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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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(Source: MoP website) Faced with growing mismatch between hydropower and thermal power, the GOI is emphasizing on development of hydropower generation and has estimated the hydro power potential in the country to be 1,50,000 MW (corresponding to 84,044 MW at 60% load factor) out of which only 27,010 MW amounting to 18% of the total potential has been harnessed. Given the unharnessed potential, the GOI has set a target of 14,393 MW for the 10th Five Year Plan. The capacity addition in the hydropower sector in the 4th, 5th, 6th and 7th Five Year Plan periods and the target for the 10th

and 11th Five Year Plan periods is as follows:

Capacity Addition in India: Historical and Planned

–  –  –

3,828 4,538 2,873 3,812 2,427

–  –  –

Power Scenario in Himachal Pradesh The Himachal Pradesh State Electricity Board (“HPSEB”) was constituted on September 1, 1971 in accordance with the Electricity (Supply) Act, 1948. The total installed capacity in the state of Himachal Pradesh (HP), as on June 30, 2003 is 964.80 MW, of which 255.00 MW is contributed by Central sector, 323.80 MW by the State sector and the balance 386.00 MW by the private sector. In addition to the above capacity, HP also purchases power from other states.

–  –  –

• Consumption Pattern The total customer base of HPSEB as on March 31, 2002 was around 1.52 million. The per capita power consumption in HP was around 378 units and was comparable to the national average of around 355 units. The table below shows

the consumption pattern in the State:

–  –  –

(Source: HPERC Tariff Order 2004-05)

• Potential for Hydro Power development in HP Himachal Pradesh, a hilly terrain State, has significant potential for hydro power development. The state has an

identified Hydel power potential of 20,376 MW as follows:

–  –  –

Out of this identified potential, 3,942 MW has been harnessed up to March 31, 2002 and the balance capacity is yet to be developed.

• Demand – Supply Analysis for the Northern Region

–  –  –

Tata Energy & Resources Institute has concluded that the power deficit is likely to continue in the northern region over the next five year period and that the deficit is likely to get accentuated in the event the commissioning of the capacity under construction / under planning gets delayed.

–  –  –

Overview 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. 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. 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 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.

The GOI has taken a new initiative, ‘Power for all by 2012’. As a part of this initiative, the GOI has formulated a ten year plan to add 50,000 MW of hydropower generation capacity in the country. According to the Ministry of Power, the present mix of power generation facilities is skewed towards thermal power. Faced with the mismatch between hydropower and thermal power, the GOI is emphasizing the development of hydropower generation. We believe that although generally, hydropower plants involve a relatively high capital cost per MW, they are more economical due to lower operating cost as compared to thermal power projects. Hydropower is clean energy and its generation is not linked to issues concerning fuel supply, especially due to price fluctuations in the import price of such fuels.

Hydropower is ideal for meeting peak demand requirements.

With the opening up of power generation sector to private sector participation in 1990, and in line with the policy guidelines of GOI, private sector participation was invited by the GoHP for the ‘Baspa II run-of-the- river hydropower project’ (the “Power Plant”) on Build Own Operate & Maintain basis, at Kinnaur District in Himachal Pradesh (“HP”). Our Promoter, JAL, is the flagship company of the Jaypee group, and has over four decades of experience in executing river valley/hydro power projects and undertaking EPC and turnkey contracts in the field of hydropower.

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.

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 extendable for a further period of 20 years on the same terms and conditions. We believe that the long-term nature of our PPA provides us with stability in our operations, irrespective of the changing market scenario, during the currency of the PPA.

• Assured Off-take The PPA 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 such as depreciation (including advance against depreciation to facilitate repayment of debt) and interest as well as variable costs of Operations and Maintenance, interest on working capital, income tax and foreign exchange fluctuations. The PPA further provides for reimbursement of escalation in costs of Operations and Maintenance subject to certain limits. For more details, please refer to section titled “Management Discussion and Analysis of Operations and Financial Conditions” on page 55 of this Draft Red Herring Prospectus.

• Depreciation admissible from HPSEB as part of tariff We are entitled to reimbursement of depreciation of up to 90% of AFP from HPSEB under the PPA. Subsequent to repayment of the debt, balance reimbursement of depreciation would accrue to us and our equity shareholders.

• Assured Return on Equity Our PPA also provides for a fixed return of 16% p.a. on the equity capital as approved in the AFP. In addition, the Company is entitled to receive incentives for higher Plant Availability and generation of Secondary Energy up to specified limits. We believe that we benefit from financial stability due to such fixed returns on equity.

• Payment Guarantee The PPA provides that HPSEB’s realizations from sale of power in allocated circles shall be deposited in a designated escrow account. Pursuant to the PPA, we have entered into an escrow agreement with HPSEB and the escrow agent to monitor this account. Further, there is a irrevocable revolving Letter of Credit (“LC”) established by HPSEB in favour of JHPL through which the payments are to be made to us. Under this arrangement, HPSEB is required to ensure that the LC is restored, after we receive payments, as per the terms of the PPA. In the event of any shortfall in payment through the LC, or in the event HPSEB fails to restore the LC, we can direct the Escrow Agent not to honour HPSEB’s other withdrawals until the shortfall has been made good, or until the LC is restored, as the case may be.

• Deemed generation The PPA insulates the Company insulation from risks associated with non availability of sufficient water for the first seven years from COD, that is, up to the year 2010. In the event that water availability is lower than that envisaged under the PPA in any year, Design Energy is deemed to have been generated by the Company, and HPSEB is obligated to make payments to us on this basis. Also, in case HPSEB fails to evacuate the power from the Interconnection Point for any reason or instructs us not to generate power partially or completely, and this results in spillage of water, such deemed generation benefit shall be made available to us under the PPA. For further details of PPA, please refer to the section titled “Management Discussion and Analysis of Operations and Financial Conditions” on page 55 of this Draft Red Herring Prospectus.

No vagaries with respect to raw material costs

Since we operate a hydro-electric power plant which converts the energy of river flow into electrical energy, there are no specific raw material costs involved, except to the extent of the free power being provided to HPSEB. Accordingly, we are insulated from changes in raw material prices.

Protection against Competition As mentioned above, HPSEB is required to purchase 88% of the power delivered at the Interconnection Point from the Company under the PPA at the approved tariff. Accordingly, during the currency of the PPA, our revenues shall not be affected due to competition.

Promoter Lineage Our Promoter, JAL, has over four decades of experience in execution of river valley/hydro power projects and undertaking EPC and turnkey contracts in the field of hydropower, as a leading construction company or as leader of consortia / joint ventures, involving generation of over 8,000 MW of power across the country. It is also in the process of executing several contracts for projects involving further generation of over 8,000 MW of power in the country and abroad, including the 400 MW Vishnuprayag and the 1,000 MW Karcham Wangtoo hydroelectric projects on BOO basis through its wholly owned subsidiaries. With the commissioning of these hydro-electric projects, it is expected that by the year 2010, the Jaypee group will have a total capacity of 1,700 MW generating around eight billion units of clean and green energy under its fold on BOO basis at an total investment of over Rs. 90,000 million. JAL has also been awarded the highest grading of CR1 (pronounced as C R one) by ICRA, indicating very strong contract execution capacity. This grading indicates the relative contract execution capacity with resepect to Hydropwer (EPC) contracts with average values of upto Rs. 20,000 million with permissible variation of +/- 10% in each case. We have drawn upon the experience of our promoters during the construction of the Power Plant. For further details, please refer to the section titled “Our Promoters and Group Companies” on page 88 of this Draft Red Herring Prospectus.

Experienced Management

We have recruited experienced managerial and technical personnel in the operation and management of hydro-electric power plants. For details of our key managerial personnel, please refer to the section titled “Our Management - Key Managerial Personnel” on page 84 of this Draft Red Herring Prospectus.

Environment friendly plant The Power Plant is a run-of-the-river, environment friendly project harnessing the renewable natural resources.

Operations of the Power Plant do not involve release of harmful emission or pollutants.

Successfully commissioned the largest private hydro-electric power project in the country We, along with the Jaypee group, have engineered and executed the Power Project from concept to commissioning, except for electro-mechanical and hydro-mechanical equipment, which were outsourced. The implementation of the Power Plant used construction technology such as full periphery continuous lining of head race tunnel. Moreover, our barrage is constructed at an elevation of 2,520.50 metres and is one of the highest in the country. The 56.70 km, double circuit 400 KV transmission line laid for the project passes through an elevation ranging from 1,500 metres to 2,800 meters in a difficult terrain and crosses the valley 13 times and river Satluj twice.

Restructuring of our debt

Immediately after commissioning of the plant in June 2003, we initiated a debt restructuring programme in July 2003, and have received in-principle approvals from the lenders to realign the interest rates from the prevailing weighted average of 16.65% p.a. in FY2004 to 10.50% p.a. and to refix the repayment of loans in 44 installments commencing from July 15, 2005. Our lenders have already approved the restructuring package. Such reduction in interest rates shall have a positive impact on our cash flows and liquidity. For further details, 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.

Future Outlook And Strategy Definitive PPA for 40 years, extendable for a period of 20 years by GOHP.

Under the provisions of the PPA, we have guaranteed off take of power, which would result in assured revenues to the Company. The provisions of the PPA provide us operational stability during the currency of the PPA. For further details, please refer to section titled “Management Discussions and Analysis Operations and Financial Conditions” on page 55 of this Draft Red Herring Prospectus..

Actively pursuing with CEA for it’s approval of the financial package.



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