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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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4. Changes in government regulations or directives may adversely affect the Company There are several changes taking place in the power sector that may affect our business. The Electricity Act of 2003 provides for complete deregulation of the power sector and envisions a comprehensive change in the current regulatory structure. We cannot envisage the future industry scenario in light of these changes and it could have a material effect on our business prospects and results of operations.

Any other change or introduction of new legislation /regulation and any review of tariff and provisions of PPA, including taxation policy, relating to power generation in the country may have an impact on the operations and financial performance of the Company.

5. The price of equity shares may be highly volatile, or an active trading market for our Equity Shares may not develop.

The prices of our Equity Shares on the Indian Stock Exchanges may fluctuate after this Offer as a result of several factors including

a) Volatility in Indian and global securities market;

b) Our results of operations and performance;

c) Performance of companies in the power sector;

–  –  –

There has been no public market for our Equity Shares and the price of our Equity Shares may fluctuate after this Offer. There can be no assurance that an active trading market for our Equity shares will develop or be sustained after this Offer, or that the prices at which our Equity Shares are initially traded will correspond to the prices at which our Equity Shares will trade in the market subsequent to this Offer.

6. The initial public offering price of our Equity Shares may not be indicative of the market price of our Equity Shares after the Offer ƒ The initial public offering price of our Equity Shares will be determined by JAL in consultation with the representatives of the Underwriters. This price will be based on numerous factors (discussed in the section titled “Basis for the Offer Price” on page 211of this Draft Red Herring Prospectus) and may not be indicative of the market price for our Equity Shares after the initial public offering. The market price of our Equity Shares could be subject to significant fluctuations after the offering, and may decline below the initial public offering price. There can be no assurance that the investor will be able to resell their shares at or above the Offer Price. Among the

factors that could affect our share price are:

• quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income and revenues;

• changes in revenue or earnings estimates or publication of research reports by analysts; speculation in the press or investment community;

• general market conditions; and

• domestic and international economic, legal and regulatory factors unrelated to our performance.

7. Future sale of shares by our Promoter JAL could cause the price of our shares to decline.

If JAL sells a substantial number of our shares, the market price of our shares could fall. Sales or distributions of substantial amounts of our shares by existing holders, or the perception that such sales or distributions could occur, could adversely affect prevailing market prices for our shares.

8. Our performance is linked to the stability of policies and the political situation in India The role of the Indian central and state governments in the Indian economy on producers, consumers and regulators has remained significant over the years. Since 1991, the Government of India has pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. The present Government of India, which was formed in May 2004, consists of a coalition of political parties. The withdrawal of one or more of these parties from a coalition government can result in political instability. Any political instability could delay the reform of the Indian economy and could have a material adverse effect on the market for our shares. There can be no assurance to the investors that these liberalization policies will continue under the newly elected government.

Protests against privatisation could slowdown the pace of liberalization and deregulation. The rate of economic liberalization could change, and specific laws and policies affecting companies in the power sector, foreign investment, currency exchange rates and other matters affecting investment in our securities could change as well.

A significant change in India’s economic liberalization and deregulation policies could disrupt business and economic conditions in India and thereby affect our business.

9. Changes in technology may impact our business by making our Power Plant less competitive.

xx Changes in technology may make other generation plants more competitive or may result in us having to make additional capital expenditure. In addition, other technologies that can produce electricity, such microturbines, fuel cells, windmills and photovoltaic (solar) cells are being developed. Although the average cost for generation of power through conventional sources is currently lower than that produced by alternative sources, it is possible that advances in technology will reduce the cost of alternate methods of electricity production to a level that is equal to or below that of most central station electricity production. If this were to happen, the value of our Power Plant may be significantly impaired.





Notes to Risk Factors

• Offer for Sale is of 180,000,000 Equity Shares of Rs.10 each at the Offer Price of Rs. [•] for cash aggregating Rs.

[•] million

• Investors may note that in case of over subscription in the Issue, allocation shall be on proportionate basis to Retail Bidders and Non-institutional Bidders. Please refer to the paragraph “Basis of Allocation” on page 214 of this Draft Red Herring Prospectus

• Investors are advised to refer to the section titled “Basis for the Offer Price” on page 211 of this Draft Red Herring Prospectus

• The investors may contact the BRLMs for any clarifications or information pertaining to the Offer

• The Offer is being made through a 100% Book Building Process wherein upto 50% of the Net Offer will be allocated on a discretionary basis to Qualified Institutional Buyers (“QIBs”). Further, at least 25% of the Net Offer will be made available for allocation on a proportionate basis to Non-institutional Bidders and at least 25% of the Net Offer will be available for allocation to Retail Individual Bidders, subject to valid bids being received at or above the Offer Price

• The average cost of acquisition of equity shares by our Promoters JAL is Rs. 10 per equity share and the book value per equity share as of September 30, 2004 was Rs. 11.73 per share. The Net worth of our Company, as on September 30, 2004 was Rs. 5,759.62 million

• JAL, our promoter, has provided financial guarantees to the Lenders of JHPL. As on September 30, 2004 outstanding guarantees aggregated Rs. 9,159.41 million

• In the last one year, we have issued 26 million Equity Shares of face value of Rs. 10 each for cash at par. The above shares were allotted to our promoters, JAL on March 1, 2004 against the subscription money received in April May 2003 to meet the part of the cost of the Project. The Company had received Rs. 260 million as last tranche of the Promoters’ equity contribution raising the total contribution of Promoters’ equity to Rs. 3,560 million prior to commercial operation of the project i.e. May 2003. The share of the Promoters’ equity of Rs. 3,560 million was part of total cost of the project as appraised by ICICI Bank Limited and other Financial Institutions / Banks

• JAL has purchased 135 million shares of the Company from ICICI Bank Limited in two tranches pursuant to the Shareholders and Buyback Agreement between the parties. The purchase of first tranche of 25,000,000 shares of face value of Rs. 10 each was done at a price of Rs. 17.00 per share on June 30, 2004. The purchase of second tranche of 110,000,000 shares of face value of Rs. 10 each was done at a price of Rs. 17.75 per share on December 31, 2004. For more details, please refer to the section titled “Capital Structure of the Company” on page 19 of this Draft Red Herring Prospectus

• For related party transactions, please refer to the section titled “Related Party Transactions” on page 105 of this Draft Red Herring Prospectus

–  –  –

You should read the following summary with the Risk Factors included from page xi to xxi and more detailed information about us and our Financial Statements included elsewhere in this Draft Red Herring Prospectus.

We are part of the Jaypee group which is a well diversified infrastructural industrial group engaged in construction of river valley hydro power project, cement manufacturing and marketing, hydro power generation and hospitality business with turnover of over Rs. 30,000 million. Our Promoter, JAL, is the flagship company of the Jaypee group, and has over four decades of experience in execution of river valley/hydro power projects including undertaking EPC and turnkey contracts.

We operate a private sector run-of-the-river hydro-electric Power Plant on BOO basis, with capacity of 300 MW designed to produce electrical energy estimated at 1,213.18 MU annually. Our Power Plant is the largest hydroelectric plant commissioned in the private sector in India. We, along with the Jaypee group, have engineered and executed the Power Project from concept to commissioning, except for electro-mechanical and hydromechanical equipment, which were outsourced.

The Power Plant consisting of three units of 100 MW each has been set up at a cost of Rs. 16,247.20 million and commenced full commercial operation with effect from June 8, 2003. This project completion cost however excludes liabilities on account of payment to SJVNL for Interconnection Facilities and implementation of CAT Plan together amounting to Rs. 426.16 million.

With the opening up of power generation sector to private sector participation in 1991, JAL took up ‘Baspa II runof-the- river hydro-power project’ (the “Power Plant”) on Build, Own, Operate and Maintain basis, at Kinnaur District in Himachal Pradesh (“HP”). JAL signed a Memorandum of Understanding (MoU) with GoHP for the implementation of the Power Plant in November 1991 and submitted a Detailed Project Report in May 1992.

Subsequently, GoHP and JAL signed the Implementation Agreement for the Power Plant in October 1992.

Pursuant to the terms of the MOU, JAL promoted us in December 1994, for implementing the Power Plant. Our registered office is in Shimla, in the state of Himachal Pradesh. A Tripartite Agreement was executed, between GoHP, JAL and us in October 1995. Under this agreement, all assets, liabilities, privileges, rights, benefits and obligations arising out of the MoU and the Implementation Agreement were transferred from JAL to us. The Power Purchase Agreement (PPA) was executed between HPSEB and us in June 1997. The PPA is for an initial period of 40 years from the COD.

Profile of the Power Plant Our Power Plant is an environment friendly run-of-the-river power generation plant. The plant site is located on the river Baspa, a tributary of river Satluj in Kinnaur District, about 210 km from Shimla, the capital of Himachal Pradesh.. Our Power Plant has a barrage at an elevation of 2,520.50 metres above sea level, one of the highest altitudes for such structures in India. The diversion barrage is located on river Baspa at village Kuppa near Sangla and the power house is located at village Karcham about 800 metres upstream of the confluence of rivers Satluj and Baspa, on National Highway 22. The nearest broad gauge railway station to the project site is Kalka under Northern Railway and the nearest airport to the project site is Shimla.

The Power Plant consisting of three units of 100 MW each has been set up at a cost of Rs. 16,247.20 million. This project completion cost however excludes liabilities on account of payment to SJVNL for Interconnection Facilities and implementation of CAT Plan together amounting to Rs. 426.16 million.

The Power Plant was commissioned on June 8, 2003 and has generated an aggregate saleable energy of 990.76 MU up to March 31, 2004 with Plant Availability of 96.80% as against the Design Energy of 940.41 MU. During the six months period ended September 30, 2004 the Power Plant has generated an aggregate saleable energy of 853.79 MU with Plant Availability of 99.54% as against Design Energy of 780.73 MU.

Key Business Strengths And Achievements

PPA between HPSEB and JHPL

• Long Term Contract Our PPA is valid for a period of 40 years with the HPSEB retaining the right to extend the term of the PPA by a further period of 20 years on the same terms and conditions. We believe that the long-term nature of our PPA provides stability in our operations, irrespective of the changing market scenario, during the currency of the PPA.

• Assured Off-take The PPA further provides that HPSEB shall purchase the entire power generated by the Power Plant and available for sale. HPSEB is, therefore, required to purchase 88% of the power delivered at the Interconnection Point and the balance 12% is delivered free of cost to HPSEB. Accordingly, during the currency of the PPA, JHPL is insulated from market uncertainties and is not required to market the power generated.

• Our fixed and variable costs are reimbursable by HPSEB as part of tariff The PPA provides for reimbursement of our fixed costs and variable costs. Depreciation including advance against depreciation is admissible to facilitate repayment of debt installments. Interest on term loans as per AFP as well as interest on working capital loans, variable costs of Operations and Maintenance is part of tariff payment. Income tax and foreign exchange fluctuations are reimbursable. The PPA further provides for reimbursement of escalation in costs of Operations and Maintenance at 6 % for the first ten years and thereafter subject to certain limits. For more details, please refer to section titled “Management Discussions and Analysis of Operations and Financial Conditions”.



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