Presentation on theme: "KEY MESSAGES Huge opportunity in an evolving sector"— Presentation transcript:
0 Tata Power: # 1 Indian Private Power Player June , 2005
1 KEY MESSAGESHuge opportunity in an evolving sectorPositioned to be a front runner Tata heritage, established skills in generation, transmission and distributionStrategy under uncertainty Three pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives
2 KEY MESSAGESHuge opportunity in an evolving sectorPositioned to be a front runner Tata heritage, established skills in generation, transmission and distributionStrategy under uncertainty Three pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives
3 INDIAN POWER SECTOR IS FUNDAMENTALLY ATTRACTIVE 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%)Huge energy deficit> US$170 billion (Rs.8 lakh crore) of investment required over next decadeDemand of 212,000 MW (by 2012) vs, Current capacity of 112,000 MWDemand driversPer capita power consumption is 50% of China (475 kWh per annum vs. 1,020 kWh per annum for China)Industrial growthDeficit likely to widenSignificant inefficienciesHigh AT&C losses estimated at 43-53%US$ 4.5 billion (Rs.20,700 crore) lossLow realised tariff (70%)Source: Ministry of Power presentation – May 2004, SEB report 2004, Powerline research
4 VISION 2012 – “POWER FOR ALL BY 2012” Increase generation capacity from 112,000 MW to 212,000 MWIncrease 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)
5 COMPLEX INDUSTRY STRUCTURE WITH MULTIPLE STAKEHOLDERS Power is a concurrent subjectMultiple stakeholders with different functionsSets the vision (Vision 2012)Frames laws (Electricity Act, 2003)Frames taxation policiesSets investment guidelines (FI sectoral limits etc)New National Electricity PolicyNew National Tariff Policy (Draft)SEB’s (30)*Central public utilitiesCentral government*30 State governmentsOwns and controls State Electricity BoardsConstitutes state regulatory bodyDetermines extent of subsidiesSignificant presence across the systemNational Thermal Power CorporationPower Grid Corporation of IndiaNational Hydro Power CorporationPublic utilitiesAccounts for 11% of generationPresent 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
6 POLICY MAKERS ARE MOVING IN THE RIGHT DIRECTION Clearly stated vision – ‘Power for all by 2012’, but no service standards indicatedElectricity Act, 2003 to promote competition and rationalise tariffGeneration delicensedOpen access of T&D networksRegulatory framework establishedUS$ 1026 million (Rs.4514 crore) released under ‘Accelerated Power Development Reforms Programme’Central governmentRegulatory setup in place in most statesTen states have unbundled State Electricity BoardsAvailability based tariff regime implementedDistribution privatised in Orissa and DelhiState governmentRegulatorsFocus on rationalisation of tariff structureNew National Electricity PolicyNew National Tariff Policy
7 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 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 2012Financial Turnaround and Commercial Viabilty of Electricity Sector.Protection of consumers’ interest
8 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 monthsSERCs to introduce ABT regime at State level within 1 yearEnabling regulations for inter and intra State trading and also regulations on power exchange to be notified by regulators within 6 monthsGoI to provide incentive based assistance to states to reduce T & D lossesPolicy 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.
9 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 SERCsEquity 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 depreciationCost 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 currencyMulti Year Tariff – MYT framework to be adopted for Tariff form April year control period to be followed – initial control period could be 3 yearsDuties and Taxes – Present level of duties to be revised to make them reasonable.
10 HOWEVER, THE SECTOR IS EVOLVING WITH SEVERAL CRITICAL ISSUES STILL TO BE RESOLVED How to make the sector attractive for new players?Implementation of open access: Regulatory norms on subsidyDistribution 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?
11 KEY MESSAGES Huge opportunity in an evolving sector Positioned to be a front runner Tata heritage, established skills in generation, transmission and distributionStrategy under uncertainty Three pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives
12 Pioneer in industrial development TPC IS PART OF THE ‘TATA’ GROUP, ONE OF THE LARGEST BUSINESS HOUSES IN INDIAIndia’s firstHydro power project (1910)Integrated iron and steel works (1907)Chain of luxury hotels (1902)Indigenous passenger car (1998)World’s largest integrated tea operationsAsia’s largest software exporterPioneer in industrial developmentOver 90 operating companies with market cap. of US$32 billion (Rs , crore)Group’s turnover equivalent to 2.6% of India’s GDP (2004 revenues: US$14.3 billion, Rs.65,424 crore)Over 2 million shareholdersStrong financialsMedical assistances to villagesDrought reliefAfforestationEmission controlCommitted to social and environmental causes
13 #1 IN MARKET CAPITALISATION Market capitalisation (as on March 31, 2005)US$ billionTata groupONGCReliance groupIOCInfosysWiproBharatiSBIAV Birla GroupITCHLLRanbaxy
14 THE TATA GROUP: AT THE FOREFRONT OF INDIAN ECONOMIC GROWTH 19042004BusinessesTextiles, Hospitality, Steel &Power7 business sectorsCompaniesTata & SonsCentral India MillsSvadeshi MillsAhmedabad Advance MillsIndian HotelsTata SonsTata Industries80+ operating companiesSalesUS$ 26 million (Rs.122 crore)US$ 14.3 billion (Rs.65,424 crore)Employees~ 5,000220,219Beyond businessJ N Tata EndowmentTrusts, TIFR, TISS, Tata MemorialWithout compromising values!
15 Project management and consulting TPC: INDIA’S #1 PRIVATE POWER PLAYER, PRESENT ACROSS THE BUSINESS SYSTEMGenerationTransmissionDistributionNational Thermal Power Corporation (21,249 MW)National Hydro Power Corporation (2,475 MW)TPC (2,300 MW)Reliance Energy Limited (941 MW)Power Grid Corporation of India (41,000 Ckms)TPC (2,200 Ckms)State Electricity BoardsReliance 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 consultingTata ProjectsTCE
16 TATA POWER: A COMPANY WITH MANY FIRSTS Tala transmission line (1,300 Kms)Successful Delhi distributionFirst Pumped Storage Unit in IndiaFirst to introduce SCADA and Fibre Optic ground wire communicationFirst Flue Gas De-Sulphurisation plantFirst to commission GIS mechanismFirst 500 MW thermal unit in IndiaFirst Hydro Electric power plant in India
17 GENERATION: CREATING EXCELLENCE IN MUMBAI ReliabilityUnique islanding system ensures uninterrupted power to Mumbai during grid disturbancePlant availability of 94.52% (thermal) and (Hydro)State of the art distributed control systemT&DLowest T&D losses in India of 2.4%Tariffs5% reduction achieved in FY 2004 vs. FY 2003Emission controlAmong the lowest SO2 emissions in the worldLatest technology to reduce emissions (e.g., Fly Ash Aggregator, Flue Gas De-sulphurisation etc.)
18 SO2 EMISSIONS AT TROMBAY ARE AMONG THE LOWEST IN THE WORLD Metric tonnes per dayIFCDenmarkUSACanadaTPC, Trombay
19 TPC’s PERFORMANCE IS REFLECTED IN STRONG FINANCIAL RESULTS . . . ProfitsUS$ millionEBITDAEBITDA CAGR of 6.5%PATFY05 Exchange Rate: US$ 1- Rs20012002200320042005Operating marginsPer cent20012002200320042005
20 . . . AND SUSTAINED EPSEPSMarket 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 at67% floating stockCents20012002200320042005FY05 Exchange Rate: US$ 1- Rs
21 OPPORTUNITY TO IMPROVE PLANT LOAD FACTOR Plant load factor at TrombayPer cent20012002200320042005
22 Graph showing Share Price of TPC Vs REL Vs BSE index during FY03 To FY05
23 Achievements FY05 Coal Contract: Average spot Rate $ 42 PMT and Long term contract of $ 23 PMTReduction 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 years2. FCCB: 200 Million at YTM of 3.88%
24 DISTRIBUTION: CREATED A SUCCESS STORY AT NDPL – THE ONLY SUCCESSFUL PRIVATISATION IN DISTRIBUTION Reduced T&D lossesImproved NetworkIncreased ReliabilityBetter customer serviceReduced from 53% to 35.5% as of Feb 05. i.e. an effective reduction of 18% in less than three yearsOver 25% capacity addedPackage substitutionFully remote operated grid stationsHigh voltage distribution systemUS$ 142 million (Rs.640 crore) invested to improve reliabilityAverage interruptions per annum reduced by 67%Electronic meteringOnline account management24 hour call center100,000 legacy pending complaints resolvedNDPL 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)
25 NDPL - The Victory Curve (trend of AT&C loss) NDPL has made an effective reduction of 18% since the time of takeover.Regulatory Target of : 31.1%, well within reach in itself !!!!
30 NDPL - Transparency with Consumers… The SUGAM Experience…50 years since independence…No power Distribution Utility thought about 100% transparency2 year ago…NDPL became the First Power Utility in the country to provide On-line Information on Consumption, Billing & Payment to 100% consumersNow through Website 100% Consumers can:•View BillView Consumption GraphPrint Duplicate BillMake payment
31 NDPL - Enhancing Consumer Convenience Consumer Care and Communication Fully networked consumer care centers launchedJuly 2002: 20 options for payment of BillsApril 2005: 1134 locations for payment of Bills
33 KEY MESSAGES Huge opportunity in an evolving sector Positioned to be a front runner Tata heritage, established skills in generation, transmission and distributionStrategy under uncertainty Three pronged approach to sustain position as India’s number 1 private power company by creating a portfolio of initiatives
34 SIGNIFICANT EFFORTS BEING MADE TO ACHIEVE COST COMPETITIVE OPERATIONS Organisational transformationRegulatoryManagementTata Business Excellence ModelDefend Current BusinessGrowth
35 Strategy & Main Drivers The Growth drivers are:Seeking increase in capacity through New projects, Domestic & International acquisition and ExpansionSeeking backward integration by acquiring Captive Coal BerthsGrowth in Other BusinessesThe drivers to Defend Current Business are:Thru’ 3SCROther initiativesThe Organizational Transformation drivers are:HR InitiativesTBEMRisk Management
36 THREE PRONGED APPROACH TO SUSTAIN POSITION AS INDIA’S #1 PRIVATE POWER COMPANY Develop portfolio of generation assetsFlexible fuel strategy as not locked into a single fuel: a multi-fuel strategy to deliver lowest cost power in key marketsInvest in a portfolio of assets – lock in strategic markets/sources, create options in other marketsActively grow distribution footprintExpanding portfolio of customers (bulk, residential)Partner with select state governmentsBuilding world class teamMultiple capabilities to grow at rapid paceOperational excellenceDistribution skillsRegulatory managementBusiness development and project execution skills
37 THREE PRONGED APPROACH TO SUSTAIN POSITION AS INDIA’S #1 PRIVATE POWER COMPANY Develop portfolio of generation assetsFlexible fuel strategy as not locked into a single fuel: a multi-fuel strategy to deliver lowest cost power in key marketsInvest in a portfolio of assets – lock in strategic markets/sources, create options in other marketsActively grow distribution footprintExpanding portfolio of customers (bulk, residential)Partner with select state governmentsBuilding world class teamMultiple capabilities to grow at rapid paceOperational excellenceDistribution skillsRegulatory managementBusiness development and project execution skills
38 A CHANGING PORTFOLIO OF CUSTOMERS OVER TIME Attractiveness of customer baseTimingTied wholesale to state distributors (SEBs)Large, but mix of loadsMany SEBs unviableImmediateWholesale/tradingRapid growth in traded powerImmediateMore profitable, more sticky, less riskyDirect to large customers enabled by open access and captive power policyHigh industry growth (4-6%)Open access mandated for 1 MW+3-5 yearsOwn distribution operations acquired or franchisedSticky customer basePrivate participation models emerging?Changing mix, over time
39 THREE PRONGED APPROACH TO SUSTAIN POSITION AS INDIA’S #1 PRIVATE POWER COMPANY Develop portfolio of generation assetsFlexible fuel strategy as not locked into a single fuel: a multi-fuel strategy to deliver lowest cost power in key marketsInvest in a portfolio of assets – lock in strategic markets/sources, create options in other marketsActively grow distribution footprintExpanding portfolio of customers (bulk, residential)Partner with select state governmentsBuilding world class teamMultiple capabilities to grow at rapid paceOperational excellenceDistribution skillsRegulatory managementBusiness development and project execution skills
40 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.
41 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% PLFPlants 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.
42 Low delivered tariff base load generation capacity (Contd….) The reason form this tariff level are three foldCompetitors 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,
43 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 PGCILThis will be subject to the pooled tariff principle currently being adopted.
44 Forward Integration into Distribution A mture and economically viable wholesale market is absent in India todaySale 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 ItalyInternational experience has, in fact, proved that standalone distribution is also a viable option.
45 Tariff Reduction Through Operational Improvements (3SCR) Defending the Mumbai License Area Business through five major initiativesTariff Reduction Through Operational Improvements (3SCR)Tariff Reduction Through Reconfiguration of Units and Changes in the Fuel Mix at TrombaySecuring Customers Through Power Purchase AgreementsProactive Regulatory Management to Project Profits and Distribution AssetsEnsure Competitiveness Though a Level Playing Field on Standby Charges
46 Growth Drivers – Prospecting Few projects where the Company is actively considering growth and expansion:Greenfield - Within India1000 MW Pithead Thermal Power Project - Maithon (JV with DVC)1000 MW Coastal Thermal Power Plant in Maharashtra - Vile1000 MW Generation Project for North India (incld. Delhi)Captive Coal Blocks Of the 10 blocks applied for we expect allotment of blocks [Jharkhand/ Chattisgarh/ AP]Distribution Parallel distribution in AdityapurAlso studying various states for Distribution circlesTransmission Western Region strengthening and Maithon Transmission Line thru Joint VentureGreenfield - Outside India1000 MW Gas/ Coal based Project in BangladeshMW Power Plant in South Africa450 MW Project in IranAfter Due Diligence, separate approval would be taken before investing money in the prospective project
47 Thank YouStatements 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.