Course: Credit Management NIBM, Pune
Jhajjar Power – Financing an Independent Power Producer
Haryana is one of the smaller states of India located in the northern part of the country,
touching Delhi, Punjab, Rajasthan and Uttar Pradesh. It is rich in agricultural production
and is economically better off than most of the other states. However, it faces a power
deficiency of 12–15 per cent.
Haryana State Electricity Board (HSEB) was incorporated in 1967 as the nodal agency for
power generation, transmission and distribution within the state. In August 1998, the State
Government unbundled the erstwhile HSEB into two entities − Haryana Power Generation
Corporation Limited (HPGCL) for generation and Haryana VidyutPrasaran Nigam Limited
(HVPNL) for transmission cum distribution.
Subsequently, in July 1999, the distribution businesses of HVPNL were carved out and
vested into two discoms to cover the northern and southern parts of the state.
Jhajjar Thermal Power Project
During the last few years, the Government of Haryana has initiated several measures to
increase the power generation capacity in the state. As part of this plan, it was decided to
set up a project comprising the construction of a 1,320MW (2 X 660MW) supercritical coal-
fired power plant in the village of Khanpur in the Jhajjar District (about 90km from Delhi)
on a build, own and operate (BOO) basis.
After going through a tariff-based competitive bidding process as per the guidelines of the
Electricity Act 2003, HPGCL in July 2008 awarded the project to CLP Power India Private
Ltd (CLP PIPL). As per the guidelines of the Government of India, availability of land, water
linkage, fuel linkage and environmental clearance is ensured to the bidders by the Haryana
Government. CLP PIPL incorporated an SPV by the name of Jhajjar Power Ltd (JPL) to
implement the project. JPL appointed IDBI as the sole arranger for tying up the entire debt
requirement for the project.
Promoters
CPL PIPL belongs to China Light Power (CLP) group of Hong Kong, one of the leading power
companies in the Asia-Pacific region. The CLP group owns a 655MW gas-fired combined
cycle power plant in Gujarat through a company named Gujarat Paguthan Energy Company
Ltd (GPEC). It has also set up a few wind power projects in India.
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Course: Credit Management NIBM, Pune
However, JPL’s project would be the first thermal power project to be set up by the CLP
group in India. The promoters are required to induct Rs20,661m (which would be inducted
in US dollars and would therefore change depending on the prevailing exchange rate) as
their contribution for part-financing the overall project cost of Rs59,681m.
Figure CS1 CLP Group companies incorporated in India
This contribution would be met through a combination of equity and compulsorily
convertible preference shares (CCPS). CLP PIPL will contribute by way of equity to the
extent of Rs200m, whereas the balance of equity would come from the GPEC/CLP group by
way of subscription to CCPS. The CCPS (face value Rs 10/share) would be issued in a
phased manner during the construction period and would have a tenure that would at least
match the tenure of the loan. GPEC/CLP would convert the same into equity shares (at a
ratio to be decided at the time of conversion) at any time during the tenure of the CCPS. In
addition to CLP PIPL and GPEC, one more overseas entity belonging to the CLP group
would also be considered as a promoter, which would furnish the various promoters’
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Course: Credit Management NIBM, Pune
related undertakings to the lenders to the proposed project. The structure of CLP Group in
terms of companies incorporated in India is given in Figure CS1.
Project Details
CLP PIPL was awarded the project, as it was the lowest bidder with a levellized tariff of
Rs2.99/unit. A Power Purchase Agreement valid for 25 years has already been executed
between JPL and Uttar Haryana BijliVitharan Nigam (UHBVNL) and Dakshin Haryana
BijliVitharan Nigam (DHBVNL), the State Distribution Companies of the Haryana
Government. These DISCOMs, as per the PPA, would purchase 90 per cent of the power
produced by JPL whereas 10 per cent of the power would be sold by JPL on merchant basis.
The company has already made arrangements for sale of this 10 per cent. The PPA has
adequate payment security mechanism as well as a provision for third-party sales in case of
default by the DISCOMS.
The project would require about 497 hectares of land, which has already been acquired by
UHBVNL and DHBVNL and handed over to the company. JPL proposes to implement the
project through an EPC contract route and has awarded the EPC contract to Shandong
Electric Power Construction Corporation No. 3 (SEPCO III) group of companies as the EPC
contractors considering their prior project execution experience with CLP Group.
SEPCO III would be sourcing boilers, turbines and generators from any one of the two
leading original equipment manufacturers in China, i.e., Dong Fang Electric Corporation Ltd
and Harbin Power Company Ltd. SEPCO III would finalize the sourcing strategy in
consultation with the company. The contractual structure of the proposed power project is
depicted in Figure CS2.
JPL proposes to carry out the O&M of the project in-house utilizing the technical support,
training, scientific and research capability existing within the CLP Group. The O&M
personnel would be provided with suitable training by the EPC contractors. The annual
coal requirement for the proposed project has been estimated at 5.21m tonnes per annum
(mtpa) at a PLF of 87.4 per cent. (GCV: 4,265 kcal/kg; Gross Station Heat Rate:
2181kcal/kWh).
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Course: Credit Management NIBM, Pune
Figure CS2 JhajjarProject Financing Structure
The coal would be sourced from North Karanpura coalfield of Central Coalfields Limited
(CCL), a subsidiary of Coal India Limited (CIL), located at a distance of about 1,000km from
the plant site. The coal would be transported through Indian Railways. Light Diesel Oil
(LDO) would be used as a secondary fuel, which would be sourced from nearby refineries.
The DISCOMs are responsible for making the necessary evacuation arrangements.
Financing Arrangements
IDBI acted as the sole arranger for the entire debt requirement for the project. As per the
appraisal carried out by IDBI’s project team, the overall project cost was estimated at
Rs59,681m, comprising a rupee portion of Rs24,974m and a foreign currency portion of
US$771.25m (exchange rate of US$1 = Rs45).
The project was funded at debt equity ratio of 65:35. The total debt requirement of
Rs3,902m comprising a rupee portion of Rs33,985m and foreign currency portion of
US$112m was syndicated solely by IDBI. The company has been provided with an option to
replace a part of the rupee debt to the extent of US$400m by way of ECBs/ECA/domestic
bonds/multilateral agencies, within 12 months of the signing of the loan documents. JPL
was permitted to cancel the equivalent amount of undrawn RTL.
The consortium consists of a total of 15 lenders comprising 10 banks and five financial
institutions. The tenor of the loan is for a period of 15 years with an initial moratorium of
four years, (including a construction period of 40 months and eight months moratorium
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Course: Credit Management NIBM, Pune
post-COD from the date of notice to proceed). The entire financing exercise was completed
within eight months of signing of the PPA by the company during the period when the
entire world was facing financial crisis. There was an oversubscription of more than 30 per
cent.
The members of the consortium are IDBI Bank Ltd, Indian Infrastructure Finance Company
Ltd UK (for foreign currency loan), Power Finance Corporation, Rural Electrification
Corporation, Infrastructure Development Finance Company Ltd, PTC Financial Services Ltd,
Allahabad Bank, Bank of Baroda, Bank of India, Dena Bank, Oriental Bank of Commerce,
State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and United Bank of
India.The debt is based on different interest rates for different sets of lenders. The interest
rate structure for the project is styled in such a manner that the lenders and borrowers
would have the benefit of changing market conditions during the period of the loan.
Key Features of the Transaction
Long-term loan of 15 years door-to-door tenor was structured on a non-recourse
basis for a PPP project.
It is the one of first IPPs in Haryana and the coal needs to be transported over
1,000km by rail to the site.
Structuring of promoter equity in a suitable form for foreign investors to invest in
the project.
Flexibility to refinance a portion of the debt through ECA/ECB without any penalty.
Arranged foreign currency loan overcoming the global meltdown conditions that
were prevailing during the mandate period.
Arranged the funding by including five different financial institutions, which
normally stipulate different covenants.
Acknowledgement: Case sourced from Chapter 40 of The Principles of Project Finance (978-
1-4094-3982-0) by Rod Morison
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