Pergamon International Journal of Project ManagementVol. 16, No. 2, pp.

99-105, 1998
© 1998 Elsevier Science Ltd and IPMA. All rights reserved
Printed in Great Britain
0263-7863/98 $19.00 + 0.00

PII: S0263-7863(97)00030-6

Development and project financing of

private power projects in developing
countries: a case study of India

Jyoti P Gupta* and Anil K Sravat

School of Management, Asian Institute of Technology, GPO BOX 2754, Bangkok 10501, Thailand

The power sector development is crucial to sustain the faster economic growth of the Asian
region. This article analyses the critical issues involved in the development and project financing
of the Independent Power Projects in India. The issues examined are related to policy, power
purchase, risk factors, financing, fuel supply and transportation and key success factors. This
study presents a brief profile of the power sector in India and a case study of the Dabhol power
project, the first IPP being developed by foreign investor, Enron Development Corporation
(EDC). The conclusions have been drawn in the end of this article. © 1998 Elsevier Science Ltd
and IPMA. All rights reserved
Keywords: power projects, privatisation, development, financing, risk factors, Dabhol power project

Economic growth depends on the state of infrastruc-
ture, The Asian economies are growing at a higher
rate and therefore the demand for infrastructure is out-
stripping the supply. The role of the power sector
becomes vital in the economic development of the
country. As per estimate of the world bank
290000 M W of new generating capacity would be
required in Asia by 2004. To build this generating ca-
pacity in a decade, utilities and private power develo-
pers will need to bring on line an average of 2000 M W
to 2400 M W of new capacity each month. Each year
$ 35 billion will need to be invested in power plants
and transmission and distribution facilities in Asia.
India is on the eve of a large industrialization pro-
gram, this trend is reflected in the country's insatiable
demand for power. The current generating capacity is
about 81000 MW. India's power demand would be
about 145000 M W by 2006-2007. This would mean
adding about 68 000 M W to the current capacity. The
total investment over the period 1995-2005 is esti-
mated to be US $ 78 billion. 4 The country is unable to
meet this requirement due to the paucity of funds and
resource constraints. The privatization of the power
sector is encouraged firstly to mobilize the needed
financial and managerial resources, secondly, to
improve the efficiency of services to the u s e r s . 6'7
This article has been structured into four parts.
Part-I deals with the brief profile of the power sector
*Author for correspondence.
in India, Part-II deals with development and project
financing of IPPs in India and the critical issues
involved have been analyzed. Part-III contains a case
study of the Dabhol power project. The various con-
clusions drawn have been mentioned in Part-IV.
Power sector profile--India
Although the expansion has been impressive in the
last 15 years, yet the availability of power continues
to fall short of demand. The Indian power industry
has been dominated by the public sector. The private
sector accounts for just 4% of the total power gener-
ating capacity.
Industry structure and regulation
The Indian energy Supply Act was enacted in 1948
to set stage for a restructuring of the power industry.
Under the act, the Central Electricity Authority
(CEA) was created to develop a national power pol-
icy and to coordinate power development at the
national level which involves giving techno-economic
clearance. The state electricity boards were set up as
autonomous bodies to promote the development of
the power sector in the respective states. The
Industrial Policy of 1956 explicitly reserved the gener-
ation, transmission and distribution of power to the
domain of the public sector. The companies in the
central sector are allowed only the generation and

99
Private power projects in developing countries. J P Gupta and A K Sravat
transmission of power, the distribution lies with the
respective State Electricity Boards (SEBs). 3
Supply and demand
The power generation was 351.02 billion energy units
in 1994-95. The eight plan expects power generation
to reach 418.2 billion energy units by 1996-97. India
has been facing power shortages in the last decades.
By and large, power shortage has declined from 10 to
12% during the first half of eighties to 7 to 8% in the
second half of eighties and first half of nineties.
During 1994-95 the energy shortage was 7.1% and
peak shortage was 16.5%. 7
Financial status
According to the economic survey of 1994 95 all the
SEBs put together showed a negative rate of return of
12.2% in 1993-94. According to C M I E * survey, 342
projects currently under implementation or proposal
stage involve an investment of Rs 3474.47 billion?.
These projects plan to install 102220 M W of ca-
pacity. Out of this 28 038 M W of capacity is under im-
plementation. The public sector accounts for 42% of
the total investment. The central government accounts
for 16% and state sector accounts for remaining 25%
of investment in the power sector.
Earlier in India the power projects were developed
mostly by government utility firms and financing was
arranged through government budget, multilateral
agency credit, bilateral credits, supplier credits and
commercial loans from banks. Due to the resource
constraints and paucity of funds the privatization of
power projects is taking place at a faster pace. The
independent power projects are being financed through
non recourse project financing. 9
Development and financing of private power
projects
Privatization o f power sector
The Indian power sector is facing a severe resource
crunch and inadequacy of funds with the central/state
public sector: The uncovered gap of about 37 000 M W
and 47000 M W in 1997-2002 and 2002-2007 has to
be bridged by the private sector. The investment
required to add this 37 000 M W is about Rs 1500 bil-
lion (US$ 47 billion). Therefore due to paucity of
resources, and in order to meet the growing demand,
in 1991, Government of India opened the power sector
to both Indian and foreign private investors by enact-
ing the Electricity Laws (Amendment) Act, 1991. The
private sector participation not only provides the
needed resources but should encourage competition
and improve efficiency in the electricity sector in India.
The power industry is highly capital intensive and to
arrange large funds for power projects in the conven-
tional way is extremely difficult for promoters and
therefore limited or non-recourse project financing is
*CMIE = Centre for Monitoring of Indian Economy.
"l'Rs31.9 - 1US$ (End 1995)
100
adopted for financing private power projects by almost
all promoters. 2 The salient features of the private
power policy are given in the Appendix.
Private sector response
Proposals have been received for 245 projects for a
total capacity of 93 661 M W involving an investment
of about Rs 3397.08 billion. Out of these, foreign
investor have made 52 proposals for a capacity of
37503 M W including an investment of Rs 1466 bil-
lion. 6 The Foreign investment promotion board
(FIPB) has already cleared 25 proposals and 16 of
these have been cleared by the Cabinet committee of
foreign investment. The government has cleared initial
eight projects on a fast track basis and extended
them counter guarantee to support the obligation of
the state electricity board. 8
Counter guarantee
Due to the poor credit rating t° of the State
Electricity Boards, promoters have insisted on state
guarantees and Government of India (GOI) guaran-
tees for the payment obligations of the SEBs. The
Govt. of India decided to extend counter guarantees
to the initial eight projects (fast track projects) to
convince the lenders. This scheme was envisaged as
a transitory measure to boost private sector invest-
ment. Since this was a temporary measure G O I is
exploring several alternatives to counter guarantee
which are as follows:
• Direct supply of power by IPPs to HT consumers
• Opening of an Escrow Account in which identified
payment by consumers are credited and payment
liability to the IPP is the charge on this account
• Linking power generation with distribution
• Escrow arrangement with central devolution at the
request of state government
• World Bank guarantee
Competitive bidding and M O Us
At the beginning of the privatization program the
projects were awarded to private developers through
m e m o r a n d u m of understanding route. This policy
was criticized by different sections and the Govt. of
India has made it mandatory that private power
projects are awarded through competitive bidding
effective from 18th February 1995. However, com-
petitive bidding in its current form is not quite
effective, at best it is indicative only. Some projects
are being revised even though these are won
through competitive bidding.
7"ar/ff
At present, G O I has adopted a two part tariff which
effectively guarantees the return of generating compa-
nies. The first part of the tariff covers recovery of fixed
costs, including the return based on normative par-
 Private power projects in develop#tg countries: J P Gupta and A K Sravat
ameters. The second part of tariff covers variable costs
as well as premium on efficiency. A post tax rate of
return of 16% is assured regardless of their operational
efficiency.
Risks factors
The development of power projects in India is in a
nascent stage and the developers have to face many
risks involved ~2 in the development of these projects.
The major risks described by various participants such
as developers, investors and contractors are as follows:
• Country/political risk ~
• development and construction risk
• Operation and maintenance risk
• Fuel supply and transportation risk
• Foreign exchange risk
• Risk of non-payment by SEBs (sole power purcha-
ser)
• Regulatory environment risk
These risks are generally present in the projects but
in the case of India it needs special consideration as
credibility to meet the contractual obligations by state
owned monopolies (power purchaser, fuel supplier and
transporter) is very poor. The country/political risk
rates very high in the mind of the investors.
Financing
The financing of the private power projects on project
financing basis ~ is in the nascent stage. The issues
involved are discussed in the following section. 9
Conventional/existing financing methods. Structured
financing: 2 As power projects involve large investments,
the risk profile along with the cash flow profile of the
projects decides the financial structure and package of
the project. In India, government sponsored projects
have had staggered or incremental financing patterns,
which were mainly determined by the availability of
resources rather than specific relationship with the
requirements of the projects. However there are no pri-
vate sector projects which have such financing pat-
terns. The institutional financing in India is mainly
done through a consortium. A development financial
institution acts as lead banker in the consortium. The
other existing form of financing in India has been the
equity route.
Use of special purpose vehicle: The most widespread
financing option at present is limited recourse finan-
cing. In this method of financing a Special Purpose
Vehicle (SPV) 14 is created, which acts as the nodal
agency for bringing together private investors and con-
cerned Government agencies for the project. The SPV
can be any C o m p a n y / T r u s t / M u t u a l Fund with necess-
ary financial strength to act as an intermediary. The
SPV and the lender sign a 'Financing and Security
Agreement' which specifies the conditions for financing
and other aspects. Private sponsors also pledge ad-
ditional cash-inflow streams for meeting debt-service
obligations.
Sources of funds: ~2 The current guidelines of the gov-
ernment permits a debt-equity ratio of 80:20. The
60% of the debt should come from sources other than
domestic financial institutions. The govt. has also put
the limit on foreign debt to twice of equity Therefore
the promoters has to raise substantial capital from
domestic sources. The various sources of capitaP 3 are:
• Foreign equity;
• Foreign debt;
• Commercial finance;
• Domestic capital market;
• Indian Financial Institutions (IFIs);
• Commercial banks;
• Infrastructure funds;
• Private Power Development Facility of the World
bank.
Credit enhancement: The need for credit enhance-
ment emerges from the perceived inability of the
power purchaser (SEBs) to meet its payment obli-
gations. ~° The credit enhancement essentially guaran-
tees either power purchase or debt repayment. Some of
the alternatives require major structural/sectoral
reforms. While these changes would be needed, the
various alternatives being considered for use include
the following:
• Government of India or sovereign guarantee
• Letter of credit and Escrow account backed by SEB
customer receivable
• LC and Escrow account with guarantee from Indian
Financial Institutions (IFT).
• LC and Escrow account with State Government
Guarantees (and central devolution)
• Blended G O I guarantee
• Power purchase agreement with central agencies
such as Powergrid
• Direct distribution by IPPs to large industrial consu-
mers
• World bank guarantee
• Corporate balance sheet of developers
Credit support capability of Indian institution: The
main reason that promoters are not able to do the
financial closing is the difficulty in obtaining project
financing, especially debt financing. The lenders ask
for different guarantees due to the poor financial con-
dition of the state electricity boards which are the sole
purchasers of electricity from the IPPs. The G O I has
been reluctant to give the sovereign guarantee as it
affects the national balance sheet by increasing contin-
gent liability of the government. The SEBs are
expected to provide the largest amount of credit sup-
port despite their poor financial condition. Only half
of the power sector needs can be fulfilled if the desired
reforms are not put in place.
Critical issues in private power projects development
The private sector participation is of crucial import-
ance for the development of power sector in India.
The private power developers are facing daunting chal-
lenges in developing the projects. Some of the critical
issues are discussed below:
• Government allowed a maximum debt to equity
ratio of 2 : 1 in the project for foreign investors.
However it is very difficult to achieve this ratio
along with an Indian partner as guidelines limit the
lO1
Private power projects in developing countries." J P Gupta and A K Sravat
foreign debt twice to foreign equity. The method of
selection of promoters and their appraisal needs con-
sideration; the M O U route has been severely criti-
cized as it lacks transparency and in many cases the
MOUs were not based on well developed project
concepts.
• The government guidelines assumes these plants as
base load stations and tariff structure has been
designed accordingly. However some investments
made for peaking load factor is of more economic
benefit and hence tariff guidelines should be made
more flexible to include this operational mode.
• The financing through Export Credit Agencies is
most viable route but specific agency's overall
country limit, competing demand from power pro-
jects in public sector and projects in other sectors
would limit the amount available for private
power. Additionally, the commercial banks balance
sheet capacity would be considerably stretched if
these were required to furnish guarantees to the
ECAs as well as fund the bulk of the requirement
of domestic financing. Under the current market
condition it is difficult to tap the international mar-
ket for medium term finance both for the amount
and maturity required by power projects without
some form of credit enhancement from multilateral
institutions.
• In view of the constraints on the availability of
external finance, the developers would need to raise
a significant part of their capital requirements from
the domestic capital and credit markets. Investors
have a preference in India due to speculative gains
and it does not appear difficult to raise the dom-
estic equity for a private power projects however
the raising of long term debt is quite diffficult due
to immature secondary debt market in the country.
There is absence of liquidity in the secondary mar-
ket.
• Indian financial institutions limit their exposure
(including term loans guarantees and underwriting
commitments) to not more than 25% of their net-
worth to a single project Maximum 15% to a sector.
The sector exposure of these institutions would
reach their limits and after few projects the financing
would be possible only to the extent of annual
growth and repayments by the already financed pro-
jects. Commercial banks seems to have enough ca-
pacity to meet the working capital requirement of
the private power projects but their underwriting ca-
pacity is not expected to be significant, therefore the
IFIs have to support the bulk of the underwriting
needs of the projects.
• The ability of the SEBs to pay their obligations in
terms of power purchase agreement (PPA) is a
source of serious concern for private power project
development The option that these payment may
be secure by making the 'escrow' arrangement by
certain designated industrial consumers is seen
causing problems for the domestic creditors in pro-
viding finance for other SEBs activity, such as
working capital requirements, and moreover it dis-
turbs their consumers mix, eroding their receivables
further.
• The SEBs risk would best be mitigated by an
improved and profitable performance of the SEBs.
102
and this would need to be given a continuous pri-
ority.
• The assurance of steady fuel supply of the agreed
quality (and adequate compensation in case of fail-
ure) is another issue of concern for the investors and
lenders. The present suppliers of the fuel in India
are government monopolies and there is no commer-
cial commitment between them and the power pro-
jects.
Case study--Dabhol power project
Introduction
In May 1992, the Government of India and Ministry
of power had invited EDC an internationally recog-
nized independent developer of power to consider set-
ting up a power plant in India with imported liquefied
natural gas (LNG). This is the first large scale private
sector project developed through foreign direct invest-
ment
The project entails the design, engineering, con-
struction, commissioning and commercial operation
of a 2015 MW natural gas fired combine cycle power
station in two phases. The first phase will have gener-
ating capacity of 695 MW. It will include the devel-
opment of harbour and fuel oil facilities. The second
phase will have generating capacity of 1320 and will
consist of building the necessary infrastructure for off
loading, storage and regasification facilities.
The Dabhol Power Company ( D P C )
The Dabhol power project is owned by an Indian
company, the Dabhol Power Company. The DPC
was set up to undertake the responsibility of develop-
ing and operating all aspects of the power station
and fuel facility. The equity would be provided by
the consortium of foreign companies (in which Enron
development corporation is the lead member with
Bechtel Enterprise Inc. and General Electric
Company as the members) and other Indian equity
participants. The debt would be provided by export
credit agencies and multilateral agencies. Up to 30%
of the equity will be offered to the Indian investors
through private and public offerings. The project
would be connected to the Maharastra State
Electricity Board (MSEB) grid through a 4 0 0 K V
transmission system. The latest technology will ensure
environmental considerations.
Financing
Dabhol power project is the first project to achieve
the financial closing after the privatization of the
power sector in India. The project has been financed
on non-recourse basis with a sovereign counter guar-
antee from the Government of India. The entire
equity came from the consortium of US companies
led by Enron Development Corp. The Power pur-
chase agreement for this project was signed in end of
1993 The time for the financing of a project in the
developing country like India was not favorable, due

Table 1 Financing details of Dabhol power project
Amount (US $ in
Source million) Interest [%]
Debt/loan 643
US Exim Bank 298
OPIC 100
BOA and ABN- 150 Libor + 3
AMRO Bank
Syndicate of Indian 95
Bank led by IDBI
Equity 277
Enron Dev. 221.6
Corp.[80%]
General Electric [10%] 27.7
Bechtel USA [10%] 27.7
Total 920
to the Mexican peso crises and the Indian investment
rating.
F r o m the issuance of the Basic Information
M e m o r a n d u m (BIM), it took about one year to
achieve the financial closing in March 1995. The agree-
ment calls for the banks to provide US$ 643 million in
commercial finance. The lenders comprises of the US
Exim bank, Overseas Private Investment Corp.(OPIC),
Bank of America and A B N - A M R O bank of
Netherlands and a syndicate of Indian banks led by
Industrial Development Bank O f India. The loan has
been fully underwritten by the main lenders.
The original plan of the c o m p a n y was to retain the
50% equity and thereby spread the risk a m o n g various
parties. The financial details are given in Table 1. The
project was financed on limited recourse project finan-
cing basis. The mortgage trustee for all the lenders is
the Industrial Development Bank of India. The
onshore trusties is the Bank of America, Bombay and
the offshore collateral agent is the Bank of America,
New York.
Power purchase agreement, performance guarantee and
penalty
The power purchase agreement between MSEB and
D P C is signed for a period of 20 years, extendable for
a further period of five or ten years by mutual consent.
D P C has guaranteed an average availability of 90%
for 20 years and also heat rate for twenty years. There
are severe penalties for nonperformance in the PPA. ~5
The D P C has to commission the project within 33
months (1005) days from the date of financial closure
failing which they would pay the penalty. D P P was the
first project to be executed under the power sector pri-
vatization program of India and G o v e r n m e n t of
Maharastra ( G O M ) has given guarantee for the pay-
ment obligation of MSEB, supported by the counter
guarantee from GOI.
Risk o f Dabhol Power Company
Some of the critics of the Dabhol power project
maintain that the D P C is getting this business with-
out assuming any risk. Even the Accountant General
has remarked in the report on the project that " D P C
will conduct the business of selling power without the
c o m p a n y taking any risk". However c o m p a n y has
Private power projects in developing countries: J P Gupta and A K Sravat
taken the risk which it is in a best position to bear.
Some of the risk which D P C has taken are as fol-
lows:
• Construction risk: D P C has quoted a power price
8 based on an estimated capital cost. The company
10 takes the risk to build the project within this
cost, any extra cost has to be born by the com-
17.5 pany
• Completion risk: The plant has to be completed
within 33 months from financial close, otherwise
heavy penalty is to be paid by the company to
MSEB for the delay.
• Operational risk: D P C has guaranteed certain per-
formance of the plant and if it can not operate the
plant upto the guaranteed performance, the com-
pany is liable to pay the penalty to MSEB accord-
ingly.
• Fuel supply risk: The company has to ensure that
the power plant has sufficient fuel supply to generate
the required electricity. The c o m p a n y has to pay the
penalty for the non- availability of the fuel, reducing
the return of the company.
• Financial risk: The c o m p a n y has to bear the risk of
any change of the rate, terms and conditions of the
financing as the cost quoted is fixed.
In addition to this D P C has to bear the risk of
industrial force majeure, non domestic force majeure
and some part of the political force majeure risk. ~2
Later development, scrapping and revival o f the project
When the construction of the project was going on
there was a change of government in the state of
Maharastra. The opposition party came into power
and they have set up a committee to review the
Dabhol power project cleared by the previous govern-
ment. On the basis of the report submitted by the
committee, Govt. decided to repudiate the first Phase
and cancel the second phase of the project on
03.08.95. Therefore the D P C was given the notice by
The G O M to stop the construction work at site.
Various petitions were filed in the High courts and
Supreme court of India. The supreme court upheld the
validity of the contract quashing all these petitions.
D P C has initiated the arbitration proceedings in
London against the Govt. of Maharastra in accord-
ance with the provision of the State Support
Document of June 1995. The amount claimed by D P C
represents the c o m p a n y expenditure up to date and
was not inclusive of the loss of profit which will be
decided in the due course
Renegotiation process. The Govt. of Maharastra, in
N o v e m b e r '95 set up a group to negotiate the revival
of the project with DPC. The scope of discussion was
for the entire project including phase I and phase II.
During these negotiations the company made the fol-
lowing offer to revive the project:
• The c o m p a n y would agree to the tariff that would
be equivalent, after taking into consideration of the
special infrastructure/tax implication of the DPP, to
the best comparatively bid tariff given by the
recently approved new power projects in
Maharastra.
103
Private power projects in developing countries: J P Gupta and A K Sravat
bullnum0;. The company would agree to use
Naphtha or L N G sourced through
Indian supplier and offer upto 30%
equity in the project to either MSEB or
an Indian party, which would signifi-
cantly reduce the foreign currency out
flow from the project.
• The company would agree to accept further sugges-
tion from the government on the environment
issues.
Foreign governments and investors perception. The
Maharastra government decision to scrap the project
raised serious concern among the foreign investors but
subsequent decision to renegotiate the project with
Enron and therefore showing their commitment to set
the power plant has contributed to ally the initial
fears.
Revival of the project*. The Government of Maharas-
tra has cleared both tile phases of the project on
14.01.96. The capacity of the project has been
enhanced to 2450. The fuel used would be Naphtha
and the gasification plant has been removed. The ana-
lyst in the power ministry have calculated that renego-
tiation of DPP has resulted in a 10.9% reduction in
cost attributable solely to the reduced prices for plant
and equipment.
This project is a good example of political risk and
its management in the developing countries like India.
The development and financing of projects in India
require something more than the usual practice. The
bureaucracy and political forces play a vital role.
During the discussion the DPC officials informed that
they have obtained 128 clearances including about 40
major ones. The legal system of the host country is
very important in this kind of situation. In this case all
the courts validated the contract and their role has
been appreciated by developers including Enron. The
dependence of parties on the project plays a significant
role. In this case, not even the government but Enron
was also patently keen to revive the project as it has a
big stake in a massive gas project in Qatar which
could be endangered if the Dabhol project does not
goes through.
Conclusions
The project financing of power projects on limited
recourse basis has gained wide application in this
region. The power sector is opened for privatisation
with the liberalization of the economies in the Asian
countries. The various factors impeding the develop-
ment of private power projects in these countries are
high country/political risk, unstable economic/fiscal en-
vironment, highly bureaucratic system, poor credibility
of power purchaser, fuel supplier and transporter
which are state owned monopolies, immature capital
markets especially the long term debt markets.
In order to improve the success of development and
project financing of IPPs the following measures merit
considerations:~6
*This section is based on the press reports.
104
• Develop clear and prudent policies regarding the
investment in the private power projects.
• The credibility/financial viability of the SEBs which
are the sole power purchaser should be improved.
The major reforms must be implemented.
• The competitive bidding with greater transparency is
more suitable for these counties and it avoids cost
padding by promoters.
• The economic/fiscal environment (interest rate, in-
flation, currency exchange rate) needs much struc-
turing and improvement.
• Credit enhancement mechanism should be developed
and implemented till the necessary sectoral reforms
are in place.
• The capital markets have to be developed if the pri-
vatisation has to be sustained. The statutory funds
such as pension funds and employee provident funds
should be directed to invest in the private power
projects.
• The bureaucratic process and regulatory regime
should streamlined to achieve the fast clearance for
these projects preferably a single window clearance.
• The legally enforceable and fair commercial con-
tracts between fuel supplier and transporter should
be implemented
The financial institutions ~6 have to play vital suppor-
tive role in the development of capital markets, fulfill-
ing the need for underwriting various loans and
securitisation of the debts for getting necessary funds
for the power projects. The participation of the multi-
lateral financial institutions by way of equity would
greatly enhance the investor confidence and success of
project financing of these projects. The government in
India should ensure that similar incidents like Dabhol
Power Project do not repeat and implement some in-
itial project at the earliest, otherwise the investors
would consider India as high risk country and the cost
of international capital would go high.
Acknowledgements
The authors wish to express their deep gratitude to the
European Community for funding this research study
which involved visits to India, Malaysia and Singapore
for collection of data and information.
References
1. Brealey, R. A. and Myers, S. E.Principle of Corporate Finance,
Fourth edn, McGraw Hill Inc, 1991.
2. Nevitt, P. K. Pro/ect Financing, Fourth edn, Euro money
Publication Limited, London.
3. Nevitt, P. K. A private power plan, hldependent Energy,
January 1995.
4. Nevitt, P. K. A profile of India's power sector, A report by
A B N - A M R O structured finance, lndia, March,1995.
5. Nevitt, P. K. A D B Power landing, Power in Asia, April 1995.
6. Nevitt, P. K. Annual report working of State Electricity Boards
and Electricity Depn., Power and Energy division, Planning
commission, Govt. of India, 1994.
7. Purandare, J (Arthur Anderson) Financing Indian power pro-
jects, India Power '96 conference, January New Delhi, India.
8. Purandare, J. India Energy Sector; Power, A report by Center
for monitoring Indian economy (CMIE) Pvt. Ltd., July, 1995.
9. Kessides, C. Institutional options for provision of infrastruc-
ture, World bank discussion paper 212.
10. Kessides, C. Living without sovereign guarantees, Asia Money,
June 1995, Vol. VI No.5.
 Private power projects in developing countries." J P Gupta and A K Sravat

11. Howell, L. D., Chaddick, B. Model of political risk for foreign

investment and t r a d e - - A n assessment o f three approaches, Jyoti P. Gupta graduated from
Columbia Journal of Worm Business, Fall 1994, Vol XXIX. Indian Institute of Technology,
12. Li, L. Potential conflicts between interested parties and opti- India in mechanical engineering. He
mum funding structure in project financing--Case study of pro- received PhD from Manchester
ject financing in Asian countries: RSPR No. SM-94-15. University, UK. He had worked in
13. Haley, G. Private finance for transportation and infrastructure General Electric company and
projects A view. International Journal of Project Management Morgan group as financial control-
10(2), 1992. ler. He has served on many inter-
14. Reporz, L. Project financing and financial engineering. national forms in the area of
International Journal of Project Management 6(3), 1988. finance. He is Professor of finance,
15. Ansar, K. Project financing in India; Legal and conceptual group ESCP (Graduate school of
issues, India Power '96 conference, January New Delhi, India. Business) Paris, France. He has
16. Ansar, K. The World bank guarantee-catalyst for private capi- authored many articles and books in
tal flows, A report by project finance group, Cofinancing and various of finance. His current areas
financial advisory services; The World bank, September 1995. of interest are capital markets and
project .financing of infrastructure projects in Asia and Europe.
Presently, he is Dean and professor, School of Management, Asian
Institute of Technology, Bangkok, Thailand.

Appendix: Salient feature of Private power policy

Anil K. Sravat received Bachelor

and Master degree in electrical en- Private sector can take up distribution as licensees or can come in
gineering from University of as generating company
Roorkee, India. He has worked in
the large public sector corporations
• 60% of outlay must come from sources other than Indian public
in the power sector in India for
financial institutions and 100% foreign equity is permitted. A
about 10 years. He was involved in
maximum Debt equity ratio 4 : 1 is allowed.
the first HVDC project in India.
Recently, he has completed MBA
course in International Business • Reduced custom duty on import of equipment, Tax holidays and
from Asian Institute of Technology, suitable rariff structure to ensure appropriate return.
Bangkok, Thailand. His area of
interest are privatisation, project • Upto 16% return on the foreign equity included in the tariff can
.financing and project management be provided in the respective foreign currency.
of large power projects. He is cur-
rently working as Senior research associate at Asian Institute of • Government of India can cosnider guarantee provisions on case
Technology, Thailand. by case basis.

105