1. 1 Discussion Paper on Terms and Conditions of Tariff - The Indian Perspective November 12, 2003Convention Centre, Scope Complex Creating Customer Value Rabo India Finance Pvt. Ltd. www.rabobank.com A Lender’s viewpoint

2. 2 What is Project Financing A cash flow based financing Without recourse to sponsors To a project that is a discrete economic unit In a sector / product that is in the maturity phase Which involves identification and mitigation of risks by allocating risks to parties best able to manage it Project assets provide collateral Promoters provide contractual rather than financial support What a lender essentially looks for in such a transaction is adequacy, predictability & certainty of cash flows Creating Customer Value

3. 3 Do Power Generation Projects meet criteria of Project Financing Are cash flows adequate & certain - Adequate Probably Yes, Certain Probably No Can it be structured without sponsor recourse - No Can the project be put up as a discrete economic unit- Yes Is the sector in the maturity phase – Conventional Yes, Renewables No Can risks be adequately identified & mitigated and/ or allocated - Partially, since sector has high regulation characteristics Can the project assets provide collateral - Yes Can the promoters provide only contractual and no financial support - No Creating Customer Value

4. 4 The Impact of Proposed Tariff Norms on Project Cashflows Debt Repayment Capacity  Tenors of debt and interest rates – Options to extend debt tenors fairly limited  Incorporation of the same in the cashflows Operational norms  In the waterfall mechanism of cashflows, lenders payment is subsequent to the O&M payments Foreign Exchange Variation  Pass through ideal for project, but sub-optimal for the sector and detrimental to the offtaker  Hedging strategies on a pilot basis might reveal the hidden gains Depreciation  Despite the theoretical debate on its relevance, used for meeting debt repayments  Mis-matches in the two lead to – Dipping into the ROE first – And then liquidity problems Creating Customer Value

5. 5 THANK YOU ! Mohanjit Singh mohanjit.singh@rabobank.com Creating Customer Value