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Discussion Paper on Terms and Conditions of Tariff

- The Indian Perspective

November 12, 2003 Convention Centre, Scope Complex

Creating Customer Value

Rabo India Finance Pvt. Ltd.

www.rabobank.com

A Lender’s viewpoint

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What is Project Financing

A cash flow based financing Without recourse to sponsors To a project that is a discrete economic unit In a sector / product that is in the maturity phase Which involves identification and mitigation of risks

by allocating risks to parties best able to manage it

Project assets provide collateral Promoters provide contractual rather than financial

supportWhat a lender essentially looks for in such a transaction is adequacy, predictability & certainty of cash flows

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Do Power Generation Projects meet criteria of Project Financing Are cash flows adequate & certain - Adequate

Probably Yes, Certain Probably No

Can it be structured without sponsor recourse - No

Can the project be put up as a discrete economic unit- Yes

Is the sector in the maturity phase – Conventional Yes, Renewables No

Can risks be adequately identified & mitigated and/ or allocated - Partially, since sector has high regulation characteristics

Can the project assets provide collateral - Yes

Can the promoters provide only contractual and no financial support - No Creating Customer Value

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The Impact of Proposed Tariff Norms on Project Cashflows Debt Repayment Capacity

Tenors of debt and interest rates– Options to extend debt tenors fairly limited

Incorporation of the same in the cashflows Operational norms

In the waterfall mechanism of cashflows, lenders payment is subsequent to the O&M payments

Foreign Exchange Variation Pass through ideal for project, but sub-optimal for the

sector and detrimental to the offtaker Hedging strategies on a pilot basis might reveal the

hidden gains Depreciation

Despite the theoretical debate on its relevance, used for meeting debt repayments

Mis-matches in the two lead to – Dipping into the ROE first– And then liquidity problems

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THANK YOU !

Mohanjit Singhmohanjit.singh@rabobank.com

Creating Customer Value