations- This part consists of the definitions and interpretations of some of the terms which are frequently used in the contract and may have different meanings at different times. So it is important that the intended meaning of the word needs to be clearly stated.

Article II

2.1 Amount and terms of Loan- this clause states the amount of loan to be extended by different banks. And it also states the term of the contract which might be like that if the company issues bonds or goes for commercial external borrowings then the availaible commitment of the lender will be reduced.

2.2 Nature of rights and obligation of the lender- It states the kind of obligation the lender have with regard o the loan. It states whether one lender is responsible for the obligation of any other lender.

2.3 Purpose- It clearly states the purpose for which the loan extended will be used by the company.

2.4 Availaibility period- It is the period starting from the date of first installment uptill the last installment.

2.5 Upfront fees, commitment fees - There is an upfront fees which is required to paid to all the lenders which is .1% in this case. Committment fees is also paid which is 1% of the loan amount.

2.6 Interest- The rates of interest charged by different banks are different. In case the company makes any default in making the payment an extra interest is paid, this amount of interest is also mentioned.

Additional interest for non creation of security- In case the company is not able to create and perfect the security within the period mentioned earlier it wil have to pay an extra interest to its lenders.

Interest payment for non adherence of some interest payment- Some amount dependin on the goodwill the company enjoys and past record of the company this interest is decided.

2.7 Disbursment schedulle- It will include the loan amortisation schedule of the loan which includes the amount of loan which will be paid off in monthly installments and also includes the the dates on which the payments will be made.

2.8 not used

2.9 Imposts, costs and charges- This clause talks about all the taxes such as interest tax, service tax, other taxes and other charges such as investigation charges and documentation charges to be paid by the company. It states who will be liable for any taxes and charges paid.

2.10 Computation of interest and other charges- it states how the interest will be changed on the loan whether it is simple interest or it is compound interest.

2.11 Repayment- repayment to be done in accordance with the amortisation schedule which is made at the beginning of this agreement.

2.12 Premature repayment of loans-It state the amount of premium charged in case the money is returned earlier than the scheduled time. It also states the amount of loan that will be dedcuted from the loan provided by every bank.

2.13 Appropriation of payments

2.14 Place and mode of payment of the borrower- the money is generally paid at the main branch or the branch in which it was taken from.

2.15 Due date or the payemnt- It states that in case the amount of repayment date is a bank holiday on which date will the payment flls to be due.2.16 Review of th progress- The lenders have the right to review the progress of the project at any point of time and see whther their mones is being incurred at the right time.

2.17 Review of the project cost- The lenders have the right to review the cost incurred, the means of finance and other relevant concerns for the smooth functioning of the project.

2.18 Increased costs- It states how will any increase in the costs on the part of the lender treated.

2.19 Cancellation of the loan- In case the company is able to manage undisbursed money on their own what is done in such cases is mentioned.

Article III

SECURITY

3.1 Security of loans- as we know that these loans are geberally off balance sheet financing loans thus the secutiry paid for them is generally the immovable property of the project both present and future. All the property is hypothecated to the bankers untill all the loan is returned back.

3.2 Additional project documents- additional project documents are to be submitted by the borrower.

3.3 Acquisition of additional immovable property- It states that in case any additional property is bought by the project authorities then it is to be hypothecated to the lender again.

Article IV Borrower’s representations and warranties- b the vorroweer hereby represents and warrants to the lender and lender’s agent and the security trustee as follows ir order to urge and make each of the lender to enter into this agreement and other finance dosuments. Following are the repersentations, warranties and undertakings made by the borrower :

4.1 Existence- It talks about the existence of the company4.2 Capacity- States the capacity of the borrowers with respect to getting into an agreemnt.4.3 Documents valid and Enforceable-It states that each of the document with respect to the loan is enforceable against the borrower.4.4 Pre commitment conditions- It should be ensured that the pre commitment conditions have been met by the borrower are stipulated by the lender.

4.5 Action- It is to be made sure that all the acts and conditions to be performed under the law have been performed and fulfilled.4.6 Security Documents- It is to be made sure that the security documents are supplied with to the lenders.4.7 Registration and filing4.8 Government approvals, compliance with laws4.9 No breach, No conflict- It is to be made sure that at the time of signing the contract no shareholder will now have any problems of any sorts, violate or conflict any applicatble law, result in a breach of the contract. 4.10 Proirity- It says that the borrower’s obligation at all times will remain the top priority of the lender.4.11 Proceedings- It is to be made sure that there are no action, suit or proceeding left in case of any of the security or property with respect to the project.4.12 Insolvency- This is to make sure that the company is not onsolventand no such papers have been filled currently.4.13 Complaince with statutes- The company is in all respect in compliance with all the laws in respect to the conduct of the busines, ownership oof the property and execution of the transaction documents4.14 No default- This clause makes sure that no default is outstanding in respect to any materiel fact of the company.4.15 No Indebtedness- This is to make sure that the company hs not been duffering from any indebtedness apart from what is there in this agreement.4.16 Informations- This is to make sure that all the information provided is true to the best of the borrower’s knowledge.4.17 Materiel and adverse effect- ???????

4.18 Title to assets- This is to make sure that the company has the title of the goods the company has given as aa security.4.19 Project documents- It states that the the lender has been supplied with all the project documents.4.20 Insurance- This is to make sure that all the project propeerties/assets have been insured against all the customary risks.4.21 Special Purpose company- This is to make sure that the company has been formed for the purpose of the project only and not for any other purpose and it has not incurred any liabilities in respect of that.4.22 Tax returns and companies- This is to make surthe that the borrower has paid all the tax returns it is required to pay.4.23 Project budgets: Construction budget- it says that all the project construction budget has benn prepared with keeping in mind all the prudent operating practices and no wasteful expenditure has been included.

4.24 Intellectual Property- This is to make ssure that the company has all the right to use the intellectual property.

Article V- Effectivemess of agreement and pre disbursment conditions

5.1 Effective date- The agreement shall be effective from the date mentioned in the contract and the contract and would stay in force uptill the final settlement date.5.2 conditions preceeding to Initial disbursment-It contains the genral conditions which are required to be met before making the first payment, these conditions can be related to the project site, terms related to equity contribution, and agovernment approval.5.3Condition precedent to all disbursment- Before the final disbursmen starts, conditions related to fees and other things have to be preapared.

Article VI- conditions applicable during the currency of the agreement.6.1 Positive covenants- These are th agreements which the comppany has to follow untill the date of final settlement

6.2 Negative covenants- (difference between nagative list and positive list???)

Article VII Events of defaults and remidies. In this clause one is required to mention the different kinds of defalut a borrower can commit and it remedies.Article VIII

Taxes

Taxes- About the taxes it is to be made sure that the payment made under the contract are without taxes or are with taxes.

Project finance

The US financial standards define project finance as:The financing of major capital projects in whisc the lenders look at the cash flows and the earning of the project as the source of funds. The general credit of the project entity is usually not a significant factor.

Or

The financing of a particular unit in which the lender is satisfied looking at the cash flows and earnings of the economic unit as a source from which the loan will be repaid and to the assets of the economic unit as a collateral for the loan.

Project finance has evolved through centuries into primarily a vehicle for assembling a consortium of investors, lenders and others participants to undertake infrastructure projects which are too large for someone to take individually.This technique has specifically become prevailent and is used to finance independent power plants and other infrastructural projects around the world as governments face budgetary constrains.

Features:

1. Capitals intensive- the project financing projects are generally large scale projects which require a great deal of money involved and are capital intensive in nature. According to a study by World Bank in 1993 the average size of infrastructural projects used to cost around $440 million.

2. Highly leveraged- these projects are highly leveraged projects with around 70 to 80 percent of the financing being done through long term debt.

3. Independent entity with a finite life- The financing is not only for the project but for the whole new company which is formed as a separate entity whose sole purpose is executing the project and has a finite life and is made for the sole purpose of executing the project.

4. Controlled dividend policy- repayment of the loan is given a priority to dividends. So as the cash is generated they are given to the lenders as the proportion of debt in project financing is very high.

5. Many participants- the project as we know involves huge amount of costs there are often many participants involved in it as lenders.

6. Allocated risk- the risk is properly allocated between the project company and the participants and also among the the various participants. The risk is allocated according to the risk handling capability of the participant. One who is able to

manage the risk better is being allotted the risk. For eg. In turnkey projects where the completion of the work id givent top most priority the risk of late completion of the project infrastructure is allotted to the contractor and not the project company.

7. Costly- raising capital through project finance is more expensine than corporate finance becasse of the fact that the the greater need for informaton, monitoring and contractual agreements increases the cost of transaction.

The difference between the types of financing is given as follows:

Basis Project finance Corporate Finance1. Finance

vehicleSingle purpose entity Mutli-purpose

organization.2. Type of

capitalThere for a finite period A permanent capital

3. Dividend policy

Fixed dividend policy Management decision

4. Reinvestment decisions

Not allowed Allowed

5. Capital decisions

Highly transparent Opaque to creditors

6. Financial structures

Highly tailored which can generally cant be reused

Easily duplicable

7. Transaction cost

Low due to high competiton High due to transaction cost

8. Basis of credit

valuation

The cash generating capabilities

The credit standing of the company

9. Cost of capital

Relatively higher relatively lower.

ROLE OF INSURER

As we are aware of the fact that there has been a continuous increase in the volume of the the rojects in project finance. This development has lead to the ever quest to control or minimise the exposure to loss or damage to their goods. this lead to the began of the use of insurance in project finance.

Taxation

In projuect finance as the amount of money involed is very high so the government give the project entity a tax holiday of 10 years which the company can choose from the 15 years starting from the first cash inflow of the project. The income tax of the project company are governed by section 80IA of the income tax act in which a deduction of 100% of the profits can be taken. The following are the exact wordings of what the income tax act says in this regard:

The tax regulations come under sec 80 IA of the income tax .

Sec 80 IA deals with the deductions in respect of the profits and gains from industrial undertaking or enterprise engaged in infrastructural development or power generation.

A deduction of an amount equal to 100% of the profits and gains is allowed under the section. The deductions will also be given if it undertakes substantial renovation and modernization of the existing transmission or distribution lines.the company can enjoy the deductions if it is set up in any part of India for the generation or generation and distribution of power and it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March 2011.

In this regard what can be suggested is that the company should claim fo the tax benefit in the last 10 years of the 15 years of the tax benefit because in he last 10 years the project will be fully operational and it it expceted to generate more revenues than earlier so the project entity can save a larger part of their revenues in the tax holiday.

Clearances

It is considered to be one of the most important as pect of project finance as we know that project finance are large infrastructural projects ther also a need of cearances such as land acquisition and environmental clearances etc. which are required to be undertaken. It has also be seen the such clearances take a lot of time to take place and it involves a huge amount of costs. Such clearances also includes relocation clearances which costs as high as 2 to 3% of the total costs. Before such clearances have been taken the project doesn’t move forward.This is because of the fact that in case the entity is not able to take all the clearances which might also be bacause of some commotion and is unable to move forward it willalso take all the money of the lenders along with itself so this is done to protect the lenders from from such kind of loss as the amount of money involved is very high that.

BANK PAYMENTS

The project entity is required to give details of the amount in which the company wants the banks to make the payment to them. Is is required to give details of th articles on the which the payment has been asked for. The itemise of the payment details are as follows:

Description Zero Date Month 1 Month 2 Month 3 Month 4 Month 50.1 0.1 0.1 0.1 0.3 0.2

Preliminary Investigation 2.00 2.00 2.00 2.00 6.00 4.000.4 0.1 0.1 0.1 0.1 0.1

Land & Site Development 324 81 81 81 81 810 0.1 0 0 0 0

STG Package 0.00 4,331.10 0.00 0.00 0.00 0.000 0 0 0 0 0

Balance Of Plant 0 0 0 0 0 00 0 0 0 0 0

External Water Supply system 0.00 0.00 0.00 0.00 0.00 0.00

0 0 0 0 0 0External coal transport 0 0 0 0 0 0

0 0 0 0 0 0Initial Spares 0 0 0 0 0 0

0 0 0 0 0 0Civil & strl Works 0 0 0 0 0 0

0 0 0 0 0 0Erection & Comm 0 0 0 0 0 0

0 0 0 0 0 0Freight 0 0 0 0 0 0

0 0 0 0 0 0Taxes on Supply 0 0 0 0 0 0

0 0 0 0 0 0Taxes on Civil Works 0 0 0 0 0 0

0 0 0 0 0 0Taxes on services 0 0 0 0 0 0

0 0 0 0 0 0Contigency 0 0 0 0 0 0

0.01 0.005 0.005 0.005 0.005 0.005

Establishment / Consruction Supervision

20.394592

10.197296

10.197296

10.197296

10.197296

10.197296

0 0.01 0.01 0.01 0.01 0.01

Design, engineering, inspection and project Management 0

3.2631348

3.2631348

3.2631348

3.2631348

3.2631348

0 0 0 0 0 0Startup Fuel 0 0 0 0 0 0

0 0.1Development expense 0 0 0 0 0 0

0.05Legal audit, account 0 0 0 2.5 0 0

0.1 0.03 0.02 0.02CSR 10 0 0 3 2 2

00.017857

10.017857

10.017857

10.017857

10.017857

1Construction Insurance 0 3.728657 3.728657 3.728657 3.728657 3.728657

7 7 7 7 70 0 0 0 0 0

Working capitalmargin 0 0 0 0 0 0

Total Cost Rs Mil 356.39 4431.29 100.19 105.69 106.19 104.19% 0.41 5.15 0.12 0.12 0.12 0.12

Quarterly Cumulative 356.39 4431.29 4531.48 4637.17 106.19 210.38% 0.41 5.56 5.68 5.80 5.92 6.04

Cumulative 356.39 4787.68 4887.87 4993.56 5099.75 5203.94% 0.41 5.56 5.68 5.80 5.92 6.04

This itemise is a shorter version of what is exactly given to the banks. This shorter itemise is given to imporve understanding and also because of non disclosure norms which are required to be followed.

Bibliography

Researches:

The Economic Motivations for Using Project Finance by Benjamin C. Esty , Harvard Business School

Project finance by Tim Thompson Project finance the added value of insurance Project fianance by Bruce Comer Law, Agency Costs and Project Finance by Xue Wang

Websites: www.wikipedia.org www.hbs.org www.projectfinancemagazine.com www.projectfinancemodels.com www.ashurst.com www.tatapower.com www.shine.com http://explore.oneindia.in/industry/power/

SYNOPSIS

TATA POWER COMPANY LTD. STUDENT’S NAME: Piyush MamgainINDUSTRY GUIDE: Mr Gajendra BhardwajFACULTY GUIDE: Ms. Navleen kaurObjective: The learn the knowhow of project financing.Learning: got to know about each and every detail about project financing in TATA power, how the contracts are made, how the loan is taken from the banks,the interest charged, security for the bank loan, the loan amostisation schedule, how are the banks chosen, role of insurer inproject financing etc.Looking into the nitty gritty of project in these 2 months project finance, it has been learnt that project financing is the best recource to finance infrastructural projects and other developmental projects of a company. In this way the project company who is the owner of the project is able to retain ownership of the project company after all the loan has been paid.One of the most important aspect of project financing is the clearances which the project company is required to take before the

commencement of the project, I got to learn a lot about that.