Essel Vidyut Vitaran (Muzzafarpur) Limited

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In October 2013, Bihar State Power Holding Company Ltd (BSPHCL), the state owned Power Distribution utility, and Essel Group company (Essel Adi Smart Grid Solution Limited (EASGL)) signed a Distribution Franchisee Agreement for Muzzafarpur city in the state of Bihar. EASGL would distribute power in Muzzafarpur city for the next 15 years. In this area, the Company would distribute power as an agent of the present distribution licensee - North Bihar Power Distribution Co. Ltd. (NBPDCL). There were about 2,665,000 people (149,000 registered power consumers among these) in the city spread over 3172 sq. kms. with an estimated annual power consumption of about 450 MUs. EASGL established Essel Vidyut Vitaran (Muzzafarpur) Limited (EVVML),a special purpose vehicle, to execute this distribution franchise. The primary obligation of the Distribution Franchise (EVVML) included - (a) undertaking the distribution and supply of power to the consumers of NBPDCL in the designated Distribution Franchise Area, (b) undertaking reading of meters, generating of bills, payment collection, as per the retail tariff structure deterined by BERC (State Power Regulator), (c) maintaining the existing distribution network and replacing failed distribution transformers and defective meters and other network infrastructure assets, (d) making payments to NBPDCL, (e) collection of NBPDCL's outstanding arrears as their agent and remittance of the same. EASGL was selected through a competitive bidding process undertaken by BSPHCL in March 2013. The bid variable was the highest price at which power was purchased from NBPDCL (Discom) for subsequent distribution in the franchise area. As per information available, only Essel Group consortium bid for this franchise.Bihar State Power (Holding) Company Limited (BSPHCL) had given minimum benchmark input price curve for all the regions, mandating bidders to bid higher than given price curve for all 15 years. The base year price or Muzzafarpur was INR 2.576/Unit and reached upto a maximum of INR 4.742/Unit in the 15th year (Levelized Input Price (LIP) came out to be INR 4.030/Unit). EASGL won the bid by quoting the highest purchase price - for the base year it was INR 2.670/Unit. At the end of FY 2012-13, AT&C losses, (which included line loses, theft as well as non-billing) were to the tune of 66.17%. As per the DF agreement, EVVML needed to bring down power losses to 15% by the end of FY2014-15. EVVML would purchase power from the NBPDCL and would distribute it to consumers on the rates approved by the Bihar Electricity Regulatory Commission. Franchisee would remit a pre-determined share of the revenue collection at regular intervals to the Licensee, as per the Distribution Franchisee Agreement. EVVML was mandated to invest USD 18.0mn (INR 1057.2 mn @58.6 INR/USD) within the first 3 years, in Muzzafarpur DF area for infrastructure upgrade to reduce T&D losses and improve collections. The project achieved financial closure in February 2014 at a debt/equity ratio of 70/30. The estimated project cost at the time of financial closure was USD 18.0mn (INR 1057.2mn @58.6 USD/INR). Financing comprised a 13-year term loan of USD 12.6mn (INR 740mn), and sponsor equity of USD 5.4mn (INR 317.2mn). Financing also comprised a INR 100mn 1-year fund based Working Capital Facility and a INR 415.4mn 1-year non-fund based Working Capital facility. SBI was the mandated lead arranger. Canara Bank was the lead bank, India Infrastructure Finance was the other participating bank. EVVML commenced distribution franchisee operation in Muzzafarpur in November 2013.In the 5-months of operations since November 2013, EVVML reduced the losses marginally to 52% at FYE14.