Tata Power: # 1 Indian Private Power Player June, 2005.

Tata Power: # 1 Indian Private Power Player

June , 2005

2

KEY MESSAGES

•Huge opportunity in an evolving sector

•Positioned to be a front runner Tata heritage, established skills in generation, transmission and distribution

•Strategy under uncertaintyThree pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives

3

KEY MESSAGES

•Huge opportunity in an evolving sector

•Positioned to be a front runner Tata heritage, established skills in generation, transmission and distribution

•Strategy under uncertaintyThree pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives

4

INDIAN POWER SECTOR IS FUNDAMENTALLY ATTRACTIVE

Source:Ministry of Power presentation – May 2004, SEB report 2004, Powerline research

Huge energy deficit

Deficit likely to widen

Significant inefficiencies

• Peak supply shortage of 11.7% (~13,000 MW)

(Western Region: 22.4%, Gujarat: 25.4%, MP: 18.5%,

Maharashtra: 16.5%)

• Average supply shortage of 7.3% (Highest in Western Region of 11.3%)

• Demand of 212,000 MW (by 2012) vs, Current capacity of 112,000 MW

• Demand drivers

– Per capita power consumption is 50% of China (475 kWh per annum vs. 1,020 kWh per annum for China)

– Industrial growth

• High AT&C losses estimated at 43-53%

• US$ 4.5 billion (Rs.20,700 crore) loss

• Low realised tariff (70%)

> US$170 billion

(Rs.8 lakh crore) of

investment required over next decade

5

VISION 2012 – “POWER FOR ALL BY 2012”

• Increase generation capacity from 112,000 MW to 212,000 MW

• Increase private sector share from 11% to 16.5%

• Increase inter-regional transmission capacity to 30,000 MW (~ 9000 MW currently)

• Reduce AT&C losses to 13% (43-53% currently)

• Increase recovery of power cost through realised tariff to 100% (70% currently)

• Reduce peak energy shortage to 0 (11% currently)

• Reduce average energy shortage to 0 (7% currently)

6

COMPLEX INDUSTRY STRUCTURE WITH MULTIPLE STAKEHOLDERS

Power is a concurrent subject Multiple stakeholders with different functions

• Sets the vision (Vision 2012)

• Frames laws (Electricity Act, 2003)

• Frames taxation policies

• Sets investment guidelines (FI sectoral limits etc)

• New National Electricity Policy

• New National Tariff Policy (Draft)• Owns and controls State Electricity

Boards

• Constitutes state regulatory body

• Determines extent of subsidies

• Significant presence across the system– National Thermal Power Corporation – Power Grid Corporation of India– National Hydro Power Corporation

Central government

30 State governments

Public utilities

SEB’s (30)

Central public utilities

*

*

* *

*

*

*

*

*

• Accounts for 11% of generation

• Present in distribution (e.g., Mumbai, Delhi, Kolkata, Orissa parts of Gujarat)

• Two large players – TPC and REL, several small players - IPPs (e.g., GMR, Torrent ) and Distcoms (e.g., AESC, CESC)

Private sector

7

POLICY MAKERS ARE MOVING IN THE RIGHT DIRECTION

Central government

State government

Regulators

• Clearly stated vision – ‘Power for all by 2012’, but no service standards indicated

• Electricity Act, 2003 to promote competition and rationalise tariff

– Generation delicensed

– Open access of T&D networks

– Regulatory framework established

• US$ 1026 million (Rs.4514 crore) released under ‘Accelerated Power Development Reforms Programme’

• Regulatory setup in place in most states

• Ten states have unbundled State Electricity Boards

• Availability based tariff regime implemented

• Distribution privatised in Orissa and Delhi

• Focus on rationalisation of tariff structure

• New National Electricity Policy

• New National Tariff Policy

8

NEW ELECTRICITY POLICY

GoI approved the National Electricity Policy (NEP) under section 3 of EA 03 in February

2005.

Aims and Objectives:

The National Electricity Policy aims at achieving the following objectives:

• Access to Electricity – Available for all households in next five years.

• Availability of Power – Demand to be fully met by 2012. Energy and peaking shortages to

be overcome and adequate spinning reserve to be available.

• Supply of reliable and Quality Power of specified standards in an efficient manner at

reasonable rates.

• Per capita availability of electricity to be increased to over 1000 unit by 2012.

• Minimum lifeline consumption of 1 unit / household by the year 2012

•Financial Turnaround and Commercial Viabilty of Electricity Sector.

•Protection of consumers’ interest

9

NEW ELECTRICITY POLICY

Time schedules for different activities fixed under NEP, are summarised below:• National Electricity Plan to be finalised not later than September 2005.• Grid code to be notified by SERCs not later than September 2005.•Energy accounting and declaration of its results to be made mandatory not later than March 2007.•CEA to develop meter regulations within 3 months•SERCs to introduce ABT regime at State level within 1 year•Enabling regulations for inter and intra State trading and also regulations on power exchange to be notified by regulators within 6 months•GoI to provide incentive based assistance to states to reduce T & D losses• Policy to provide for adequate support to economically backward consumers. SERCs to designate all such consumers to encourage consumption of say 30 Units per month. Tariffs for such consumers to be at least 50% of the average (overall) cost of supply.

10

NEW TARIFF POLICY - Objectives

Performance based cost of service regulation for tariff determination to continue for some time, on basis of the guidelines, which are as below:• Return on Investment – notified by CERC to be adopted by SERCs• Equity norms – 70:30 Debt – Equity in excess to be treated as loans advanced. For equity below norms – actual equity to be considered for tariff calculations.•Depreciation – CERC to notify rates of depreciation• Cost of Debt – Lender agreement to have provision for re-fixation of interest rate every 3 years.• Forex Risk – cost of hedging to be allowed for debts in foreign currency• Multi Year Tariff – MYT framework to be adopted for Tariff form April 2006.. 5 year control period to be followed – initial control period could be 3 years• Duties and Taxes – Present level of duties to be revised to make them reasonable.

11

HOWEVER, THE SECTOR IS EVOLVING WITH SEVERAL CRITICAL ISSUES STILL TO BE RESOLVED

• Implementation of open access: Regulatory norms on subsidy

• Distribution deregulation: Schedule? Timeline on disinvestment?

• Derisking investment: Payment guarantees? Other options?

• Policy regarding cross subsidy, increasing subsidy, theft control?

• Continued regulatory freedom? Maturing regulatory learning curve?

How to make the sector attractive for new players?

12

KEY MESSAGES

• Huge opportunity in an evolving sector

• Positioned to be a front runner Tata heritage, established skills in generation, transmission and distribution

• Strategy under uncertaintyThree pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives

13

TPC IS PART OF THE ‘TATA’ GROUP, ONE OF THE LARGEST BUSINESS HOUSES IN INDIA

Pioneer in industrial

development

Strong financials

Committed to social and

environmental causes

• India’s first– Hydro power project (1910)– Integrated iron and steel works (1907)– Chain of luxury hotels (1902)– Indigenous passenger car (1998)

• World’s largest integrated tea operations

• Asia’s largest software exporter

• Over 90 operating companies with market cap. of US$32 billion (Rs.139861, crore)

• Group’s turnover equivalent to 2.6% of India’s GDP (2004 revenues: US$14.3 billion, Rs.65,424 crore)

• Over 2 million shareholders

• Medical assistances to villages

• Drought relief

• Afforestation

• Emission control

14

#1 IN MARKET CAPITALISATION

21.1

11.713.9

10.88.8 7.8 7.0 7.6 6.6

4.3

28.8

32.0

Market capitalisation (as on March 31, 2005)

US$ billion

ONGCTata group

Reliance group

IOC Infosys Wipro ITCBharati HLLAV Birla Group

SBI Ranbaxy

15

THE TATA GROUP: AT THE FOREFRONT OF INDIAN ECONOMIC GROWTH

1904 2004

• Textiles, Hospitality, Steel & Power

• 7 business sectors

Companies• Tata & Sons

• Central India Mills

• Svadeshi Mills

• Ahmedabad Advance Mills

• Indian Hotels

• Tata Sons

• Tata Industries

• 80+ operating companies

Sales • US$ 26 million (Rs.122 crore) • US$ 14.3 billion (Rs.65,424 crore)

Employees• ~ 5,000 • 220,219

Beyond business

• J N Tata Endowment • Trusts, TIFR, TISS, Tata Memorial

Businesses

Without compromising values!

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• National Thermal Power Corporation (21,249 MW)

• National Hydro Power Corporation (2,475 MW)

• TPC (2,300 MW)

• Reliance Energy Limited (941 MW)

TPC: INDIA’S #1 PRIVATE POWER PLAYER, PRESENT ACROSS THE BUSINESS SYSTEM

Generation Transmission Distribution

• Power Grid Corporation of India (41,000 Ckms)

• TPC (2,200 Ckms)

• State Electricity Boards

• Reliance Energy Limited (5 million consumers)

• Calcutta Electricity Supply company (2 million consumers)

• TPC (1 million consumers)

• Ahmedabad Electricity supply company (1 million consumers)

Project management and consulting

• Tata Projects

• TCE

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TATA POWER: A COMPANY WITH MANY FIRSTS

First Hydro Electric power plant in India

First 500 MW thermal unit in India

First to commission GIS mechanism

First Flue Gas De-Sulphurisation plant

First Pumped Storage Unit in India

First to introduce SCADA and Fibre Optic ground wire communication

Successful Delhi distribution

Tala transmission line (1,300 Kms)

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GENERATION: CREATING EXCELLENCE IN MUMBAI

Reliability • Unique islanding system ensures uninterrupted power to Mumbai

during grid disturbance

• Plant availability of 94.52% (thermal) and 92.72 (Hydro)

• State of the art distributed control system

T&D• Lowest T&D losses in India of 2.4%

Tariffs • 5% reduction achieved in FY 2004 vs. FY 2003

Emission control

• Among the lowest SO2 emissions in the world

• Latest technology to reduce emissions (e.g., Fly Ash Aggregator, Flue Gas De-sulphurisation etc.)

19

SO2 EMISSIONS AT TROMBAY ARE AMONG THE LOWEST IN THE WORLD

100

5954

50

24

SO2 emissions

Metric tonnes per day

IFC Denmark USA Canada TPC, Trombay

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TPC’s PERFORMANCE IS REFLECTED IN STRONG FINANCIAL RESULTS . . .

224284 310 315 305

85 110 113 111 125

Profits

US$ million

Operating margins

Per cent

2001 2002 2003 2004

2001 2002 2003 2004

2422

25

30

30

15

20

25

30

35

40

EBITDA CAGR of 6.5%

EBITDA

PAT

2005

2005

FY05 Exchange Rate: US$ 1- Rs. 43.98

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. . . AND SUSTAINED EPS

• Market capitalisation of US$ 1.36 billion (Rs.6,300 crore)

• Annualised return of over 100% (BSE Sensex 53%)

• FII holding increased from 7% in 2003 to 14% in 2004 and 21% as at 31-03-2005

• 67% floating stock

EPS

Cents

2001 2002 2003 2004

58.73

39.91

41.89

49.43

51.28

30

40

50

60

2005

FY05 Exchange Rate: US$ 1- Rs. 43.98

22

82

7073

78

77

60

70

80

90

OPPORTUNITY TO IMPROVE PLANT LOAD FACTOR

Plant load factor at Trombay

Per cent

2001 2002 2003 2004 2005

23

Graph showing Share Price of TPC Vs REL Vs BSE index during FY03 To FY05

0

200

400

600

800

Rs

/ sh

are

0

1700

3400

5100

6800

Po

ints

TPC REL Sensex

TPC

Sensex

REL

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Achievements FY05

• Coal Contract:

Average spot Rate $ 42 PMT and Long term contract of $ 23 PMT

• Reduction in Manpower:

Reduced 300 employees. Average yearly savings of Rs. 12 Crs. One time payment Rs. 24

Crs.

• Sale of Non Core Assets:

Sold shares of Tata Telecom, Tata Honeywell, Haldia, Tata Petrodyne and Tata Ceramics

– Net profit booked of approx Rs. 221 Crs.

• Broadband Business Transferred:

Transferred Broadband business to a new Corporate Entity.

• Funds Raised:

1. Domestic Debentures: Rs. 600 Crs. at YTM of 7.10 for 10 years

2. FCCB: 200 Million at YTM of 3.88%

25

DISTRIBUTION: CREATED A SUCCESS STORY AT NDPL – THE ONLY SUCCESSFUL PRIVATISATION IN DISTRIBUTION

Reduced T&D losses

Improved Network

Increased Reliability

Better customer service

• Reduced from 53% to 35.5% as of Feb 05. i.e. an effective reduction of 18% in less than three years

• Over 25% capacity added

• Package substitution

• Fully remote operated grid stations

• High voltage distribution system

• US$ 142 million (Rs.640 crore) invested to improve reliability

• Average interruptions per annum reduced by 67%

• Electronic metering

• Online account management

• 24 hour call center

• 100,000 legacy pending complaints resolved

NDPL meets 27% of energy of New Delhi’s but as per data of SLDC, NDPL accounts for less than

2% of the breakdowns in Delhi in terms of million units (Mus)

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NDPL - The Victory Curve(trend of AT&C loss)NDPL has made an effective reduction of 18% since the time of takeover.

12 month Rolling AT&C Loss

45.7%

49.0%49.5%

47.5%

46.0%

53.0%

51.7%51.1%

51.6%

53.4%53.1%

54.1%

37.9%38.7%

40.3%

42.3%

36.0%35.5%

44.86%

35.11%34%

39%

44%

49%

54%

Apr-0

1

Jun-

01

Aug-0

1

Oct-01

Dec-0

1

Feb-0

2

Apr-0

2

Jun-

02

Aug-0

2

Oct-02

Dec-0

2

Feb-0

3

Apr-0

3

Jun-

03

Aug-0

3

Oct-03

Dec-0

3

Feb-0

4

Apr-0

4

Jun-

04

Aug-0

4

Oct-04

Dec-0

4

Feb-0

5

Jul 02 (Privatisation)

FY 03

FY 04

AT&C Loss climbing up

before privatisation

Post privatisation reduction in AT&C Loss

FY 05Cumulative Since PrivatisationCommitted Reduction - 7.25%

Effective Reduction - 18%

Reduction in FY 05 - 10% - A record in India

Regulatory Target of 2006-07: 31.1%, well within reach in 2005-06 itself !!!!

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NDPL – Supply Reliability

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NDPL – Transforming Power Distribution Operational Parameters

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NDPL – Transforming Power Distribution Commercial Parameters

30

NDPL – Capital Expenditure

31

50 years since independence…No power Distribution Utility thought about 100% transparency

2 year ago… NDPL became the First Power Utility in the country to

provide On-line Information on Consumption, Billing & Payment to 100% consumers

The SUGAM Experience…The SUGAM Experience…

Now through Website 100% Consumers can:•

• View Bill• View Consumption Graph• Print Duplicate Bill• Make payment

NDPL - Transparency with Consumers…

32

Fully networked consumer care centers launched

Consumer Care and Communication

NDPL - Enhancing Consumer Convenience

July 2002: 20 options for payment of BillsApril 2005: 1134 locations for payment of Bills

33

NDPL – Excellence Recognized

34

KEY MESSAGES

• Huge opportunity in an evolving sector

• Positioned to be a front runner Tata heritage, established skills in generation, transmission and distribution

• Strategy under uncertaintyThree pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives

35

SIGNIFICANT EFFORTS BEING MADE TO ACHIEVE COST COMPETITIVE OPERATIONS

Organisational transformation

Defend Current BusinessGrowth

Tata Business

Excellence Model

RegulatoryManagement

36

Strategy & Main Drivers

The Growth drivers are:

Seeking increase in capacity through New projects, Domestic & International acquisition and Expansion

Seeking backward integration by acquiring Captive Coal Berths

Growth in Other Businesses

The drivers to Defend Current Business are:Thru’ 3SCR Other initiatives

The Organizational Transformation drivers are:

HR Initiatives

TBEM

Risk Management

37

THREE PRONGED APPROACH TO SUSTAIN POSITION AS INDIA’S #1 PRIVATE POWER COMPANY

Develop portfolio

of generation assets

Actively grow distribution

footprint

Building world class team

• Flexible fuel strategy as not locked into a single fuel: a multi-fuel strategy to deliver lowest cost power in key markets

• Invest in a portfolio of assets – lock in strategic markets/sources, create options in other markets

• Expanding portfolio of customers (bulk, residential)

• Partner with select state governments

• Multiple capabilities to grow at rapid pace

– Operational excellence

– Distribution skills

– Regulatory management

– Business development and project execution skills

38


Develop portfolio



footprint











39

A CHANGING PORTFOLIO OF CUSTOMERS OVER TIME

Mo

re p

rofi

tab

le, m

ore

sti

cky,

less

ris

ky

Changing mix, over time

Attractiveness of customer base Timing

• Tied wholesale to state distributors (SEBs)

• Wholesale/trading

• Direct to large customers enabled by open access and captive power policy

• Own distribution operations acquired or franchised

• Large, but mix of loads• Many SEBs unviable

• Rapid growth in traded power

• High industry growth (4-6%)

• Open access mandated for 1 MW+

• Sticky customer base• Private participation

models emerging

• Immediate

• Immediate

• 3-5 years

• ?

40


Develop portfolio



footprint











41

Own Critical Primary Fuel

• A pithead based plant is inherently less susceptible to adverse outcomes for serving all states in most cases.

•Loadcenter CCGTs only make sense (especially in the Northern Region states) if gas prices are in the region of ~ U. S. $ 3.00 per MMBTU, which, in our opinion, is highly unlikely.

•In the assumed base case scenario, when gas prices remain the U. S. 5 per MMBTU range, imported coal based load centre plants are a third option after pit-head coal.

42

Low delivered tariff base load generation capacity

• As competition increases the power industry is likely to see “Commodity type” pricing.

•TPC’s plants will, therefore, have to generate and deliver power at competitive tariffs.

• Only then our plants be base loaded to at least 80% PLF

• Plants will have to deliver power in the identified state markets at tariffs of about Rs. 2 per kWh (at the States’ TRANSCO bus).

• Alternatively, this delivered tariff could be within the first quartile of the new capacity being added to serve the identified state market.

43

Low delivered tariff base load generation capacity (Contd….)

• The reason form this tariff level are three fold

• Competitors such as Reliance, NTPC and Sterlite are setting up plants that can deliver power at these costs.

• Generation costs of existing depreciated SEB / NTPC plants are already below these levels.

• It is possible for TPC to meet these cost targets,

44

Selective presence in Transmission

• Most of TPC’s low cost generation facilities will be located in the coal rich Eastern states of Orissa and Jharkhand.

• Inter-regional transmission links from the East to the North and the West currently have no spare capacity.

•Critical for TPC to connect its generation facilities through dedicated inter-regional transmission lines up to suitable PGCIL points in the Western and Northern Regions.

• This will partially reduce our dependence on inefficient state – owned grids and reduce transmission costs of TPC power.

•Evacuation of power further from these points up to the markets of TPC’s choice will have to be studied further by PGCIL

• This will be subject to the pooled tariff principle currently being adopted.

45

Forward Integration into Distribution

• A mture and economically viable wholesale market is absent in India today

• Sale of large quantities of power to SEBs is fraught with collection and price risks.

• Customer ownership is essential to control cash receipts.

• Owning distribution will give TPC an additional long-term competitive advantage when generation markets commoditize.

• Globally several successful power companies are integrated players who successfully differentiate themselves in the front-end with customers.

• RWE in Germany, Endesa in Spain and Enel in Italy

• International experience has, in fact, proved that standalone distribution is also a viable option.

46

Defending the Mumbai License Area Business through five major initiatives

• Tariff Reduction Through Operational Improvements (3SCR)

•Tariff Reduction Through Reconfiguration of Units and Changes in the Fuel Mix at Trombay

•Securing Customers Through Power Purchase Agreements

•Proactive Regulatory Management to Project Profits and Distribution Assets

•Ensure Competitiveness Though a Level Playing Field on Standby Charges

47

Growth Drivers – Prospecting

Few projects where the Company is actively considering growth and expansion:

Greenfield - Within India

•1000 MW Pithead Thermal Power Project - Maithon (JV with DVC)

•1000 MW Coastal Thermal Power Plant in Maharashtra - Vile•1000 MW Generation Project for North India (incld. Delhi)•Captive Coal Blocks Of the 10 blocks applied for we expect allotment of 2-3

blocks [Jharkhand/ Chattisgarh/ AP]•Distribution Parallel distribution in Adityapur

Also studying various states for Distribution circles

Transmission Western Region strengthening and Maithon Transmission Line thru Joint Venture

Greenfield - Outside India•1000 MW Gas/ Coal based Project in Bangladesh•500 -1000 MW Power Plant in South Africa•450 MW Project in Iran

After Due Diligence, separate approval would be taken before investing money in the prospective project

48

Thank You

Statements in this presentation describing the Company’s objectives, projections, estimates and expectations may be

“forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ

materially from those expressed or implied. Important factors that could make a difference to the Company’s operations

include, among others, general economic and business conditions affecting the demand for electric power in the areas

in which the Company operates, changes in Government regulations, tax laws and other statutes and incidental factors.

Tata Power: # 1 Indian Private Power Player June, 2005.

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