Transcript TPC

Tata Power: # 1 Indian Private Power
Player
June , 2005
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 uncertainty
Three pronged approach to sustain position as India’s number 1
private power company by creating a portfolio of initiatives
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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 uncertainty
Three pronged approach to sustain position as India’s
number 1 private power company by creating a portfolio of
initiatives
2
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%,
Huge energy
deficit
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
Deficit likely
to widen
• Demand drivers
– Per capita power consumption is 50% of China
(475 kWh per annum vs. 1,020 kWh per annum for
China)
> US$170
billion
(Rs.8 lakh
crore) of
investment
required over
next decade
– Industrial growth
• High AT&C losses estimated at 43-53%
Significant
inefficiencies
• US$ 4.5 billion (Rs.20,700 crore) loss
• Low realised tariff (70%)
Source: Ministry of Power presentation – May 2004, SEB report 2004, Powerline research
3
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)
4
COMPLEX INDUSTRY STRUCTURE WITH MULTIPLE STAKEHOLDERS
Power is a concurrent subject
Multiple stakeholders with different functions
SEB’s (30)
*
Central public
utilities
Central
government
•
•
•
*
*
*
*
30 State
governments
*
*
•
•
•
•
Public utilities
*
•
•
•
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
• Accounts for 11% of generation
• Present in distribution (e.g., Mumbai,
*
Private sector
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)
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POLICY MAKERS ARE MOVING IN THE RIGHT DIRECTION
• Clearly stated vision – ‘Power for all by 2012’, but no service standards
indicated
Central
government
• 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
State
government
Regulators
• 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
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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
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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.
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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.
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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 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?
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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 uncertainty
Three pronged approach to sustain position as India’s
number 1 private power company by creating a portfolio of
initiatives
11
TPC IS PART OF THE ‘TATA’ GROUP, ONE OF THE
LARGEST BUSINESS HOUSES IN INDIA
• India’s first
Pioneer in
industrial
development
– 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)
Strong financials
• Group’s turnover equivalent to 2.6% of India’s GDP (2004
revenues: US$14.3 billion, Rs.65,424 crore)
• Over 2 million shareholders
Committed to
social and
environmental
causes
• Medical assistances to villages
• Drought relief
• Afforestation
• Emission control
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#1 IN MARKET CAPITALISATION
Market capitalisation (as on March 31, 2005)
US$ billion
32.0
28.8
21.1
13.9
11.7
10.8
8.8
7.8
7.0
7.6
6.6
4.3
Tata
group
ONGC
Reliance IOC
group
Infosys
Wipro
Bharati
SBI
AV Birla ITC
Group
HLL
Ranbaxy
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THE TATA GROUP: AT THE FOREFRONT OF INDIAN ECONOMIC
GROWTH
Businesses
Companies
Sales
Employees
Beyond
business
1904
2004
• Textiles, Hospitality, Steel &
• 7 business sectors
Power
• Tata & Sons
• Central India Mills
• Svadeshi Mills
• Ahmedabad Advance Mills
• Indian Hotels
• Tata Sons
• Tata Industries
• 80+ operating companies
• US$ 26 million (Rs.122 crore)
• US$ 14.3 billion (Rs.65,424 crore)
• ~ 5,000
• 220,219
• J N Tata Endowment
• Trusts, TIFR, TISS, Tata Memorial
Without compromising values!
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TPC: INDIA’S #1 PRIVATE POWER PLAYER, PRESENT
ACROSS THE BUSINESS SYSTEM
Generation
Transmission
Distribution
• National Thermal
• Power Grid
• State Electricity Boards
• Reliance Energy Limited
Power Corporation
(21,249 MW)
Corporation of India
(41,000 Ckms)
• National Hydro Power
• TPC (2,200 Ckms)
(5 million consumers)
• Calcutta Electricity Supply
Corporation (2,475
MW)
company (2 million
consumers)
• TPC (2,300 MW)
• TPC (1 million
• Reliance Energy
• Ahmedabad Electricity
consumers)
Limited (941 MW)
supply company (1
million consumers)
Project management and consulting
• Tata Projects
• TCE
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TATA POWER: A COMPANY WITH MANY FIRSTS
Tala
transmission
line (1,300 Kms)
Successful Delhi
distribution
First Pumped
Storage Unit in
India
First to introduce
SCADA and Fibre
Optic ground wire
communication
First Flue Gas
De-Sulphurisation
plant
First to
commission
GIS mechanism
First 500 MW
thermal unit in
India
First Hydro
Electric power
plant in India
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GENERATION: CREATING EXCELLENCE IN MUMBAI
• Unique islanding system ensures uninterrupted power to Mumbai
Reliability
during grid disturbance
• Plant availability of 94.52% (thermal) and 92.72 (Hydro)
• State of the art distributed control system
• Lowest T&D losses in India of 2.4%
T&D
• 5% reduction achieved in FY 2004 vs. FY 2003
Tariffs
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.)
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SO2 EMISSIONS AT TROMBAY ARE AMONG THE LOWEST IN THE
WORLD
SO2 emissions
Metric tonnes per day
100
59
54
50
24
IFC
Denmark
USA
Canada
TPC,
Trombay
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TPC’s PERFORMANCE IS REFLECTED IN STRONG
FINANCIAL RESULTS . . .
Profits
US$ million
EBITDA
EBITDA CAGR
of 6.5%
224
113
110
85
2001
315
310
284
2002
PAT
2003
305
125
111
2004
FY05 Exchange Rate:
US$ 1- Rs. 43.98
2005
Operating margins
Per cent
40
35
30
30
25
22
20
30
24
25
15
2001
2002
2003
2004
2005
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. . . AND SUSTAINED EPS
• Market capitalisation
EPS
of
US$ 1.36 billion
(Rs.6,300 crore)
Cents
60
58.73
49.43
50
over 100% (BSE
Sensex 53%)
51.28
39.91
40
• FII holding increased
41.89
from 7% in 2003 to 14%
in 2004 and 21% as at
31-03-2005
30
2001
• Annualised return of
2002
2003
2004
2005
• 67% floating stock
FY05 Exchange Rate:
US$ 1- Rs. 43.98
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OPPORTUNITY TO IMPROVE PLANT LOAD FACTOR
Plant load factor at Trombay
Per cent
90
82
78
80
77
70
70
73
60
2001
2002
2003
2004
2005
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-0
5
Rs / share
800
600
Sensex
400
REL
200
0
TPC
REL
Points
Graph showing Share Price of TPC Vs REL Vs BSE index during
FY03 To FY05
6800
5100
3400
TPC
1700
0
Sensex
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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%
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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
• Over 25%
• US$ 142 million
• Electronic
(Rs.640 crore)
invested to
improve
reliability
metering
53% to 35.5%
as of Feb 05.
i.e. an effective
reduction of
18% in less
than three
years
capacity added
• Package
substitution
• Fully remote
operated grid
stations
• High voltage
distribution
system
• Average
interruptions
per annum
reduced by
67%
• 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
54%
AT&C Loss
climbing up
before
privatisation
54.1% Jul 02 (Privatisation)
53.1% FY 03
53.0%
Post
privatisation
reduction in
AT&C Loss
53.4%
51.6%
51.7%
51.1%
49%
49.0%
49.5%
FY 04
44%45.7%
Cumulative Since Privatisation
39%
Committed Reduction - 7.25%
Effective Reduction - 18%
Reduction in FY 05 - 10% - A record in India
47.5%
46.0%
44.86%
FY 05
42.3%
40.3%
38.7%
37.9%
36.0%
35.11%
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34%
35.5%
Regulatory Target of 2006-07: 31.1%, well within reach in 2005-06 itself
25
NDPL – Supply Reliability
26
NDPL – Transforming Power Distribution Operational Parameters
27
NDPL – Transforming Power Distribution Commercial Parameters
28
NDPL – Capital Expenditure
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NDPL - Transparency with Consumers…
The SUGAM Experience…
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
Now through Website 100%
Consumers can:•
• View Bill
• View Consumption Graph
• Print Duplicate Bill
• Make payment
30
NDPL - Enhancing Consumer Convenience
Consumer Care and Communication
Fully networked consumer care centers launched
July 2002: 20 options for payment of Bills
April 2005: 1134 locations for payment of Bills
31
NDPL – Excellence Recognized
32
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 uncertainty
Three pronged approach to sustain position as India’s
number 1 private power company by creating a portfolio of
initiatives
33
SIGNIFICANT EFFORTS BEING MADE TO ACHIEVE COST
COMPETITIVE OPERATIONS
Organisational transformation
Regulatory
Management
Tata
Business
Excellence
Model
Growth
Defend
Current Business
34
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
35
THREE PRONGED APPROACH TO SUSTAIN POSITION AS INDIA’S #1
PRIVATE POWER COMPANY
Develop portfolio
of generation
assets
• 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
Actively grow
distribution
footprint
• Expanding portfolio of customers (bulk, residential)
• Partner with select state governments
• Multiple capabilities to grow at rapid pace
Building world
class team
– Operational excellence
– Distribution skills
– Regulatory management
– Business development and project execution skills
36
THREE PRONGED APPROACH TO SUSTAIN POSITION AS INDIA’S #1
PRIVATE POWER COMPANY
• Flexible fuel strategy as not locked into a single fuel: a multi-fuel strategy to
Develop portfolio
of generation
assets
deliver lowest cost power in key markets
• Invest in a portfolio of assets – lock in strategic markets/sources, create
options in other markets
Actively grow
distribution
footprint
• Expanding portfolio of customers (bulk, residential)
• Partner with select state governments
• Multiple capabilities to grow at rapid pace
Building world
class team
– Operational excellence
– Distribution skills
– Regulatory management
– Business development and project execution skills
37
More profitable, more sticky, less risky
A CHANGING PORTFOLIO OF CUSTOMERS OVER TIME
Attractiveness of
customer base
• Tied wholesale to
state distributors
(SEBs)
• Wholesale/trading
Timing
• Large, but mix of loads
• Many SEBs unviable
• Immediate
• Rapid growth in
• Immediate
traded power
• Direct to large
customers enabled by
open access and
captive power policy
• Own distribution
operations acquired or
franchised
• High industry growth
• 3-5 years
(4-6%)
• Open access mandated
for 1 MW+
• Sticky customer base
• Private participation
•?
models emerging
Changing mix,
over time
38
THREE PRONGED APPROACH TO SUSTAIN POSITION AS INDIA’S #1
PRIVATE POWER COMPANY
• Flexible fuel strategy as not locked into a single fuel: a multi-fuel strategy to
Develop portfolio
of generation
assets
deliver lowest cost power in key markets
• Invest in a portfolio of assets – lock in strategic markets/sources, create
options in other markets
Actively grow
distribution
footprint
• Expanding portfolio of customers (bulk, residential)
• Partner with select state governments
• Multiple capabilities to grow at rapid pace
Building world
class team
– Operational excellence
– Distribution skills
– Regulatory management
– Business development and project execution skills
39
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.
40
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.
41
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,
42
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.
43
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.
44
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
45
Growth Drivers – Prospecting
Few projects where the Company is actively considering growth and
expansion:
Greenfield - Within India
•1000 MW
•1000 MW
•1000 MW
•Captive Coal Blocks
•Distribution
Transmission
Line thru Joint Venture
Pithead Thermal Power Project - Maithon (JV with DVC)
Coastal Thermal Power Plant in Maharashtra - Vile
Generation Project for North India (incld. Delhi)
Of the 10 blocks applied for we expect allotment of 2-3
blocks [Jharkhand/ Chattisgarh/ AP]
Parallel distribution in Adityapur
Also studying various states for Distribution circles
Western Region strengthening and Maithon Transmission
Greenfield - Outside India
•1000 MW
•500 -1000 MW
•450 MW
Gas/ Coal based Project in Bangladesh
Power Plant in South Africa
Project in Iran
After Due Diligence, separate approval would be taken before investing money in the
prospective project
46
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.
47