My dear fellow Reliance Power shareowners
I am delighted to welcome each one of you to our first Annual General Meeting since the listing of the Company on the stock exchanges though, for the record, it is our 14th AGM.
It is a matter of great pleasure for me that I am here today to report on an exceptional year for Reliance Power a year when we took important steps forward in our journey to emerge as the leading power generation player in the country.
The Reliance Power Shareowner family is now the largest in the world, with over 40 lakh members. Over 90 per cent of them are small retail shareholders, with holdings of 100 shares or less.
These investors are the foundation and bedrock of Reliance Power. Despite the massive recent turmoil in the capital and financial markets across the world, our retail shareholder base has continued to grow, with more than one lakh new members joining the family.Our retail shareholding has gone up from over 12 crore to 18 crore shares, an increase of more than 50 per cent. Over half of our non-promoter shareholding now is in the hands of the small investors.
This unprecedented support is a reflection as much of the trust and faith that millions of investors have in us as it is an endorsement of the growth and earnings potential of our young company. We will do our utmost to uphold this trust. Let me take you through the strategic vision that will drive Reliance Power and and share with you our long term objectives.
Our visionary founder and my father, Shri Dhirubhai Ambani, believed that India's social and economic resurgence would depend upon the creation of quality infrastructure, especially in the power sector.
Infrastructure alone would give millions of ordinary Indians the chance to realize their true potential and make the most of the economic opportunities that exist in our great nation.
The remarkable journey of Reliance Power has been inspired by Dhirubhai's foresight and vision.
It reaffirms our quest for value creation and reemphasizes our mission of nation building.
I would like to take this opportunity to thank each one of you personally for the trust and faith you have reposed in Reliance Power and the Reliance Anil Dhirubhai Ambani Group.
As a public listed company, we now have a much larger canvas on which to innovate, perform and deliver.Backed by an exceptional management team, we are confident of building world-class generation assets in India and fulfilling the nations urgent and growing need for quality and reliable power.
Group Highlights
Our Company is an integral member of the Reliance Anil Dhirubhai Ambani Group; we are the bearers of a proud name, but an even prouder legacy.We have a strong presence across a wide array of high-growth consumer-facing businesses:
! Telecom
! Financial services
! Energy
! Power
! Infrastructure
! Media and entertainment
Across different companies, we touch the lives of over 150 million customers, or over 1 in every 8 Indians every single day.Our group enjoys the unparalleled trust, faith and confidence of nearly 12 million shareowners - the largest such family in the world.We are among the largest employers in the country, with a young, highly trained and motivated workforce of nearly 130,000-strong. In a short span of three years, our group market capitalization has crossed Rs 180,000 crore (US$ 43 billion), ranking us amongst the top 3 business houses in India.
Our group net worth is in excess of Rs 58,000 crore (US$ 13 billion).Our cash flows across the Group are approximately Rs 12,000 crore (US$ 3 billion) and Net profit is over Rs 8,000 crore (US$ 2 billion).My fellow shareowners, we have embarked on a journey of rapid growth and value creation. I seek your continued trust and support in this endeavour.
Performance Review
The Company's accounts for the year ended March 31, 2008, along with the Directors' report, letter to shareowners and the Management Discussion and Analysis have been circulated to you.
With your permission, I would like to take them as read.
The Market Environment
The Indian economy showed strong momentum in the past 5 years, clocking an average annual growth rate of 9 per cent a clear break from the past. This new structural trend of higher growth rate will, I believe, continue long into the future.Speedy creation of infrastructure will be the catalyst.The growth of any economy has an integral link with the growth of the Power sector. In order to achieve annual GDP growth rate of 8 -10 per cent, the generation capacity must grow at a minimum of 8 to 9 per cent every year.
The story in India over the last few years, unfortunately, has been different. While the GDP growth has been 9 per cent, the power sector has grown at an annual rate of just 5 per cent.
This has, undoubtedly, created a huge mismatch in the demand and the supply of power.
Power is one area of infrastructure where India lags far behind even in comparison to other developing countries.The per capita annual consumption of electricity in India is one of the lowest in the world at a little over 670 kwh, which is less than a fourth of the world average of
3,000 kwh. India does not figure in the top 100 countries of the world in per capita consumption of power.
We consume 2.5 times less power than China, which has a per capita consumption of 1802 kwh, and 20 times less power than the US, which has a per capita of 4,000 kwh.These numbers, stark as they are, tell only part of the story. There are, at present, over one lakh villages and 40 per cent of people in the country who have no access to electricity at all. Even the villages, which have so far been electrified, get, at best, 8 hours of power supply per day. The situation is not very different in our top cities.
Among the large Indian cities, Mumbai, which Reliance Infrastructure has the privilege of serving, is perhaps the only city which has a track record of uninterrupted and
reliable power supply. In all other major cities, from Chennai to Bangalore, from Hyderabad to Lucknow, from Delhi to Jaipur indeed, a vast majority of our 100 biggest cities demand far exceeds supply, leading to a lack of power, and affecting the quality of life of millions.Power in the 21st century is not a luxury. It is a necessity, perhaps even a fundamental right as essential as the air we breathe, the water we drink & the food we eat.From televisions to mobiles, from computers to refrigerators, from schools to hospitals, from railway stations to airports, from malls to multiplexes, nothing in our lives would work without power. Practically nothing.
Power is the great economic multiplier, driving growth, creating jobs, raising productivity. The weight and influence of this sector in the economy can be gauged by the fact that 3 of the top 5 companies in India by market cap belong to the power and energy sectors.Even at our current low levels of electrification, power sector has an annual revenue of over Rs 1,50,000 crore. If we reach the per capita consumption levels of China, the industry size will nearly triple to over Rs 4,00,000 crore.
According to the Expert Committee on Integrated Energy Policy, we would have to install nearly 8,00,000 MW of power capacity by 2031-32 if we are to sustain an annual GDP growth rate of 8 per cent. This translates into a capacity addition of around 40,000 MW every year for the next 20 years.Unfortunately, we have been adding a mere 4000 MW per annum over the last many years and managed to achieve barely 50 per cent of the capacity addition target for the 10th plan. In contrast, China has been adding nearly 1,00,000 MW every year.
In the first 60 years of Independence, India added nearly 1,40,000 MW of power. We now need to install the same capacity in less than 10 years, indeed, if possible, in 5 years.India plans to add 16,000 MW annually over the next few years. Compare this to the projected long-termrequirement of 40,000 MW of capacity addition and Rs 1,20,000 crore worth of investment every year and one gets some idea of the magnitude of the challenge that lies ahead.
But every challenge as we know is also an opportunity. The greater the challenge, the greater the opportunity.
Take the case of Telecom where the gap between India and the rest of the world was perhaps as stark a few years ago as it is with regard to power today.After the first 55 years of Independence, India had just over 6 crore phone connections. In the next 5 years, we added four times that number to reach nearly 30 crore phone users.
India's telecom revolution was spearheaded by Reliance Communications and has made us the fastest growing telecom market in the world, even ahead of China in terms of monthly net subscriber additions.I have no doubt that we as a nation have what it takes to replicate the telecom story in other core infrastructure areas, including Power. What is required is the right
mix of policy reforms, initiatives, and investment support.
Regulatory Framework
It is a matter of great pleasure for me that I am here today to report on an exceptional year for Reliance Power a year when we took important steps forward in our journey to emerge as the leading power generation player in the country.
The Reliance Power Shareowner family is now the largest in the world, with over 40 lakh members. Over 90 per cent of them are small retail shareholders, with holdings of 100 shares or less.
These investors are the foundation and bedrock of Reliance Power. Despite the massive recent turmoil in the capital and financial markets across the world, our retail shareholder base has continued to grow, with more than one lakh new members joining the family.Our retail shareholding has gone up from over 12 crore to 18 crore shares, an increase of more than 50 per cent. Over half of our non-promoter shareholding now is in the hands of the small investors.
This unprecedented support is a reflection as much of the trust and faith that millions of investors have in us as it is an endorsement of the growth and earnings potential of our young company. We will do our utmost to uphold this trust. Let me take you through the strategic vision that will drive Reliance Power and and share with you our long term objectives.
Our visionary founder and my father, Shri Dhirubhai Ambani, believed that India's social and economic resurgence would depend upon the creation of quality infrastructure, especially in the power sector.
Infrastructure alone would give millions of ordinary Indians the chance to realize their true potential and make the most of the economic opportunities that exist in our great nation.
The remarkable journey of Reliance Power has been inspired by Dhirubhai's foresight and vision.
It reaffirms our quest for value creation and reemphasizes our mission of nation building.
I would like to take this opportunity to thank each one of you personally for the trust and faith you have reposed in Reliance Power and the Reliance Anil Dhirubhai Ambani Group.
As a public listed company, we now have a much larger canvas on which to innovate, perform and deliver.Backed by an exceptional management team, we are confident of building world-class generation assets in India and fulfilling the nations urgent and growing need for quality and reliable power.
Group Highlights
Our Company is an integral member of the Reliance Anil Dhirubhai Ambani Group; we are the bearers of a proud name, but an even prouder legacy.We have a strong presence across a wide array of high-growth consumer-facing businesses:
! Telecom
! Financial services
! Energy
! Power
! Infrastructure
! Media and entertainment
Across different companies, we touch the lives of over 150 million customers, or over 1 in every 8 Indians every single day.Our group enjoys the unparalleled trust, faith and confidence of nearly 12 million shareowners - the largest such family in the world.We are among the largest employers in the country, with a young, highly trained and motivated workforce of nearly 130,000-strong. In a short span of three years, our group market capitalization has crossed Rs 180,000 crore (US$ 43 billion), ranking us amongst the top 3 business houses in India.
Our group net worth is in excess of Rs 58,000 crore (US$ 13 billion).Our cash flows across the Group are approximately Rs 12,000 crore (US$ 3 billion) and Net profit is over Rs 8,000 crore (US$ 2 billion).My fellow shareowners, we have embarked on a journey of rapid growth and value creation. I seek your continued trust and support in this endeavour.
Performance Review
The Company's accounts for the year ended March 31, 2008, along with the Directors' report, letter to shareowners and the Management Discussion and Analysis have been circulated to you.
With your permission, I would like to take them as read.
The Market Environment
The Indian economy showed strong momentum in the past 5 years, clocking an average annual growth rate of 9 per cent a clear break from the past. This new structural trend of higher growth rate will, I believe, continue long into the future.Speedy creation of infrastructure will be the catalyst.The growth of any economy has an integral link with the growth of the Power sector. In order to achieve annual GDP growth rate of 8 -10 per cent, the generation capacity must grow at a minimum of 8 to 9 per cent every year.
The story in India over the last few years, unfortunately, has been different. While the GDP growth has been 9 per cent, the power sector has grown at an annual rate of just 5 per cent.
This has, undoubtedly, created a huge mismatch in the demand and the supply of power.
Power is one area of infrastructure where India lags far behind even in comparison to other developing countries.The per capita annual consumption of electricity in India is one of the lowest in the world at a little over 670 kwh, which is less than a fourth of the world average of
3,000 kwh. India does not figure in the top 100 countries of the world in per capita consumption of power.
We consume 2.5 times less power than China, which has a per capita consumption of 1802 kwh, and 20 times less power than the US, which has a per capita of 4,000 kwh.These numbers, stark as they are, tell only part of the story. There are, at present, over one lakh villages and 40 per cent of people in the country who have no access to electricity at all. Even the villages, which have so far been electrified, get, at best, 8 hours of power supply per day. The situation is not very different in our top cities.
Among the large Indian cities, Mumbai, which Reliance Infrastructure has the privilege of serving, is perhaps the only city which has a track record of uninterrupted and
reliable power supply. In all other major cities, from Chennai to Bangalore, from Hyderabad to Lucknow, from Delhi to Jaipur indeed, a vast majority of our 100 biggest cities demand far exceeds supply, leading to a lack of power, and affecting the quality of life of millions.Power in the 21st century is not a luxury. It is a necessity, perhaps even a fundamental right as essential as the air we breathe, the water we drink & the food we eat.From televisions to mobiles, from computers to refrigerators, from schools to hospitals, from railway stations to airports, from malls to multiplexes, nothing in our lives would work without power. Practically nothing.
Power is the great economic multiplier, driving growth, creating jobs, raising productivity. The weight and influence of this sector in the economy can be gauged by the fact that 3 of the top 5 companies in India by market cap belong to the power and energy sectors.Even at our current low levels of electrification, power sector has an annual revenue of over Rs 1,50,000 crore. If we reach the per capita consumption levels of China, the industry size will nearly triple to over Rs 4,00,000 crore.
According to the Expert Committee on Integrated Energy Policy, we would have to install nearly 8,00,000 MW of power capacity by 2031-32 if we are to sustain an annual GDP growth rate of 8 per cent. This translates into a capacity addition of around 40,000 MW every year for the next 20 years.Unfortunately, we have been adding a mere 4000 MW per annum over the last many years and managed to achieve barely 50 per cent of the capacity addition target for the 10th plan. In contrast, China has been adding nearly 1,00,000 MW every year.
In the first 60 years of Independence, India added nearly 1,40,000 MW of power. We now need to install the same capacity in less than 10 years, indeed, if possible, in 5 years.India plans to add 16,000 MW annually over the next few years. Compare this to the projected long-termrequirement of 40,000 MW of capacity addition and Rs 1,20,000 crore worth of investment every year and one gets some idea of the magnitude of the challenge that lies ahead.
But every challenge as we know is also an opportunity. The greater the challenge, the greater the opportunity.
Take the case of Telecom where the gap between India and the rest of the world was perhaps as stark a few years ago as it is with regard to power today.After the first 55 years of Independence, India had just over 6 crore phone connections. In the next 5 years, we added four times that number to reach nearly 30 crore phone users.
India's telecom revolution was spearheaded by Reliance Communications and has made us the fastest growing telecom market in the world, even ahead of China in terms of monthly net subscriber additions.I have no doubt that we as a nation have what it takes to replicate the telecom story in other core infrastructure areas, including Power. What is required is the right
mix of policy reforms, initiatives, and investment support.
Regulatory Framework
Over the past few years, the Government of India has undertaken several legislative measures and carried out extensive policy reforms with a view to accelerating the growth of the power sector and encouraging greater private participation. Some of these measures are:
! Electricity Act
! National Electricity Policy
! National Tariff Policy
! National Electricity Plan
! Competitive Bidding Guidelines, and
! Ultra Mega Power Projects
Electricity Act
Arguably the single most important piece of legislation in the history of power reforms in India, the Electricity Act is a comprehensive framework for the liberalization of the sector, and aims at a gradual shift towards a competitive market. The Key features of the Act include: ! Making Power Generation licence free ! Promoting Competitiveness in the sector ! Allowing Non-discriminatory Open access in transmission ! Establishing Regulators at the Central and State levels ! Placing strong emphasis on consumer protection ! Enforcing mandatory metering of all electricity supplied
National Electricity Policy
The National electricity policy, announced by the Government of India in 2005, sets out the following long-term objectives for the country:
! Provide all households with access to available Electricity in the next five years.
! Meet the domestic Power Demand fully by 2012.
! Supply Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates.
! Increase Per capita availability of electricity to over 1,000 units by 2012.
! Ensure financial turnaround and commercial viability of the Electricity Sector.
! Protect the interests of consumers.
National Tariff Policy
The National Tariff Policy reiterates the objectives of the Electricity Act 2003 to promote competition and to improve efficiency.
The policy aims to achieve competition and efficiency through:
! Competitive procurement of power
! Multi-year tariff framework
! Reduction of Aggregate Technical and Commercial (AT&C) losses
! Linking of retail tariffs to cost of supply of electricity for different consumer categories
! Introduction of transmission pricing that is sensitive to distance and direction
The policy represents a quantum leap from the earlier cost-plus, regulated returns regime and allows better value creation through higher efficiencies, innovative practices and control over expenditure.
National Electricity Plan
The National Electricity Plan outlines the first comprehensive road map towards the optimum growth of the Power Sector. It envisages a capacity addition of around 200,000 MW by the end of the 12th plan or in the next 10 years.
The plan also details the requirements of the power sector in terms of trained manpower, equipment, research & development, and the likely environmental impact.
Competitive Bidding Guidelines
In order to ensure further competitiveness in power procurement, the Government brought in competitive bidding guidelines in 2005. These guidelines outline the process to be followed for competitive bidding and have led to the standardization, among others, of bidding documents and power purchase agreements.
Ultra Mega Power Projects
And most recently, the Government of India, initiated the move to set up Ultra Mega Power Plants (UMPPs) of 4000 MW capacity each, to harness economies of scale and generate cheaper power. Such a project typically require an investment of Rs 16,000 to 20,000 crore and are awarded by a process of transparent international competitive bidding process based on tariffs.
Of the 10 proposed UMPPs, three projects have been awarded so far. I am delighted to say that two of them domestic coal based Pit head project at Sasan in Madhya Pradesh, and imported coal based coastal project at Krishnapatnam in Andhra Pradesh have been awarded to our company and are in different stages of execution.
Agenda For Future Reforms
We believe that economic reforms are a continuous, ongoing process rather than an event. While the broad policy framework for the power sector is place, a larger number of changes are needed to accelerate the growth momentum. Some of these are:
Action on Recommendations of Integrated Energy Policy
The Government set up an expert committee to work out an integrated energy policy in 2006. The recommendations of this committee cover a wide range of areas and issues, including how to ensure the availability of coal and natural gas for the power sector, bolster energy security and comprehensively address the concerns on climate change.
India needs to urgently consider and act upon these recommendations and adopt an end-to-end approach for the entire energy value chain.
Two of the largest sources of primary fuel for the generation of power, namely, coal and natural gas, are perhaps in the greatest need of reforms.
Coal
India has the 4th largest coal reserves in the world. This black gold has not only the potential to light up the nation but also generate large-scale revenues and
employment.
With almost the same size of proven reserves as India, China has managed to produce 5 times more coal for power than us.
If we focus on increasing our production, we can generate up to 400,000 MW of power from domestic coal alone, generating unprecedented value for the country.
The Coal sector has been opened up for private participation with a view to facilitating captive use. While this is an important step forward, more needs to be done.
To guarantee assured supply of coal, a number of initiatives need to be taken. These include revamping, wherever necessary, existing legislation governing the sector,
some of which date back to the colonial era, and introducing an appropriate mechanism for fast-track allocation of coal blocks. We need to raise our level of
productivity in the coal sector to international standards and dramatically expand our annual production.
The Government of India is considering setting up an independent regulator for the coal industry. This will bring in greater efficiency and help the sector to grow at an
accelerated pace.
Natural Gas
The opening up of the natural gas sector to private and foreign participation has led to substantial investment in the area of exploration and production. This has
resulted in the discovery of major gas finds on our East Coast a development that has the potential of transforming the future energy scenario of our country.
The use of natural gas for power will yield huge environmental benefits while substantially cutting down the gestation period for capacity addition.
There is a case, in line with global trends, for higher allocation of natural gas to priority sectors such as power and fertilizers.
Market Creation
I firmly believe that the power sector is still at an evolving stage and development of a thriving power market will help it mature and flourish, resulting in uninterrupted, economical and quality power for all.
This can be achieved by bringing clarity to the outstanding issues of transmission sector and adopting market-driven pricing philosophy.
Planning for and setting up adequate transmission infrastructure as well as a robust policy for the pricing and allocation of transmission open access is a must.
I am happy to note that the Central Electricity Regulatory Commission (CERC) has taken up the task of bringing clarity to the unresolved issues in the transmission sector, and will, hopefully, evolve a fair and transparent policy framework. The recent announcement, clearly demarcating the role of the central transmission utility and the transmission provider is an important step in the right direction.
Considering the huge demand-supply deficit, the need of the hour is a fair, market-determined pricing mechanism that gives the right price signals both to suppliers & consumers and helps in long time price discovery. This will act as an incentive to power suppliers and attract surplus power into the system rather then discouraging it.
Single Window Approach
Despite the slew of recent reforms in the power sector, the setting up of a project still requires numerous clearances from multiple sources. The lack of coordination among these agencies is continuing to cause significant but entirely avoidable delays. There is an urgent need to put in place a single-window clearance system to expedite the process of implementation.
Increasing financial resources for Power Sector Power is a capital intensive industry, which requires a huge mobilization of resources at competitive rates. Considering the ambitious roadmap that lies ahead, it is necessary that the power sector receives ready support from the banking sector. Some of the existing rules governing the banking sector need to be changed. These include:
! Modifying the norms of group exposure by banks to recognize the fact that power projects are financed without support of group's balance sheets.
! Enhancing the lending limits of banks for the infrastructure sector such as power.
! Modifying the existing External Commercial Borrowing guidelines to permit the use of foreign currency resources for rupee expenditure in India
! Considering loans to the power sector as priority sector lending.
A supportive framework in the financial markets will go a long way in enabling the power sector to grow rapidly.
Reliance Power Vision - Nation Building & Sustainable Value Creation
With the power sector playing a critical role in determining the long-term future of the Indian economy, Reliance Power has emerged as a key player. It is expected to play a pivotal role in contributing to the growth of power generation capacity in the country.We are working at an accelerated pace to set up power plants across the country, with a commitment to provide energy at affordable prices and bridge the demand-supply gap. The success of these projects will substantially mitigate the current energy crisis facing the nation.
Our projects will also generate huge employment opportunities, create vast pools of skilled manpower and improve the living standards of the local community.We are, I believe, privileged to be playing such a defining role in the growth of our nation something that will forever remain at the core of our vision and commitment.The gestation period for power projects is long certainly longer than for many other industries. But patience will bring rewards. Given our organizational DNA, our core competence in large-scale project execution and management, I am confident that we will create exceptional long-term value for all our stakeholders.
We are currently the 16 largest private sector company in the country based on market capitalization. As our various projects come on stream, we will endeavour to be one of the top 10 most valuable companies in the private sector.
Guiding Principles
Reliance Power has the ability to execute its projects with the highest regard for safety, quality, reliability and timeliness. These core principles will form the basis of our execution. ! Clean & Green Power ! Sustainable & Inclusive Growth ! Intellectual Capital ! Fuel Security ! Cost Leadership
Clean and Green Power
For us, climate change or global warming is neither a politically correct slogan, nor a passing fad. It represents our commitment to the future generations to minimize any long-term adverse impact on its environment.
Our generation portfolio includes run-of-the-river hydroelectric projects in Uttarkhand and Arunachal Pradesh and large combined cycle gas plants that generate clean and green power. We have ensured that coal based plants at Sasan and Krishnapatnam, among others, are also designed to use 'Super Critical Technology' that reduces the impact on environment considerably.
In addition, the company continues to examine opportunities in wind, solar and other renewable energy at suitable locations in India to reduce its carbon footprint.
Sustainable & Inclusive Growth
Our founder Shri Dhirubhai Ambani believed that our efforts should raise the quality of life for all people who have contributed to our growth and success.
We therefore regard rehabilitation, relief and resettlement as an integral part of setting up a power plant. Our approach seeks to ensure the development of the entire community and a qualitative improvement in their living standards.We not only focus on providing the required civic infrastructure in terms of schools and hospitals, and giving one-time compensation at the start of the project, but also in ensuring on-going support and assistance for the long-term sustainability of the local community.
Some of the measures taken up by us are:
! Deployment of Mobile medical vans, with a capacity to treat upto 60-70 people daily, to serve the local villages.
! Organization of regular medical camps for the treatment of local people. We have till date treated over 3,000 people in such camps.
! Training of local youths at Industrial Training Institutes (ITIs) for enhancing their skill sets and helping them contribute to the successful implementation of our
projects. ! Provision of clean drinking water to villagers near our project sites. Our approach is simple: We want to integrate with the local community, and be part of their development.
Intellectual Capital
The past year has seen our team grow in skill, expertise and numbers. We have added considerably to our human and intellectual capital this year.
We expect this process to continue apace, and hope to be 3500- people strong in the next 3-5 years.This is in addition to the over 100,000 people who will work at our project sites during construction. Ours is one of the best trained work forces in the country, consisting of engineers, management graduates and Chartered Accountants. We have attracted the best talent from state utilities and public sector companies. More recently, we have begun to cast our hiring net wider to draw in global talent.
We have sought to emphasize workforce diversity because we believe that people with very different cultural backgrounds make for a dynamic and innovative work
environment that encourages agility and innovation.Our projects are spearheaded by industry veterans who have vast experience in the timely execution of large power projects, both in India and abroad.Like any other growth industry in India, power too faces its share of talent crunch. There is an emerging gap in demand and supply with respect to project managers, system operators and engineers. With an additional 140,000 skilled professionals required in the power sector alone over the next 5 years, the situation is unlikely to ease any time soon.
To meet this challenge, we are investing heavily in human capital. Apart from hiring top-of-the-line professionals in areas where we don't have any prior business experience, we are putting in place strong training mechanisms to address our need for technical and managerial competence.
In order to attract, retain and motivate the best human talent across the industry, we are setting up robust HR practices.We will also implement an Employee Stock Option Plan across all businesses of Reliance Power and its associate companies this year.
Fuel Security
Ensuring long-term supplies of fuel for our projects at competitive prices will differentiate us from others and lead to reduced risks and superior results. In order to achieve this goal, we have embarked on a group-wide backward integration drive aimed at securing coal blocks/concessions both in India and abroad.I am happy to share with you that we have one of the largest coal reserves in India for any private sector power company - in excess of one billion tonnes. In addition, we have secured the entire beneficial interests in 3 coal concessions in south Sumatra, Indonesia, which will supply coal to our Krishnapatnam UMPP and Shahapur Projects. These coal concessions have total estimated resources of over 2 billion tonnes, substantially more than the projected requirement of all the imported coal-based projects that we are currently developing. Our group companies have secured natural gas and Coal Bed Methane (CBM) blocks, which will also help to meet fuel requirements of our prospective plants.
Our captive mines will ensure that we are insulated from the escalating coal prices in the global markets. Further, the performance of our plants will not be impacted due to the non-availability of fuel.
Cost leadership
I have been asked by many of you about the global uptrend in commodity prices in the last few years and its impact on our company.
We have taken adequate steps to minimize the impact of the spike in commodity prices. We have a commercial strategy in place for large value purchases which enables us to minimize the impact of price variations.We have made use of technology to develop innovative procurement processes and carry out better material planning.Our materials are procured in a phased manner to minimize the carrying cost. We continually monitor the emerging price trends of commodities with a view to optimizing our costs.
The recent meltdown in the global financial markets points to a slowdown in the leading economies of the world. As a result, the prices of most construction materials and equipment are likely to soften.In every adversity, as they say, there is an opportunity.
Project Portfolio
We are currently developing a diversified portfolio of generation projects of over 28,000 MW capacity, including two ultra mega power projects awarded by the Government of India. This amounts to 20 per cent of the current installed capacity in the country and is by far the largest portfolio under development in India. Our project portfolio includes domestic coal-fired projects, imported coal-fired projects, gas-based and hydroelectric projects. Just about 5,000 MW of our total over generation portfolio of over 28,000 MW is based on imported fuels thereby reducing our coal supply risks. We have a presence across all regions of the country: North 9080 MW, South 4000 MW, North-East 2900 MW and West 12,220 MW. The power generated by these projects will be sold under a combination of long term and medium term Power Purchase Agreements (PPAs). A portion of the capacity will also be reserved for merchant sale. So far, long-term PPAs to the tune of 10,000 MW have been committed.
Our portfolio gives us a significant competitive advantage over others because it incorporates fuel diversity, fuel source diversity, geographical diversity, diversity of power sale arrangements, and a multiplicity of off-takers, substantially de-risking our business and revenue model.We plan to bring on stream a total generation capacity of over 28000 MW over the next 8 years, which is equivalent to what the country's largest power producer has achieved in nearly 30 years.We are fully aware of the sheer magnitude of the challenge that lies ahead, ad are working round the clock to make it happen.We continue to look out for new opportunities in the power generation sector. I am happy to inform you that we have been qualified to bid for the next 4000 MW Ultra Mega power project at Tilaiya in the state of Jharkhand, which will come up shortly.
Emerging Opportunities
Nuclear Power Projects
Across the world, nations are looking for alternative sources of energy that are safe, reliable, and economical.Under the visionary and dynamic leadership of our Prime Minister Dr Manmohan Singh India too has been looking at strengthening its long-term energy security. It is this quest which was behind the government's major thrust on civil nuclear energy.The recent historic waiver by the 45-nation Nuclear Supplier Group (NSG), permitting India to engage in nuclear trade, is a resounding endorsement by the world community of our prime minister's vision.
The waiver has removed what has been greatest stumbling block in setting up nuclear energy plants, namely, the refusal by NSG countries to supply nuclear fuel to India. This will open up the sector for investment.While the initial per MW investment in nuclear energy is higher, nuclear power plants have an economic life of over 50 years -- much longer than coal and gas based power projects.
Across the world, many developed countries depend significantly on nuclear energy for their power needs. The figure ranges from as high as 75 per cent in France to about 20 per cent in the US. Taking this global cue, China too is investing heavily into nuclear energy, with a target of an additional 40,000 MW power over the next 10 years.
In sharp contrast, India has a little over 4,000 MW of nuclear power plants, indicating the potential headroom for growth.The road ahead is long and it will take a minimum of 8 to 10 years before the first private nuclear power project takes shape.
Apart from making suitable amendments to the Atomic Energy Act, the Government will need to make at least 15 other policy changes to permit the entry of private players into the nuclear domain.
These include redefining the role of the regulatory board, enacting national legislations on civil liabilities, safety and operation of nuclear plants in line with international conventions and practices.Other areas of change include policies for advance selection and investigation of nuclear sites, spent fuel handling and its long term storage and transportation, and guidelines for decommissioning of plants.
We have had a dedicated team working on the Nuclear opportunity for the past three years, and have conducted a series of discussions with the leading international players in the nuclear power industry.We will watch the emerging scenario in the nuclear space closely and hope to play a meaningful role when the sector is eventually opened up for private participation.
Wind / Solar / Fuel Cells
Arguably the single most important piece of legislation in the history of power reforms in India, the Electricity Act is a comprehensive framework for the liberalization of the sector, and aims at a gradual shift towards a competitive market. The Key features of the Act include: ! Making Power Generation licence free ! Promoting Competitiveness in the sector ! Allowing Non-discriminatory Open access in transmission ! Establishing Regulators at the Central and State levels ! Placing strong emphasis on consumer protection ! Enforcing mandatory metering of all electricity supplied
National Electricity Policy
The National electricity policy, announced by the Government of India in 2005, sets out the following long-term objectives for the country:
! Provide all households with access to available Electricity in the next five years.
! Meet the domestic Power Demand fully by 2012.
! Supply Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates.
! Increase Per capita availability of electricity to over 1,000 units by 2012.
! Ensure financial turnaround and commercial viability of the Electricity Sector.
! Protect the interests of consumers.
National Tariff Policy
The National Tariff Policy reiterates the objectives of the Electricity Act 2003 to promote competition and to improve efficiency.
The policy aims to achieve competition and efficiency through:
! Competitive procurement of power
! Multi-year tariff framework
! Reduction of Aggregate Technical and Commercial (AT&C) losses
! Linking of retail tariffs to cost of supply of electricity for different consumer categories
! Introduction of transmission pricing that is sensitive to distance and direction
The policy represents a quantum leap from the earlier cost-plus, regulated returns regime and allows better value creation through higher efficiencies, innovative practices and control over expenditure.
National Electricity Plan
The National Electricity Plan outlines the first comprehensive road map towards the optimum growth of the Power Sector. It envisages a capacity addition of around 200,000 MW by the end of the 12th plan or in the next 10 years.
The plan also details the requirements of the power sector in terms of trained manpower, equipment, research & development, and the likely environmental impact.
Competitive Bidding Guidelines
In order to ensure further competitiveness in power procurement, the Government brought in competitive bidding guidelines in 2005. These guidelines outline the process to be followed for competitive bidding and have led to the standardization, among others, of bidding documents and power purchase agreements.
Ultra Mega Power Projects
And most recently, the Government of India, initiated the move to set up Ultra Mega Power Plants (UMPPs) of 4000 MW capacity each, to harness economies of scale and generate cheaper power. Such a project typically require an investment of Rs 16,000 to 20,000 crore and are awarded by a process of transparent international competitive bidding process based on tariffs.
Of the 10 proposed UMPPs, three projects have been awarded so far. I am delighted to say that two of them domestic coal based Pit head project at Sasan in Madhya Pradesh, and imported coal based coastal project at Krishnapatnam in Andhra Pradesh have been awarded to our company and are in different stages of execution.
Agenda For Future Reforms
We believe that economic reforms are a continuous, ongoing process rather than an event. While the broad policy framework for the power sector is place, a larger number of changes are needed to accelerate the growth momentum. Some of these are:
Action on Recommendations of Integrated Energy Policy
The Government set up an expert committee to work out an integrated energy policy in 2006. The recommendations of this committee cover a wide range of areas and issues, including how to ensure the availability of coal and natural gas for the power sector, bolster energy security and comprehensively address the concerns on climate change.
India needs to urgently consider and act upon these recommendations and adopt an end-to-end approach for the entire energy value chain.
Two of the largest sources of primary fuel for the generation of power, namely, coal and natural gas, are perhaps in the greatest need of reforms.
Coal
India has the 4th largest coal reserves in the world. This black gold has not only the potential to light up the nation but also generate large-scale revenues and
employment.
With almost the same size of proven reserves as India, China has managed to produce 5 times more coal for power than us.
If we focus on increasing our production, we can generate up to 400,000 MW of power from domestic coal alone, generating unprecedented value for the country.
The Coal sector has been opened up for private participation with a view to facilitating captive use. While this is an important step forward, more needs to be done.
To guarantee assured supply of coal, a number of initiatives need to be taken. These include revamping, wherever necessary, existing legislation governing the sector,
some of which date back to the colonial era, and introducing an appropriate mechanism for fast-track allocation of coal blocks. We need to raise our level of
productivity in the coal sector to international standards and dramatically expand our annual production.
The Government of India is considering setting up an independent regulator for the coal industry. This will bring in greater efficiency and help the sector to grow at an
accelerated pace.
Natural Gas
The opening up of the natural gas sector to private and foreign participation has led to substantial investment in the area of exploration and production. This has
resulted in the discovery of major gas finds on our East Coast a development that has the potential of transforming the future energy scenario of our country.
The use of natural gas for power will yield huge environmental benefits while substantially cutting down the gestation period for capacity addition.
There is a case, in line with global trends, for higher allocation of natural gas to priority sectors such as power and fertilizers.
Market Creation
I firmly believe that the power sector is still at an evolving stage and development of a thriving power market will help it mature and flourish, resulting in uninterrupted, economical and quality power for all.
This can be achieved by bringing clarity to the outstanding issues of transmission sector and adopting market-driven pricing philosophy.
Planning for and setting up adequate transmission infrastructure as well as a robust policy for the pricing and allocation of transmission open access is a must.
I am happy to note that the Central Electricity Regulatory Commission (CERC) has taken up the task of bringing clarity to the unresolved issues in the transmission sector, and will, hopefully, evolve a fair and transparent policy framework. The recent announcement, clearly demarcating the role of the central transmission utility and the transmission provider is an important step in the right direction.
Considering the huge demand-supply deficit, the need of the hour is a fair, market-determined pricing mechanism that gives the right price signals both to suppliers & consumers and helps in long time price discovery. This will act as an incentive to power suppliers and attract surplus power into the system rather then discouraging it.
Single Window Approach
Despite the slew of recent reforms in the power sector, the setting up of a project still requires numerous clearances from multiple sources. The lack of coordination among these agencies is continuing to cause significant but entirely avoidable delays. There is an urgent need to put in place a single-window clearance system to expedite the process of implementation.
Increasing financial resources for Power Sector Power is a capital intensive industry, which requires a huge mobilization of resources at competitive rates. Considering the ambitious roadmap that lies ahead, it is necessary that the power sector receives ready support from the banking sector. Some of the existing rules governing the banking sector need to be changed. These include:
! Modifying the norms of group exposure by banks to recognize the fact that power projects are financed without support of group's balance sheets.
! Enhancing the lending limits of banks for the infrastructure sector such as power.
! Modifying the existing External Commercial Borrowing guidelines to permit the use of foreign currency resources for rupee expenditure in India
! Considering loans to the power sector as priority sector lending.
A supportive framework in the financial markets will go a long way in enabling the power sector to grow rapidly.
Reliance Power Vision - Nation Building & Sustainable Value Creation
With the power sector playing a critical role in determining the long-term future of the Indian economy, Reliance Power has emerged as a key player. It is expected to play a pivotal role in contributing to the growth of power generation capacity in the country.We are working at an accelerated pace to set up power plants across the country, with a commitment to provide energy at affordable prices and bridge the demand-supply gap. The success of these projects will substantially mitigate the current energy crisis facing the nation.
Our projects will also generate huge employment opportunities, create vast pools of skilled manpower and improve the living standards of the local community.We are, I believe, privileged to be playing such a defining role in the growth of our nation something that will forever remain at the core of our vision and commitment.The gestation period for power projects is long certainly longer than for many other industries. But patience will bring rewards. Given our organizational DNA, our core competence in large-scale project execution and management, I am confident that we will create exceptional long-term value for all our stakeholders.
We are currently the 16 largest private sector company in the country based on market capitalization. As our various projects come on stream, we will endeavour to be one of the top 10 most valuable companies in the private sector.
Guiding Principles
Reliance Power has the ability to execute its projects with the highest regard for safety, quality, reliability and timeliness. These core principles will form the basis of our execution. ! Clean & Green Power ! Sustainable & Inclusive Growth ! Intellectual Capital ! Fuel Security ! Cost Leadership
Clean and Green Power
For us, climate change or global warming is neither a politically correct slogan, nor a passing fad. It represents our commitment to the future generations to minimize any long-term adverse impact on its environment.
Our generation portfolio includes run-of-the-river hydroelectric projects in Uttarkhand and Arunachal Pradesh and large combined cycle gas plants that generate clean and green power. We have ensured that coal based plants at Sasan and Krishnapatnam, among others, are also designed to use 'Super Critical Technology' that reduces the impact on environment considerably.
In addition, the company continues to examine opportunities in wind, solar and other renewable energy at suitable locations in India to reduce its carbon footprint.
Sustainable & Inclusive Growth
Our founder Shri Dhirubhai Ambani believed that our efforts should raise the quality of life for all people who have contributed to our growth and success.
We therefore regard rehabilitation, relief and resettlement as an integral part of setting up a power plant. Our approach seeks to ensure the development of the entire community and a qualitative improvement in their living standards.We not only focus on providing the required civic infrastructure in terms of schools and hospitals, and giving one-time compensation at the start of the project, but also in ensuring on-going support and assistance for the long-term sustainability of the local community.
Some of the measures taken up by us are:
! Deployment of Mobile medical vans, with a capacity to treat upto 60-70 people daily, to serve the local villages.
! Organization of regular medical camps for the treatment of local people. We have till date treated over 3,000 people in such camps.
! Training of local youths at Industrial Training Institutes (ITIs) for enhancing their skill sets and helping them contribute to the successful implementation of our
projects. ! Provision of clean drinking water to villagers near our project sites. Our approach is simple: We want to integrate with the local community, and be part of their development.
Intellectual Capital
The past year has seen our team grow in skill, expertise and numbers. We have added considerably to our human and intellectual capital this year.
We expect this process to continue apace, and hope to be 3500- people strong in the next 3-5 years.This is in addition to the over 100,000 people who will work at our project sites during construction. Ours is one of the best trained work forces in the country, consisting of engineers, management graduates and Chartered Accountants. We have attracted the best talent from state utilities and public sector companies. More recently, we have begun to cast our hiring net wider to draw in global talent.
We have sought to emphasize workforce diversity because we believe that people with very different cultural backgrounds make for a dynamic and innovative work
environment that encourages agility and innovation.Our projects are spearheaded by industry veterans who have vast experience in the timely execution of large power projects, both in India and abroad.Like any other growth industry in India, power too faces its share of talent crunch. There is an emerging gap in demand and supply with respect to project managers, system operators and engineers. With an additional 140,000 skilled professionals required in the power sector alone over the next 5 years, the situation is unlikely to ease any time soon.
To meet this challenge, we are investing heavily in human capital. Apart from hiring top-of-the-line professionals in areas where we don't have any prior business experience, we are putting in place strong training mechanisms to address our need for technical and managerial competence.
In order to attract, retain and motivate the best human talent across the industry, we are setting up robust HR practices.We will also implement an Employee Stock Option Plan across all businesses of Reliance Power and its associate companies this year.
Fuel Security
Ensuring long-term supplies of fuel for our projects at competitive prices will differentiate us from others and lead to reduced risks and superior results. In order to achieve this goal, we have embarked on a group-wide backward integration drive aimed at securing coal blocks/concessions both in India and abroad.I am happy to share with you that we have one of the largest coal reserves in India for any private sector power company - in excess of one billion tonnes. In addition, we have secured the entire beneficial interests in 3 coal concessions in south Sumatra, Indonesia, which will supply coal to our Krishnapatnam UMPP and Shahapur Projects. These coal concessions have total estimated resources of over 2 billion tonnes, substantially more than the projected requirement of all the imported coal-based projects that we are currently developing. Our group companies have secured natural gas and Coal Bed Methane (CBM) blocks, which will also help to meet fuel requirements of our prospective plants.
Our captive mines will ensure that we are insulated from the escalating coal prices in the global markets. Further, the performance of our plants will not be impacted due to the non-availability of fuel.
Cost leadership
I have been asked by many of you about the global uptrend in commodity prices in the last few years and its impact on our company.
We have taken adequate steps to minimize the impact of the spike in commodity prices. We have a commercial strategy in place for large value purchases which enables us to minimize the impact of price variations.We have made use of technology to develop innovative procurement processes and carry out better material planning.Our materials are procured in a phased manner to minimize the carrying cost. We continually monitor the emerging price trends of commodities with a view to optimizing our costs.
The recent meltdown in the global financial markets points to a slowdown in the leading economies of the world. As a result, the prices of most construction materials and equipment are likely to soften.In every adversity, as they say, there is an opportunity.
Project Portfolio
We are currently developing a diversified portfolio of generation projects of over 28,000 MW capacity, including two ultra mega power projects awarded by the Government of India. This amounts to 20 per cent of the current installed capacity in the country and is by far the largest portfolio under development in India. Our project portfolio includes domestic coal-fired projects, imported coal-fired projects, gas-based and hydroelectric projects. Just about 5,000 MW of our total over generation portfolio of over 28,000 MW is based on imported fuels thereby reducing our coal supply risks. We have a presence across all regions of the country: North 9080 MW, South 4000 MW, North-East 2900 MW and West 12,220 MW. The power generated by these projects will be sold under a combination of long term and medium term Power Purchase Agreements (PPAs). A portion of the capacity will also be reserved for merchant sale. So far, long-term PPAs to the tune of 10,000 MW have been committed.
Our portfolio gives us a significant competitive advantage over others because it incorporates fuel diversity, fuel source diversity, geographical diversity, diversity of power sale arrangements, and a multiplicity of off-takers, substantially de-risking our business and revenue model.We plan to bring on stream a total generation capacity of over 28000 MW over the next 8 years, which is equivalent to what the country's largest power producer has achieved in nearly 30 years.We are fully aware of the sheer magnitude of the challenge that lies ahead, ad are working round the clock to make it happen.We continue to look out for new opportunities in the power generation sector. I am happy to inform you that we have been qualified to bid for the next 4000 MW Ultra Mega power project at Tilaiya in the state of Jharkhand, which will come up shortly.
Emerging Opportunities
Nuclear Power Projects
Across the world, nations are looking for alternative sources of energy that are safe, reliable, and economical.Under the visionary and dynamic leadership of our Prime Minister Dr Manmohan Singh India too has been looking at strengthening its long-term energy security. It is this quest which was behind the government's major thrust on civil nuclear energy.The recent historic waiver by the 45-nation Nuclear Supplier Group (NSG), permitting India to engage in nuclear trade, is a resounding endorsement by the world community of our prime minister's vision.
The waiver has removed what has been greatest stumbling block in setting up nuclear energy plants, namely, the refusal by NSG countries to supply nuclear fuel to India. This will open up the sector for investment.While the initial per MW investment in nuclear energy is higher, nuclear power plants have an economic life of over 50 years -- much longer than coal and gas based power projects.
Across the world, many developed countries depend significantly on nuclear energy for their power needs. The figure ranges from as high as 75 per cent in France to about 20 per cent in the US. Taking this global cue, China too is investing heavily into nuclear energy, with a target of an additional 40,000 MW power over the next 10 years.
In sharp contrast, India has a little over 4,000 MW of nuclear power plants, indicating the potential headroom for growth.The road ahead is long and it will take a minimum of 8 to 10 years before the first private nuclear power project takes shape.
Apart from making suitable amendments to the Atomic Energy Act, the Government will need to make at least 15 other policy changes to permit the entry of private players into the nuclear domain.
These include redefining the role of the regulatory board, enacting national legislations on civil liabilities, safety and operation of nuclear plants in line with international conventions and practices.Other areas of change include policies for advance selection and investigation of nuclear sites, spent fuel handling and its long term storage and transportation, and guidelines for decommissioning of plants.
We have had a dedicated team working on the Nuclear opportunity for the past three years, and have conducted a series of discussions with the leading international players in the nuclear power industry.We will watch the emerging scenario in the nuclear space closely and hope to play a meaningful role when the sector is eventually opened up for private participation.
Wind / Solar / Fuel Cells
We are exploring the emerging opportunities across alternative environment-friendly generation technologies such as Wind, Solar, and Fuel Cell based power. The recent incentives announced by the Government of India for Grid Interactive Multi Megawatt Solar Thermal Power has given a phenomenal boost to the market. As part of our energy initiatives, we are considering the possibility of setting up a one-of-a-kind 100 MW Grid Interactive Concentrating Solar Power (CSP) Plant through an exclusive relationship with a technology provider. This will, among other things, accelerate the development and commercialization of CSP technology in India. We are evaluating the techno-commercial feasibility of commercially producing reformer based fuel cell / hydrogen technology in India. As a part of this initiative, we are currently engaged in advanced discussions with a global pioneering company on the design, development and manufacture of reformer based fuel cells. We, in the group, are currently setting up 150 MW of wind power in Maharashtra and plan to add 500 MW over the next 3 years at suitable locations across the country.
Projects Under Construction/ Development
Let me now take you though the progress we have made on our individual projects:
1. 1200 MW Rosa Power Project, Uttar Pradesh The 1200 MW Rosa power project holds a special place in our hearts because it was the first project to be developed in our portfolio.
The project which was languishing for more then a decade prior to our take over, has made substantial progress over the last 18 months.
Rosa will entail an investment of over Rs 5,000 crore and will be one of the largest private sector investments in UP.Phase I of the project has already achieved financial closure the first coal-based IPP in North India to do so. More than 5,000 workers are currently working at the site round the clock to beat the deadline and we expect to come on stream six months ahead of schedule.Work on Rosa Phase II has also commenced, and will be completed by Financial Year 2010.Rosa project is critical for the development of India's largest state, which is facing a power shortage of more than 3000 MW. 2. 3960 MW, Sasan Ultra Mega Power Project, Madhya Pradesh We won the country's first pit-head coal-based Ultra Mega Power Project at Sasan through International Competitive Bidding at a tariff of Rs.1.19 per kwh, setting a new benchmark for competitively priced power. With an installed capacity of 3960 MW, this would be the largest pit head coal based power project in the country. Located in Singrauli district of Madhya Pradesh, the power capital of India, it would cater to the requirements of seven states.
Sasan is the largest integrated power project in the country and involves the development of three captive coal mines viz. Moher, Moher-Amlori Extension and Chhattrasal these will be the largest coal mines in the country in terms of volume handled.
With annual coal production of 17 Million tonnes, the mines rank among the top 10 mines in the world. We have entered into a strategic partnership with North American Coal Corporation, one of the largest coal producers in the US and an acknowledged global leader in productivity and safety. This would allow us to deploy the latest mining technology and equipment, enabling us to extract coal in a highly efficient and economical manner.
Keeping in mind the acute shortage in the country and the contribution of power to economic growth, we have set ourselves the challenge of advancing the commissioning of the project by as many as three years.
All major clearances and approvals for the project have been obtained, and all preliminary studies completed.
All the major contracts for the project have been awarded.
We are working closely with a number of international consultants, including Black & Veatch, Toshiba and HOK (Singapore), on various aspects such as basic and detailed engineering, global sourcing and project management.In an important milestone for the project, the Hon'ble Supreme Court has recently accorded its clearance for the forest land.
In keeping with our Group philosophy of responsible corporate citizenship, we have initiated a number of welfare and development measures in and around the project area. We are working with the community to upgrade skills and generate larger share of employment for the locals.
The rehabilitation package, announced after intensive consultation with the villagers and local authorities, aims at promoting sustainable development. We are
partnering with The Energy Research Institute (TERI) in this endeavour.Sasan is the first integrated power project with captive coal mines being financed in India.I am happy to report that we are likely to achieve financial closure for a project of Sasan's size and complexity, requiring nearly Rs 20,000 crore worth of investment, this year.
3. 4,000 MW Krishnapatnam Ultra Mega Power Project, Andhra Pradesh
We emerged as the successful bidder in securing the imported coal based Krishnapatnam Ultra Mega Power Project through International Competitive Bidding at a levelized tariff of Rs. 2.33 per kwh. This is the second ultra mega power project being executed by us in addition to Sasan UMPP.The Project will supply Power to the States of Andhra Pradesh, Maharashtra, Tamil Nadu and Karnataka. Maharashtra will offtake 800 MW from this Project. Most of
the land required for the project is already in possession.
All key clearances are in place.
Leading international Engineering consultants Black & Veatch, USA, have been appointed to carry out the basic design for the Project. The boiler, turbine and generator
package is at an advanced stage of negotiation.
Preliminary construction work has begun.
The financial closure for the project is expected later this year.
4. 300 MW Butibori Group Captive Power Project, Maharasthra
The 300 MW Butibori project is located in Nagpur district, Maharashtra, and will supply reliable and quality power to the industrial consumers of the state. A pioneering concept introduced by the Government of Maharashtra, Butibori is a Group captive power plant which caters to industrial consumers with a view to ensuring reliable and competitive power and reducing power outages. We are happy to partner with the State Government and industries in this project and hope that this model will be replicated in other states as well. We are in the process of signing PPAs from over 250 industrial consumers.The project has received all major statutory clearances, including the environmental clearance. The project has also secured coal linkage from Western Coalfields Ltd.Land acquisition has already been completed, and site enabling works are in progress.We have appointed Axis Bank as Lead Arranger and the project will achieve financial close this year.We hope to commission the project in 3 years' time.Keeping in mind the power situation in Maharashtra, we are seeking to double the project capacity from the current 300 MW to 600 MW.
5. 3960 MW Chitrangi Power Project, Madhya Pradesh
Reliance Power Limited is setting up a 3960 MW power project at Chitrangi, Madhya Pradesh, in the vicinity of Sasan UMPP. A Memorandum of Understanding (MOU) has been signed with the State Government of Madhya Pradesh for this project.The project will be a significant value enhancer for Reliance Power as it will reap tremendous economies of scale.This project also offers strategic locational advantage in so far as it is situated at the boundary of Western and Northern Regions and will meet the requirement of both.
1. 1200 MW Rosa Power Project, Uttar Pradesh The 1200 MW Rosa power project holds a special place in our hearts because it was the first project to be developed in our portfolio.
The project which was languishing for more then a decade prior to our take over, has made substantial progress over the last 18 months.
Rosa will entail an investment of over Rs 5,000 crore and will be one of the largest private sector investments in UP.Phase I of the project has already achieved financial closure the first coal-based IPP in North India to do so. More than 5,000 workers are currently working at the site round the clock to beat the deadline and we expect to come on stream six months ahead of schedule.Work on Rosa Phase II has also commenced, and will be completed by Financial Year 2010.Rosa project is critical for the development of India's largest state, which is facing a power shortage of more than 3000 MW. 2. 3960 MW, Sasan Ultra Mega Power Project, Madhya Pradesh We won the country's first pit-head coal-based Ultra Mega Power Project at Sasan through International Competitive Bidding at a tariff of Rs.1.19 per kwh, setting a new benchmark for competitively priced power. With an installed capacity of 3960 MW, this would be the largest pit head coal based power project in the country. Located in Singrauli district of Madhya Pradesh, the power capital of India, it would cater to the requirements of seven states.
Sasan is the largest integrated power project in the country and involves the development of three captive coal mines viz. Moher, Moher-Amlori Extension and Chhattrasal these will be the largest coal mines in the country in terms of volume handled.
With annual coal production of 17 Million tonnes, the mines rank among the top 10 mines in the world. We have entered into a strategic partnership with North American Coal Corporation, one of the largest coal producers in the US and an acknowledged global leader in productivity and safety. This would allow us to deploy the latest mining technology and equipment, enabling us to extract coal in a highly efficient and economical manner.
Keeping in mind the acute shortage in the country and the contribution of power to economic growth, we have set ourselves the challenge of advancing the commissioning of the project by as many as three years.
All major clearances and approvals for the project have been obtained, and all preliminary studies completed.
All the major contracts for the project have been awarded.
We are working closely with a number of international consultants, including Black & Veatch, Toshiba and HOK (Singapore), on various aspects such as basic and detailed engineering, global sourcing and project management.In an important milestone for the project, the Hon'ble Supreme Court has recently accorded its clearance for the forest land.
In keeping with our Group philosophy of responsible corporate citizenship, we have initiated a number of welfare and development measures in and around the project area. We are working with the community to upgrade skills and generate larger share of employment for the locals.
The rehabilitation package, announced after intensive consultation with the villagers and local authorities, aims at promoting sustainable development. We are
partnering with The Energy Research Institute (TERI) in this endeavour.Sasan is the first integrated power project with captive coal mines being financed in India.I am happy to report that we are likely to achieve financial closure for a project of Sasan's size and complexity, requiring nearly Rs 20,000 crore worth of investment, this year.
3. 4,000 MW Krishnapatnam Ultra Mega Power Project, Andhra Pradesh
We emerged as the successful bidder in securing the imported coal based Krishnapatnam Ultra Mega Power Project through International Competitive Bidding at a levelized tariff of Rs. 2.33 per kwh. This is the second ultra mega power project being executed by us in addition to Sasan UMPP.The Project will supply Power to the States of Andhra Pradesh, Maharashtra, Tamil Nadu and Karnataka. Maharashtra will offtake 800 MW from this Project. Most of
the land required for the project is already in possession.
All key clearances are in place.
Leading international Engineering consultants Black & Veatch, USA, have been appointed to carry out the basic design for the Project. The boiler, turbine and generator
package is at an advanced stage of negotiation.
Preliminary construction work has begun.
The financial closure for the project is expected later this year.
4. 300 MW Butibori Group Captive Power Project, Maharasthra
The 300 MW Butibori project is located in Nagpur district, Maharashtra, and will supply reliable and quality power to the industrial consumers of the state. A pioneering concept introduced by the Government of Maharashtra, Butibori is a Group captive power plant which caters to industrial consumers with a view to ensuring reliable and competitive power and reducing power outages. We are happy to partner with the State Government and industries in this project and hope that this model will be replicated in other states as well. We are in the process of signing PPAs from over 250 industrial consumers.The project has received all major statutory clearances, including the environmental clearance. The project has also secured coal linkage from Western Coalfields Ltd.Land acquisition has already been completed, and site enabling works are in progress.We have appointed Axis Bank as Lead Arranger and the project will achieve financial close this year.We hope to commission the project in 3 years' time.Keeping in mind the power situation in Maharashtra, we are seeking to double the project capacity from the current 300 MW to 600 MW.
5. 3960 MW Chitrangi Power Project, Madhya Pradesh
Reliance Power Limited is setting up a 3960 MW power project at Chitrangi, Madhya Pradesh, in the vicinity of Sasan UMPP. A Memorandum of Understanding (MOU) has been signed with the State Government of Madhya Pradesh for this project.The project will be a significant value enhancer for Reliance Power as it will reap tremendous economies of scale.This project also offers strategic locational advantage in so far as it is situated at the boundary of Western and Northern Regions and will meet the requirement of both.
Of the total project capacity, 1241 MW of capacity has already been committed to MP from this at a levelized tariff of Rs 2.45 per kwh and the remaining will be tied up through a combination of long term and medium term contracts. The process of acquiring land and obtaining the various clearances and permits has already been initiated.
6. 7480 MW Dadri Gas based Power Project, Uttar Pradesh
The proposed 7,480 MW gas-fired power project to be located at the Dhirubhai Ambani Energy City in Dehra village, Uttar Pradesh, will be the world's largest at a single location. The Dadri project will employ Combined Cycle Gas Turbine technology. The Dadri project which figures on the lists of both Planning Commission and the UP government as regards future capacity addition in the state -- has already received all statutory Central and State clearances, including the environmental clearance. The company is already in possession of over 2,100 acres of land required for the Project. As per our State Support Agreement with the Government of Uttar Pradesh, we intend to set aside at least 40 per cent of the Dadri capacity for distribution and consumption in the state by way of long-term PPAs. The remaining power will be sold through an appropriate mix of short-term, medium-term and long-term contracts. Further progress on the project is being held up because of the dispute with Reliance Industries on gas supply, a matter which is currently before the Bombay High Court.
7. 4000 MW Shahapur Gas & Coal fired project, Maharashtra
The Shahapur Project located at Raigad district in Mahrashtra, comprises a 2,800 MW gas-based project and a 1,200 MW imported coal-based project.It has obtained major statutory clearances, including the consent to establish from the Maharashtra Pollution Control Board, and the Environmental and CoastalRegulatory Clearance from Ministry of Environment and Forests.
Land acquisition is currently in progress with the help of the District administration and the State Government.We are working for the welfare of the local community, focusing our efforts on peripheral area development, training of local youth, and sustenance allowance for landless labourers.We have proposed an attractive R&R Package to the Government of Maharashtra that aims at long-term sustainable development of the local community and improving their quality of life.
8. Hydro-electric Power Projects in Uttarakhand and Arunachal Pradesh
While India offers a huge potential for generation of hydro electric power, the actual capacity created so far is only 36,000 MW, or 25 per cent of the country's totalinstalled capacity.
Hydro-electric projects take a longer lead time in construction compared to thermal projects, but have the unique advantage of meeting the peak power requirements and balancing the load curve.
Hydro Projects are the largest source of renewable energy, have a long economic life of over 60 years, and carry zero fuel cost.The Hydro potential for the country is estimated at 300,000 MW and the Central Electricity Authority (CEA) has already identified suitable locations for projects with a total capacity of 50,000 MW.
All our hydro electric projects (HEPs) 280-MW Urthing Sobla in Uttarakand, 1000-MW Siyom and 700-MW Tato II in Arunachal Pradesh -- are located at sites identified by CEA. These sites are best suited in terms of hydrology, load factors, geology and the cost of generation.We have focused on the Northern-eastern region for our hydro projects not only because of the locational and resource advantages that it offers but also because ofour commitment to inclusive growth. These projects, we believe, will bring much needed economic development to the area and help in facilitating its integration into the economic mainstream of a new, prosperous India.
We have made considerable progress on our Hydro projects during the year. A number of internationally reputed consultants, including Halcrow of United Kingdom (UK), SNC Lavalin of Canada, and SMEC of Australia have been engaged to assist in various aspects of our hydro projects.We believe our company will derive tremendous long term value from our hydro projects.
Carbon Credits
Launched under the United Nations Framework Convention on Climate Change (UNFCCC) and Kyoto Protocol, the Clean Development Mechanism (CDM) is an ongoing global initiative aimed at reducing global Greenhouse Gases (GHG).The CDM encourages developers to adopt new and environmental friendly technologies by awarding internationally tradable Certified Emission Reductions (CERs), which can be used to improve the financial viability of power projects.Most of our Projects are eligible for carbon credits, and the current status of our various initiatives in this direction is given below:
! Appointment of internationally reputed consultants for our various projects, including Perspectives CC, Germany, for Krishnapatnam and Ernst & Young for Sasan.
! Appointment of TUV SUD GmbH, Germany, and TUV India Pvt. Ltd. as the Designated Operational Entities for Krishnapatnam and Sasan respectively.
! Progress has been made to secure Host Country Approval for Sasan from the National CDM. Similar initiative for Krishnapatnam will follow shortly.
We expect over 10 million carbon credits per year from our projects which will significantly contribute to our net revenues.
Issue of Bonus Shares
During and after our Initial Public Offering, we were confronted with an orchestrated and malafide campaign of false and motivated complaints, court cases, petitions, letters perhaps the biggest smear campaign in the history of corporate India - across the full spectrum of regulatory and legal forums from SEBI to the Ministry of Company Affairs, and right up to the Supreme Court. I am happy to say that we countered this extraordinary onslaught with courage and resolve, overcoming every hurdle, and winning every battle. In the end, our stand was vindicated in the highest courts of the land, and the Supreme Court intervened to allow our IPO to proceed. The Securities Appellate Tribunal too dismissed all petitions filed against the IPO.
Unfortunately, just after the conclusion of our IPO, there was an unprecedented meltdown in global financial markets, caused by spiraling commodity prices and the onset of a multi-dimensional credit crisis. In line with the global trend, the benchmark BSE stock index Sensex plummeted from 21,000 to 14,000 in a matter of a few short weeks, and all frontline stocks lost 50 to 60 per cent of their value.The total erosion of market capitalization ran into thousands of crore of rupees. Naturally, Reliance Power was no exception, and our stock too fell below the IPO price. The fall in our share price was entirely due to market conditions and didn't in any way relate to the company's fundamentals or growth prospects.
Capital markets routinely witness situations where stocks fall below their IPO issue price and no obligation is cast on promoters to take any remedial measures in this regard. Nor has any promoter done anything about such a situation in the history of the capital markets, whether in India or elsewhere. But we decided to firmly stand by our investors, especially our nearly 40 lakh small shareowners.
Consequently, we issued “Bonus Shares” to all non-promoter shareholders of Reliance Power at an attractive ratio of 3 shares for every 5 held. This brought down the acquisition price for retail shareholders from Rs 430 to Rs 269.
Further, in order to protect the shareholders of Reliance Infrastructure from any dilution in the equity of Reliance Power and to keep my personal commitment to our group shareholders, I decided to voluntarily gift, from my own personal holding, 2.57 per cent of the post bonus equity share capital of Reliance Power, comprising 6.15 crore shares, to Reliance Infrastructure.
This decision, unparalleled in corporate history in India or elsewhere, was for me simply a natural corollary to what I have learnt and imbibed from my father and our founder: As an entrepreneur, protecting shareholder interest is one's first and most important duty.
Conclusion
This has been, in many ways, an extraordinary year for our company a year in which we have made rapid and substantial progress in all our projects. It has also been a year in which our resilience and strength as an organization have shown through. This gives me the confidence to believe that we are well on our way to achieving our mission of being a leading power generation company, and one of the most valuable business enterprises in the country.
Our Commitment
Dhirubhai gave us a simple entrepreneurial mantra: to aspire to the highest global standards of quality, efficiency, operational performance, and customer care.We remain committed to upholding his vision.Dhirubhai exhorted us to think big.We will think bigger.Indeed, not just bigger but better, creating ever greater value for all our stakeholders.
Acknowledgements
Before I conclude, I wish to acknowledge and appreciate the contributions of several individuals, institutions and organizations, who have partnered us in our quest for creating a world-class power generation company in India. My profound sense of gratitude to our millions of stakeholders who have stood by us and reposed confidence in our capabilities. To all colleagues for their professionalism, dedication and unmatched commitment to organizational objectives.
To members of the Board for their guidance and support. To financial institutions, banks, vendors and regulatory authorities for their unstinted support and co-operation. But, most of all, to each one of you, my fellow shareholders. It is your faith, trust and commitment that has been the single most important factor in our quest for ever higher growth and ever greater excellence.
7. 4000 MW Shahapur Gas & Coal fired project, Maharashtra
The Shahapur Project located at Raigad district in Mahrashtra, comprises a 2,800 MW gas-based project and a 1,200 MW imported coal-based project.It has obtained major statutory clearances, including the consent to establish from the Maharashtra Pollution Control Board, and the Environmental and CoastalRegulatory Clearance from Ministry of Environment and Forests.
Land acquisition is currently in progress with the help of the District administration and the State Government.We are working for the welfare of the local community, focusing our efforts on peripheral area development, training of local youth, and sustenance allowance for landless labourers.We have proposed an attractive R&R Package to the Government of Maharashtra that aims at long-term sustainable development of the local community and improving their quality of life.
8. Hydro-electric Power Projects in Uttarakhand and Arunachal Pradesh
While India offers a huge potential for generation of hydro electric power, the actual capacity created so far is only 36,000 MW, or 25 per cent of the country's totalinstalled capacity.
Hydro-electric projects take a longer lead time in construction compared to thermal projects, but have the unique advantage of meeting the peak power requirements and balancing the load curve.
Hydro Projects are the largest source of renewable energy, have a long economic life of over 60 years, and carry zero fuel cost.The Hydro potential for the country is estimated at 300,000 MW and the Central Electricity Authority (CEA) has already identified suitable locations for projects with a total capacity of 50,000 MW.
All our hydro electric projects (HEPs) 280-MW Urthing Sobla in Uttarakand, 1000-MW Siyom and 700-MW Tato II in Arunachal Pradesh -- are located at sites identified by CEA. These sites are best suited in terms of hydrology, load factors, geology and the cost of generation.We have focused on the Northern-eastern region for our hydro projects not only because of the locational and resource advantages that it offers but also because ofour commitment to inclusive growth. These projects, we believe, will bring much needed economic development to the area and help in facilitating its integration into the economic mainstream of a new, prosperous India.
We have made considerable progress on our Hydro projects during the year. A number of internationally reputed consultants, including Halcrow of United Kingdom (UK), SNC Lavalin of Canada, and SMEC of Australia have been engaged to assist in various aspects of our hydro projects.We believe our company will derive tremendous long term value from our hydro projects.
Carbon Credits
Launched under the United Nations Framework Convention on Climate Change (UNFCCC) and Kyoto Protocol, the Clean Development Mechanism (CDM) is an ongoing global initiative aimed at reducing global Greenhouse Gases (GHG).The CDM encourages developers to adopt new and environmental friendly technologies by awarding internationally tradable Certified Emission Reductions (CERs), which can be used to improve the financial viability of power projects.Most of our Projects are eligible for carbon credits, and the current status of our various initiatives in this direction is given below:
! Appointment of internationally reputed consultants for our various projects, including Perspectives CC, Germany, for Krishnapatnam and Ernst & Young for Sasan.
! Appointment of TUV SUD GmbH, Germany, and TUV India Pvt. Ltd. as the Designated Operational Entities for Krishnapatnam and Sasan respectively.
! Progress has been made to secure Host Country Approval for Sasan from the National CDM. Similar initiative for Krishnapatnam will follow shortly.
We expect over 10 million carbon credits per year from our projects which will significantly contribute to our net revenues.
Issue of Bonus Shares
During and after our Initial Public Offering, we were confronted with an orchestrated and malafide campaign of false and motivated complaints, court cases, petitions, letters perhaps the biggest smear campaign in the history of corporate India - across the full spectrum of regulatory and legal forums from SEBI to the Ministry of Company Affairs, and right up to the Supreme Court. I am happy to say that we countered this extraordinary onslaught with courage and resolve, overcoming every hurdle, and winning every battle. In the end, our stand was vindicated in the highest courts of the land, and the Supreme Court intervened to allow our IPO to proceed. The Securities Appellate Tribunal too dismissed all petitions filed against the IPO.
Unfortunately, just after the conclusion of our IPO, there was an unprecedented meltdown in global financial markets, caused by spiraling commodity prices and the onset of a multi-dimensional credit crisis. In line with the global trend, the benchmark BSE stock index Sensex plummeted from 21,000 to 14,000 in a matter of a few short weeks, and all frontline stocks lost 50 to 60 per cent of their value.The total erosion of market capitalization ran into thousands of crore of rupees. Naturally, Reliance Power was no exception, and our stock too fell below the IPO price. The fall in our share price was entirely due to market conditions and didn't in any way relate to the company's fundamentals or growth prospects.
Capital markets routinely witness situations where stocks fall below their IPO issue price and no obligation is cast on promoters to take any remedial measures in this regard. Nor has any promoter done anything about such a situation in the history of the capital markets, whether in India or elsewhere. But we decided to firmly stand by our investors, especially our nearly 40 lakh small shareowners.
Consequently, we issued “Bonus Shares” to all non-promoter shareholders of Reliance Power at an attractive ratio of 3 shares for every 5 held. This brought down the acquisition price for retail shareholders from Rs 430 to Rs 269.
Further, in order to protect the shareholders of Reliance Infrastructure from any dilution in the equity of Reliance Power and to keep my personal commitment to our group shareholders, I decided to voluntarily gift, from my own personal holding, 2.57 per cent of the post bonus equity share capital of Reliance Power, comprising 6.15 crore shares, to Reliance Infrastructure.
This decision, unparalleled in corporate history in India or elsewhere, was for me simply a natural corollary to what I have learnt and imbibed from my father and our founder: As an entrepreneur, protecting shareholder interest is one's first and most important duty.
Conclusion
This has been, in many ways, an extraordinary year for our company a year in which we have made rapid and substantial progress in all our projects. It has also been a year in which our resilience and strength as an organization have shown through. This gives me the confidence to believe that we are well on our way to achieving our mission of being a leading power generation company, and one of the most valuable business enterprises in the country.
Our Commitment
Dhirubhai gave us a simple entrepreneurial mantra: to aspire to the highest global standards of quality, efficiency, operational performance, and customer care.We remain committed to upholding his vision.Dhirubhai exhorted us to think big.We will think bigger.Indeed, not just bigger but better, creating ever greater value for all our stakeholders.
Acknowledgements
Before I conclude, I wish to acknowledge and appreciate the contributions of several individuals, institutions and organizations, who have partnered us in our quest for creating a world-class power generation company in India. My profound sense of gratitude to our millions of stakeholders who have stood by us and reposed confidence in our capabilities. To all colleagues for their professionalism, dedication and unmatched commitment to organizational objectives.
To members of the Board for their guidance and support. To financial institutions, banks, vendors and regulatory authorities for their unstinted support and co-operation. But, most of all, to each one of you, my fellow shareholders. It is your faith, trust and commitment that has been the single most important factor in our quest for ever higher growth and ever greater excellence.
Thank you, ladies and gentlemen, for your time, attention and patience -- and here's wishing you all a very happy festive season ahead.
Mumbai
Anil D Amban
i September 23, 2008
Chairman
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