«TABLE OF CONTENTS DEFINITION, TECHNICAL GLOSSARY AND ABBREVIATIONS FORWARD-LOOKING STATEMENTS RISK FACTORS SUMMARY SUMMARY OPERATING AND FINANCIAL ...»

The generation of energy by the Power Plant is dependent on water availability in river Baspa. The generation has been planned on the basis of the past hydrological data from 1977-78 to 1992-93. The generation in terms of primary and Secondary Energy may vary from year to year. However, the PPA provides that if the Power Plant has achieved the normative availability level in a tariff year/period, but the actual energy generation falls short of the Design Energy for reasons solely attributable to hydrology, the Energy Charges for generating up to Design Energy shall be payable for that period during the first 7 years of operation. In case generation during a tariff year /period is less due to other reasons beyond the control of JHPL and it results in water spillage, the energy loss on account of such spillage shall also be considered as Deemed Generation. The payments on account of Deemed Generation shall not exceed the payment as per Design Energy.

The water availability in river Baspa, being essentially a snow fed river varies from month to month. Considering the water availability study of the river Baspa for the period from 1977-1978 to 1992-1993 and based on the concept of 90% Dependable Year, water availability during every 10 days in a year has been stipulated in the PPA which varies from 9.26 m3 per second in first and second 10 days of February to 140.30 m3 per second in third 10 days of July.

Depending on the water availability, the Net Design Energy envisaged in PPA varies from 37.17 MU in February to

208.56 MU in July and August and the net saleable Design Energy envisaged in PPA varies from 32.71 MU in February to 183.53 MU in July and August. Approximately 70% of our generation is during the months of May to September every year.

In the first year of operations during the period from May 2003 to March 2004, about 77% of the total energy was generated in the months of June, July, August and September 2003. The revenue during the said period was about 58.86% of the total revenue for the period (excluding annual adjustments). The generation in the month of September 2003 was about 137% of the Design Energy for the month. During the months from October 2003 to March 2004 the generation was below the Design Energy for each month due to lower availability of water. The Plant Availability during the period was over 97% and for the six month period ended September 30, 2004 was 99.54%. In all the months the Plant Availability was over the normative availability of 90% except in the month of January 2004, when it was about 77% due to shut down on account of routine maintenance of the Power Plant.

Financials

Revenues Six month period ended September 30, 2004 Our revenues are recorded in accordance with the provisions of the PPA. For the six month period ended September 30, 2004 the revenue billed by JHPL amounted to Rs. 1,976.56 million (net of rebate) including Capacity charges of Rs. 980.35 million representing the fixed charges (consisting of interest on loans, and repayment of buyers credit), Primary Energy Charges of Rs. 760.33 million representing the variable charges (consisting of O&M expenses, return on equity, interest on working capital), Secondary Energy charges of Rs.233.84 million (representing incentive for generation of about 73 MU) and reimbursement of Income Tax of Rs. 37.44 million. The incentive on account of Plant Availability is claimable at the end of the tariff year. A rebate of Rs. 35.40 million was claimed by HPSEB for timely payment in accordance with the provisions of the PPA. The Company has received a sum of Rs. 1,967.07 million (net of rebate) from HPSEB.

Financial Year 2004

In FY 2004 the revenue billed by JHPL amounted to Rs. 2,953.09 million (net of rebate) including Capacity charge of Rs. 1,811.51 million (representing the fixed charges consisting of interest on loans, and repayment of buyers credit), Primary Energy Charges of Rs. 911.35 million representing the variable charges (consisting of O&M expenses, return on equity, interest on working capital), Secondary Energy charges of Rs. 151.04 million representing incentive for generation of about 50 MU, incentive for Plant Availability of Rs. 77.84 million representing higher availability of Power Plant beyond minimum level of Plant Availability, reimbursement of tax on income of Rs. 48.47 million, representing the minimum alternate tax on income for the period of operation during the FY 2004. A rebate of Rs.

47.11 million was claimed by HPSEB for timely payment in accordance with the provisions of PPA. The Company has received a sum of Rs. 2,070.39 million from HPSEB.

The Company signed the PPA with HPSEB on June 4, 1997 based on the policy guidelines of the GOI notified in 1992 and 1995. Subsequent to the signing of the said PPA, GOI had modified certain guidelines and also established regulatory commissions both at central and state level in 1998. On account of the subsequent guidelines, provisions relating to rate of Secondary Energy and depreciation are under negotiations with HPSEB. The management believes that the provisions of the PPA signed in June 1997 will subsist.

The Company has made representations to HPSEB in this regard and is currently in discussions with them. Further, the final determination of tariff is to be made by HPERC. The management believes that the aforesaid issues shall stand settled upon final determination of tariff by HPERC.

Expenditure Operating Expenditure Six month period ended September 30, 2004 During the six month period ended September 30, 2004 the operating expenditure aggregated to Rs. 94.33 million, consisting of O&M expenses of Rs. 26.10 million which amounted to 1.32% of the total income. Employee costs incurred were Rs. 16.59 million accounting for 0.84% of the total income. Administrative and other expenses of Rs.

51.64 million, accounting for 2.60% of total income, include insurance expenses of Rs. 15.89 million.

Financial Year 2004

During FY 2004 the operating expenditure aggregated to Rs. 215.75 million, consisting of O&M expenses of Rs. 97.04 million which amounted to 3.27% of the total income. Employees costs incurred were Rs. 12.97 million accounting for 0.44% of the total income. Administrative and other expenses of Rs. 105.74 million comprising 3.56% of the total income, include insurance expenses of Rs. 23.72 million and consultancy expenses of Rs. 45.03 million.

Interest and financial charges Six month period ended September 30, 2004 During the six month period ended September 30, 2004 interest & financial charges amounted to Rs. 712.26 million, comprising 35.91% of the total income. In view of certain lenders giving effect to the realignment of interest rate at 10.50% with effect from January 1, 2004 the average interest cost during this period was 15.00 % p.a..

Financial Year 2004 During FY 2004 interest & financial charges amounted to Rs. 1,312.39 million, comprising 44.25 % of the total income. The average interest cost on rupee debt during the year was approximately 15.95 % p.a.

Depreciation During the six month period ended September 30, 2004 depreciation charged was Rs. 420.64 million representing 21.20% of the total income.

During FY2004, depreciation charged was Rs. 712.63 million, representing 24.03% of the total income.

Profit before tax During the six month period ended September 30, 2004, the profit before tax amounted to Rs. 694.66 million, representing 35.02% of the total income.

During FY2004, the profit before tax amounted to Rs. 628.93 million representing 21.20% of the total income.

Tax JHPL enjoys the benefits of tax holiday for the first 10 years in the block of first 15 years under section 80 IA of Income Tax Act, 1961. However it is liable to pay Minimum Alternate Tax (MAT) on its book profit.

Accordingly, for the six month period ended September 30, 2004 Rs. 54.84 million (including adjustment for previous year amounting to Rs. 0.37 million) has been provided as Minimum Alternate Tax (MAT).

During FY 2004, Rs. 49.83 million has been provided as Minimum Alternate Tax (MAT).

Profit after Tax During the six month period ended September 30, 2004, the profit after tax was Rs. 639.82 million being 32.26% of the total income.

During Financial Year 2004, the profit after tax was Rs. 579.10 million being 19.52 % of the total income.

Liquidity and Capital Resources

• Working Capital Facilites At present, JHPL has been sanctioned fund based cash credit working capital facility of Rs.335.00 million and non fund based LC and bank guarantee limit of Rs. 100 million by Punjab National Bank and Bank of Baroda. During the year 2003-04, JHPL availed the facility to the extent of about Rs.220 million. The facility is to be secured by the paripassu charge with the term Lenders on the movable and immovable assets of JHPL and pledge of promoters shares held by JAL in JHPL.

• Dividends For the six month period ended September 30, 2004, we have registered a profit after tax of Rs. 639.82 million, out of which Rs. 330.00 million has been transferred to debenture redemption reserve and the net profit of Rs. 309.82 million is added to shareholders funds. During FY 2004, we have registered a profit after tax of Rs. 579.10 million, out of which Rs. 150.00 million had been transferred to debenture redemption reserve and the net profit of Rs. 429.10 million is added to shareholders funds. No dividend has been paid for FY 2004 on account of transfer of funds to the reserves as per TRAA and outstanding receivables amounting to Rs. 997.97 million from HPSEB. The Trust and Retention Account Agreement requires JHPL to route all cash flows through the TRA maintained with ICICI Bank and create a reserve for O&M expenses, debt servicing, etc. Declaration of dividend would require prior approval of the Lenders during currency of the debt.

The dividend policy of the Company is outlined in the section titled “Dividend Policy” on page no 149 of this Draft Red Herring Prospeectus.

Cash Flows The table below summarizes our cash flows for the six months period ended September 30, 2004 and FY2004.

Net cash flow from operating activities Six month period ended September 30, 2004 During the six month period ended September 30, 2004, the net cash outflow of the Company from operating activities was Rs. 348.31 million. The cash flows from operating activities (before working capital changes) were Rs.

1,882.42 million. Reduced by the working capital changes of Rs. 760.57 million (including increase in debtors by Rs.

272.08 million, increase in loans and advances given by JHPL of Rs. 11.15 million and decrease in trade payables of Rs. 468.25 million) and interest and financial charges and tax of Rs. 773.54 million, the net cash inflow works out to Rs. 348.31 million.

Financial Year 2004

During FY2004 the net cash inflow of the Company from operating activities was Rs. 837.35 million. The cash flows from operating activities before working capital changes were Rs. 2,737.52 million. Reduced by the working capital changes of Rs. 563.25 million (including increase in debtors by Rs. 997.97 million and increase in loans and advances given by JHPL by Rs.17.34 million and increase in current liabilities of Rs. 452.37 million) and interest and financial charges and tax of Rs. 1,336.98 million, the net cash inflow works out to Rs. 837.35 million.

Net cash flow from investing activities Six month period ended September 30, 2004 During the six month period ended September 30, 2004 the net cash inflow of the Company from investing activities was Rs. 4.36 million. This included miscellaneous income of Rs. 6.78 million which when reduced by investment of Rs. 2.46 million in fixed assets (capital expenditure) results into a net cash inflow of Rs. 4.36 million.

Financial Year 2004

During FY2004 the net cash outflow of the Company from investing activities was Rs. 975.90 million. This included miscellaneous income of Rs. 13.16 million which when reduced by investment of Rs. 989.06 million in fixed assets (capital expenditure) results into a net cash inflow of Rs 975.90 million.

Net cash flow from financing activities Six month period ended September 30, 2004 During the six month period ended September 30, 2004 the net cash outflow of the Company from financing activities was Rs. 115.89 million which is on account of prepayment premium of Rs. 237.83 million reduced by net increase in borrowings by Rs. 121.94 million.

Financial Year 2004 During FY2004 the net cash inflow of the Company from financing activities was Rs. 213.71 million which is on account of decrease in borrowing by Rs. 96.29 million and increase in share capital by Rs. 310.00 million.

Net increase/ (decrease) in cash and cash equivalents Six month period ended September 30, 2004 During the six month period ended September 30, 2004 the net decrease in cash and cash equivalents was Rs. 236.78 million.

Financial Year 2004 During FY2004 the net increase in cash and cash equivalents was Rs.75.15 million.

Financial Year 2002 and Financial Year 2003 Our cash flows during FY2002 and FY2003 primarily related to investment activities related to construction of the Power Plant.

Please refer to the section titled “Management Discussion and Analysis of Operations and Financial Conditions” on page 55 on this Draft Red Herring Prospectus, for further details on lower realizations by the Company from HPSEB.

Indebtedness The Power Plant was under construction up to May 2003 when the first unit of 100 MW was commissioned. For the purposes of setting up the Power Plant, JHPL has availed rupee and foreign currency financial assistance from Indian Financial institution and Banks and buyers credit from foreign banks. As on September 30, 2004 we had an aggregated principal loan amount of Rs. 10,899.41 million comprising of rupee loan of Rs. 9,094.10 million rupee loan (including Rs. 3,240 million of NCD), foreign currency loan equivalent to Rs. 118.24 million from Indian financial institutions and buyers credit equivalent to Rs. 1,687.07 million from foreign banks. As on date, no sum of money is due to Indian banks on account of availment of working capital facilities.

Indian rupee loans

The Indian rupee loan outstanding as on September 30, 2004 aggregating to Rs. 9,094.10 million consisted of Rs.