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

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3,240 million of NCDs and Rs. 5,854.10 million of term loans. At present (before completion of debt restructuring) the rupee loans carried a weighted average interest rate of 15.95% p.a. in FY2004 and 15% p.a. for the six months ended September 30, 2004.

The NCDs had been subscribed by ICICI Bank and IFCI. NCDs of Rs. 1,500 million held by IFCI have been redeemed out of the NCDs aggregating Rs. Rs. 1,740.00 million subscribed by UTI Bank.

JHPL requested its Lenders to realign the interest rates at 10.50%. The rupee loans (including NCDs) were repayable in 40 quarterly instalments commencing from second quarter of FY 2004. As part of the restructuring of debt, these rupee loans (including NCDs) are now repayable in 44 equal instalments payable in consecutive months of July, August, September and October each year commencing from July 2005. The sanctions in respect of the on going restructuring of debt from all of the Lenders have been received. The loans are secured by pari-passu charge on immovable and movable assets of the Company, pledge of promoters shares and corporate guarantee of the Promoters.

Foreign currency loans

The foreign currency loan (FCL) outstanding as on September 30, 2004 amounted to Rs. 118.24 million from IDBI for imports of plant and machinery for the Power Plant. The FCL carries an interest rate of 3 months LIBOR + 4.5% spread. It is repayable in 40 quarterly instalments commencing from September 2004. The FCL has been utilised to establish a letter of credit of USD 2.62 million for part payment to the Foreign suppliers of equipments for the Power Plant as per the conditions of the supply contract. The loan is secured by pari-passu charge on movable and immovable assets of the Company, pledge of promoters shares and corporate guarantee of the Promoters.

Buyers credit

The buyers credit outstanding as on September 30, 2004 aggregating to Rs. 1,687.07 million consisted of ECA backed buyers credit availed from Hypovereisbank, Germany, VA Tech Finance, Ireland and Calyon (erstwhile Credit Lyonnais), France for imports of plant and machinery for the Power Plant. The buyers credit of USD 20.09 million carries an interest rate of 6 months LIBOR + 0.5% spread and the buyers credit of USD 16.36 million carries a fixed interest rate of 5.66% p.a. It is repayable in 24 half yearly instalments commencing from July 2003. The buyers credit is backed by the payment guarantee furnished by Power Finance Corporation Limited (PFC). The guarantee issued by PFC is secured by pari-passu charge on movable and immovable assets of the Company, pledge of promoters shares and corporate guarantee of the Promoters. The guarantee carries a commission of 1.60% p.a.

–  –  –

The total capital expenditure of Rs. 16,673.38 million incurred on the Power Plant has been capitalized as Land of Rs.

18.05 million; Building, roads and bridges of Rs. 755.07 million; Hydraulic works of Rs. 4,857.97 million;

Transmission lines of Rs. 2,362.56 million; Plant and machinery of Rs. 8,525.14 million; Furniture and fixtures of Rs.

6.24 million; Office equipments of Rs. 2.57 million, Vehicles of Rs. 15.88 million and preliminary expenses of Rs.

129.90 Million As of September 30, 2004, Rs. 311.20 million was pending payment as balance project liabilities.

The Company is of the view that no significant capital expenditure would be required in next few years. Accordingly, no capital expenditure has been planned as of now.

Market and other risks Operating risk The generation of energy by the Power Plant is primarily dependent on water availability in river Baspa. The generation has been planned on the basis of the hydrological data for a long period extending from 1977-78 to 1992The generation in terms of Primary and Secondary Energy will vary from year to year. However, as regards reduction in generation due to water availability, the PPA provides that if our 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 reduced generation during a tariff year /period is due to other reasons beyond the control of JHPL and it results in water spillage, the energy loss on account of such spillage shall be considered as Deemed Generation. The payments on account of Deemed Generation shall not exceed the Design Energy payments.

The normative availability of the Power Plant has been envisaged to be 90% in the PPA. In case the availability of Installed Capacity is less than 95%, the generation may fall below the Design Energy, and adversely impact the revenue. Full Capacity Charges (fixed charges) are payable to JHPL by HPSEB only in case the Plant Availability is minimum 90%. Pro-rata deduction shall be made from JHPL’s claim in case Plant Availability is less than 90%.

Exchange rate risk

The foreign exchange fluctuation, both on interest and repayments, in relation to the foreign currency loans raised by JHPL, is to be reimbursed by HPSEB to JHPL based on the actual payments made by JHPL. Base rate of conversion shall be as prevalent on the date of capitalization/ COD of Power Project. As per the PPA, foreign exchange component should not exceed 33% of the project cost. In the event the foreign component is more than 33%, HPSEB’s liability to bear the foreign exchange fluctuation shall be limited to 33% of the total capital cost. Our foreign currency borrowing is currently within the said specified limit of 33%.





Interest rate risk

Out of the aggregate rupee loans of Rs. 9,094.10 million as on September 30, 2004, Rs. 4,424.10 million of the rupee debts are contracted at fixed rates of interest and Rs. 4,670.00 million at floating rates of interest. Further, the FCL of USD 2.55million as on September 30, 2004 carries a variable interest rate of 4.50% over 3 months LIBOR and the buyers credit of USD 20.09 million carries an interest rate of 0.5% over 6 months LIBOR. The buyers credit of USD

16.36 million carries a fixed interest rate of 5.66% p.a.

The amount of interest paid by JHPL on the amount of loans approved as per AFP is part of computation of tariff under the provisions of the PPA. The financial package approved by HPSEB and GoHP comprises Rs. 8,815.52 million of rupee debt, Rs 123.24 million of foreign currency loan and Rs. 1,911.24 million of Buyers Credit.

For details on our indebtedness, please refer to the section titled “Management Discussion and Analysis of Operations and Financial Conditions – Indebtedness” on page 67 of this Draft Red Herring Prospectus.

Effect of Inflation The inflationary effects on the cost of operation and maintenance of Power Plant are protected to the extent of 6% p.a for the first 10 years and thereafter based on weighted average index of wholesale prices and consumer prices.

Further, the return on equity is at the rate of 16% p.a. uniform on Rs. 4,650 million.

Marketing Risk

For a period of 40 years (extendable by 20 years) during which PPA shall be in force, entire power generated by JHPL is to be purchased and evacuated by HPSEB at the Jhakri interconnection point. In the event of HPSEB not being able to evacuate power beyond interconnection point or HPSEB giving backing down instructions, HPSEB would be required to make payments as Deemed Generation limited to Design Energy as per the provisions of the PPA.

Related Party Transactions

The contract for running & operation of the Power Plant was given to Jaypee Industrial & Medical Services Limited (JIMS) for a period of 10 months at a total contract price of Rs. 100 million. A rebate of Rs 5.00 million was allowed by JIMS on advance payment. This expenditure was incurred during the first 10 months period commencing from June 1, 2003 to March 31, 2004. The contract included ensuring Plant Availability, training to personnel, quality control safety requirement, performance testing and associates responsibilities. This arrangement has been discontinued from April 1, 2004.

An amount of Rs. 81.41 million was paid as contract expenditure to JAL during the year ended March 31, 2004.

Further, for the six months period ended September 30, 2004 Rs. 165.27 million is payable to JAL as refund of retention money.

For details, please refer to the section titled “Related Party Transactions” on page 105 of this Draft Red Herring Prospectus.

• Unusual or infrequent events There has been no event to the best of our knowledge which may be called ‘Unusual’ or ‘Infrequent’, other than as described in this Draft Red Herring Prospectus.

• Seasonal nature of our business Approximately 70% of our generation is during the months of May to September every year. Accordingly, our business is seasonal and our profitability will vary during the year.

• Known Trends or Uncertainties Except as stated below, to the best of our knowledge, there are no other known trends or uncertainties that have or had or are expected to have a material adverse impact on revenue or income of the Company from continuing operations.

HPERC tariff determination will be on retrospective basis with effect from the COD. The revenues are accrued at tariff computed under the PPA. The revision in tariff, if any, may impact the profitability. Further, in respect of the provisions of rate of Secondary Energy and depreciation which are under negotiations with HPSEB, may also impact the profitability. For further details, please refer to the section titled “Risk Factors” on page xi of this Draft Red Herring Prospectus.

As mentioned earlier, under the provisions of the PPA, the Company is entitled to claim advance against depreciation of future years subject to maximum of 1/12 of the loan components of the capital cost as per the approved financial package. After the debt redemption period, the advance against depreciation shall be adjusted against depreciation payable by the HPSEB for the future period at a per annum rate of 4.3% of the capital cost. No further payment on account of depreciation shall be made until the entire amount of advance against depreciation is fully adjusted. Our cashflows shall accordingly be impacted.

With the completion of debt restructuring process, the interest applicable is reduced to 10.50% p.a. The monthly Capacity Charges for FY2005 and subsequent years, on this account, are expected to be less than those in FY2004.

Moreover, with the refixation of repayment scheduled to commence from July 2005, there will be an increase in Capacity Charges for FY2006 on account of repayment of instalments of principal in that year. Such Capacity Charges will decline in the consequent years on account of lower incidence of interest because of reduction in the outstanding loan amounts. The revenues will decline after the full repayment of principal and the tariff coming down by the incidence of capacity charge.

• Competitive Conditions In view of the above mentioned long term selling arrangement with HPSEB the Company does not foresee any competition in its business during the currency of the PPA.

• Significant dependence on a single customer The entire power generated by the Power Plant is supplied to HPSEB under the PPA.

• Material Developments after September 30, 2004 To the best of our knowledge, no circumstances have arisen since the date of the last financial statements as disclosed in this Draft Red Herring Prospectus which materially and adversely affect or are likely to affect the profitability of the Company or the value of its assets or its ability to pay its liabilities within the next twelve months save and except the generation of power depending on the water available in river Baspa.

–  –  –

Regulatory Environment pre – June 2003 Under the Constitution of India, electricity is subject to the concurrent jurisdiction of the Centre and the State. Until June 2003, the electricity generation, supply and distribution Industry was governed by three enactments namely, the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act,

1998. Indian Electricity Act, 1910 created the basic framework for laying down of wire and other works relating to supply of electricity industry in India, while Electricity (Supply) Act, 1948 mandated creation of State Electricity Boards with responsibility of arranging supply of electricity in the State. However, over a period of time, the performance of State Electricity Boards had deteriorated substantially on account of various factors.

Regulator

The Ministry of Power ("MOP") is primarily responsible for development of electrical energy in the country. The MOP's responsibilities include planning and policy formulation, monitoring the implementation of power projects and enactment of legislation in regard to thermal and hydro power generation, transmission and distribution.

With the policy of encouraging private sector participation in generation, transmission and distribution of electricity/power and the objective of distancing the regulatory responsibilities from the Government to the Regulatory Commissions, the need for harmonising and rationalising the provisions of the three above mentioned enactments was felt. Thus, the Electricity Bill, 2001 was drafted, and the same was passed as the Electricity Act, 2003, after extensive discussions and consultation with the States and all other stake holders and experts. Under this Act, the obligation of regulating the tariff was cast upon the Central Electricity Regulatory Commission and State Electricity Regulatory Commission, both of which are constituted under Electricity Regulatory Commission Act, 1948.

Regulatory Environment post – June 2003 - Electricity Act, 2003

The Electricity Act, 2003 ("Electricity Act") was enacted with effect from June 10, 2003, repealing and replacing the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act,

1998. The Electricity Act seeks to provide for demarcation of the roles of generation, transmission and distribution to



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