Tata Power Company Limited

“The signing of the financing agreements for Mundra UMPP is an important milestone.
The good response demonstrates the faith of the lenders in our execution capabilities and
expertise to complete the project in time. The terms of debt financing provides us long tenure of
loans supporting our competitive bid price assumptions.”

– Mr. Prasad R. Menon, Managing Director, Tata Power

On April 24, 2008 The Tata Power Company Limited (TPCL), India’s largest private power
company, signed a financial agreements with a consortium of banks for 4000 MW Ultra Mega
Power Project (UMPP), coming up at Mundra, Gujarat under the Special Purpose Vehicle (SPV)
Coastal Gujarat Power Limited (CGPL). The cost of the project is estimated at INR 170,000
million (USD 4.2 billion) with the first of the five units to be commissioned in September 2011.
The entire plant is expected to be commissioned by end of 2012.
The company decided to finance the project with a debt-equity ratio of 70:30 comprising of
equity of Rs.42,500 million External Commercial Borrowings (ECB) of up to USD 1.8 billion
and Rupee Loans of up to Rs.55,500 million. The banks that financed ECB’s include The
Export-Import Bank of Korea, International Finance Corporation, Korea Export Insurance
Corporation, Asian Development Bank, and BNP Paribas. While the domestic banks that
financed rupee loan includes State Bank of India (SBI) (Lead bank for rupee lenders), India
Infrastructure Finance Co. Ltd., Housing and Urban Development Corporation Ltd., Oriental
Bank of Commerce, Vijaya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad,
State Bank of Travancore and State Bank of Indore. SBI Capital is the financial Advisor and
Mandated Lead Arranger for Rupee loans.
This is the first Ultra Mega Power Project in India built on super critical technology to improve
efficiency and to decrease green house gases. The Government of India in its ambitious project of
adding 73 GW of power during the 11th five year plan decided to set up nine UMPP in India
which will allocated to players in tariff led competitive bidding. Against this background, the
scenario of power industry follows:
Power Industry
The power industry is considered as one of the important industries for the progress of any
country. It is considered as the backbone of any country’s development. The Indian government
has laid much emphasis on the development of power sector since independence; accordingly, the
installed capacity has increased from 1713MW in 1950 to 143061.01 MW as on 31st March 2008,
registering an 83-fold increase in power generation capacity.
The total installed capacity as on 30th April 2008 was at 143311.01 MW. The electricity
generation in India has increased from 5.4 billion units in 1950 to 624 billion units in 2006-07
registering a 115-fold increase in generation. Currently, India stands fifth in terms of installed
capacity. With the growing generation capacity the capacity of transmission and distribution is
also increasing. The present transmission and distribution capacity of India is at 5.2 million circuit
Km, which is third largest in the world. Despite heavy investments in generation and transmission
and distribution, the per capita consumption of electricity in India is far less than world average.
The per capita consumption of electricity in India during 2007-08 was at 704.2 kwh per year
against the world average of 2596 kwh.
Electricity falls with in the jurisdiction of Central government and the State governments. In many
states the electricity boards are vertically integrated entities, majority of which are now been
unbundled into Generation, Transmission and Distribution companies, which are state owned.
However to meet the targeted 1000 kwh per capita availability of power by 2012, the government
has been encouraging private players in power generation. States like Delhi, Orissa went one step a
TPCL 2008-01

head by privatizing the distribution of power in these states. Inspite of these efforts by the
government of India, India is facing a severe shortage of power. For the first nine months of FY
07-08 the country has faced a power shortage of 9.9 percent and peak demand shortage of 16.6
percent as against a power shortage of 9.8 percent and a peak demand shortage of 13.5 percent in
2006-07. In order to accommodate the growth of economy of over 8-9 percent the country should
have to increase its generation capacity to 302000 MW in the next ten years. By 2031, the
expected generating capacity would be at 800000 MW.
Industry Value Chain
Generation, transmission and distribution form a line in the value chain to provide electricity to
end customers like farmers, industries, domestic customers.
Figure 1: Value Chain

Source: Icfai Research Team.

Considering the importance of generation, transmission and distribution in the industry, an
understanding of these segments is necessary to analyse the position of the industry.
i. Generation – In this segment/stage electricity is generated by using four different types of
sources namely, water, fossil fuels, uranium and renewable resources. Based on the type
resource we use in generation of electricity there are four types of generation namely, Hydro,
Thermal, Nuclear and Renewable Energy Sources. In Hydro, we use water to produce
electricity. In Thermal we use fossil fuels like coal, natural gas and diesel. In nuclear, we
use uranium where as in Renewable energy sources we produce electricity by using wind and
sunlight (solar). In India as on March 31 2007, nearly 65 percent of electricity was produced
by using fossil fuels, while hydro generation contributes 26 percent to the total power
production. The remaining was by nuclear and renewable sources.
The utilization of capacity in power sector is calculated by using Plant Load Factor (PLF).
Historically India has a low PLF, however for the last few years it has been improving at a
steady rate. It has increased from 64.7 percent in 1996-97 to 78.61 in 2007-08. Among the

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three sectors private sector has highest PLF with 90.79 percent followed by central sector
with 86.74 percent while, state sector has least with 71.89 percent. Among these alternatives
power generation through hydro is the cheapest one followed by wind and thermal.
In India the following players generate electricity:
– Central utilities such as NTPC, NHPC, Nuclear Power Corporation, Damodar Valley
Corporation and NEEPCO.
– State State Electricity Boards which are state-owned utilities. Few states have
corporatised their SEB. These are:
Orissa – OPGC/OHPC
Haryana – Haryana Vidyut Utpadan Nigam (HVUN)
Andhra Pradesh – AP Genco
Uttar Pradesh – UP Thermal Power Corporation & UP Hydel Power Corporation
Karnataka – Karnataka Power Corporation Ltd.
– Independent and Captive Power projects (ICP) like TPCL
– Licensees such as Reliance energy and CESC.
ii. Transmission – Transmission is the bulk transfer of electricity from the generation plant or
location to the place of local distributors or sub-stations near populated areas. It serves as a
connecting link between generation plants and sub-stations. In India, the transmission and
distribution system is a three-tier structure comprising regional grids, state grids and
distribution networks.
Most of the regional grids or inter-state transmission links are owned and operated by Power
Grid Corporation of India Limited (PGCIL) while the state grids and distribution network are
mostly owned and operated by SEBs or state governments through SEBs. The bulk
transmission network has increased from 3078 Ckm in 1950 to more than 250000 Ckm at
present. In order to facilitate the transfer of power between neighbouring states, state grids
are interconnected to form five regional grids. These regional grids facilitate transfer of
power from a power-surplus state to a power-deficit state and it is anticipated that these grids
will be gradually integrated to form a national grid. At present, the national grid has a
capacity of 9500 MW and PGCIL plans to achieve national grid capacity of 37000 MW by
fiscal 2012.
In the transmission sector, a few of the states have unbundled their transmission and
corporatized their entity
Orissa – Grid co
Andhra Pradesh – APTransco
Haryana – Haryana Vidyut Prasaran Nigam (HVPN)
Uttar Pradesh – UP Power Corporation.
In all other states, transmission is still under the control of SEB’s except the 5 cities where
licensees control the transmission of power.
iii. Distribution – Electricity distribution is the penultimate stage in the delivery (before retail)
of electricity to end users. The entities in this segment constitute the retail interface of the
industry and address supply, quality, billing and issues typical to the end consumer. The total
annual loss of the power distribution system is Rs.4,70,000 million, which is 33% of the
average investment required in this sector in the 11th plan period.
The distribution system is mainly controlled by state electricity boards except in Delhi and
Orissa where power distribution has been entrusted to the private sector. Orissa has divided
its distribution network into 4 zones – Wesco, Nesco, Southco and Cesco. BSES (presently,
Reliance Energy) has a 51% stake in the first 3 and AES has a 51% stake in the last. Gridco
holds the remaining stake. In 2002, the Delhi government privatized the distribution through
competitive bidding to reduce transmission losses.

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While BSES got two zones namely, Central-East and South-West Delhi, TPCL got North,
North-West Delhi. In all other states, distribution is in the control of SEBs except the 5 cities
where licensees control the distribution of power.
Compared to states where government private players control distribution, the states with
private distribution have been able to reduce T&D losses. In Delhi it was reduced to around
26 percent compared to national average of 33 percent. In Orissa, the billing rate has
improved by 50 percent in the last three years.
It can be seen that both private and public players operate under all the segements of power
industry, however public sector maintains its dominance all through the value chain.
Organized vs Unorganized
The Indian power industry is highly organized sector with 86 percent of generation controlled by
entities owned by state and central governments. NTPC the largest power company by far controls
19.1 percent of share. Even after liberalization of power sector in 1991, the private sector controls
only 14 percent of total capacity, in the private sector TPCL controls 11.49 percent of the installed
capacity. The low share of private sector was mainly due to regulatory hurdles in the form of
getting power purchase contracts with the electricity boards, access to raw materials like coal
which is controlled by governments, huge land requirement etc., while acquisition of land is
related to some local issues like displacement of people and providing rehabilitation for them, the
delay in power purchase contracts relates to inadequate provisions and lack of clarity in
government regulations forms a major hurdle for a private player to start generation of electricity,
this is clearly visible in the hydro electricity projects. Although the private sector is quite keen to
enter hydro projects in a big way, and several private companies have secured a number of
potential sites from State governments, actual investments have been slow mainly due to lack of a
framework enabling them to enter into Power Purchase Agreements with utilities and achieving
financial closure. The private sector contribution is mainly from independent power producers and
captive power producers. The contribution from captive power producers to state grid is more than
that of IPP’s. The significant players in private sector are TPCL and Reliance energy.
The transmission of power in India is almost controlled by state and central entities. In fiscal 2006,
the Government of India implemented a scheme under the electricity act to invite private sector
investment in major transmission projects. The private participants are allowed to provide
transmission services on a “built own and operate basis”. The Government of India has recognized
14 such projects to be implemented on “built own and operate basis”.
The distribution network and the state grids are mostly owned and operated by SEBs or state
governments through SEBs. In March 2003, the government has launched Accelerated Power
Development and Reforms Programme (APDRP) to accelerate distributional reforms.
Subsequently 22 states corporatized their SEB’s while Delhi and Orissa are two states where
private companies oversee power distribution. Additionally, TPCL, CESC Limited, Reliance
Energy Limited, AEC Torrent Power Limited, SEC Torrent Power Limited and Noida Power
Company Limited own and operate distribution networks in their respective license areas.
Key Players: The major players currently operating in the Indian power sector are, Nuclear Power
Corporation of India Limited, North Eastern Electric Power Corporation Limited, Damodar Valley
Corporation, Power Grid Corporation of India, Reliance Energy Limited and TPCL. NTPC’s share
on 31 March 2007 in the total installed capacity of the country was 19.1% and it contributed
28.50% of the total power generation of the country during 2006-07.
Regulations Norms
Despite public and private sector participation, experts were of the opinion that the role of
government is determinant in providing direction to the power industry; keeping this in view
government has introduced certain new regulations to meet its targets for power industry.

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Electricity Act, 2003

In recent years, the Government has taken significant action to restructure the power sector and
attract private and foreign investments. The most important reform has been the introduction of the
Electricity Act, which has modified the legal framework governing the electricity sector and has
been designed to alleviate many of the problems facing India’s power sector. The Electricity Act is
a central legislation and seeks to replace the multiple legislations that governed the Indian
electricity sector. The Electricity Act consolidates all the existing legislations. The salient features
of this policy are as stated hereunder:
• Access to electricity: Available for all households in the next five years;
• Availability of power: Demand to be fully met by 2012;
• Supply of reliable and quality power;
• Per capita availability of electricity to be increased to over 1000 units by 2012;
• Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012;
• Financial turnaround and commercial viability of the electricity sector.
Distribution Reforms
The reform in distribution is to bring about the efficiency and improve financial health of the
power sector. Government of India has approved a scheme called “Accelerated Power
Development and Reforms Program (APDRP)” in March 2003 to accelerate distribution sector
reforms.
The main objectives of the APDRP program are to:
• Reduce Aggregate Technical & Commercial (AT&C) losses;
• Bring about commercial viability in the power sector;
• Reduce outages and interruptions; and
• Increase consumer satisfaction.
Considering the dynamics of power industry and its requirements, the government has initiated
several regulatory changes and policy incentives from time to time.
Regulatory Changes
• In order to facilitate FDI, automatic approval (RBI route) for 100% foreign equity without
any upper ceiling on the quantum of investment is permitted in all sectors of the power
sector, i.e. generation, transmission and distribution of electricity.
• Section 14 of the Electricity Act, 2003 allows any generator of electricity to distribute
electricity in a rural area without the requirement of any license, subject to compliance with
measures as may be specified by the Central Electricity Authority under section 53.
Policy Incentives
• 100 percent foreign equity participation is allowed under the automatic approval route in all
segments of the industry (except atomic energy).
• Generation and distribution power projects of any type and size are allowed.
• The electricity act 2003 allows trading in power and provides for further deregulation.
• A renewable license period of 30 years has been set.
• Return on equity up to 16 percent is assured at 68.5 percent PLF for thermal power plants.
Similar incentives are provided for hydroelectric power projects.
• Import duty at the concessional rate of 20 percent has been set for import of equipment.
• The government allows a 5-year tax holiday for power generating projects with an additional
five years in which a deduction of 30 percent taxable profits is allowed.

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Performance
The power industry has gone through a long way since Indian independence; as mentioned earlier
the installation capacity has registered a 83-fold increase, from 1713 MW in 1950 to 143061.01
MW as on 31st March 2008. During the fiscal 2008, the capacity addition was 10731 MW with
growth rate of 8.1%. Historically power industry in India is characterized by electricity shortages.
For the year 2007-08 the power shortage was at 73338 million units, amounting to 9.90 percent of
total power requirement. While the peak power shortage was at 18073 MW. For the last three
years, the amount of power shortage has been increasing both in actual and percentage figures. The
main reason for this was while Indian economy is growing at over 9 percent annum the power
generation is growing at just over 7 percent. Even though there is a slight south-ward movement in
the percent of losses they are very much above the accepted levels. Refer exhibit-8 for the T&D
loss figures in percentage. The Planning Commission has estimated that improvements in the
distribution sector are necessary for drastically reducing the AT&C losses. It has estimated
investments of up to Rupees ten lakh millions in distribution sector to reduce the losses. To reduce
these losses, the government should also undertake reforms in transmission and distribution
sectors.
For the fiscal 08, the overall PLF stood at 78.61% as against the targeted 77.14%, with private
sector operating at 90.79% PLF followed by central sector with a PLF of 86.74%. However, the
performance of state sector is disappointing with a PLF of 71.89%. During the tenth five-year plan
of the targeted capacity addition of 41000 MW only 23000MW was added. Experts are of the view
that this is mainly due to capacity hurdles. This is in the form of lack of adequate domestic
manufacturing capacity for generation equipment; this has been a major bottleneck coming in the
way of timely completion of generation projects. This problem can be overcome by creating more
players in this field and by bringing cost competitiveness and accountability to timelines.
Future Outlook
As mentioned earlier, the Indian economy is expected to grow at 8 to 9 percent for the next
15 years, to support this growth India’s energy needs are also expected to increase at the same rate.
To meet the ongoing demand in power the government of India has targeted a capacity addition of
78577 MW during the 11th five-year plan, which covers fiscal 2008 through 2012. Out of the
targeted 78577MW during 11th five-year plan central is expected to add 39865 MW, while state
and private sectors are expected to add 27957 and 10760 MW each. Out of the targeted 78577MW
during 11th five-year plan, capacity addition by thermal plants will be around 75 percent of total
additions, which is targeted at 58644MW, 16553 MW by hydro and the remaining 3380 from
nuclear power plants. Out of the targeted capacity addition of 78577MW, 48955 MW is under
construction and the orders for the remaining are yet to be placed. During the current FY 07-08 out
of the targeted capacity addition of 14613MW for the first ten months only 7263MW has been
achieved. So, the targeted capacity addition of 78577MW will not be reached until and unless
government takes certain steps to implement power projects at a faster time. Given the gestation
period of four years for power projects it is necessary for government to award the remaining
power projects before 31st March 2008 to achieve the targeted capacity addition. Keeping in view
of necessary changes in policy structure to encourage power production the government has
de-licensed generation under the Electricity Act, 2003. The requirement of techno economic
clearance of Central Electric Authority (CEA) for thermal power plants has been removed. The
objective is to give flexibility to promoters in setting up generation plant.
The Union Power Minister, Mr. Sushil Kumar Shinde has opined that to achieve the long-term
goal in power generation the country should harness the potential hydro electric capacity it is
having. He said “The country has a huge hydro potential of about 1,50,000 MW, of which only
33,600 MW has been harnessed. There is an urgent need for public and private participation for
development of untapped hydro potential.”
It has established Power Trading Company (PTC) to purchase power from the private sector mega
projects and sell it to the beneficiary states. The policy has been further liberalized and with effect
from March 2003, all inter-state projects with a capacity of 1000MW and above for thermal and
500 MW and above for hydel projects are being treated as mega power projects subject to
fulfillment of required conditions and would be extended the concession of “Zero” customs duty
on import of capital goods.

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TPCL 2008-01

In April 2005, the Government of India has launched a programme with an ambitious target to
electrify all the villages by 2012. As on 31st March 2008, only 82 percent of villages got
electrified and out of that only 44 percent of people had access to electricity. When it comes to
electrification of potential pump sets, only 79 percent got electrified by the end of March 08.
To achieve these ambitious targets and to support the growing economy it is expected to have an
investment of US$200 billion during the 12th five-year plan. Of the $200 billion investment, as
high as $90 billion is needed for generation capacity addition of which $19 billion is expected
from the private sector. Besides, $90 billion would be needed for transmission and distribution of
which $15 billion is needed for the national power grid. Investment of $6 billion for the national
power grid is expected from the private sector, the balance from the central sector. Balance of the
investment in transmission and distribution is expected to be financed through a mix of the state
and the private sector. As per the Planning Commission report, in order to maintain a sustained
growth of 8% per annum to 2031, India would need to increase primary energy supply and
electricity supply by 3 to 4 times and by 5 to 7 times respectively. By fiscal 2032, power
generation capacity would have to increase to7780985 MW.
However, the government is facing a daunting task of replacing coal as major raw material, which
represents 51 percent of energy basket with other raw materials. It is estimated that coal resources
in India are exhaustible in 40 years and the industry is required to diversify the basket to mitigate
this effect. Experts are of the view that it is required to enhance domestic production of coal and
take equity positions in energy resources abroad to reduce the effects of fuel price shocks.
Tata Power
The largest private power producer in the country TPCL took its birth from the vision of India’s
first industrialist Jamsethji Nuseerwanji Tata, the man who pioneered industrial revolution in India
in the year 1906. It all started with an idea to harness the energy of water by converting into
electricity. Once Jamsethji Tata led his executives towards a creek near Bombay where rainwater
is gushing out from the river Roha. There he visualized his idea of producing hydroelectric power
by using gushing water. Initially, the project faced heavy resistance from British officials, however
after much delays and consultations finally the government has given license to Tata Hydro
Electric Supply Company in 1910, with a condition that it should restrict to bulk supply of
electricity to factories and railways, which require not less than 500,000 units per annum. In 1916,
it established Andhra Valley Power Supply Company. Between 1910 and 1927 it has built three
hydroelectric plants in Western Ghats with a capacity of 291 MW.
To meet the growing demand in Bombay area it has built its first thermal power plant at trombay
near Bombay in 1956 with a capacity of 125 MW, which was upgraded to 180 MW in 1980.
Today the capacity of the tromaby thermal unit is at 1350 MW. It also has thermal power plants at
Jojobera in Jharkhand with a capacity of 428 MW, Belgaum, Karnataka 81 MW, Ahmednagar,
Maharashtra : 17 MW, Khandke, Maharashtra : 37.6 MW, and at Bramanvel, Maharashtra: 7.5
MW and at Wadi in Karnataka (50 MW). In Maharashtra. TPCL has three hydro-generating
stations (at Khopoli, Bhivpuri and Bhira), which are fed by five major reservoirs. The total
capacity of hydroelectric plants is at 447 MW as on March 31, 2007.
When the government of Delhi privatized the distribution network in 2002, TPCL acquired license
for the northern and the north western part of the Delhi. It has started a new subsidiary NDPL
(North Delhi Power Limited). It is a joint venture between TPCL Company and the Government of
NCT of Delhi with the majority stake being held by the Tata Group to distribute power in northern
and the north western part of the Delhi.
The company achieved another landmark in 2006, by completing the first inter state transmission
project with private-public partnership known as the “Tala transmission Project”. In 2007, it was
awarded the country’s first Ultra Mega Power Project at Mundra. To secure its raw material
requirements it has acquired stake in Indonesian coal mines. In the next few five years it is
planning to expand its size by five times.

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Products and Services

Analysts are of the view that in line with the changing industry dynamics the company has made
its presence felt in the entire value chain of the industry, for better growth prospects. TPCL, which
has been in the business of power for the last nine decades, operates in two segments namely
Power and Strategic Electronic Division. The power business is the core business to the TPCL
which contributes 98 percent of its revenues. The other business includes manufacturing of
Electronic equipment, Broadband services, Consultancy and oil exploration, and their contribution
to overall revenue was around two percent in 2006-07.
Business Model
The business model of the company can be perceived from its varied operations which include
generation, transmission and distribution. However, the important revenue streams for the
company are:
• Selling of electricity to large private clients, industries, railways and SEB’s in bulk in
Mumbai license area and in other service areas like, Raigad District in Maharashtra,
Belgaum in Karnataka & Jojobera in Jamshedpur.
• Incorporating captive power plants in partnership with Tata steel for the requirements of Tata
steel.
• Transmission of electricity over long areas from the place of generation to the market place.
• Trading of electricity through its subsidiary Tata Power Trading Company Ltd.
• Distributing electricity to the end customers.
• Maintenance of captive power plants.
• Manufacturing electronic equipment to defense sector.
Company’s Strategies
Company sources pointed out that keeping in view the changing competitive environment and
available opportunities; it has evolved various strategies to continue its significant position in the
industry. These strategies include:
• Expanding Capacities: The company is in the plans of expanding its capacity by five fold in
the next five years to capitalize the increasing demand in the country. To achieve the target it
is in the process of building Greenfield projects like ultra mega power projects in Mundra
and one at coastal Maharastra. It is also in talks with various state governments like Orissa
and Jharkand for greenfield projects. It is also in the process of expanding its operations in
Trombay and Jhojobera. The company is also actively looking to build power projects in
overseas, where there is availability of raw materials.
• Entering Partnerships: The company has entered into partnership with public sector
undertakings to explore opportunities in generation, transmission and distribution. It had
entered partnership with Power Grid Corporation in power links transmission for a
transmission project to evacuate power from Tala Hydro Project in Bhutan to the power
deficit states of northern India. In generation it has partnered with Damodar Valley
Corporation to set up 1050MW Maithon right bank thermal project in Jharkand. TPCL is
viewing such partnerships in future to fuel the growth.
• Captive Power Plants for Tata Steel: The company has entered into an agreement with
Tata steel to build and operates captive power plants for the energy requirements of Tata steel
through its subsidiary named Industrial Energy Limited, in which TPCL holds 74 percent and
Tata steel holds the remaining 26 percent. It is in talks with Tata steel to continue this
partnership for the future projects of Tata steel.
• Securing Raw Material: TPCL, which is planning to increase its capacity five fold in next
five years, had acquired 30 percent stake in two major Indonesian thermal coal producers PT
Kaltim Prima Coal and PT Arutmin Indonesia, and a related trading company owned by PT
Bumi Resources Tbk to secure coal requirements for its future operations. The company has

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TPCL 2008-01

signed purchase agreement with KPC to purchase about 10 million tones of coal per annum.
The acquisition specifically addresses the fuel requirements for the upcoming 7,000 MW
power projects, which includes 4,000 MW Mundra Ultra Mega Power Project (UMPP),
Trombay and the coastal power project in Maharashtra. Mr. Prasad Menon, Managing
Director, TPCL said that “The acquisition of mines specifically addresses fuel requirements
of the Mundra Ultra Mega Power Project, the Trombay project and the coastal power project
in Maharashtra. It is complementary and supports the assumptions made in the bid for
Mundra UMPP.”
• Entering New Businesses: With the liberalization of Indian power sector the company is
planning to capitalize opportunities in the sectors like transmission and distribution that were
opened to private players. The company, which had already entered into transmission and
distribution sectors in partnership with government entities, is looking to explore these
sectors once they are opened to private players.
• Power Trading: With the liberalization of power sector, the company has entered into power
trading. Tata Power Trading Company Ltd. (TPTCL), the first trading entity to be granted a
trading license by the Central Electricity Regulatory Commission (CERC) has now expanded
operations to cover the entire country including the North-Eastern States.
• Nuclear Power: The company has earlier expressed its interest in nuclear power production.
Once the treaty with US goes through, private players can get license to participate in nuclear
power production to achieve the government’s target of increasing nuclear power generation
capacity to 10000MW by the end of 11th five year plan (from 2008-2012). The Government
of India is also actively studying the private participation in nuclear power generation to
reach its ambitious target of generating 20,000MW by 2020 and 50,000MW by 2050.
Performance
In the wake of new initiatives undertaken by the company, its revenues have grown at a CAGR of
7.98 percent. Last year it has registered a growth rate of 3.8 percent in terms of number of units
generated while the income from sale of power has grown at 6.01 percent, while income from
other business which includes Strategic Business Unit has decreased by 41 percent. During the
year 2006-07 due to unprecedented increase in demand for power in Mumbai License Area the
cost of purchase of power has increased by 14 percent as the company has purchased extra units to
cater the demand in the area. The increase coal and fuel prices have increased fuel costs by
13 percent. They have increased from 52 of net sales in 2005-06 to 57 percent in 2006-07. Other
income for the year has increased by 5.64 percent; this is mainly due to increase in dividends from
its subsidiaries and investments.
Depreciation for the year was at Rs.2,919.2 million as against Rs.2,783.4 million in the previous
year. The increase was mainly on account of commissioning of Unit 4 at Jojobera in previous year.
The increase in Interest and finance charges from Rs.1652.8 million in the previous year to
Rs.1895 million is mainly on account of the fresh loans raised during the year from IDFC of
Rs.4500 million and CPs of Rs.5,000 million issued.
Profit before tax for the year has decreased by 22 percent mainly due to increased fuel costs and
cost of power purchased, and also the rebate provided by the company to its customers as per
Mumbai Electric Regulatory Commission (MERC) order which was provided in the books of
accounts. However, profit after tax has increased by 14 percent due to excess of tax provision
made in earlier years. During the year 2006-07, the Company has received favorable
assessments/orders pertaining to its Mumbai LA relating to previous years and therefore reversed
tax provisions aggregating Rs.1817.4 million. The provision for the current year is lower due to
the Company providing tax as per Minimum Alternative Tax (MAT), with the commissioning of
the wind farms during the year.
Segmental Analysis
TPCL which generates 90 percent of its revenues from sale of power saw a modest increase of five
percent in sales. While its subsidiary for power trading Tata Power Trading Company Ltd.
(TPTCL) has recorded highest growth among all the divisions for the year 2006-07. During the year
2006-07 TPTCL traded 1,205 MUs during the year as compared to 675 MUs in the previous year,

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thereby resulting in an increase in its revenues by 191% to Rs.6,037.6 million from

Rs.2,077.6 million in the previous year. Profit after tax also increased to Rs.38.4 million as against
Rs.31.8 million in the previous year. The operations have been expanded to cover the entire
country including the Northeastern states.
Powerlinks the transmission company established in partnership with Power Grid Corporation of
India has commenced operations in the year 2006-07. Powerlinks in its first year of operations has
earned revenues of Rs.1,350.1 million and a profit after tax of Rs.205.7 million. Powerlinks has
declared a maiden dividend of 1.8% for FY 07.
Projects Under Implementation
The company has lined up various projects to increase its capacity over the next five years by four
fold, the projects that are under implementation are:
Mundra Ultra Mega Power Project
It is the first UMPP that was declared by government, which TPCL has won by tariff, based
competitive bidding. This project is based on super critical technology which improves the
efficiency and reduces CO2 emissions. Out of the 4000 MW of capacity it supplies power to
five states namely, Gujarat (1805 MW), Maharashtra (760 MW), Punjab (475 MW), Haryana
(380 MW), Rajasthan (380 MW). This project has a capital outlay of Rs.1,70,000 million with a
debt: equity ratio of 75:25. The project is implemented under five phases of 800MW each, with
the first project is expected to complete by October 2011 and the final phase is expected to
complete by December 2012.
Maithon Power Project
It is a mega power project that TPCL is executing in joint venture with Damodar Valley
Corporation (DVC). In this project, TPCL holds 74 percent while the remaining 26 percent is held
by DVC. The project is a coal based one with a capacity of 1050 MW and will be executed in two
phases of 525 MW each. The total outlay of the project is Rs.44,500 million with a Debt: Equity
ratio of 70:30. The first phase is expected to complete in 2010, while the second one in 2011.
Captive Power Plants at Jamshedpur and Jojobera
The company is constructing two captive power plants of 120 MW each at Jamshedpur and
Jojobera in joint venture with Tata Steel at a ratio of 74:26 to cater to the needs of Tata Steel. The
plant at Jamshedpur will run on coke oven gases from Tata Steel. The capital outlay for the project
is Rs.4,900 million and will be executed with a debt: equity ratio of 70:30 and is expected to be
completed by August 2008.
The plant at Jojobera is will be run on coal supplied from Mahanandi coal fields. The capital
outlay for the project is at Rs.6,400 million with a debt: equity ratio of 70:30 and is expected to be
completed by September 2009.
Trombay Unit 8
TPCL is adding another 250 MW to its existing 1350 MW capacity at Trombay. The cost of the
project is pegged at Rs.10,660 million and is financed at a Debt: Equity ratio of 70:30. The plant
will operate on imported coal, it is expected to be completed by August 2008.
Haldia Power Plant
TPCL is constructing a 120 MW of power plant to catter to the needs of Hoogly metcoke plant at a
cost of Rs.6,060 million with a Debt: Equity ratio of 70:30. The plant uses hot flue gases from
Hoogly Metcoke as raw material. The first unit of 45 MW was completed in March 2008, while
the remaining 75 MW = (30 + 45) will be completed in October 2008. After meeting the
requirements of Hoogly metcoke the excess power will be sold to Tata Power Trading and
WBSEDCL (West Bengal State Electricity Distribution Company Ltd.).

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TPCL 2008-01

Table 1
Projects in Pipeline
Project Fuel Source Capacity (in MW)

Coastal Maharashtra (Dehrand) Imported Coal 2400

Naraj Marthapur IPP Mandakini Coal Block 1000

Naraj Marthapur CPP Supply by Producers 1270

Tubed IPP Captive Coal 500

Jharkhand CPP (Tata Steel) Supply by Tata Steel 500

Source: Tata Power.
Future Outlook
TPCL has been looking at various alternatives to tap the opportunities available in power industry
mainly due to increasing demand for electricity. Over the next 20 years, the country is going to add
another 500000 MW of capacity, which will provide huge opportunity to TPCL to expand its
business. Out of the proposed nine UMPP only three have been awarded till now and the company
which has successfully won bid for Mundra project is planning to bid for other projects once the
government initiates the process. These UMPPs have huge impact on the expansion of the
company’s operations as these projects add 4000 MW of capacity with an added advantage of
getting guarantees from government to get loans from financial institutions. With the liberalization
of Indian power sector, new areas of business in transmission and distribution have been opened to
private players. The government of India has already selected few projects in transmission for
private sector participation to improve the efficiency in operations and for TPCL, which is looking
to enter new areas in power business, this will be a trusted area where they want to concentrate.
The company has already obtained all India license to trade power, which allows TPCL to sell
excess power generated at its captive power plants to the other parts of the world. However with
generation having opened up, the distribution licensees are now allowed to procure power from
any source. The Company’s vulnerability to competitive pressures in the medium term in Mumbai
LA are low given the prevailing energy deficiency in the western region and transmission capacity
constraints. However, in long-term it has to face competition with other players like Reliance who
is expanding aggressively.
The company is planning to capitalize the growing manufacturing industry by constructing and
running captive power plants at different locations. To this extent it has already entered into
agreement with Tata Steel to construct captive plants at their greenfield projects.
The company, which is planning to expand its generation capacity through Greenfield projects
across India to capitalize power deficit situation in India is relying heavily on coal as a raw
material for these projects might face few challenges in the form of increase in costs and
environmental issues relating to fly-ash at the same time it facing the risk of increase in the prices
of coal due to infrastructure bottle neck across the world.
Against the back drop of these expansion plans, analysts are expecting the performance of the
company for the next three years as follows:
• In 2006-07, the company has generated 14267 million units and it is expected to grow at
7.93, 14.99 and 15.83 percent for the next three years. The average per unit price charged by
TPCL will be at 3.49, 4.01 and 4.41 rupees for the next three years.
• Due to short fall in generation the company has been purchasing electricity to supply to its
Mumbai customers for the last few years; this is expected to continue for the next three years
also. The number of units the company is expected to purchase is at 477.78, 272.12 and
334.63 million units. The per unit price expected to pay for the next three years would be at
7.98, 8.38 and 8.79 rupees.
• Income from other operations is expected to be at Rs.1,758, 1,933.8 and 2127.2 million.
• Cost of fuel is expected to increase by 19.75, 38.58 and 29.88 percent.

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TPCL 2008-01

• Staff cost for the next three years will be at Rs.2343.9, 3037.8 and 3860.4 million.
• Repairs and maintenance for the next three years is assumed to 2.27, 2.01 and 1.83 percent of
net sales.
• The administration and other expenses for the next three years are expected to be at
8.5 percent of net sales.
• Depreciation rate 8.5 percent.
• Financial charges for the next three years will be at 5.91, 6.41 and 6.83 percent of total
liabilities.
• Capex for the next three years will be at Rs.13910, 15760 and 20700 million and work in
progress for the next three years is estimated at Rs.4930, 2760 and 14500 million.
• For the next three years the company is expected to raise Rs.3630, 6800, 14490 million of
secured debt and Rs.6110 and 4230 million of unsecured debt. For the next two year, during
the year 2009-10 it is expected to raise only secured debt.
• Effective Tax rate for the next three years will be 18.36 percent.
• Other non-cash charges for the next three are expected at Rs 2214.5, 3010 and 4292.6
million.
• Current asset turnover ratio for the next three years will be at 1.28, 1.45 and 1.61 and the
current ratio for the next three years will be at 2.41, 2.41 and 2.35.
• Total shareholders equity for the next three years will be at 78370, 92140 and 102280
million.
• Growth rate for the period FY 2011 to FY 2015 will be at 24.08 percent, while the terminal
growth rate will be at 7.56 percent.
• No. of shares outstanding is at 198 million.

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TPCL 2008-01

ANNEXURE I
Profit and Loss account of Tata Power from FY 04-FY 07
(Rs. in Million)
Particulars FY 04 FY 05 FY 06 FY 07
Income from Sale of Power 399177 36553.9 42932.7 45555
Income from other Operations 2454.9 2716.5 2676.0 1598.2
Net Sales 42372.6 39270.4 45608.7 47153.2
% Growth –7.32% 16.14% 3.39%
Expenditures
Cost of Power Purchased 4094.9 4157.0 5832.0 6645.8
% of Net Sales 9.66% 10.59% 12.79% 14.09%
Cost of Fuel 18488.7 18639.8 23965.1 27089.1
% of Net Sales 43.63% 47.47% 52.55% 57.45%
Staff Costs 1916.1 1554.0 1736.8 1919.0
% of Net Sales 4.52% 3.96% 3.81% 4.07%
Repairs and Maintenance 889.2 1135.4 1159.8 1199.8
% of Net Sales 2.10% 2.89% 2.54% 2.54%
Provisions for Contingencies 0.00 300.0 –300.0 0.00
% of Net Sales 0.00% 0.76% –0.66% 0.00%
Generation, Distribution, Administration and 5082.4 4291.0 4579.6 3065.1
Other Expenses
% of Net Sales 11.99% 10.93% 10.04% 6.50%
Total Expenditures 30471.3 30077.2 36973.3 39918.8
% of Net Sales 71.91% 76.59% 81.07% 84.66%
EBITDA 11901.3 9193.2 8635.4 7234.4
EBITDA Margin % 28.09% 23.41% 18.93% 15.34%
Growth % –22.75% –6.07% –16.22%
Depreciation & Amortisation 3339.5 3596.2 2783.4 2919.2
EBIT 8561.8 5597.0 5852.0 4315.2
Financial Charges 2837.2 1914.4 1652.8 1895.0
Other Income 1599.9 3871.3 3256.1 3439.9
PBT 7324.5 7553.9 7455.3 5860.1
Pre-tax Margin % 17.29% 19.24% 16.35% 12.43%
Tax 2251.9 2074.3 1369.1 –1107.9
Effective Tax Rate % 30.74% 27.46% 18.36% –18.91%
Adjusted PAT 5072.6 5479.6 6086.2 6968.0
Net Profit Margin % 11.97% 13.95% 13.34% 14.78%
Growth % 8.02% 11.07% 14.49%
Shares in Issue 197.8 197.8 197.8 197.8
Adjusted EPS 25.65 27.70 30.77 35.23
Growth % 8.02% 11.07% 14.49%
Dividends Paid 138.69 148.6 168.41 188.72
DPS 7.01 7.51 8.51 9.54
Source: Tata Power Annual Statement.

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TPCL 2008-01

ANNEXURE II
Balance Sheet of Tata Power from FY 04-FY 07
(Rs. in Million)

Particulars FY 04 FY 05 FY 06 FY 07
Gross Assets 55350 54660 59250 62300

Accumulated Depreciation 23640 26570 29220 31990

Net Fixed Assets 34770 32460 32150 38110

Capital WIP 3060 4380 2120 7810

Investments 27290 35030 34120 35700

Current Assets
Cash 520 9800 9910 13680

Inventories 3130 2970 4420 3960

Trade Debtors 7180 6930 10580 14780

Loans and Advances 5970 5530 4640 7700

Other Current Aseets 280 360 340 350

Current Liabilities 11800 13000 13210 17570

Net Current Assets Excluding Cash 4770 2790 6770 9230

Deferred Tax (Net) 370 –110 160 –60

Capital Deployed 67720 79960 83110 96660

Total Assets 79510 92960 96320 114240

Non-Current Liabilities
Secured Debt 7220 10590 9460 13540

Unsecured Debt 10000 18010 18090 22790

Total Liabilities 17210 28600 27550 36330

Share Capital 1980 1980 1980 1980

Reserves 42770 43630 47820 52590

Special Appropriatins 5750 5750 5750 5760

Total Stockholders Equity 50500 51360 55560 60330

Capital Employed 67720 79960 83110 96660

Source: Tatapower Annual Statement.

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TPCL 2008-01

ANNEXURE III
Cash Flow Statement of Tata Power from FY 04-FY 07
(Rs. in Million)

Particulars FY 05 FY06 FY 07
Cash Flow from Operating Activities
PBT 7553.9 7455.3 5860.1
Non-Operating Income 3871.3 3256.1 3439.9
Depreciation 3596.2 2783.4 2919.2
Other Non-Cash Charges 301.3 1199.2 297.5
Operating Profit Before WC Changes 7580.1 8181.8 5636.9
Changes in Current Assets – 782.3 4194.6 6822.9
Changes in Current Liabilities 1202.1 211.4 4362.9
Cash Generated from Operations 9564.5 4198.6 3176.9
Direct Taxes Paid 2074.3 1369.1 – 1107.9
Others 3040 161.5 – 57
Net Cash Generated from Operations 4450.2 2668 4341.8
Cash Flow from Investing Activities
CAPEX 492.2 2330 7813.6
Investments 5368.7 – 907.5 1579.8
Interest Received 2780.1 3256.1 3439.9
Others 0 0 0
Net Cash Used in Investing Activities – 3080.8 1833.6 – 5953.5
Cash Flow from Financing Activities
Change in Debt 11385.9 – 1050.1 9135.5
Change in Equity 0 0 0
Dividends Paid 1378.6 1480.3 1676.5
Interest Paid 1914.4 1652.8 1841.1
Others 181.3 208.4 236.2
Share Premium
Net Cash used in Financing Activities 7911.6 – 4391.6 5381.7

Net Increase in Cash and Cash

Equivalents 9281 110 3770

Cash and Cash Equivalents at the

Beginning 519 9800 9910
Net Increase in Cash and Cash
Equivalents 9281 110 3770
Cash and Cash Equivalents at the End 9800 9910 13680
Source: Tatapower Annual Statement.

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TPCL 2008-01

ANNEXURE IV
Demand and Supply of Electricity from 1998-99 to 2007-08

Source: CEA.

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TPCL 2008-01

ANNEXURE V
Per Capita Consumption of Electricity over the Last Few Years

Source: CEA.

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TPCL 2008-01

ANNEXURE VI
Per Capita Consumption of Electricity in Different
Countries during 2006

Source: CEA.

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TPCL 2008-01

ANNEXURE VII
Growth in Electricity Generation over the Last Few Years

Source: CEA.

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TPCL 2008-01

ANNEXURE VIII
Share of Different Sectors in Electricity Generation
Installed Capacity as on 31-03-08

Source: CEA.

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TPCL 2008-01

ANNEXURE IX
The Percentage of T&D Losses and AT&C Losses since 2002-03

Year T&D Losses in % AT&C Losses in %

2002-03 32.54 32.54
2003-04 32.53 34.78
2004-05 31.25 34.33
2005-06 30.42 34.54
2006-07 28.61 32.07
2007-08 26.91 N.A
Source: CEA.

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TPCL 2008-01

References
1. www.tatapower.com
2. www.cea.nic.in
3. www.economictimes.com
4. www.thehindubusinessline.com
5. www.powermin.nic.in
6. www.pppinindia.com
7. www.realestate.tv.in
8. www.moneycontrol.com

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