Invest Oppurtunitiesin Energy in South Asia PPP SPANCO

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2011 Spanco Ltd, All rights reserved

19th September 2011,Rajinder KachrooBusiness Head

Investment Opportunities in Energy Sector in South Asia: Policy & Regulatory Enablers22 23 September 2011: Mumbai


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Introduction1

Contents

Market condition2

Factors that enable Investment3

Private Public Partnership4

Constraints in PPP5


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Introduction1

The demand for investment in the electricity sector in the world between 2000and 2030 is estimated to be USD9.8 trillion

Developing countries would require more than half of this investment.

Energy is the prime mover of economic growth and is vital to the sustenance ofa modern economy. Future economic growth crucially depends on the long-term availability of energy from sources that are affordable, accessible and

environmentally friendly. To meet the growing aspirations of the people and economies of South Asian,

each of the countries are under immense social and political pressure tosecure reliable, sustainable, and reasonably priced energy supplies to meetthe ever-increasing demand for commercial energy.

India ranks sixth in the world in total energy consumption and needs toaccelerate the development of the sector to meet its growth aspirations.


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STATUS OF ELECTRICITY SECTOR IN SOUTH ASIAIn any assessment of the demand for energy within the region, electricity has to beconsidered separately as it is a secondary form of energy, obtained partly from the primaryenergy sources directly and by conversion of coal, gas, and oil. The rising demand forelectricity reflects the spread of electricity to larger areas to meet the basic need forlighting. The level of use of electricity is considered an indication of rising economicprosperity. Electricity usage is highly capital-intensive, and most of the countries find it

difficult to finance the capital requirements of the industry.

Market Condition2


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Indias vs Global investment requirements - a large Growing Gap between demandand supply?

3

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

$2,300 Bn

$1,900 Bn

High Investment Demand

Demand Scenario (2%)

Historic Future

Private Capital Mobilized in Power Sector

Gap covered by public financing,

and rationing.

Total

PowerInvestment

($Billion)

Cumulative

Sum ($Bn)

Source:: World Bank, IEA, Deloitte Touche

Tohmatsu Emerging Markets Group

Financing required for the Power Sector in Emerging Markets 1990 - 2020


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Investment Needs over 2007-12 period reasonably well established..3 a

Installed generation capacity to increase by about 60,000 MW

(from 125,000 MW to 185,000 MW) Of this about 20-30,000 MW hydro

Investment program estimated to cost US$100 billion

GenerationUS$60 billion (Rs. 2,70,000 crores)

Transmission & DistributionUS$40 billion (Rs. 1,80,000

crores) In addition:

About 20,000 MW of existing thermal capacity to berehabilitated and modernized

Distribution networks to be upgraded and MIS strengthened

Human resources to be revitalized

And:

A low carbon growth strategy to be followed withinternational support (Post G8+5 meeting at Gleaneagles in2005)


7/11 2011 Spanco Ltd, All rights reserved

Public Private partnership4

Public-private partnership (PPP) or P3 or P3 model describes a government service or

private business venture which is funded and operated through a partnership of governmentand one or more private sector companiesThe traditional PPP model more often becomes Private Public Partnership instead of PublicPrivate Partnership
http://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Private_sector



Investment in Power Sector by Type of Private

Participation (1999-2005)

1.48 0.48 0.506.72

0.04 1.76

12.65 13.90

63.01

66.10

10.80

38.90

21.91

0.21

1.082.11

3.064.09

0.01

0

20

40

60

80

100

120

East Asia and

Pacific

Europe and

Central Asia

Latin America

and the

Caribbean

Middle East

and North

Africa

South Asia Sub-Saharan

Africa

In

vestment(USDBillion) Management and lease contract

Greenfield project

Divestiture

Concession

Source: World Bank PPI Database

Fig

Public Private partnership4 a



Importance of Business Environment for Country ; Factors that enable PPP5

Legal Protection of Investors' Rights

Minor

2.98

2.91

2.83

2.83

2.68

2.66

2.49

2.43

2.00

3.57

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Major Critical

Deal-breaker

63% 1 Legal Protection of Investors

36% 2 Consumer Payment Discipline

40% 5 Govt/Multilateral Guarantee

13% 7 Government Efficiency

15% 3 Judiciary's Independence

19% 4 Clear Rules for Exit

19% 6 Investment Grade Debt Rating

8% 9 Transition to Competitive Market

10% 8 Corruption Index Ranking

4% 10 Domestic Borrowing

4% 11 Competitive Selection

13% 12 Possibility of Vertical Integration

RatedDealbreaker RelativeRank



Factors that enable and attract investment ; PPP5 a

Well-managed reform: Increasing ability of utility to generate internal

cash for investment through cost reductions

timely tariff adjustments to recover the cost of supply, and

efficient collection of posted tariffs

Keeping the financial house in order: Improving access to debt financing from domestic/international debt

markets by maintaining profitable operation + acceptable debtservice ratio

Reducing risk & maintaining a healthy regulatory environment:Attracting domestic & foreign equity funding -

creating and maintaining sector structure, regulatory and legalenvironment conducive to minimization of country/projectinvestment risk



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Invest Oppurtunitiesin Energy in South Asia PPP SPANCO

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