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INTERNATIONAL FINANCING ON POWER PROJECTS
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SUMMER TRAINING REPORT
On
“International Financing On Power Projects”
at
For the period
13 June, 2011 to 05 August, 2011
Under the guidance of
Shri K. Sreekant
Additional General Manager (IF)
Submitted By
Sandeep Anand
2nd Year Student of MBA in Power Management
Roll no. 79
Batch 9th
(2010-2012)
Sector-33, Faridabad-121003, Haryana
Affiliated to
Maharishi Dayanand University, Rohtak
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DECLARATION
I, Sandeep Anand, (Roll No. 79), MBA - Power Management (2010-2012 Batch), of National
Power Training Institute, Faridabad, hereby declare that the summer training report Entitled
“INTERNATIONAL FINANCING ON POWER PROJECTS”
Is an original work and the same has not been submitted to any other institute for the award of
Any other degree.
A seminar presentation of the Training report was made on_________________ and the
Suggestions as approved by the faculty were duly incorporated.
K.P.S.Parmar
Presentation in- charge
NPTI, Faridabad M.B.A (9th
Batch), NPTI
Counter signed:-
(Director/ Principle of the institution)
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CERTIFICATE
This is to certify that the summer project work of Sandeep Anand titled ―INTERNATIONAL
FINANCING ON POWER PROJECTS” is an original work and that this work has not been
assigned to anybody in any form. The project work was carried from 13-June-2011 till 05-
August-2011 at NTPC Ltd., Corporate Centre, Scope Complex, Core7 Institutional area, Lodi
Road, New Delhi-110003.
Date: August- 05- 2011
Shri K. Sreekant
Additional General Manager (IF)
NTPC Ltd.
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ACKNOWLEDGEMENT
I am having great pleasure to present this report entitled “INTERNATIONAL
FINANCING ON POWER PROJECTS”. I take this opportunity to express my sincere
thanks to all who contributed to make this a success.
First of all I would like to take the opportunity to thanks Shri K. Sreekant, Additional
General Manager, NTPC LTD. for giving me the opportunity to undergo my summer
internship at NTPC LTD., Scope Complex, Core7 Institutional area, Lodi Road, New
Delhi-110003.
I would like to express my sincere thanks to my guide Mr. Sunil Kumar Goyel for
providing me the necessary resources for carrying out the study and for his timely and
continued support and more importantly his guidance without which this report would have
been incomplete.
I wish to thank , Ms. Farida Khan, Mr. K.P.S Parmar (Project guide), Mr. Amit
Kumar Mishra, Mrs. Indu Maheshwari (Dy. Director), Mr. Rohit Verma
(Dy.Director), CAMPS, NPTI (National Power Training Institute) for their valuable
inputs.
I wish to make a special mention of Mrs. Manju Mam (Dy. Director), Mr. S.K.
Chaudhary (Director), CAMPS, NPTI and Mr. J.S.S. Rao (Principal Director),
CAMPS, NPTI for providing me an opportunity to do my summer internship at NTPC
Ltd. which was a great learning for me.
I am greatful to my friends who gave me the moral support in my times of difficulties. Last
but not the least I would like to express my special thanks to my family for their
continuous motivation and support.
Sandeep Anand
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ABBREVIATIONS
ADB- Asian Development Bank
ECA- Economic Credit Agency
AFBD- African Development Fund
EIB- European Investment Bank
EBRD- European Bank for Reconstruction & Development
JBI- Japan Bank of International Corporation
FERM- Foreign Exchange Risk Management
OCF- Operating Cash Flow
NCF- Free Cash Flow
IBRD- International Bank for Reconstruction & Development
IMF- International Monetary Fund
TASF- Technical Assistance Development Fund
JSF- Japan Special Fund
DMC- Developing Member Countries
FIAS- Foreign Investment Advisory Service
MIGA- Multilateral Investment Guarantee Agency
FIL- Foreign Investment Loan
SIL- Special Investment Loan
SIM- Sector Investment & Maintenance Loan
APL- Adaptable Program Loan
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LIL- Learning & Innovation Loan
FIL- Foreign Investment Loan
ERL- Emergency Recovery Loan
SAL- Structural Adjustment Loan
SAL- Sector Adjustment Loan
PSAL- Programmatic Structural Adjustment Loan
SSAL- Special Structural Adjustment Loan
RL- Rehabilitation Loan
DRL- Debt Reduction Loan
IMF- Internationally Monetary Fund
WB- World Bank
FEMA- Foreign Exchange Management Act
FERV- Foreign Exchange Rate Variation
WACC- Weighted Average Cost of Capital
NPV- Net Present Value
IRR- Interest Rate of Return
UNCITRAL- United Nations Commission on International Trade Law
OPIC- Overseas Private Investment Corporation
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Table of Contents
1. EXECUTIVE SUMMARY................................................................................................................. 10
2. ORGANIZATION PROFILE ............................................................................................................. 11
2.1 Vision ................................................................................................................................................ 11
Mission: - ................................................................................................................................................ 11
Core Value: - ........................................................................................................................................... 11
2.2Diversified Growth: - ......................................................................................................................... 11
2.3 Future Capacity Additions: - ............................................................................................................. 13
2.4 Subsidiaries: - .................................................................................................................................... 14
2.5Business Development: - .................................................................................................................... 15
2.6Balance Sheet: - .................................................................................................................................. 16
2.7 SWOT analysis of NTPC .................................................................................................................. 17
3. OBJECTIVE OF THE PROJECT....................................................................................................... 19
4. SIGNIFICANCE OF THE PROJECT ................................................................................................ 20
5. SCOPE OF THE PROJECT ............................................................................................................... 20
6. RESEARCH METHODOLOGY OF THE PROJECT ....................................................................... 21
7. INTRODUCTION .............................................................................................................................. 22
8. KEY TERM OF INTERNATIONAL FINANCE............................................................................... 27
9. DIFFERENCE BETWEEN DOMESTIC FINANCE & INTERNATIONAL FINANCE ............. 33
10. ROLE OF WORLD BANK, ADB, IFC ......................................................................................... 34
11. TYPES OF LOAN ...................................................................................................................... 40
11.1 Investment loans ......................................................................................................................... 40
11.2Adjustment loans: - Adjustment loan........................................................................................... 40
11.3Specific Investment Loan............................................................................................................. 40
11.4Sector Investment and Maintenance Loan ................................................................................... 40
11.5Adaptable Program Loan ............................................................................................................. 41
11.6Learning and Innovation Loan ..................................................................................................... 41
11.7Technical Assistance Loan........................................................................................................... 42
11.8Financial Intermediary Loan ........................................................................................................ 42
11.9Emergency Recovery Loan .......................................................................................................... 42
11.10Structural Adjustment Loan ....................................................................................................... 43
11.11Sector Adjustment Loan............................................................................................................. 43
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11.12Programmatic Structural Adjustment Loan ............................................................................... 43
11.13Special Structural Adjustment Loan .......................................................................................... 44
11.14Rehabilitation Loan.................................................................................................................... 44
11.15Debt Reduction Loan ................................................................................................................. 44
12. LOAN AGREEMENT .................................................................................................................... 45
12.1.1 ARTICLE I DEFINITIONS..................................................................................................... 45
12.1.2 ARTICLE II LOAN ACCOUNT - COMMITMENT CHARGE - SPECIAL COMMITMENT
CHARGE AND REPAYMENT ......................................................................................................... 47
12.1.3 ARTICLE III CURRENCY PROVISIONS............................................................................. 50
12.1.4 ARTICLE IV DISBURSEMENT OF THE LOAN ................................................................. 53
12.1.5 ARTICLE V CANCELLATION AND SUSPENSION .......................................................... 55
12.1.6 ARTICLE VI ACCELERATION TO MATURITY................................................................ 60
12.1.7 ARTICLE VII TAXES ............................................................................................................ 61
12.1.8 ARTICLE VIII PROJECT IMPLEMENTATION - COOPERATION AND INFORMATION-
FINANCIAL AND OTHER INFORMATION - NEGATIVE PLEDGE (PARI PASSU) ................ 61
12.1.9 ARTICLE IX - SETTLEMENT OF DISPUTES - APPLICABLE LAW ............................... 64
13. WHY NTPC IS SUPERIOR THAN OTHERS?............................................................................. 66
14. REGULATORY FRAMEWORK FOR INTERNATIONAL FINANCE ...................................... 70
14.1 EXTERNAL COMMERCIAL BORROWINGS (ECB) ............................................................ 70
15. RISKS FOR THE INVESTORS..................................................................................................... 78
15.1 Risk mitigation ............................................................................................................................ 78
15.2 Construction risk : - ...................................................................................................................... 78
15.3 Operating risk: - .......................................................................................................................... 78
15.4 Market risk: -............................................................................................................................... 79
15.5 Interest rate risk : - ....................................................................................................................... 79
15.6 Foreign exchange risk : - .............................................................................................................. 80
15.7 Payment risk : - ............................................................................................................................ 80
15.8 Regulatory risk : - ......................................................................................................................... 80
15.9 Political risk : - ............................................................................................................................. 81
15.10 Arrangements for risk mitigation .............................................................................................. 81
16. DATA ANALYSIS OF THE PROJECT ........................................................................................ 82
17. CONCLUSION............................................................................................................................... 97
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18. RECOMMENDATION & SUGGESTION .................................................................................... 97
19. BIBILIOGRAPHY ......................................................................................................................... 98
LIST OF TABLE
Table 6.1:International Financiers of Coal fired plants ............................................................................... 22
Table 6.2: - Capacity Addition Breakup (XIth) power plant ........................................................................ 23
Table 6.3: Financial Closure Scenario For Private Capacity as per 11th plan ............................................. 25
Table 6.4: Investment ................................................................................................................................. 25
Table 15.1: Opening Loan balance sheet of all banks ................................................................................ 82
Table 15.2: Loan wise Allocation of Interest (Net Charge) as on 04/07/2011 ............................................ 83
Table 15.3: Weighted average of KFW Bank ............................................................................................... 87Table 15.4: Guarantee fee payable on IBRD For the period 01/04/2011 to 04/07/2011 .......................... 89
Table 15.5: Guarantee fee of World Bank allocated on different projects ................................................ 89
Table 15.6: Foreign Exchange Rate Variation (FERV) of KFW Bank on different projects .......................... 90
Table 15.7: Interest allocation of KFW Bank on different projects............................................................. 91
Table 15.8: Differential Interest of all banks............................................................................................... 95
LIST OF FIGURE
Figure 6.1: XIth plan Capacity Addition Targets & Achievement ................................................................ 23
Figure 6.2: Capacity Addition Growth in plan wise manner ....................................................................... 24
Figure 6.3: Capacity Addition Private Sector ............................................................................................. 24
Figure 6.4: Investment in Power Sector ...................................................................................................... 25
Figure 6.5: Investment targets by Government .......................................................................................... 26
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1. EXECUTIVE SUMMARY
The report is all about the Maharatna Company (NTPC Ltd.) which is an integrated power
producer and International Financing on power Projects. The introduction part deals with the
role of public international financial institutions like Multinational Development Bank and
Economic credit agency. Both of them has important role in international financing on coal fired
power plants. The report elaborates various internationally financed projects on coal fired power
plants.
The report shows the increase in the capacity addition during XIth plan of all different sectors
like private sector, state sector, central sector and all conventional & non- conventional sources
of energy .The graph of capacity addition shows relationship between different sectors, its target
& achieved value. A comparison of capacity addition during five year plans is shown with the
help of graph which clearly indicates the amount of capacity added during these plans. The
capacity addition in private sector comprises of different domestic companies which have
different capacity addition values. During study of report we see financial closure of private
capacity of XIth plan; we can calculate the total capital expenditure for conventional & non –
conventional source of energy. The report also includes the study of data of investment in
different sector as well as conventional & non-conventional source of energy. The report also
signifies the investments done by govt. and private players in power sector during Xth, XIth and
XIIth plan (projected).
The report includes various key aspects of international finance which have been discussed in the
report for clear understanding of the subject, exchange rate which distinguish the domestic &
international financing, role of Multinational Development Bank (World Bank, Asian
Development Bank, International Finance Corporation & its function), types of loan, loan
agreement which plays a vital role and the risk involved for foreign investors.
Report discusses international financial funding of domestic companies like TATA POWER,
RELIANCE POWER, NTPC, and ADANI POWER.
RBI is the regulatory body responsible for the regulatory framework of international finance on
External commercial Borrowing.
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2. ORGANIZATION PROFILE
NTPC, India's largest power company, was set up in 1975 to accelerate power development in
India. It is emerging as an ‗Integrated Power Major‘, with a significant presence in the entire
value chain of power generation business.
NTPC ranked 341st in the ‗2010, Forbes Global 2000‘ ranking of the World‘s biggest companies
with a current generating capacity of 34,854 MW. NTPC has embarked on plans to become a
75,000 MW company by 2017.
2.1 Vision: - “To be the world’s largest and best power producer, powering India’s growth.”
Mission: - ―Develop and provide reliable power, related products and services at competitive
prices, integrating multiple energy sources with innovative and eco-friendly technologies and
contribute to society.‖
Core Value: - BCOMIT
Business Ethics
Customer Focus
Organizational & Professional Pride
Mutual Respect & Trust
Innovation & Speed
Total Quality for Excellence
2.2Diversified Growth: -
As per new corporate plan, NTPC plans to become a 75 GW company by the year 2017 and
envisages to have an installed capacity of 128 GW by the year 2032 with a well-diversified fuel
mix comprising 56% coal, 16% gas, 11% nuclear energy, 9% renewable energy and 8% hydro
power based capacity.
As such, by the year 2032, 28% of NTPC‘s installed generating capacity will be based on carbon
free energy sources. Further, the coal based capacity will increasingly be based on high-efficient-
low-emission technologies such as Super-critical and Ultra-Super-critical. Along with this
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growth, NTPC will utilize a strategic mix of options to ensure fuel security for its fleet of power
stations.
Looking at the opportunities coming its way, due to changes in the business environment, NTPC
made changes in its strategy and diversified in the business adjacencies along the energy value
chain. In its pursuit of diversification NTPC has developed strategic alliances and joint ventures
with leading national and international companies. NTPC has also made long strides in
developing its Ash Utilization business.
Hydro Power: In order to give impetus to hydro power growth in the country and to have a
balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW
Koldam hydro projects in Himachal Pradesh. Two more projects have also been taken up in
Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW.
Renewable Energy: In order to broad base its fuel mix NTPC has plan of capacity addition of
about 1,000 MW through renewable resources by 2017.
Nuclear Power: A Joint Venture Company "Anushakti Vidhyut Nigam Ltd." has been formed
(with 51% stake of NPCIL and 49% stake of NTPC) for development of nuclear power projects
in the country.
Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured
into coal mining business with an aim to meet about 20% of its coal requirement from its captive
mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2
blocks to be developed through joint venture route.
Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was
created for trading power leading to optimal utilization of NTPC‘s assets. It is the s econd largestpower trading company in the country. In order to facilitate power trading in the country,
‗National Power Exchange Ltd.‘, a JV of NTPC, NHPC, PFC and TCS has been formed for
operating a Power Exchange.
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Ash Business: NTPC has focused on the utilization of ash generated by its power stations to
convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material
input by cement companies and brick manufacturers. NVVN is engaged in the business of Fly
Ash export and sale to domestic customers. Joint ventures with cement companies are being
planned to set up cement grinding units in the vicinity of NTPC stations.
Power Distribution: ‗NTPC Electric Supply Company Ltd.‘ (NESCL), a wholly owned
subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in ‗Rajiv
Gandhi Gramin Vidyutikaran Yojana‘programme for rural electrification.
Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of
power equipment manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge
Ltd. for power plant equipment manufacturing. NTPC has also acquired stake in Transformersand Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers.
2.3 Future Capacity Additions: -
NTPC has formulated a long term Corporate Plan up to 2032. In line with the Corporate Plan, the
capacity addition under implementation stage is presented below:
PROJECT STATE MW
Coal
1. Indira Gandhi STPP- JV with IPGCL & HPGCL ( 3 x 500) Haryana 1000
2. Sipat I (3 x 660) Chhattisgarh 1980
3. Simhadri II Unit - IV( 500) Andhra Pradesh 500
4. velour I -JV with TNEB ( 2 x 500) Tamilnadu 1000
5. Velour Stage-I Phase-II -JV with TNEB ( 1 x 500) Tamilnadu 500
6. Bongaigaon(3 x 250) Assam 7507. Mauda ( 2 x 500) Maharashtra 1000
8. Rihand III(2X500) Uttar Pradesh 1000
9. Vindhyachal-IV (2X500) Madhya Pradesh 1000
10. Muzaffarpur Expansion (2x195) – JV with BSEB Bihar 390
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11. Nabinagar TPP-JV with Railways (4 x 250) Bihar 1000
12. Barh II (2 X 660) Bihar 1320
13. Barh I (3 X 660) Bihar 1980
Hydro 1. Koldam HEPP ( 4 x 200) Himachal Pradesh 800
2. Tapovan Vishnugad HEPP (4 x 130) Uttarakhand 520
3. Singrauli CW Discharge(Small Hydro) Uttar Pradesh 8
Total 14748
2.4 Subsidiaries: -
NTPC Electric Supply Company Ltd. (NESCL)
The company was formed on August 21, 2002. It is a wholly owned subsidiary company of
NTPC with the objective of making a foray into the business of distribution and supply of
electrical energy, as a sequel to reforms initiated in the power sector.
NTPC Vidyut Vyapar Nigam Ltd. (NVVN)
The company was formed on November 1, 2002, as a wholly owned subsidiary company of
NTPC. The company‘s objective is to undertake sale and purchase of electric power, to
effectively utilize installed capacity and thus enable reduction in the cost of power.
NTPC Hydro Ltd. (NHL)
The company was formed on December 12, 2002, as a wholly owned subsidiary company of
NTPC with an objective to develop small and medium hydroelectric power projects of up to 250
MW.
Pipavav Power Development Co. Ltd. (PPDCL)
A memorandum of understanding was signed between NTPC, Gujarat Power Corporation
Limited (GPCL) and Gujarat Electricity Board (GEB) in 2004 for development of a 1000 MWthermal power project at Pipavav in Gujarat by forming a new joint venture company between
NTPC and GPCL with 50:50 equity participation. Pursuant to the decision of Gujarat
Government, NTPC Ltd. has dissociated itself from this company. PPDCL is under winding up.
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Kanti Bijlee Utpadan Nigam Limited, (formerly known as Vaishali Power Generating
Company Limited)
To take over Muzaffarpur Thermal Power Station (2*110MW), a subsidiary company named
‗Vaishali Power Generating Company Limited (VPGCL)‘ was incorporated on September 6,
2006 with NTPC contributing 51% of equity and balance equity was contributed by Bihar State
Electricity Board. This company was formed to renovate the existing unit and run the plant. The
second unit has been successfully re-synchronized on October 17, 2007 after 4 years of being
idle. Renovation and modernization of the first unit is under progress. The company was
rechristened as ‗Kanti Bijlee Utpadan Nigam Limited‘ on April 10, 2008.
Bharatiya Rail Bijlee Company Limited (BRBCL)
A subsidiary of NTPC under the name of ‗Bharatiya Rail Bijlee Company Limited‘ was
incorporated on November 22, 2007 with 74:26 equity contribution from NTPC and Ministry of
Railways, Govt. of India respectively for setting up of four units of 250 MW each of coal based
power plant at Nabinagar, Bihar. Investment approval of the project was accorded in January,
2008.
2.5Business Development: -
NTPC, with a rich experience of engineering, construction and operation of over 30,000 MW of
thermal generating capacity, is the largest and one of the most efficient power companies inIndia, having operations that match the global standards.
Commensurate with our country‘s growth challenges, NTPC has embarked upon an ambitious
plan to attain a total installed capacity of 75,000 MW by 2017. Towards this end, NTPC has
adopted a multi-pronged strategy such as Greenfield Projects, Brownfield Projects, Joint Venture
and Acquisition route. Apart from this, NTPC has also adopted the Diversification Strategy in
related business areas, such as, Services, Coal Mining, Power Trading, Power Exchange,
Manufacturing to ensure robustness and growth of the company.
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2.6Balance Sheet: -
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital8,245.46 8,245.50 8,245.50 8,245.50 8,245.50
Equity Share Capital 8,245.46 8,245.50 8,245.50 8,245.50 8,245.50
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 60,138.66 55,478.60 50,749.40 46,021.90 40,351.30
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net worth 68,384.12 63,724.10 58,994.90 54,267.40 48,596.80
Secured Loans 9,910.68 9,079.90 8,969.60 7,314.70 7,479.60
Unsecured Loans 33,277.56 28,717.10 25,598.20 19,875.90 17,661.50
Total Debt 43,188.24 37,797.00 34,567.80 27,190.60 25,141.10
Total Liabilities 111,572.36 101,521.10 93,562.70 81,458.00 73,737.90
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
12 mths 12 mths 12 mths 12 mths 12 mths
Application Of Funds
Gross Block 72,583.94 66,663.80 62,353.00 53,368.00 50,604.20
Less: Accum. Depreciation 33,519.19 32,088.80 29,415.30 27,274.30 25,079.20
Net Block 39,064.75 34,575.00 32,937.70 26,093.70 25,525.00
Capital Work in Progress 38,441.84 32,290.60 26,404.90 22,478.30 16,962.30
Investments 12,344.84 14,807.10 13,983.50 15,267.20 16,094.30
Inventories 3,639.12 3,347.70 3,243.40 2,675.70 2,510.20
Sundry Debtors 7,924.31 6,651.40 3,584.20 2,982.70 1,252.30
Cash and Bank Balance 326.34 634.00 271.80 473.00 750.10
Total Current Assets 11,889.77 10,633.10 7,099.40 6,131.40 4,512.60
Loans and Advances 7,648.10 6,357.10 7,826.10 9,936.20 8,781.70
Fixed Deposits 15,858.92 13,825.50 15,999.80 14,460.20 12,564.50
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Total CA, Loans & Advances 35,396.79 30,815.70 30,925.30 30,527.80 25,858.80
Deferred Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 10,945.55 7,896.80 7,439.20 5,548.40 5,422.20
Provisions 2,730.31 3,070.50 3,249.50 7,360.60 5,280.30
Total CL & Provisions 13,675.86 10,967.30 10,688.70 12,909.00 10,702.50
Net Current Assets 21,720.93 19,848.40 20,236.60 17,618.80 15,156.30
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 111,572.36 101,521.10 93,562.70 81,458.00 73,737.90
Contingent Liabilities 33,227.29 40,044.00 66,083.20 29,361.80 25,218.80
Book Value (Rs) 82.94 77.28 71.55 65.81 58.94
2.7 SWOT analysis of NTPC
Strengths:
• Core Team of expert professionals.
• Responsive Governance (Across the Board: Cooperation across management).
• Low Operating Costs.
• Excellent work Culture.
• Sound and state of the art Physical Infrastructure.
• Young and Dynamic workforce
• Aggressive toward development.
• Numerous Training Courses for the employees.
Weaknesses:
• High employee turnover.
• Still some departments work in isolation.
Opportunities:
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• To compete economically with anybody in the country as well as in the world.
• Take advantage of technological revolution
• Mergers and acquisitions.
• Open access implementation.
• Great numbers of projects are coming up with the organization.
Threats:
• High competition from other companies.
• Change in Govt. policies
• Manpower shortage.
• Fuel availability.
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3. OBJECTIVE OF THE PROJECT
To know about role of the international financial institution or multinational development bank
like ADB, WORLD BANK, IFC etc. for the financing in power projects.
There are various questions regarding international financing for Indian power projects such as:
How much amount of the foreign currencies invested in Indian power projects?
How international financing is done for power projects?
How foreign currencies are converted into the local currency?
How application of international finance takes place for financing the power projects?
Which factor distinguishes between domestic finance & international finance?
On what condition lenders (multinational development banks) are ready to invest for Indian
power projects?
Which types of loan provided by lenders to the borrower for financing the power projects?
What is the loan agreement between lenders & borrower?
Why NTPC is better than other domestic companies like TATA POWER, ADANI POWER, and
RELIANCE POWER etc.?
What is the role of regulatory framework for international financing on infrastructure (power)
projects?
What are the risks for the foreign investors to finance the projects?
Attempts are made to answer these questions in this report.
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4. SIGNIFICANCE OF THE PROJECT
A major significance of project is to help the borrower for choosing the multinational
development banks, which are better for investment in power projects.
Significance of the projects also lays in the fact the loan agreement between the borrower &lenders are relevant or not. It means all the conditions of borrower as well as lenders are satisfied
to both of them. It includes commitment charges, disbursement fee, and event of default,
repayment and prepayment charges, cancelation and suspensions.
Significance of the project helps to the borrower for at how much interest rate to take loan. The
loan given by lenders wants to give a certain maturity date to the borrower for return back
currencies to him.
Significance of the project consists to determine the exchange rate of two currencies of two
different countries.
Significance of the projects consist NTPC is superior to other domestic companies like TATA
POWER, ADANI POWER, RELIANCE POWER.
Significance of the projects consists External commercial borrowing guidelines of Reserve bank
of India.
5. SCOPE OF THE PROJECT
International financial institution or multinational development banks are investing in power
projects due to government budgetary constraints.
India has huge amount of target installed capacity & NTPC has different target capacity on
different plans.so that NTPC wants to reach at its own target value with the help of
internationally finance.
International financing does by competitive bidding process.
International financing does takes place due to low interest rate.
Risk of the investor would be reduced then proper financing work place.
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6. RESEARCH METHODOLOGY OF THE PROJECT
In the research methodology of the project determine the foreign exchange rate variation for
different projects of NTPC.
The Foreign Exchange Rate Variation (FERV) comes from Repayment value of Loan.
Determine the whole net charge (interest charge) for all projects of NTPC provided loan from
multinational development banks.
Determine the weighted average of a particular multinational development Bank (KFW Bank)
for different projects of NTPC.
For calculation of weighted average of cost of capital we must have interest rate (coupon rate),
issue price of debt, corporate tax, earning per share value, market price of ordinary share andweight of equity as well as debt.
The formula for WACC is given below:-
WACC=Kd*(1-T)*(D/D+E) + Ke*(E/D+E)
Kd=cost of debt
T=corporate Tax
D=Debt value
E=Equity value
Ke=cost of equity
In the research methodology conversion of External Commercial borrowing into equity occurs.
All the guidelines of ECB consider in the project report.
In the research methodology of the project consider why NTPC is better than other domestic
companies? The Market Cap value of NTPC is 137039.54 crore (BSE), 137245.68 crore (NSE)
and the Market Cap value of ADANI POWER, RELIANCE POWER are 18726 crore, 21852
crore respectively. There are huge difference shows NTPC is better than ADANI POWER &
RELIANCE POWER.
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7. INTRODUCTION
Public international finance is dominated by two kinds of institutions: - 1. Multilateral
developments banks (MDB) and 2. Economic credit agencies (ECA).
Among the MDBs, the World Bank Group and Asian Development Bank are the two mostimportant for our study, but there are several others, including the Inter-American Development
Bank (IDB), the African Development Bank (AFDB), the European Bank for Reconstruction and
Development (EBRD), and the European Investment Bank (EIB).The largest ECAs among the
30 member nations of the OECD include the U.S. Export Import Bank and the Japan Bank for
International Cooperation (JBIC).
Table7.1: International Financiers of Coal fired plants
EDF identified $37.04 billion in public international financing for some 88 new coal plants and
expansions and life extensions of existing plants since 1994.
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United States Export-Import Bank (EXIM) and Overseas Private Investment Corporation
(OPIC), with some $4.164 billion for 19 different coal-fired projects.
World Bank Group and the Asian Development Bank are the second and third largest single
public financing institutions for the expansion of coal-fired power plants since 1994. Theirfinancial commitments total $5.315 billion and $3.623 billion, respectively.
Table7.2: - Capacity Addition Breakup (XIth) power plant
Figure7.1: XIth plan Capacity Addition Targets & Achievement
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Figure7.2: Capacity Addition Growth in plan wise manner
Figure7.3: Capacity Addition Private Sector
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Table7.3: Financial Closure Scenario for Private Capacity as per 11th plan
Table7.4: Investment
Source /
Sector
Hydro
(MW)
Thermal (MW) Nuclear (MW) Total % age
Central 8,654 24,840 3,380 36,874 47%
State 3,482 23,301 26,783 34%
Private 3,491 11,552 15,043 19%
Total 15,627 56,693 3,380 78,700 100%
% age 20% 76% 4% 100%
Figure7.4: Investment in Power Sector
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Figure7.5: Investment targets by Government
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8. KEY TERM OF INTERNATIONAL FINANCE
International finance is the branch of economics that studies the dynamics of exchange rates,
foreign investment, and how these affect international trade. It also studies international projects,
international investments and capital flows, and trade deficits. It includes the study of futures,
options and currency swaps. International finance is a branch of international economics.
Exchange rates (also known as the foreign-exchange rate or FX rate) between two currencies
specify how much one currency is worth in terms of the other. It is the value of a foreign nation‘s
currency in terms of the home nation‘s currency. For example an exchange rate of 91 Japanese
yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 91 is worth the same as USD 1.
International trade is exchange of capital, goods, and services across international borders or
territories.
Currency swap involve two parties who agree to pay each other‘s debt obligation denominated
in different currencies.
Interest swap involve exchange of interest obligations between two parties.
Spot rate is the rate of exchange of the day on which the transaction has taken place and of the
days the transaction is executed.
Forward rate is the rate of exchange applicable for delivery of foreign exchange at a future
date.
Forward rate premium foreign currency is at premium when its forward rate is higher than spot
rate.
Forward rate discount foreign currency is at discount when its spot rate is higher than the
forward rate.
Cross rate is the rate of exchange of two currencies on the basis of exchange quotes of other
pairs of currencies.
Arbitrage is an act of buying currency in one market at a lower price and selling it in another
price resulting in equilibrium in exchange rates of different currencies.
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Geographical arbitrage is the buying of foreign currency from a foreign exchange market
where it is cheaper and selling in another foreign exchange market where it is costly.
Triangular arbitrage involves three foreign currencies involving three different foreign
exchange markets. It is also known as a three-point arbitrage.
Purchasing power parity (PPP) theory is a theory of long-term equilibrium exchange rates
based on relative price levels of two countries.
Interest rate parity theory is a theory according to which the discount/premium of one
currency in relation to another reflects the interest differentials between them.
International Fisher effect states that the nominal interest rate differential must be equal to the
expected inflation rate differential in two countries.
Balance of payments (BOP) sheet is an accounting record of all monetary transactions between
a country and the rest of the world. These transactions include payments for the country's exports
and imports of goods, services, and financial capital, as well as financial transfers.
Transaction exposure involves gain/loss arising out of the various types of transactions that
require settlement in a foreign currency.
Translation exposure results from the need to translate foreign currency assets/liabilities into
local currency at the time of finalizing accounts.
Economic exposure implies change in the value of a company that accompanies an anticipated
change in exchange rates.
Operating exposure has impact on firm‘s future operating revenue, costs, and cash flows .
Foreign exchange risk is the possibility of loss on account of unfavorable movement in foreign
exchange rates.
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Foreign exchange risk management (FERM)-internal techniques:-
1. Leading implies collection from designated debtor‘s expeditiously foreign currency before
they are due (when home currency is expected to strengthen) and to initiate lead to pay foreign
currency designated creditors before their due date of payment (when depreciation/devaluationof the home currency is apprehended).
2. Lagging implies delaying receipts from the foreign currency designated receivables whose
currencies are likely to appreciate/strengthen and delaying foreign currency designated payables
whose currencies are likely to depreciate/devalue/weaken.
3. Netting:-Foreign exchange risk exposure of such companies can be substantially reduced if
foreign designated receivables and payments among them are settled on the net balance basis is
known as netting.
Foreign exchange risk management(FERM)-external techniques:-
1. Forward contracts are widely used by business firms to hedge against volatile/ adverse
exchange market. Business firms enter into a forward contract to buy or sell foreign currency in
exchange for home currency, normally at a specific future date , at a predetermined exchange
conversion rate is known as forward rate.
2. Futures contract is a standardized agreement to buy or sell a pre-specified amount of foreign
currency in the future market at some specified future date between the parties to the contract.
3. Currency option is a financial instrument that provides its holder a right but no obligation to
buy or sell a pre-specified amount of foreign currency at a pre-determined rate in the future.
4. Call option:-The holder has right to buy/call a specific currency at a specific price on a
specific period of time.
5. Put option:-The holder has right to sell a specified amount of currency at a pre-fixed price on
a specified date.
6. Money market operations:-It serves an important hedging function in that uncertainty is
resolved regarding the amount to be paid. The steps involved are as follows:-
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Step 1-Determine the amount required in foreign currency, to be paid on a specified date (3-4
months) from now.
Step 2-From an authorized dealer (Bank) ascertain the spot exchange rate at which it is selling
the required foreign currency in exchange for home currency.
Step 3-Borrow home currency from the money market, at the prevailing interest rate. The
quantum of borrowing should be in such a manner that can make the required foreign currency
sums available on the date of payment (3-4 months).
Step 4- The borrowed funds are to be used to buy the required foreign currency from the forex
spot market; once purchased, it is to be invested in forex money market to yield interest in the
desired foreign currency.
Step 5-As per steps 3 and 4, the required amount of foreign currency to be purchased can be
determined.
Multinational capital budgeting decision:-
The major motivating factor in favour of foreign investments:-
(1). Comparative cost
(2). Taxation
(3). Financial diversification
Incremental cash flow of the investment should be discounted at an opportunity cost of capital
appropriate to the risk of investment. The investment should be accepted if the NPV is positive.
Incremental cash outflows to undertake foreign investment decision are to be measured.
Incremental cash inflows the foreign investment project is expected to yield during its projected
economic useful life.
operating cash flow(OCF)cash flow provided by operations or cash flow from operating
activities, refers to the amount of cash a company generates from the revenues it brings in,
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excluding costs associated with long-term investment on capital items or investment in
securities.
The International Financial Reporting Standards defines operating cash flow as cash generated
from operations less taxation and interest paid, investment income received and less dividendspaid gives rise to operating cash flows.
Free cash flow (NCF) is cash flow available for distribution among all the securities holders of
an organization. They include equity holders, debt holders, preferred stock holders, convertible
security holders. It should also allow for cash available to pay off the company's short term debt.
It should also take into account any dividends that the company means to pay.
Net Free Cash Flow = Operation Cash flow – Capital Expenses to keep current level of operation – dividends – Current Portion of long term debt – Depreciation.
Cannibalization implies lost sales of existing products of a multinational company on account
of proposed foreign investment.
Sales creation implies increased sales on account of proposed foreign investment.
Investment Evaluation
The basic steps involved in evaluation of a project are:-
1. Determine net investment outlay.
2. Estimate net cash flows to be derived from the project over time, including an estimate of
salvage value.
3. Identify the appropriate discount rate for determining the present value of the expected cash
flows.
4. Apply NPV or IRR techniques to determine the acceptability or priority ranking of potential
projects.
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Some of the factors unique to capital budgeting for MNCs are: -
1. Conversion of cash flows from foreign projects into the currency of the parent firm.
2. Restrictions on full remittance of cash flows from foreign projects.
3. Exchange Rate fluctuations.
4. Application of different tax rates in the country of the project and in the parent's country.
5. Amenities and concessions granted by host country.
6. Benefits of international diversification to the shareholders of parent firm.
7. Lost exports.
8. Difficulty in estimating terminal value of foreign projects.
9. Differing rates of national inflation.
10. Knock-on effects of overseas investment projects on other operations elsewhere.
11. Political risk involved in foreign investment.
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9. DIFFERENCE BETWEEN DOMESTIC FINANCE &
INTERNATIONAL FINANCE
International finance is to a great extent, similar to domestic corporate finance.
A domestic company takes up a project for investment only when the net present value of cash
flows is positive and it shapes the working capital policy in a way that maximizes profitability
and ensures desired liquidity. It is not different in case of MNCs.
Again, the financing decisions, in respect of whether a domestic or an international company,
aim at minimizing the overall cost of capital and providing optimum liquidity.
Domestic financial management is concerned with the costs of financing sources and the payoffs
from investment. In domestic arena, movements in exchange rates are substantially ignored.
But In case of international financial management, there is no way that we can analyze
international financing and investment opportunities without an understanding of the impact of
foreign exchange rates upon the basic model of financial management.
However, international finance has a wider scope than domestic corporate finance and it is
designed to cope with greater range of complexities than the domestic finance.
The reasons are as follows:-
(a) The MNCs operate in different economic, political, legal, cultural and tax environments
(b) They operate across and within varied ranges of product and factor markets which vary in
regard to competition and efficiency.
(c) They trade in a large number of currencies as a result of which their dependence on the
foreign exchange market is quite substantial.
(d) They have easy access not only to varying domestic capital markets but also to unregulated
international capital markets which differ in terms of efficiency and competitiveness.
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10. ROLE OF WORLD BANK, ADB, IFC
THE WORLD BANK
The International Bank for Reconstruction and Development (IBRD), better known as the World
Bank, was established at the same time as the International Monetary Fund (IMF) to tackle theproblem of international investment.
Since the IMF was designed to provide temporary assistance in correcting the balance of
payments difficulties, an institution was also needed to assist long-term investment purposes.
Thus, IBRD was established for promoting long-term investment loans on reasonable terms.
The World Bank (IBRD) is an inter-governmental institution, corporate in form, whose capital
stock is entirely owned by its member governments.
Initially, only nations that were members of the IMF could be members of the World Bank; this
restriction on membership was subsequently relaxed.
FUNCTIONS:
1. To assist in the reconstruction and development of the territories of its members by facilitating
the investment of capital for productive purposes.
2. To promote private foreign investment by means of guarantee of participation in loans and
other investments made by private investors and when private capital is not available on
reasonable terms, to make loans for productive purposes out of its own resources or from funds
borrowed by it.
3. To promote the long-term balanced growth of international trade and the maintenance of
equilibrium in balances of payments by encouraging international investment for the
development of the productive resources of members.
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4. To arrange loans made or guaranteed by it in relation to international loans through other
channels so that more useful and urgent projects, large and small alike, will be dealt with first. It
appears that the World Bank was created to promote and not to replace private foreign
investment.
The Bank considers its role to be a marginal one, to supplement and assist foreign investment in
the member countries.
A little consideration will show that the objectives of the IMF and IBRD are complementary.
Both aim at increasing the level of national income and standard of living of the member nations.
Both serve as lending institutions, the IMF for short-term and the IBRD for long-term capital.
Both aim at promoting the balanced growth of international trade.
ADB (ASIAN DEVELOPMENT BANK)
ADB had started in 22nd august, 1963. The formalities were completed by mid-1966 and it
started functioning in December 1966.
Its membership was open to the regional countries and the non-regional developed countries
from where resources were to be obtained. Presently, it has 57 members---41 from the region and
16 from outside.
The chairman of the board of director is the president of the ADB. He is assisted by vice-
president and professional and non-professional staff members. In practices, decisions are taken
by consensus, although there is provision for voting.
Every member country has one basic vote plus proportional votes depending upon the number of
shares held in the capital structure. The regional members carry over two-thirds of the votes.
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The financial resource base is divided into two components. One is the ordinary capital resources
(OCR) comprising equity and borrowings. The other is the special funds made up largely of
contributions from member countries and specially meant for concessional lending and technical
assistance.
Apart from OCR , there are three special funds namely the Asian Development Fund (ADF) , the
Technical Assistance Development Special Fund (TASF) and the Japan Special Fund (JSF).
ADF is replenished by member countries to finance the concessional lending to poorer members
and the replenishment is authorized from time to time by a resolution of the board of governor.
TASF is meant for financing the technical assistance operations. It created out of income from
the ordinary lending operation, replenishments from member countries, direct voluntary
contributions, and income from investment.
JSF was established in 1988 by way of contribution from japan for financing or co-financing on
a grant basis the technical assistance projects and the private sector projects through equity
investment.
FUNCTION
Being a regional development bank, ADB provides the following financial and technical
assistance for economic development of developing member countries (DMC).
The ADB:
1. Makes loan and equity investments;
2. Provides technical assistance for preparing and carrying out development projects and
programmer and advisory services;
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3. Helps mobilize additional resources within the region and helps attract investment from
outside it; and
4. Assist regional and sub-regional schemes for the sake of promotion of regional economic
cooperation.
IFC (INTRENATIONAL FINANCE CORPORATION)
Since IFC is an institution of the World Bank group, its organizational set-up is similar to that of
the World Bank.
This means that the Board of Governor is the apex body.
The Board of Director implements the policies framed by the Board of Governors.
The president of the World Bank is the ex-officio president of the IFC. The president is assisted
by the executive vice president who is in turn assisted by a large number of professional and
non-professional staff.
The resources base of the IFC is similar to that of the IBRD. It presents a mix of equity capital
and borrowed funds.
The IFC started borrowing in 1965 in order to finance its lending activities but only from the
IBRD. In 1984 it began borrowing from the international capital market. During 1990s the size
of borrowing expanded fast.
Apart from borrowings, the earning of the IFC too makes up its resource pool. The earning
comes from interest and financial fees, dividend from equity investment, service fees, and
income from the sale of securities, etc.
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FUNCTION
The IFC supplements the financing activities of the World Bank. It seeks to achieve the
objectives through providing and bringing together finance, technical assistance and
management.
This means that it extends not only financial and technical assistance, but also provides equity
capital.
IFC provides loans and makes equity and quasi-equity investment.
Quasi-equity investment includes subordinated loans, convertible debt instruments, and preferred
stock and income notes.
Unlike IBRD loans, these loans do not require government guarantee.
Long-term loans are made either on project cost basis or on corporate-finance basis. Those loans
that are written against IFC‘s own account are known as A-loans.
Maturity ranges normally between 7 and 12 years, although it can be extended to 20 years and
the grace period can go up to 4 years.
The loans are mostly direct loans, but are provided also through financial intermediaries like
banks, leasing companies or financial institutions.
In case where IFC‘s own funds do not permit making big loans, it seeks out commercial banks
and other financial institutions to join in loan syndication and parallel financing. Such loans are
known as B-loans.
IFC‘s Risk Management Services enable firms to access the derivative markets to hedge their
exchange rate exposure or interest rate exposure.
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The Foreign Investment Advisory Service (FIAS) is being operated in collaboration with
Multilateral Investment Guarantee Agency (MIGA) to provide technical advice to member
countries on how to formulate policies and programs so as to attract foreign investment.
The Corporation collaborates also with the United Nations Development Program for technical
assistance.
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11. TYPES OF LOAN
11.1 Investment loans: - Investment loan have a long-term focus (5 to 10 years), and finance
goods, works and services in support of economic and social development projects in a broad
range of sectors. Investment loans finance a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty reduction and sustainable development.
The important lending instruments are:-SIL, SIM, APL, LIL, TAL, FIL, ERL.
11.2Adjustment loans: - Adjustment loan have a short-term focus (1 to 3 years), and provide
quick-disbursing external financing to support policy and institutional reforms. Eligibility for an
adjustment loan also requires agreement on monitor able policy and institutional reform actions,
and satisfactory macroeconomic management.
Coordination with the IMF is an essential part of the preparation of an adjustment loan.
The important lending instruments are:-SAL, SECAL, PSAL, SSAL, RIL, and DRL.
11.3Specific Investment Loan
Specific investment loans (SILs) support the creation, rehabilitation, and maintenance of
economic, social, and institutional infrastructure. In addition, SILs may finance consultant
services and management and training programs.
The SIL is a flexible lending instrument appropriate for a broad range of projects.
SILs help to ensure the technical, financial, economic, environmental, and institutional
Viability of a specific investment. They also support the reform of policies that affect the
productivity of the investment.
11.4Sector Investment and Maintenance Loan
Sector investment and maintenance loans (SIMs) focus on public expenditure programs inparticular sectors. They aim to bring sector expenditures, policies, and performance in line with a
country‘s development priorities by helping to create an appropriate balance among new capital
investments, rehabilitation, reconstruction, and maintenance.
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They also help the borrower develop the institutional capacity to plan, implement, and monitor
expenditure or investment program.
The SIM is most appropriate where a sector expenditure program needs extensive coordination,
particularly if the program involves a large share of donor-financed investments.
Therefore, SIMs typically involves coordinated efforts among the multilateral and bilateral
donors providing assistance to the sector.
11.5Adaptable Program Loan
Adaptable program loans (APLs) provide phased support for long-term development programs.
They involve a series of loans that build on the lessons learned from the previous loan(s) in the
series.
An APL involves agreement on
(1)The phased long-term development program supported by the loan,
(2)Sector policies relevant to the phase being supported, and
(3)Priorities for sector investments and recurrent expenditures.
They can be used to support a phased program of sector restructuring, or systemic reform in the
power, water, health, education, and natural resource management sectors, where time is
required to build consensus and convince diverse actors of the benefits of politically and
Economically difficult reforms.
11.6Learning and Innovation Loan
The learning and innovation loan (LIL) supports small pilot-type investment and capacity-
building projects that, if successful, could lead to larger projects that would mainstream the
learning and results of the LIL.
LILs do not exceed $5 million, and are normally implemented over 2 to 3 years — a much shorter
period than most Bank investment loans. All LILs include an effective monitoring and evaluation
system to capture lessons learned.
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11.7Technical Assistance Loan
The technical assistance loan (TAL) is used to build institutional capacity in the borrower
country. It may focus on organizational arrangements, staffing methods, and technical, physical,
or financial resources in key agencies.
TALs are used to build capacity in entities directly concerned with implementing policies,
strategies, and reforms that promote economic and social development.
They also build capacity related to public sector reform and to the preparation, implementation,
and maintenance of investments.
TALs often complement investment or adjustment operations by supporting specific tasks related
to their preparation or implementation.
11.8Financial Intermediary Loan
Financial intermediary loans (FILs) provide long-term resources to local financial institutions to
finance real sector investment needs. The financial institutions assume credit risk on each
subproject.
FILs help to develop sound financial sector policies and institutions, promote the operational
efficiency of those institutions in a competitive environment, improve the terms of credit to
enterprises and households, and promote private investment.
11.9Emergency Recovery Loan
Emergency recovery loans (ERLs) support the restoration of assets and production
Levels immediately after an extraordinary event — such as war, civil disturbance, or
Natural disaster —that seriously disrupts a borrower‘s economy.
They are also used to strengthen the management and implementation of reconstruction efforts,
and to develop disaster-resilient technology and early warning systems to prevent or
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Mitigate the impact of future emergencies. ERLs focus on the rapid reconstruction of economic,
social, and physical systems within a limited period, normally 2 to 3 years.
They finance investment and productive activities, rather than relief or consumption. For
recurring events such as annual flooding, or for a slow-onset disaster such as drought, a SIL is
usually more appropriate.
11.10Structural Adjustment Loan
The structural adjustment loan (SAL) supports reforms that promote growth, efficient use of
resources, and sustainable balance of payments over the medium and long term.
SALs typically focus on major macroeconomic and structural issues that cut across sectors, such
as trade policy, resource mobilization, public sector management, private sector development,
and social safety nets.
11.11Sector Adjustment Loan
The sector adjustment loan (SECAL) supports policy changes and institutional reforms in a
specific sector. SECALs focus on major sectorial issues such as the incentive and regulatory
Frameworks for private sector development, institutional capability, and sector expenditure
programs.
11.12Programmatic Structural Adjustment Loan
The programmatic structural adjustment loan (PSAL) is provided in the context of a multiyear
framework of phased support for a medium-term government program of policy reforms and
institution building.
PSALs respond to country needs for Bank financing and advice in support of structural and
social reforms that involve continuous, incremental policy changes and institution building over
several years.
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The focus is on step-by-step capacity building and reform, typically in the public sector, aimed
at strengthening public expenditure management and improving governance, resource allocation,
and public service delivery.
11.13Special Structural Adjustment Loan
The special sector structural adjustment loan (SSAL) supports structural and social reforms by
creditworthy borrowers approaching a possible crisis, or already in crisis, and with exceptional
external financing needs.
These loans help countries to prevent a crisis or, if one occur, to mitigate its adverse economic
and social impacts.
SSALs have different terms than other Bank loans. They carry a 5-year maturity with a 3-year
grace period, and a minimum loan spread of 400 basis points over USD LIBOR equivalent.
There are no waivers of interest or commitment charges.
11.14Rehabilitation Loan
The rehabilitation loan (RIL) supports government policy reform programs aimed at creating an
environment conducive to private sector investment, where foreign exchange is required for
urgent rehabilitation of key infrastructure and productive facilities.
The focus is on key short-term macroeconomic and sector policy reforms needed to reverse
declines in infrastructure capacity and productive assets.
11.15Debt Reduction LoanThe debt reduction loan (DRL) helps eligible highly indebted countries reduce commercial debt
and debt service to a manageable level, as part of a medium-term financing plan in support of
sustainable growth.
The focus is on rationalizing the country‘s external commercial bank debt, by either converting it
to lower-interest instruments or buying it back at a discount.
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12. LOAN AGREEMENT
12.1.1 ARTICLE I DEFINITIONS
SECTION 1.01 Definitions
"Assets" means all types of assets including property, revenue and claims of any kind.
"Bank" means any Lender who gives the loan to the Borrower like Lender (African
Development Bank).
"Bank Agreement" means the Agreement Establishing the African Development Bank adopted
on the 4th day of August 1963, as amended from time to time.
"Borrower" means the party to the Loan Agreement to whom the Loan is made.
"Category of Expenditure" means any category of goods, works and services of the Project to
be financed from the resources of the Loan.
"Closing Date" means the date specified in the Loan Agreement or such other later date as shall
be agreed upon in writing among the Bank, the Borrower after which the Bank may terminate the
right of the Borrower to request disbursements of the Loan.
“Co-financing” means any financing specified in the Loan Agreement to be provided for theProject by a financier.
"Currency" includes the currency of a country, the Special Drawing Right of the International
Monetary Fund, the Unit of Account of the Bank and any other unit of account which represents
a debt service obligation of the Bank to the extent of such obligation.
"Currency of a Country" means the coin or currency which is legal tender in that country.
"Date of Entry into Force" means the date on which the Loan Agreement shall enter into force.
"Date of the Loan Agreement” means the date specified in the Loan Agreement.
"Executing Agency" means the entity, whether a legal person or not, which is designated for
the implementation of the Project under the Loan Agreement. If more than one such entity is
designated in the Loan Agreement, an ―Executing Agency‖ refers separately to each such entity.
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"Fund" means the African Development Fund.
"Guarantor" means the party to the Guarantee Agreement entered into with the Bank.
"Guarantee Agreement" means the agreement entered into between the Bank and the
Guarantor, to guarantee the Loan; as such agreement may be amended from time to time.
“Hedging Agreement” means any derivative agreement entered into between the Bank and the
Borrower in connection to any financial obligations to the Bank related to a loan.
"Interest Period" means the interest period defined in the Loan Agreement.
"Lien" means any security provided for the payment of a debt, including mortgages, pledges,
charges, privileges and priorities of any kind.
"Loan" means the maximum amount of the resources granted by the Bank as specified in the
Loan Agreement.
"Loan Account" means the account opened by the Bank on its books in the name of the
Borrower to record the Loan as well as disbursements and repayments of the Loan.
"Loan Agreement" means the agreement entered into between the Bank and the Borrower
providing for the Loan; as such agreement may be amended from time to time.
"Loan Currency" means the Currency or Currencies selected by the Borrower for the Loan,
and the payment obligations thereunder.
"Loan Savings" means any undisbursed amount of the Loan available (i) when the Project has
been fully terminated without any significant change from the initial Project description or its
design and disbursements have been effected in respect of all goods, works, and services
thereunder, or (ii) when the Project nearing completion is progressing satisfactorily according to
the implementation schedule with arrangements finalized for procurement of all goods, works
and services and provisions made for outstanding payments.
"Member State" means a member State of the Bank.
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"Project" means the Project or Program for which the Loan is granted, as described in the Loan
Agreement and as the description thereof may be amended from time to time by agreement
between the Bank and the Borrower.
"Public Entity" means any Legal Entity in which a Regional Member State and/or its politicalor administrative sub-division hold more than fifty per cent (50%) of the shares and/or of the
voting rights.
"Single Currency Loans" mean the lending products introduced by the Bank with effect from
October 1, 1997, as amended from time to time.
"Special Commitment" means any Special Commitment entered into by the Bank.
"Taxes" means all taxes, imposts, levies, fees and duties of any nature, whether in effect at the
Date of the Loan Agreement imposed.
12.1.2 ARTICLE II LOAN ACCOUNT - COMMITMENT CHARGE - SPECIAL
COMMITMENT CHARGE AND REPAYMENT
SECTION 2.01 Loan Account
The amount of the Loan shall be entered in the books of the Bank and such amount may be
disbursed to the Borrower as provided in the Loan Agreement.
SECTION 2.02 Commitment Charge
(a) The Bank may charge a Commitment Charge on terms and conditions to be provided in the
Loan Agreement.
(b) The Borrower shall pay the Commitment Charge on the undisbursed amount of the Loan at
the rate specified in the Loan Agreement. Such Commitment Charge shall begin to accrue 60
days from the Date of the Loan Agreement, or on such other date as the Bank shall from time to
time determine. With respect to any amount under the Loan, the Commitment Charge shall
accrue until (i) the date on which such amount is disbursed to the Borrower or (ii) the date on
which such amount is cancelled or (iii) the Closing Date, whichever date comes first. The
Commitment Charge shall be payable on each interest payment date commencing on the first
interest payment date following the Date of Entry into Force. The commitment charge shall be
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expressed in the Currency loaned.
(c) Any Commitment Charge as stated in paragraph (b) of this Section which has become due
and payable during the provisional effectiveness of the Loan Agreement, shall remain due andpayable to the Bank notwithstanding the non-entry into force, the cancellation or the termination
of the Loan Agreement.
SECTION 2.03 Interests
(a) The Borrower shall pay interest at the rate specified in the Loan Agreement on the amount of
the Loan disbursed and outstanding from time to time. Interest shall accrue from the respective
dates on which such amounts are disbursed.
(b) The Bank may establish an alternate interest rate which shall be applicable if for any reason,
including, but not limited to, financial market disruption, the Bank determines that it has become
impossible to calculate the interest rate in the manner agreed upon in the Loan Agreement. In
such case, the Borrower shall have the right to prepay the Loan without thereby incurring any
penalty or prepayment costs.
(c) In establishing such alternate interest rate, the Bank shall consult with the Borrower, in order
to decide on a substitution formula allowing the Bank to keep the same margin as the margin
defined in the Loan Agreement. This formula shall apply retroactively from the first day of the
Interest Period during which this impossibility to compute the interest rate has been notified, up
to the total reimbursement of the principal of the Loan, interests, prepayment costs, Special
Commitment Charge, Commitment Charge and other charges due under the Loan Agreement, or
up to the date of notification by the Bank of the cessation of the event which caused the
application of the alternate interest rate.
SECTION 2.04 Application of Payment
Except as the Bank may otherwise decide, all payments by the Borrower shall be applied, as the
case may be, in the following order: Commitment Charge, Special Commitment Charge, other
charges, prepayment costs, interest and principal.
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SECTION 2.05 Computations of Interest and Commitment Charge
Interest and Commitment Charge shall be computed on a daily basis in accordance with the
provisions of the Loan Agreement.
SECTION 2.06 Repayments and Prepayment
(a) Except as provided in Section 3.04(e), the Borrower shall repay the principal amount of the
Loan which has been disbursed in accordance with the provisions of the Loan Agreement.
(b) Upon payment of all accrued interest, Commitment Charge, Special Commitment Charge and
other charges, and any prepayment costs calculated in accordance with Section 2.06(c), except as
provided in Section 3.04(d)(ii), and after giving not less than 45 days‘ notice to the Bank . The
Borrower shall have the right to repay, as of a date acceptable to the Bank, in advance of
maturity: (i) the entire principal amount of the Loan then outstanding, or (ii) the entire principal
amount of any one or more maturities which, unless otherwise specified by the Borrower in the
prepayment notice, shall be applied pro-rata to all outstanding Loan maturities.
(c) The prepayment costs payable under paragraph (b) of this Section on prepayment of any
maturity shall, subject to the specific terms governing Single Currency Loans, be an amount
reasonably determined by the Bank to represent any cost to the Bank of redeploying the amount
to be prepaid from the date of prepayment to the maturity date, provided the Bank may, in its
sole discretion, waive the requirement of payment of any prepayment costs.
(d) Each request for prepayment notified to the Bank by the Borrower in accordance with this
Section shall be irrevocable and the amount to be prepaid shall automatically become due on the
date accepted by the Bank.
SECTION 2.07 Place of Payment
The principal of interest, prepayment costs, Special Commitment Charge, Commitment Charge
and other charges on the Loan shall be paid at such place(s) as the Bank shall indicate.
SECTION 2.08 Payments Falling Due on Public Holidays
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Any payment or other obligation which is due under the Loan Agreement to be affected on a
non-working day or a public holiday, according to the relevant local law, shall be considered
made or fulfilled if it is affected on the first working day thereafter, without any penalty or
additional costs to the Borrower.
SECTION 2.09 Promissory Notes
At the request of the Bank, the Borrower shall, within the specified period, execute and deliver to
the Bank, in such form as the Bank shall prescribe, promissory notes or other negotiable
instruments, guaranteed, if necessary, by the Guarantor, representing the obligation of the
Borrower to repay the principal of the Loan together with interest, Special Commitment Charge,
Commitment Charge and other charges.
SECTION 2.10 Restrictions
The repayment of the principal as well as the payment of interest, prepayment costs, Special
Commitment Charge and other charges relating to the Loan shall not be hindered by any
restrictions, regulations, controls of any kind imposed under the legislation of the Borrower.
12.1.3 ARTICLE III CURRENCY PROVISIONS
SECTION3.01. Currencies in which Disbursement is to be made
(a) Subject to the Bank's right of Currency substitution in accordance with Section 3.04,
disbursements from the Loan Account shall be made in the Loan Currency in an amount
equivalent to the expenditures to be financed out of the proceeds of the Loan.
(b) In the case of expenditures incurred in a Currency other than the Loan Currency, if the
Borrower requests payment in the Currency of the expenditures, the Bank will, provided such
expenditures are in readily available Currency exchange such Currency in such manner as the
Bank may deem appropriate. The equivalent disbursement amount shall be determined by the
Bank including the exchange costs that would have been incurred by the Bank in using the Loan
Currency to meet the request. The costs of such Currency exchange shall be communicated to the
Borrower.
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SECTION 3.02 Loan Account Currencies
(a) Except as provided in Section 3.02 (b), the Loan Account shall be maintained in the Loan
Currency and shall record the equivalent as of the date of disbursement and repayment in the
Loan Currency of the amounts in various Currencies disbursed and repaid under the Loan fromtime to time. All amounts so recorded shall be the equivalent in the Loan Currency of the
Currency disbursed or repaid, except that if the Bank has exchanged the Currency disbursed
from another Currency in order to provide for such disbursement, then the equivalent in the Loan
Currency of the amount of such other Currency paid by the Bank shall be recorded in the Loan
Account instead.
(b) For loans made in several Currency tranches, the Loan Account shall be divided into multiple
sub-accounts, each one to be maintained in the Loan Currency of each tranche. Each sub-account
shall record the equivalent as of the date of disbursement and repayment in the respective Loan
Currency of the amounts in various Currencies disbursed or repaid, except that if the Bank has
exchanged the Currency disbursed with another Currency in order to provide for such
disbursement then the equivalent of the amount of such other Currency paid by the Bank shall be
recorded in the sub-account instead.
SECTION3.03. Currencies in which Payments to the Bank are Payable
(a) Except as provided in Section 3.04(g), repayment of principal and payment of prepayment
costs, interest, Special Commitment Charge, Commitment Charge and other charges shall be
made in the Loan Currency.
(b) If the Borrower so requests, the Bank may, acting on behalf of the Borrower, and on such
terms and conditions as the Bank shall determine, purchase the Loan Currency for the purpose of
the repayment of principal and payment of prepayment costs, interest, Special Commitment
Charge, Commitment Charge and other charges, upon timely payment by the Borrower of sufficient funds for that purpose in a Currency or Currencies acceptable to the Bank. However,
that such repayment or payment shall be deemed to have been paid only when and to the extent
that the Bank has received the payment in the Loan Currency.
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SECTION 3.04 Temporary Currency Substitutions
(a) If the Bank reasonably determines that an extraordinary situation, whether factual or legal,
has arisen under which the Bank is unable to provide the Loan Currency for purposes of funding
Single Currency Loans, then the Bank shall promptly notify the Borrower of its inability toaccess or procure the Loan Currency after becoming aware of such inability. If within 60 days
following such notification the Bank and the Borrower cannot agree on a substitute Currency, the
Borrower may cancel the undisbursed portion of the Loan for which an agreement has not been
reached as to the currency of substitution.
(b) For each payment, the date of conversion between the Loan Currency and the substitute
currency shall be the date of disbursement of the substitute currency.
(c) The interest rate applicable to Loan amounts disbursed in the substitute currency shall be the
interest rate applicable to similar single currency loans in such substitute currency at the time of
disbursement. The Bank shall duly notify the Borrower of such interest rate.
(d) During the period of operation of the Currency substitution:
(i) The substitute Currency shall be deemed to be the Loan Currency for purpose of Loan
Agreement.
(ii) No prepayment costs shall be payable on prepayment of the Loan.
(iii) Repayment of principal and payment of interest, prepayment costs, Special Commitment
Charge, Commitment Charge and other charges shall be made in the Loan Currency and/or in
such temporary substitute Currency as the Bank shall have selected.
(iv)The Bank shall reasonably determine the guiding principles for the conversion of amounts
from the Loan Currency to the substitute Currency.
(e) The Bank may, by notice to the Borrower, modify the principal amount of any one or more
maturities of the Loan provided for in the Loan Agreement, maturing after the establishment of
any such substitute Currency to reflect changes in value as provided for in Section 3.04(d) (iv).
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(f) The Currency substitution shall be terminated as soon as practicable once the Bank becomes
able to provide again the original Loan Currency.
(g) All funds disbursed in a substitute Currency shall be repaid in the substitute Currency.
Section 3.05 Valuation of Currencies
For the purposes of the Loan Agreement, whenever it shall be necessary to determine the value
of one Currency in terms of another Currency, such value shall be as reasonably determined by
the Bank. The Bank shall notify the Borrower.
12.1.4 ARTICLE IV DISBURSEMENT OF THE LOAN
SECTION 4.01 Disbursement of the Loan
The Borrower shall be entitled to request from the Bank the disbursement of funds for amounts
expended for purposes of the Project, in accordance with the provisions of the Loan Agreement
provided that, except with the consent of the Bank. No disbursements shall be made: (a) on
account of expenditures procured in violation of the Bank‘s procurement rules (b) subject to the
terms of the Loan Agreement, to finance expenditures incurred prior to the Date of the Loan
Agreement.
SECTION 4.02 Special Commitments by the Bank
The Bank may, at the request of the Borrower and upon such terms and conditions as shall be
agreed upon between the Bank and the Borrower enter into special commitments in writing to
pay amounts to the Borrower or others in respect of expenditures to be financed out of the
proceeds of the Loan notwithstanding any subsequent suspension or cancellation by the Bank or
the Borrower. The Borrower shall pay a charge (special commitment charge) at the rate specified
in the Loan Agreement.
SECTION 4.03 Requests for Disbursement or for Special Commitment
If the Borrower seeks disbursement of any amount from the Loan Account the Bank to enter into
a Special Commitment, the Borrower shall deliver to the Bank a written request in such form,
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and containing such statements, agreements, undertakings and documents as the Bank shall
reasonably request. Requests for disbursement, including the documentation required pursuant to
this Article, shall be made promptly and in conformity with the disbursement rules and
procedures determined by the Bank from time to time.
SECTION 4.04 Payments by the Bank
The Loan funds disbursed shall be payable by the Bank to, or on the order of, the Borrower in
accordance with the terms of the Loan Agreement.
SECTION 4.05 Reallocation and Loan Savings
(a) The Bank may, at the request of the Borrower, and in accordance with its policies as
applicable from time to time, modify the allocation of expenditures of the Project to be financed
from the Loan.
(b) The reallocation of the Loan funds from one Category of Expenditures to another or within
the same Category of Expenditures shall not, however be made if such reallocation would in the
opinion of the Bank (i) compromise the execution of the Project (ii) substantially modify the
nature or objectives of the Project.
(c) Loan Savings may be allocated in accordance with the policy of the Bank as determined from
time to time.
SECTION 4.06 Evidence of Authority to Sign Requests for Disbursement
The Borrower shall provide the Bank with evidence of the authority of the person or persons
authorized to sign requests for disbursement and the authenticated specimen signature(s) of any
such persons
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.
SECTION 4.07Supporting Evidence
The Borrower shall provide the Bank with such documents and other evidence as the Bank shall
request in support of any request for disbursement, in accordance with its disbursement rules and
procedures.
SECTION4.08. Sufficiency of Requests and Documents
Each request for disbursement and the accompanying documents and other evidence shall be
sufficient in form and substance to satisfy the Bank that the Borrower is entitled to obtain the
disbursement of the amount requested for and that the said amount is to be used only for the
purposes specified in the Loan Agreement.
SECTION 4.09 Treatments of Taxes
If permitted by the Loan Agreement, the use of any proceeds of the Loan to pay for Taxes levied
by, or in the territory of, the Member State in respect of the importation, manufacture,
procurement or supply of any goods, works or consultancy services is subject to the Bank‘s
policy of requiring economy and efficiency in the use of the proceeds of its loans. To that end, if
the Bank at any time determines that the amount of any such Tax is excessive, or that such Tax is
discriminatory or otherwise unreasonable, the Bank may, by notice to the Borrower, decline to
finance any such amount, as required to ensure consistency with such policy of the Bank.
12.1.5 ARTICLE V CANCELLATION AND SUSPENSION
SECTION 5.01 Cancellations by the Borrower
(a) The Borrower may by notice to and after consultation with the Bank, cancel the whole or part
of the Loan which has not been disbursed, except that the Borrower may not so cancel any
amount of the Loan in respect of which the Bank has entered into a Special Commitment.
(b) For purposes of paragraph (a) of this Section, the Borrower shall give 60 day notice to the
Bank of its intention to cancel all or part of the Loan and its reasons for so doing. The Bank shall
notify the Borrower of the date of receipt of such notice and shall consult with the Borrower on
the reasons for its request for cancellation. Unless the parties otherwise agree, the cancellation
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shall take effect 60 days from the date of receipt by the Bank of the Borrower‘s cancellation
notice.
SECTION 5.02 Suspensions by the Bank
1) If any of the following events has occurred and is continuing, the Bank may, by notice to the
Borrower, suspend in whole or in part the right of the Borrower to request for and receive
disbursements from the Loan Account:
Payment Failure
(a) The Borrower has failed to make payment when due of principal, interest, prepayment costs,
commitment charge or any other amount due to the Bank: (i) under the Loan Agreement, (ii)
under any other agreement between the Bank and the Borrower, (iii) in consequence of any
guarantee or other financial obligation of any kind extended by the Bank to any third party with
the agreement of the Borrower, or (iv) under any agreement between the Borrower and the Fund
or between the Borrower and any Bank Managed Fund.
(b) The Guarantor has failed to make payment of principal, interest, prepayment costs,
commitment charge or any other amount due to the Bank or the Fund: (i) under the Guarantee
Agreement, (ii) under any other agreement between the Guarantor and the Bank, (iii) in
consequence of any guarantee or other financial obligation of any kind extended by the Bank to
any third party with the agreement of the Guarantor.
Performance Failure
(c) The Borrower has failed to perform any other obligation under the Loan Agreement or any
Hedging Agreement, the Bank determines that the Project objectives cannot be achieved.
Cross-suspension
(d) The Bank has suspended in whole or in part the right of the Borrower to request or receive
disbursements under any agreement with the Bank, because of a failure by the Borrower to
perform any of its obligations under such agreement with the Bank.
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Events Prior to Effectiveness
(e) After the Date of the Loan Agreement and prior to the Date of Entry into Force, any event has
occurred which would have entitled the Bank to suspend the Borrower's right to request for and
receive disbursements from the Loan Account if the Loan Agreement had been effective on thedate such event occurred.
Co-financing
(f) Any of the following events occurs with respect to any Co-financing:
(i) If the Loan Agreement specifies a date by which the agreement with such financier providing
for the Co-financing is to become effective, such co-financing agreement has failed to become
effective by that date, or such later date as the Bank has established by notice to the Borrower
provided, however, that the provisions of this sub-paragraph shall not apply if the Borrower
establish to the satisfaction of the Bank that adequate funds for the Project are available from
other sources on terms and conditions consistent with the obligations of the Borrower under the
Loan Agreement .
(ii) Subject to sub-paragraph (iii) of this paragraph: (A) the right to withdraw the proceeds of the
Co-financing has been suspended, cancelled or terminated in whole or in part, pursuant to the
terms of the relevant co-financing agreement; or (B) the Co-financing has become due and
payable prior to its agreed maturity.
(iii) Sub-paragraph (ii) of this subsection shall not apply if the Borrower establish to the
satisfaction of the Bank that: (A) such suspension, cancellation, termination or pre-maturing was
not caused by the failure of the recipient of the Co-financing to perform any of its obligations
under the relevant agreement; and (B) adequate funds for the Project are available from other
sources on terms and conditions consistent with the obligations of the Borrower under the Loan
Agreement.
(g) Condition of Borrower
(i) Any material adverse change in the condition of the Borrower which materially affects the
financial ability of the Borrower to repay the Loan has occurred.
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(ii) The Borrower has become unable to pay its debts as they mature or any action has been taken
by the Borrower or by others whereby any of the Assets of the Borrower shall or may be
distributed among its creditors.
(iii) Any action has been taken for or suspension of operations of the Borrower.
(iv) In the opinion of the Bank, the legal character, ownership or control of the Borrower has
changed from that prevailing as of the date of the Loan Agreement so as to materially and
adversely affect the ability of the Borrower to perform any of its obligations arising under or
entered into pursuant to the Loan Agreement, or to achieve the objectives of the Project.
SECTION 5.03 Cancellations by the Bank
1) The Bank may, by notice to the Borrower, cancel the whole or part of the Loan, as the case
may be, if:
(a) Interruption of the Project: Project operations shall be deemed to have ceased if no
disbursement has been made for a continuous period of two years.
(b) Suspension: the right of the Borrower to disbursement of the Loan, has been suspended with
respect to any amount of the Loan for a continuous period of 30 days.
(c) Amount not Required: at any time, the Bank determines, after consultation with the
Borrower, that an amount of the Loan will not be required to finance any Project costs previously
allocated to be financed out of the Loan proceeds;
(d) Closing Date: on the day following the Closing Date, an amount of the Loan shall not have
been disbursed;
(g) Cancellation of Guarantee: the Bank has received prior notice from the Guarantor pursuant
to Section 5.06 (b) with respect to an amount of the Loan.
(h) Modification of the Project: the Borrower has modified the nature or the objectives of the
Project financed from the resources of the Loan.
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Upon the giving of such notice, such amount of the Loan shall be cancelled on the date decided
by the Bank and indicated in the notice, provided that : (i) in the case of paragraph (a) above, the
Borrower shall be given not less than three 3 months‘ notice in writing within which it may
submit all or any outstanding disbursement requests for settlement by the Bank prior to Loan
cancellation, and (ii) in the case of paragraph (c) above, a consultation with the Borrower is
carried out as indicated in sub-section (2) below.
2) Consultation as required in paragraph (c) of sub-section (1) above must be carried out within
60 days after the date the Bank gives notice of its intention to cancel such amount of the Loan
not required to finance any Project costs previously allocated to be financed out of the Loan
proceeds. In the absence of an agreement to the contrary within such 60 day period, the
cancellation will become effective on the date of expiry of the above-mentioned period.
SECTION 5.04 Amounts Subject to Special Commitment not Affected by Cancellation or
Suspension by the Bank.
No cancellation or suspension by the Bank shall apply to amounts subject to any Special
Commitment except as expressly provided in such Special Commitment.
SECTION 5.05Effectiveness of the Provisions of the Loan Agreement after Suspension or
Cancellation
Notwithstanding any cancellation or suspension, as provided for in Sections 5.01, 5.02 and 5.03
above, the provisions of the Loan Agreement shall continue in full force and effect.
SECTION5.06. Cancellation of Guarantee
(a) If the Borrower has failed to make payment of principal or interest or any other payment
required under the Loan Agreement, and such payment has been made by the Guarantor, the
Guarantor may after consultation with the Bank, and by notice to the Bank and the Borrower,
terminate its obligations under the Guarantee Agreement with respect to any amount of the Loan
undisbursed from the Loan Account on the date of receipt of such notice by the Bank and not
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subject to any Special Commitment. Upon receipt of such notice by the Bank, and subject to
paragraph (b) below, the Guarantor‘s obligations in respect of such amount shall terminate.
(b) For the purposes of paragraph (a) of this Section, the Guarantor shall give prior notice to the
Bank of its intention to terminate its obligations under the Guarantee Agreement. The Bank andthe Guarantor shall have 60 days from the date of receipt of the notice by the Bank to consult
each other. If at the expiry of this notice period there is no agreement between the parties, the
Guarantor may notify the Bank of the termination of its obligations.
12.1.6 ARTICLE VI ACCELERATION TO MATURITY
SECTION 6.01 Events of Acceleration
If any of the following events occurs and continues for the period specified, as the case may be,
the Bank may, at its option, by notice to the Borrower , declare all or part of the principal of the
Loan then outstanding to be due and payable immediately together with the interest, prepayment
costs, Special Commitment Charge, Commitment Charge and other charges thereon and upon
any such notice, such principal together with the interest, prepayment costs, Special
Commitment Charge, Commitment Charge and other charges thereon shall become due and
payable immediately from the date of such notification:
Payment Default
(a) A default occurs in the payment of principal or interest or any other payment required under
the Loan Agreement and such default shall continue for a period of 30 consecutive days.
(b) A default occurs in the payment by the Borrower of principal or interest or any other amount
due to the Bank: (i) under any other loan agreement between the Bank and the Borrower (ii) in
consequence of any guarantee or other financial obligation of any kind extended by the Bank to
any third party with the agreement of the Borrower (iii) under any loan agreement between the
Bank and the Borrower, and such default shall continue for a period of 30 consecutive days.
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Performance Default
(c) A default occurs in the performance of any other obligation on the part of the Borrower
under the Loan Agreement or any Hedging Agreement, and such default shall continue for a
period of 60 days after notice thereof has been given by the Bank to the Borrower.
12.1.7 ARTICLE VII TAXES
SECTION 7.01 Taxes
(a) The principal of, and interest, Special Commitment charge, commitment charge and other
charges on, the Loan shall be paid without deduction for, and free from, any taxes levied in the
territory of the country of the Borrower.
(b) The Loan Agreement shall be free from any taxes levied in the territory of the country of the
Borrower.
12.1.8 ARTICLE VIII PROJECT IMPLEMENTATION - COOPERATION AND
INFORMATION-FINANCIAL AND OTHER INFORMATION - NEGATIVE PLEDGE
(PARI PASSU)
SECTION 8.01Project Implementation
The Borrower shall carry out the Project and/or cause the Executing Agency to carry out the
Project:
(a) With due diligence and efficiency;
(b) In conformity with all applicable laws and regulations;
(c) In conformity with appropriate administrative, technical, financial, economic, environmental
and social standard and practices; and
(d) In accordance with the provisions of the Loan Agreement, as well as any performance
arrangement to be entered into between the Borrower and the Executing Agency.
SECTION 8.02Cooperation and Information
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(a) The Bank and the Borrower, as the case may be, shall cooperate fully to ensure that the
purposes of the Loan will be accomplished. To that end, the Bank, the Borrower shall:
(i) From time to time, at the request of any one of them, exchange views with regard to the
progress of the Project, the purposes of the Loan, and the performance of their respectiveobligations under the Loan Agreement and provide to the other party all such information related
thereto as it shall reasonably request.
(b) The Borrower and the Guarantor shall afford all reasonable opportunity for representatives
of the Bank to visit any part of the territory of their country for purposes related to the Loan and
enable the Bank's representatives to visit any facilities and construction sites included in the
Project and to examine the goods financed out of the proceeds of the Loan and any plants,
installations, sites, works, buildings, property, equipment, records and documents relevant to the
performance of the obligations of the Borrower under the Loan Agreement.
(c) The Borrower shall permit staff and other representatives of the Bank including members of
the Bank's Compliance Review and Mediation Unit or its Independent Review Mechanism to
perform their functions including conducting investigations, as necessary. In this connection, the
Borrower shall provide such representatives of the Bank relevant information and facilitate the
examination of records, accounts and other documents or interview relevant persons, as
determined by the Bank.
SECTION8.03. Financial and Other Information
The Borrower shall provide to the Bank the information that the Bank shall request relating to
their respective organizational structure, operations, financial situation and, in particular,
financial statements.
SECTION8.04. Negative Pledge
(a) In providing a Loan, the Bank may require that the Regional Member State, or a public
institution of the Regional Member State in whose territory the Borrower is located or
incorporated, provides a Guarantee and/or request that the Borrower provides such other
assurances to the effect that the Borrower shall fulfill its obligations to the Bank. Such securities
may be enforced in accordance with their governing law.
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(b) The Borrower undertakes that, except as the Bank shall otherwise agree:
(i) if such Borrower shall create any Lien on any of its Assets as security for any debt, such Lien
will equally secure the payment of the principal of, and interest, prepayment costs, Special
Commitment Charge, Commitment Charge and other charges on, the Loan and in the creation of any such Lien express provision will be made to that effect, at no cost to the Bank.
(c) The foregoing provisions of paragraph (b) of this Section shall not apply to: (i) any Lien
created on property, at the time of purchase thereof, solely as security for the payment of the
purchase of such property (ii) any Lien arising in the ordinary course of banking transactions and
securing a debt maturing not more than one year after the date on which it is originally incurred.
SECTION8.05. Insurance
The Borrower shall insure or cause to be insured the goods to be financed out of the proceeds of
the Loan against hazards incidental to the acquisition, transportation, delivery, installation and
use thereof during the entire period of Project implementation until completion. Any indemnity
for such insurance shall be payable in a freely usable Currency to replace or repair such goods.
SECTION8.06. Plans and Schedules
The Borrower shall promptly provide, or cause to be provided, to the Bank upon their
preparation, copies of any plans, specifications, reports, contract documents, construction, and
procurement schedules for the Project, and any material modifications thereof or additions
thereto, in such detail as the Bank shall reasonably request.
SECTION8.07. Accounts, Records and Audit
(a) The Borrower shall cause the Executing Agency to:
(i) Maintain records and procedures adequate to record and monitor the progress of the Project
(including its costs and the benefits to be derived from it, according to indicators acceptable to
the Bank), to identify the goods, works and services financed out of the proceeds of the Loan,
and to disclose their use in the Project;
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(ii) Provide to the Bank reports in form and substance satisfactory to the Bank on the execution
of the Project, including recommendations to ensure the continued effective and efficient
execution of the Project with a view to achieve its objective, at such intervals as provided by the
applicable Bank policy and in accordance with the directives which the Bank shall from time to
time issue to that end.
(iii) Provide to the Bank at regular intervals all such information and reports as the Bank shall
reasonably request concerning the Project, its cost and, where appropriate, the benefits to be
derived from it, the participation of Project beneficiaries in the implementation and supervision
of the Project, the expenditure of the proceeds of the Loan and the goods, works and services
financed out of such proceeds.
(b) The Borrower shall provide the audited financial statements to the Bank as promptly as
possible and, in any event, not later than 6 months after the end of the relevant financial year.
(c) The Borrower shall cause the Executing Agency to, keep all records (contracts, orders,
invoices, bills, receipts and other documents) evidencing expenditures financed with the Loan
until the later of: (i) one year after the Bank has received the audited financial statements
covering the period during which the last disbursement of the Loan was made (ii) two years after
the Closing Date. The Borrower shall enable the Bank‘s representatives to examine such records.
12.1.9 ARTICLE IX - SETTLEMENT OF DISPUTES - APPLICABLE LAW
SECTION 9.01 Settlements of Disputes
(a) Except for liens and other securities taken where the Bank can decide to enforce its rights in
accordance with the law governing the creation of such securities, any controversy between the
parties to the Loan Agreement and any claim by a party against the other party arising under the
Loan Agreement will be settled. If no settlement is reached within 90 days from the date
notification is given by one party of a request for submission of the dispute to settlement, the
dispute may be submitted to arbitration, as provided hereunder, by either party.
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(b) Except as otherwise specified in this Section, the arbitration shall be conducted in accordance
with the United Nations Commission on International Trade Law (UNCITRAL) Arbitration
Rules. The parties to such arbitration shall be the Bank on the one side and the Borrower and on
the other side.
(c) The arbitral tribunal shall consist of three arbitrators appointed as follows:
One arbitrator shall be appointed by the Bank; a second arbitrator shall be appointed by the
Borrower, and the third arbitrator (sometimes called the Umpire) shall be appointed by the two
arbitrators first appointed by the parties. If within 30 days from the date of notification of the
submission to arbitration, either side fails to appoint an arbitrator, such arbitrator shall be
appointed by the appointing authority. If within 60 days after the notice instituting the arbitration
proceeding, the two arbitrators shall not have agreed upon an Umpire, any party may request the
appointing authority to designate the Umpire. In case any arbitrator appointed in accordance with
this Section resigns, dies or becomes unable to act, a successor arbitrator shall be appointed in
the same manner as herein prescribed for the appointment of the original arbitrator and such
successor shall have all the powers and duties of such original arbitrator.
SECTION 9.02 Applicable Law
Unless otherwise provided in the Loan Agreement, the law to be applied to the Loan Agreement
shall be public international law, the sources of which shall be taken for these purposes to
include:
(a) Any relevant treaty obligations that are binding reciprocally on the parties to these
agreements;
(b) The provisions of any international conventions and treaties generally recognized as having
codified into binding rules of customary law applicable to states and to international financial
institutions, as appropriate;
(c) International custom, as evidence of a practice accepted as law; and
(d) General principles of law applicable to multilateral economic development activities.
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13. WHY NTPC IS SUPERIOR THAN OTHERS?
RELIANCE POWER
1. RELIANCE POWER & ADANI POWER as well as others domestic & foreign companies
have bid for setting up a Rs 1,025-crore power transmission project connecting Tamil Nadu and
Karnataka even as the central government tightened eligibility rules on 26-07-2011.
Power Finance Corp is coordinating the bidding for the build-own-operate project; which
involves laying two high capacity 250-km transmission lines to connect Nagapattinam with
Madhugiri in Karnataka.
2. RELIANCE POWER is likely to get a loan of $625 million (Rs 2,800 crore) from US Exim
Bank to fund its upcoming 2,400-MW gas-based power project in Samalkot, Andhra Pradesh on
25-07-2011.
Mr. Fred P Hochberg, Chairman President of US Exim Bank told that ―The US Exim Bank is
close to disbursing a loan of $625 million for Reliance Power plant in Samalkot. The approval
should come in 4 to 6 weeks. We have already funded Reliance Power's coal-based power
project in Sasan and its mining venture."
This loan is a part of the $5-billion deal signed with Reliance Power for the purchase of US
manufactured equipment for power projects. This loan is to be disbursed because last year
Reliance Power placed a $750-million equipment contract with GE for the 2,400-MWSamalkot
expansion.
3. RELIANCE POWER aims to earn Rs 5,000 crore from carbon credit from the three ultra-
mega power projects of 4,000 MW on 12-07-2011.
It seeks to earn almost Rs 2,000 crore in 10 years by registering its 4,000 MW Tilaiya ultra mega
power project for carbon credits after it got two of the other mega projects registered with the
Clean Development Mechanism Executive Board (CDM-EB) of United Nations Framework
Convention on Climate Change (UNFCCC).
4. The Madhya Pradesh government has asked RELIANCE POWER to sign the power
purchase agreement (PPA) for the 3,960-MW Chitrangi power project by the end of July month.
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TATA POWER VS. RELIANCE POWER ON 14-07-2011
The Supreme Court on Wednesday admitted Tata group's plea against the government's decision
to allow RELIANCE POWER to use coal mined from blocks allotted to Sasan Power for other
projects, but the ADAG Company said it is going ahead with implementation of its projects asper schedule.
A bench of Justice admitted the petition of Tata group company Tata Power and posted the
matter for hearing in February next year.
Tata Power has challenged the Centre's decision to allow Reliance Power to use coal minded
from blocks allotted to the Rs 20,000-crore Sasan Power Project for other power projects.
Tata Power has challenged the decision by the Empowered Group of Ministers to allow Reliance
Power to use excess coal from the captive mines meant for the Sasan project in Madhya Pradesh
for another 4,000 MW project at Chitrangi in the same state.
However, Tata Power had refuted these allegations in its rejoinder and submitted that bidding
process for Sasan UMPP was never meant or intended to vest the successful bidder to extra coal
supply of 9 million ton per annum, which could be used for developing other power projects.
ADANI POWER
1. ADANI POWER may look at bidding for UMPP with capacity 4000 MW on 18-07-2011.
Adani with its subsidiaries having combine capacity 16,500 MW in the coming year.
"The company is in advanced stages of implementing 4,620 MW coal-based power project at
Mundra in Gujarat, 3,300 MW coal- based power project at Tiroda in Maharashtra and 1,320
MW coal-based power project at Kawai in Rajasthan".
Adani Power posted a total income of Rs 2,125.07 crore, including Rs 2,106.43 crore from sale
of power. The entity raked in a profit after tax of Rs 523.75 crore last fiscal.
2. ADANI POWER will merge group firm Grow more Trade and Investment Private Ltd,
Mauritius with itself, the company said on 7-7-2011, in a stock deal worth 23.6 billion rupees
($531 million).
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The Merger would be at a share swap ratio of 16,615 shares of Adani Power of 10 rupees each
for every 10,000 ordinary shares of $1 each of Grow more.
A total of 213.2 million shares of Adani will be issued to Grow more as a result of this swap
deal.
NTPC
1. State-run power major NTPC's trading arm NTPC Vidyut Vypar Nigam Ltd. (NVVN) has
been given the mandate to export 250 MW of power from NTPC to Bangladesh on 18-07-2011.
NVVN has signed the power purchase agreement with the Bangladesh Power Development
Board (BPDB).
The transmission lines between India and Bangladesh are being set up under a pact signed
between Power Grid Corporation of India Ltd and BPDB in July last year.
The links are expected to be in place by early 2013 and are being executed at a cost of around
USD 190 million.
The interconnection between India and Bangladesh is being established through a 500-MW
HVDC (high voltage direct current) link between India's eastern region and the western grid of
Bangladesh.
2. NTPC will make a final offer for a stake in Australia's Bandanna Energy Ltd on 13-07-2011.
NTPC has cut its generation capacity target to 70,000-mw by March 2017 from 75,000-mw
earlier, due to coal, gas supply and land acquisition issues.
3. Coal supply shortages and environmental hurdles may force state-run NTPC to scale down its
target for ramping up power generation capacity to 75,000 MW by 2017 to 70,000 MW. "We
would be able to do about 70,000 MW by 2017, remaining 5,000 MW looks difficult due to coal
shortage and environment issues" on 13-07-2011.
The company, which requires huge funding for its upcoming and expansion projects, recently
signed a Rs 10,000 crore (over USD 2 billion) loan agreement with State Bank of India for
financing its projects.
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4. State-run NTPC has raised USD 500 million through an international bond issue that attracted
commitments worth USD 2.7 billion from foreign investors. The latest fund raising from NTPC
also indicates revival in overseas bond market and could also encourage more Indian entities to
tap the route on 10-07-2011.
NTPC's bond issue elicited response from more than 230 investors, who made commitments to
the tune of USD 2.7 billion.
NTPC's upcoming projects include 1,320 MW Sholapur plant and 4,000 MW mega thermal
power plants in Kudgi, Karnataka. The entity plans to add 1, 28,000 MW capacity by 2032.
In recent times, European debt woes and concerns about health of global economy have cast a
shadow on fund raising activities in international markets.
The bond sale was part of the company's USD 1 billion Medium Term Note (MTN) programme.
These bonds have a coupon of 5.625 per cent per annum payable semi-annually and are due for
maturity on July 14, 2021.
Book runners for the USD 500 million bond issue were Barclays Capital, Citigroup, Deutsche
Bank and The Royal Bank of Scotland.
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14. REGULATORY FRAMEWORK FOR INTERNATIONAL FINANCE
14.1 EXTERNAL COMMERCIAL BORROWINGS (ECB)
External Commercial Borrowings availed of by residents are governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999 read with Notification
No. FEMA 3/ 2000-RB. Foreign Exchange Management Regulations, 2000, dated May 3, 2000,
as amended from time to time.
At present, Indian companies are allowed to access funds from abroad in the following methods:
(a) External Commercial Borrowings (ECB) refer to commercial loans in the form of bank loans,
buyers‘ credit, suppliers‘ credit, securitized instruments (e.g. floating rate notes and fixed rate
bonds, non-convertible, optionally convertible or partially convertible preference shares) availed
of from non-resident lenders with a minimum average maturity of 3 years.
(b) Foreign Currency Convertible Bonds (FCCBs) mean a bond issued by an Indian company
expressed in foreign currency, and the principal and interest in respect of which is payable in
foreign currency.
(c) Foreign Currency Exchangeable Bond (FCEB) means a bond expressed in foreign currency,
the principal and interest in respect of which is payable in foreign currency, issued by an Issuing
Company and subscribed to by a person who is a resident outside India, in foreign currency and
exchangeable into equity share of another company, to be called the Offered Company, in any
manner, either wholly, or partly or on the basis of any equity related warrants attached to debt
instruments.
ECB can be accessed under two routes:-
(i) Automatic Route (ii) Approval Route
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14.1.1 AUTOMATIC ROUTE
The following types of proposals for ECBs are covered under the Automatic Route:-
i) Eligible Borrowers
(a) Corporates and Infrastructure Finance Companies (IFCs) except financial intermediaries,
such as banks, financial institutions (FIs), and Non-Banking Financial Companies (NBFCs) are
eligible to raise ECB. Individuals, Trusts and Non-Profit making organizations are not eligible to
raise ECB.
(b) Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement.
(c) Non-Government Organizations (NGOs) engaged in micro finance activities are eligible to
avail of ECB. Such NGOs should have a satisfactory borrowing relationship for at least 3 years
with a scheduled commercial bank authorized to deal in foreign exchange in India.
ii) Recognized Lenders
Borrowers can raise ECB from internationally recognized sources such as (i) international banks,
(ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, etc.) /
regional financial institutions and Government owned development financial institutions, (iv)
export credit agencies, (v) suppliers of equipment‘s, (vi) foreign collaborators and (vii) foreign
equity holders (Overseas Corporate Bodies (OCBs)).
A "foreign equity holder" to be eligible as ―recognized lender‖ under the automatic route would
require minimum holding of paid-up equity in the borrower company as set out below:
(a) For ECB up to USD 5 million - minimum paid-up equity of 25 percent held directly by the
lender.
(b) For ECB more than USD 5 million - minimum paid-up equity of 25 percent held directly by
the lender and debt-equity ratio not exceeding 4:1.
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iii) Amount and Maturity
a) The maximum amount of ECB which can be raised by a corporate is USD 500 million or its
equivalent during a financial year.
b) Corporates are allowed to avail of ECB up to USD 100 million or its equivalent in a financial
year for meeting foreign currency and/ or Rupee capital expenditure for permissible end-uses.
c) ECB up to USD 20 million or its equivalent in a financial year with minimum average
maturity of three years.
d) ECB above USD 20 million or equivalent and up to USD 500 million or its equivalent with a
minimum average maturity of five years.
iv)All-in-cost ceilings
All-in-cost includes rate of interest, other fees and expenses in foreign currency except
commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of
withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The all-in-cost
ceilings for ECB are reviewed from time to time.
The following ceilings are valid until reviewed:
Average Maturity Period All-in-cost Ceilings over 6 month LIBOR*
Three years and up to five years 300 basis points
More than five years 500 basis points
In the case of fixed rate loans, the swap cost plus margin should be the equivalent of the floating
rate plus the applicable margin.
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v) End-use
a) ECB can be raised for investment (such as import of capital goods new projects,
modernization/expansion of existing production units) in real sector - industrial sector including
small and medium enterprises (SME), infrastructure sector in India.
b) Overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS)
subject to the existing guidelines on Indian Direct Investment in JV/ WOS abroad.
c) Utilization of ECB proceeds is permitted for first stage acquisition of shares in the
disinvestment process and also in the mandatory second stage offer to the public under the
Government‘s disinvestment program of PSU shares.
d) Infrastructure Finance Companies (IFCs) i.e. Non-Banking Financial Companies (NBFCs)
categorized as IFCs by the Reserve Bank are permitted to avail of ECBs, including the
outstanding ECBs, up to 50 per cent of their owned funds, for on-lending to the infrastructure
sector as defined under the ECB policy.
vi)End-uses not permitted
(a) For on-lending or investment in capital market or acquiring a company in India by a
corporate (investment in Special Purpose Vehicles (SPVs), Money Market Mutual Funds
(MMMFs), etc., are also considered as investment in capital markets).
(b) For real estate sector.
(c) For working capital, general corporate purpose and repayment of existing Rupee loans.
vii) Guarantees
Issuance of guarantee, standby letter of credit or letter of comfort by banks, Financial Institutions
and Non-Banking Financial Companies (NBFCs) from India relating to ECB is not permitted.
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viii) Security
The choice of security to be provided to the lender/supplier is left to the borrower. However,
creation of charge over immoveable assets and financial securities, such as shares, in favour of
the overseas lender is subject to Regulation 8 of Notification No. FEMA 21/RB-2000 dated May
3, 2000 and Regulation 3 of Notification No. FEMA 20/RB-2000 dated May 3, 2000,
respectively, as amended from time to time.
AD Category - I banks have been delegated powers to convey ‗no objection‘ under the Foreign
Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial
securities and issue of corporate or personal guarantees in favour of overseas lender / security
trustee, to secure the ECB to be raised by the borrower.
ix) Parking of ECB proceeds
Borrowers are permitted to either keep ECB proceeds abroad or to remit these funds to India,
pending utilization for permissible end-uses.
x) Prepayment
Prepayment of ECB up to USD 500 million may be allowed by AD banks without prior approval
of Reserve Bank subject to compliance with the stipulated minimum average maturity period as
applicable to the loan.
xi) Refinancing of an existing ECB
The existing ECB may be refinanced by raising a fresh ECB subject to the condition that the
fresh ECB is raised at a lower all-in-cost and the outstanding maturity of the original ECB is
maintained.
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xii) Debt Servicing
The designated AD bank has the general permission to make remittances of installments of
principal, interest and other charges in conformity with the ECB guidelines issued by
Government / Reserve Bank of India from time to time.
xiii) Procedure
Borrowers may enter into loan agreement complying with the ECB guidelines with recognized
lender for raising ECB under Automatic Route without the prior approval of the Reserve Bank.
The borrower must obtain a Loan Registration Number (LRN) from the Reserve Bank of India
before drawing down the ECB.
14.1.2 APPROVAL ROUTE
i) Eligible Borrowers
The following types of proposals for ECB are covered under the Approval Route:-
a) ECB with minimum average maturity of 5 years by Non-Banking Financial Companies
(NBFCs) from multilateral financial institutions, reputable regional financial institutions, official
export credit agencies and international banks to finance import of infrastructure equipment for
leasing to infrastructure projects.
b) Infrastructure Finance Companies (IFCs) i.e. Non-Banking Financial Companies (NBFCs),
categorized as IFCs, by the Reserve Bank, are permitted to avail of ECBs, including theoutstanding ECBs, beyond 50 per cent of their owned funds, for on-lending to the infrastructure
sector as defined under the ECB policy.
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c) Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set up to finance
infrastructure companies / projects exclusively, will be treated as Financial Institutions and ECB
by such entities will be considered under the Approval Route.
ii) Recognized Lenders: - Same as Automatic Route for Infrastructure (Power) projects.
iii) Amount and Maturity
Corporates can avail of ECB of an additional amount of USD 250 million with average maturity
of more than 10 years under the approval route, over and above the existing limit of USD 500
million under the automatic route, during a financial year.
iv)All-in-cost ceilings: - Same as Automatic Route for Infrastructure (Power) projects.
v) End-use:- Same as Automatic Route for Infrastructure (Power) projects.
vi)End-uses not permitted: - Same as Automatic Route for Infrastructure (Power) projects.
vii) Guarantee: - Same as Automatic Route for Infrastructure (Power) projects.
viii) Security: - Same as Automatic Route for Infrastructure (Power) projects.
ix) Parking of ECB proceeds: - Same as Automatic Route for Infrastructure (Power) projects.
x) Prepayment
Pre-payment of ECB for amounts exceeding USD 500 million would be considered by the
Reserve Bank under the Approval Route.
xi) Refinancing of an existing ECB: - Same as Automatic Route for Infrastructure (Power)
projects.
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xii) Debt Servicing: - Same as Automatic Route for Infrastructure (Power) projects.
xiii) Procedure
Applicants are required to submit an application in form ECB through designated AD bank to the
Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India,
Central Office, External Commercial Borrowings Division, Mumbai – 400 001, along with
necessary documents.
14.1.3 TAKE-OUT FINANCE
Refinancing of domestic Rupee loans with ECB is not permitted. Accordingly, take-out
financing arrangement through ECB, under the approval route, has been permitted for
refinancing of Rupee loans availed of from the domestic banks by eligible borrowers in the
power sectors for the development of new projects.
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15. RISKS FOR THE INVESTORS
15.1 Risk mitigation
Risks are perceived as high partly because projects are typically undertaken not by established
utility companies with strong balance sheets but by special purpose companies executingindividual projects on a build-operate-transfer or build-own-operate basis.
The risks associated with the revenue stream are therefore scrutinized. Equity investors may be
willing to accept higher levels of risk in return for higher expected returns on their equity, but
lenders typically have a lower tolerance for risk and a greater need for risk mitigation
mechanisms.
Different kinds of risk
15.2 Construction risk: - Construction risk refers to unexpected developments during the
construction period that lead to time and cost overruns or shortfalls in performance parameters of
the completed project.
High capital intensity and a relatively long construction period make project costs especially
vulnerable to delays and cost overruns. As a result construction risk is generally higher in sectors
such as power and lower in sectors such as telecommunications and urban services.
The reputation and experience of the sponsors and the engineering, procurement, and
construction (EPC) contractor is an important element in assessing construction risk.
While construction risk can be shifted to some extent, it cannot be eliminated entirely, since
penalties for non-performance are typically capped at certain levels and the residual risk has to
be borne by investors.
However, lenders would be satisfied with risk sharing that reduces project risk to a level that can
be absorbed by equity investors without jeopardizing loan repayments.
15.3 Operating risk: - Operating risk is usually low for infrastructure projects and high for
telecommunication sector. Operating risks are typically mitigated by entrusting operation to
experienced operations and maintenance (O & M) contractors.
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One source of operating risk that is very important in the power sector is fuel supply risk.
Private financing of power projects depends critically on the ability to negotiate satisfactory fuel
supply agreements, with appropriate penalties payable by the fuel supplier in the event of
nonperformance.
Fuel supply problems are being tackled in different ways in different private sector power
projects in India.
15.4 Market risk: - Nonfulfillment of demand projections is an obvious example of market risk.
In certain situations investors expect the monopoly purchaser to guarantee a minimum level of
purchase, thus eliminating market risk for the investor.
This is typically the case when an independent power producer sells power to a monopoly
distributor or a water supply project sells water in bulk to a monopoly urban water distributing
company.
Investors are expected to undertake market studies and satisfy themselves that market demand
projections at feasible levels would yield adequate profitability.
15.5 Interest rate risk: - Interest rate risks arise because interest rates can vary during the life of
the project. They are particularly important in infrastructure projects because of the high capital
intensity and long payback periods.
High capital intensity implies that interest costs represent a large part of total costs; long payback
periods mean that financing must be available over a long period, during which interest rates
may change.
One way of handling interest rate risk is to pass it on to consumers, as, for example, in
arrangements in which the impacts of interest rate variations on unit costs are treated as a pass-
through into the tariff.
In the cost-based tariff formula used in many power projects in India, for example, interest costs
are built into the tariff.
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Risk to be borne by the investor, who in turn can hedge the risk through devices such as interest
caps and collars.
The feasibility of this option depends on the sophistication of the relevant financial markets and
the availability of hedging instruments.
Typically, it is much easier to hedge interest rate risks in international markets than in domestic
markets.
15.6 Foreign exchange risk: - Two types of foreign exchange risk need to be distinguished. One
relates to exchange convertibility, the assurance that revenues generated in domestic currency
can be converted into foreign exchange for making payments abroad.
This risk must be borne by the government through suitable convertibility guarantees.
The other type of risk is exchange rate risk, the risk that exchange rate changes lead to large
increases in the domestic currency costs of payments denominated in foreign currency.
15.7 Payment risk: - It becomes very important in situations in which an independent power
producer has to supply electric power to a monopoly buyer, such as a public sector distributor, or
a water purifying company has to supply water to a municipal distributor.
Because the financial condition of public sector utilities in developing countries is often very
weak, investors are naturally concerned about the risk of nonpayment for power or water
delivered to the distributor when the producer has no alternative outlet for the product.
The long-term solution to this problem is to improve the financial standing and creditworthiness
of the utilities or to privatize distribution so that private sector suppliers can deal directly with
private distribution companies or undertake distribution themselves.
15.8 Regulatory risk: - Regulatory risk arises because infrastructure projects have to interface
with various regulatory authorities throughout the life of the project, making them especially
vulnerable to regulatory action.
Another source of regulatory risk is that environmental concerns and standards can become more
stringent during the life of the project, adding to the costs of operation.
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Private investors will expect explicit assurances that cost increases imposed because of
regulatory action will be reflected in a corresponding adjustment in the tariff to project
profitability.
15.9 Political risk: - These risks can be partially mitigated through political risk insuranceoffered by multilateral organizations, such as the Multilateral Investment Guarantee Agency
(MIGA), or bilateral investment protection agreements.
The World Bank's new partial risk guarantee instrument, which covers debt service payments in
case they are interrupted because of nonperformance of specific government obligations, is
another instrument that can play a useful role in this context.
15.10 Arrangements for risk mitigation
Power projects with suitable off take guarantees may have high construction risks, relatively low
operational and market risks, and high payment risk.
Each project has its own risk profile, and risk mitigation structures will vary depending on the
specific circumstances of each project.
Because of the nature of the risks and the involvement of many participants, including project
sponsors, lenders, government agencies, and regulatory authorities, risk mitigation arrangements
are usually complex.
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16. DATA ANALYSIS OF THE PROJECT
Table16.1: Opening Loan balance sheet of all banks
ACCOUNTS CLOSING OPENING DATA
Loan Balance as on 01/04/2011
OPENING LOAN BALANCE
LOAN CODE ERV CODE CURRENCY FC
IBRD-3632-O 2031000 2031002 USD 91,636,958.87
ASIAN DEVEL. BANK 2040050 2040052 JPY 4,267,130,741.00
JBIC-I (IDP-120) 2040040 2040042 JPY 15,110,368,000.00
JBIC-II (IDP-138) 2040040 2040042 JPY 11,894,480,000.00
JBIC-III (IDP-140) 2040040 2040042 JPY 24,631,749,571.00
JBIC-IV (IDP-144) 2040040 2040042 JPY 854,649,867.00
EUROBONDS 2011 2040020 2040022 USD 0.00
KEXIM 2040050 2040052 USD 268,389,075.65
SWEDISH 2040050 2040052 USD 11,884,649.13
EUROBONDS 2016 2040020 2040022 USD 300,000,000.00
ADB II Tranche A 2040050 2040052 USD 75,000,000.00
ADB II Tranche B 2040050 2040052 USD 160,713,000.00
KFW 2040050 2040052 USD 85,714,300.00
JBIC BARH 2040050 2040052 USD 283,610,000.00
NIB 2040050 2040052 EUR 68,563,000.00
BTMU 2040050 2040052 USD 300,000,000.00
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Table16.2: Loan wise Allocation of Interest (Net Charge) as on 04/07/2011
Cumulative up to 04/07/2011
LOAN NO. CURR. Account
Code
Total Interest Withholding
Tax
Total
WORLD BANK-MAIN USD 4060001
17,466,883 17,466,883
Project Share
Vindyachal-II 0.682263
11,917,008 11,917,008
Kayamkulam 0.273656
4,779,917 4,779,917
EAP-Singrauli 0.011115194,144 194,144
EAP-Korba 0.008131
142,023 142,023
EAP-Ramagundam 0.005472
95,579 95,579
EAP-Farakka 0.001875
32,750 32,750
EAP-Rihand 0.002263
39,528 39,528
EAP-Kahalgaon 0.001668
29,135 29,135EAP-Unchahar 0.001550
27,074 27,074
EAP-Vindyachal-I 0.005490
95,893 95,893
Korba 0.006517
113,832 113,832
ADB-Unchahr-II USD 4060002
9,798,267 9,798,267
Total ADB interest for
Unchahar
JBIC-I, JAPAN-Simhadri JPY 4060001
4,109,999 4,109,999
JBIC-II, JAPAN-Simhadri JPY 4060001
2,367,719 2,367,719
JBIC-III, JAPAN-Simhadri JPY 4060001
5,243,323 5,243,323
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JBIC-IV, JAPAN-Simhadri JPY 4060001
170,127 170,127
Total JBIC Interest for
Simhadri 11,891,168 11,891,168
KEXIM - Sipat I 4060002
9,716,070 934,349 10,650,419
Sipat I
SWEDISH Credit Sipat II 4060002
2,039,563 2,039,563
Sipat II
5.875 % Euro Bonds 2016 USD 4060004
206,526,323 53,939,294 260,465,617
Project ShareKoldam 0.045
9,293,685 2,427,268 11,720,953
VSTPP III 0.1945
40,169,370 10,491,193 50,660,563
Unchahar III 0.0514
10,615,453 2,772,480 13,387,933
Sipat I 0.2021
41,738,970 10,901,131 52,640,101
Sipat II 0.2243
46,323,854 12,098,584 58,422,438
Barh 0.0517
10,677,411 2,788,661 13,466,072
Kahalgaon II 0.1642
33,911,622 8,856,832 42,768,454
Korba III 0.0668
13,795,958 3,603,145 17,399,103
ADB II Tranche A USD 4060002
688,992 688,992
Project Share
Sipat I 0.36667
252,630 252,630
Sipat II 0.32286
222,446 222,446
Kahalgaon II 0.31048
213,915 213,915
ADB II Tranche B USD 4060002
1,272,619 1,272,619
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Project Share
Sipat I 0.1133
144,230 144,230
Sipat II 0.3393
431,769 431,769
Kahalgaon II 0.5474 696,620 696,620
KfW 4060002
830,705 830,705
Project Share
Tanda 0.29332
243,660 243,660
Singrauli 0.11806
98,076 98,076
Anta 0.32465
269,685 269,685
TTPS 0.08341
69,288 69,288
Farakka 0.01815
15,081 15,081
Unchahar 0.07712
64,063 64,063
Rihand 0.06676
55,460 55,460
Vindyachal 0.01853
15,393 15,393
JBIC Barh 4060002
(2,010,716) (2,010,716)
NIB Loan 4060002
2,060,093 2,060,093
Project Share
ANTA 0.34522
711,181 711,181
Sipat I 0.38200
786,962 786,962
Dadri- II 0.27278
561,950 561,950
BTMU
1,307,137 167,156 1,474,293
Project
Rihand-III
0.13697 179,039 22,895 201,934
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Barh-II
0.14158 185,064 23,666 208,730
Vindhyachal-IV
0.19789 258,663 33,078 291,740
Simhadri-II
0.11118 145,327 18,584 163,912Mauda
0.41239 539,044 68,933 607,976
BTMU
1,175,527 162,964 1,338,491
Project
Rihand-III
0.17939 210,880 29,234 240,114
Barh-II
0.31389 368,987 51,153 420,140
Vindhyachal-IV
0.17780 209,005 28,974 237,979
Simhadri-II
0.07475 87,876 12,182 100,059
Mauda
0.25417 298,779 41,420 340,199
Net Charge
262,762,631 55,203,763 317,966,394
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Table16.3: Weighted average of KFW Bank
WEIGHTED AVERAGE - KFW WORKINGS:
TRANCHEDATE OF
DRAWLAMOUNT IN USD PROJECT ROI DATE FROM DATE UPTO NO. OF DAYS
KFW - D I 9/24/2007 3,175,000 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
9/24/2007 859,000 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
9/24/2007 5,966,000 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D II 1/8/2008 3,394,272 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
1/8/2008 1,218,541 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
1/8/2008 2,626,418 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
1/8/2008 861,298 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
1/8/2008 682,784 FARAKKA R&M 1.0625% 4/1/2010 9/14/2010 167
1/8/2008 1,216,687 RIHAND R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D III 3/10/2008 4,917,388 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
3/10/2008 1,190,760 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
3/10/2008 1,450,630 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
3/10/2008 1,525,023 UNCHAHAR R&M 1.0625% 4/1/2010 9/14/2010 167
3/10/2008 916,199 RIHAND R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D IV 6/2/2008 2,515,989 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
6/2/2008 2,199,466 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
6/2/2008 2,915,527 ANTA R&M 1.0625% 4/1/2010 9/14/2010 1676/2/2008 1,387,321 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
6/2/2008 575,514 FARAKKA R&M 1.0625% 4/1/2010 9/14/2010 167
6/2/2008 957,170 RIHAND R&M 1.0625% 4/1/2010 9/14/2010 167
6/2/2008 1,203,922 UNCHAHAR R&M 1.0625% 4/1/2010 9/14/2010 167
6/2/2008 1,245,091 VINDHYACHAL R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D V 9/9/2008 3,904,541 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
9/9/2008 1,239,497 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
9/9/2008 2,225,269 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
9/9/2008 92,112 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
9/9/2008 271,507 FARAKKA R&M 1.0625% 4/1/2010 9/14/2010 167
9/9/2008 679,261 RIHAND R&M 1.0625% 4/1/2010 9/14/2010 167
9/9/2008 314,603 UNCHAHAR R&M 1.0625% 4/1/2010 9/14/2010 167
9/9/2008 273,210 VINDHYACHAL R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D VI 3/2/2009 3,481,000 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
3/2/2009 1,068,000 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
3/2/2009 528,000 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
3/2/2009 1,031,000 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
3/2/2009 1,143,000 RIHAND R&M 1.0625% 4/1/2010 9/14/2010 167
3/2/2009 2,568,000 UNCHAHAR R&M 1.0625% 4/1/2010 9/14/2010 167
3/2/2009 181,000 VINDHYACHAL R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D VII 8/3/2009 1,336,000 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
8/3/2009 2,948,000 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
8/3/2009 7,756,000 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
8/3/2009 960,000 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D IX 1/27/2010 1,381,000 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
1/27/2010 561,000 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
1/27/2010 5,500,000 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
1/27/2010 670,000 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
1/27/2010 88,000 FARAKKA R&M 1.0625% 4/1/2010 9/14/2010 167
1/27/2010 600,000 RIHAND R&M 1.0625% 4/1/2010 9/14/2010 167
1/27/2010 1,200,000 UNCHAHAR R&M 1.0625% 4/1/2010 9/14/2010 167
KFW - D IX 3/22/2010 5,226,500 TANDA R&M 1.0625% 4/1/2010 9/14/2010 167
3/22/2010 1,712,900 SINGRAULI R&M 1.0625% 4/1/2010 9/14/2010 167
3/22/2010 3,756,600 ANTA R&M 1.0625% 4/1/2010 9/14/2010 167
3/22/2010 1,888,500 TTPS R&M 1.0625% 4/1/2010 9/14/2010 167
3/22/2010 197,600 FARAKKA R&M 1.0625% 4/1/2010 9/14/2010 167
3/22/2010 1,163,900 RIHAND R&M 1.0625% 4/1/2010 9/14/2010 167
3/22/2010 900,300 UNCHAHAR R&M 1.0625% 4/1/2010 9/14/2010 167
3/22/2010 153,700 VINDHYACHAL R&M 1.0625% 4/1/2010 9/14/2010 167
100,000,000 TOTAL
Ist Interest Period
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ROI Outstanding DATE FROM DATE UPTO NO. OF DAYS ROI Outstanding DATE FROM DATE UPTONO. OF
DAYS
1.1250% 2,948,214 9/15/2010 3/14/2011 181 1.1250% 2,721,429 3/15/2011 3/31/2011 17
1.1250% 797,643 9/15/2010 3/14/2011 181 1.1250% 736,286 3/15/2011 3/31/2011 17
1.1250% 5,539,857 9/15/2010 3/14/2011 181 1.1250% 5,113,714 3/15/2011 3/31/2011 17
1.1250% 3,151,824 9/15/2010 3/14/2011 181 1.1250% 2,909,376 3/15/2011 3/31/2011 17
1.1250% 1,131,502 9/15/2010 3/14/2011 181 1.1250% 1,044,464 3/15/2011 3/31/2011 17
1.1250% 2,438,817 9/15/2010 3/14/2011 181 1.1250% 2,251,215 3/15/2011 3/31/2011 17
1.1250% 799,777 9/15/2010 3/14/2011 181 1.1250% 738,255 3/15/2011 3/31/2011 17
1.1250% 634,014 9/15/2010 3/14/2011 181 1.1250% 585,243 3/15/2011 3/31/2011 17
1.1250% 1,129,781 9/15/2010 3/14/2011 181 1.1250% 1,042,875 3/15/2011 3/31/2011 17
1.1250% 4,566,146 9/15/2010 3/14/2011 181 1.1250% 4,214,904 3/15/2011 3/31/2011 17
1.1250% 1,105,706 9/15/2010 3/14/2011 181 1.1250% 1,020,651 3/15/2011 3/31/2011 17
1.1250% 1,347,014 9/15/2010 3/14/2011 181 1.1250% 1,243,397 3/15/2011 3/31/2011 17
1.1250% 1,416,093 9/15/2010 3/14/2011 181 1.1250% 1,307,163 3/15/2011 3/31/2011 17
1.1250% 850,756 9/15/2010 3/14/2011 181 1.1250% 785,313 3/15/2011 3/31/2011 17
1.1250% 2,336,276 9/15/2010 3/14/2011 181 1.1250% 2,156,562 3/15/2011 3/31/2011 17
1.1250% 2,042,361 9/15/2010 3/14/2011 181 1.1250% 1,885,257 3/15/2011 3/31/2011 17
1.1250% 2,707,275 9/15/2010 3/14/2011 181 1.1250% 2,499,023 3/15/2011 3/31/2011 17
1.1250% 1,288,227 9/15/2010 3/14/2011 181 1.1250% 1,189,132 3/15/2011 3/31/2011 17
1.1250% 534,406 9/15/2010 3/14/2011 181 1.1250% 493,298 3/15/2011 3/31/2011 17
1.1250% 888,801 9/15/2010 3/14/2011 181 1.1250% 820,431 3/15/2011 3/31/2011 17
1.1250% 1,117,928 9/15/2010 3/14/2011 181 1.1250% 1,031,933 3/15/2011 3/31/2011 17
1.1250% 1,156,156 9/15/2010 3/14/2011 181 1.1250% 1,067,221 3/15/2011 3/31/2011 17
1.1250% 3,625,645 9/15/2010 3/14/2011 181 1.1250% 3,346,749 3/15/2011 3/31/2011 17
1.1250% 1,150,962 9/15/2010 3/14/2011 181 1.1250% 1,062,426 3/15/2011 3/31/2011 17
1.1250% 2,066,321 9/15/2010 3/14/2011 181 1.1250% 1,907,373 3/15/2011 3/31/2011 17
1.1250% 85,533 9/15/2010 3/14/2011 181 1.1250% 78,953 3/15/2011 3/31/2011 17
1.1250% 252,114 9/15/2010 3/14/2011 181 1.1250% 232,720 3/15/2011 3/31/2011 17
1.1250% 630,742 9/15/2010 3/14/2011 181 1.1250% 582,224 3/15/2011 3/31/2011 17
1.1250% 292,131 9/15/2010 3/14/2011 181 1.1250% 269,660 3/15/2011 3/31/2011 17
1.1250% 253,695 9/15/2010 3/14/2011 181 1.1250% 234,180 3/15/2011 3/31/2011 17
1.1250% 3,232,357 9/15/2010 3/14/2011 181 1.1250% 2,983,714 3/15/2011 3/31/2011 17
1.1250% 991,714 9/15/2010 3/14/2011 181 1.1250% 915,429 3/15/2011 3/31/2011 17
1.1250% 490,286 9/15/2010 3/14/2011 181 1.1250% 452,571 3/15/2011 3/31/2011 17
1.1250% 957,357 9/15/2010 3/14/2011 181 1.1250% 883,714 3/15/2011 3/31/2011 17
1.1250% 1,061,357 9/15/2010 3/14/2011 181 1.1250% 979,714 3/15/2011 3/31/2011 17
1.1250% 2,384,571 9/15/2010 3/14/2011 181 1.1250% 2,201,143 3/15/2011 3/31/2011 17
1.1250% 168,071 9/15/2010 3/14/2011 181 1.1250% 155,143 3/15/2011 3/31/2011 17
1.1250% 1,240,571 9/15/2010 3/14/2011 181 1.1250% 1,145,143 3/15/2011 3/31/2011 17
1.1250% 2,737,429 9/15/2010 3/14/2011 181 1.1250% 2,526,857 3/15/2011 3/31/2011 17
1.1250% 7,202,000 9/15/2010 3/14/2011 181 1.1250% 6,648,000 3/15/2011 3/31/2011 17
1.1250% 891,429 9/15/2010 3/14/2011 181 1.1250% 822,857 3/15/2011 3/31/2011 17
1.1250% 1,282,357 9/15/2010 3/14/2011 181 1.1250% 1,183,714 3/15/2011 3/31/2011 17
1.1250% 520,929 9/15/2010 3/14/2011 181 1.1250% 480,857 3/15/2011 3/31/2011 17
1.1250% 5,107,143 9/15/2010 3/14/2011 181 1.1250% 4,714,286 3/15/2011 3/31/2011 17
1.1250% 622,143 9/15/2010 3/14/2011 181 1.1250% 574,286 3/15/2011 3/31/2011 17
1.1250% 81,714 9/15/2010 3/14/2011 181 1.1250% 75,429 3/15/2011 3/31/2011 17
1.1250% 557,143 9/15/2010 3/14/2011 181 1.1250% 514,286 3/15/2011 3/31/2011 17
1.1250% 1,114,286 9/15/2010 3/14/2011 181 1.1250% 1,028,571 3/15/2011 3/31/2011 17
1.1250% 4,853,179 9/15/2010 3/14/2011 181 1.1250% 4,479,857 3/15/2011 3/31/2011 17
1.1250% 1,590,550 9/15/2010 3/14/2011 181 1.1250% 1,468,200 3/15/2011 3/31/2011 17
1.1250% 3,488,271 9/15/2010 3/14/2011 181 1.1250% 3,219,943 3/15/2011 3/31/2011 17
1.1250% 1,753,607 9/15/2010 3/14/2011 181 1.1250% 1,618,714 3/15/2011 3/31/2011 17
1.1250% 183,486 9/15/2010 3/14/2011 181 1.1250% 169,371 3/15/2011 3/31/2011 17
1.1250% 1,080,764 9/15/2010 3/14/2011 181 1.1250% 997,629 3/15/2011 3/31/2011 17
1.1250% 835,993 9/15/2010 3/14/2011 181 1.1250% 771,686 3/15/2011 3/31/2011 17
1.1250% 142,726 9/15/2010 3/14/2011 181 1.1250% 131,759 3/15/2011 3/31/2011 17
92,857,150 85,714,300
IInd Interest Period IIIrd Interest Period
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Table16.4: Guarantee fee payable on IBRD for the period 01/04/2011 to 04/07/2011
Table16.5: Guarantee fee of World Bank allocated on different projects
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Table16.6: Foreign Exchange Rate Variation (FERV) of KFW Bank on different projects
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Table16.7: Interest allocation of KFW Bank on different projects
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Table16.8: Differential Interest of all banks
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17. CONCLUSION
International financing takes place on the basis of competitive bidding process.
NTPC sets a competitive bidding panel. In this panel all the multinational development banks
comes to the panel set.
NTPC sends request for proposal (RFP) or request for qualification (RFQ) letter to all banks of
that panel set.
The banks read that RFP/RFQ letter then they come to the panel set for competitive bidding.
RFP/RFQ letter include all the terms and condition for investment.
Each multinational development bank has different code for bidding, different loan code, and
different account code.
At last who has lowest bid price wins the bidding process for investment. After the end of
bidding process, NTPC directly consults to that bank (winner) for investment.
NTPC checks its own balance sheet to know which subsidiary requires financing.
The loan amount which is in foreign currency is converted in local currency (INR) by Indian
commercial banks (State Bank of India, State Bank of Hyderabad etc.).
Selection of Indian commercial banks on the basis of competitive bidding process.
18. RECOMMENDATION & SUGGESTION
The Employee turnover is quite high. Many productive man hours are wasted in order to get the
new employee get accustomed to the working environment of the organization. The company
can look at the root cause of this issue and try to reduce their employee turnover. No doubt that
retaining the talent is not an easy task for the public sector companies but a little appreciation
and remuneration can really boost the morale of the employees.
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19. BIBILIOGRAPHY
(1) www.ntpc.co.in
(2) Fore closing of coal & international finance-www.iea.com
(3) Position paper- power
(4) Financial management-I M PANDEY
(5) Financial management-M Y KHAN
(6) International financial management-V SHARAN
(7)World Bank lending instruments
(8) General Conditions Applicable to the African Development Bank Loan Agreements and
Guarantee Agreements
(9) CPA REVIEWS NOTES- INTERNATIONAL FINANCE
(10) Indian power sector news July 2011
(11) ECB GUIDELINES-RBI
(12) Financing Private Infrastructure: Lessons from India- Montek S. Ahluwalia
(13) www.cercind.gov.in
(14) www.cea.nic.in
(15) www.iea.org
(16)www.powermin.nic.in
(17)www.crisil.com
(18)www.moneycontrol.com
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