Essel Vidyut Vitaran (Sagar) Private Limited

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On 10th May 2012, Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited (MPPKVVCL) and Essel Group consortium (Smart Wireless Private Limited as Lead member, and Pan India Network Limited, Pan India Infrastructures Private Limited - all Essel Group Companies)signed a Distribution Franchisee Agreement for Sagar city in the state of Madhya Pradesh(MP). Essel Group would distribute power in Sagar city for the next 15 years. In this area, the Company would distribute power as an agent of the present distribution licensee - Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited (MPPKVVCL). There were about 370,000 people (57,820 registered power consumers among these) in the city spread over 205 sq. kms. with an estimated demand of about 44MW with annual power consumption of about 163.56 MUs. Essel group consortium established Essel Vidyut Vitaran (Sagar) Private Limited (EVVSPL), a special purpose vehicle, to execute this distributionfranchise. The primary obligation of the Distribution Franchise (EVVSPL) included - (a) undertaking the distribution and supply of power to the consumers of MPPKVVCL in the designated Distribution Franchise Area, (b) undertaking reading of meters, generating of bills, payment collection, as per the retail tariff structure deterined by MPERC (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 MPPKVVCL, (e) collection of MPPKVVCL's outstandinf arreats as their agent and remittance of the same. The Essel Group consortium was selected through a competitive bidding process undertaken by MPPKVVCL on 12th March 2012. The bid variable was the highest price at which power was purchased from MPPKVVCL (Discom) for subsequent distribution in the franchise area. 6 companies including - Spanco, Monte Carlo, Dainik Bhaskar Power, A2Z, ACME had submitted bids out of which only 5 qualified. Essel won the bid by quoting the highest purchase price - Levelized Input Rate (LIP) of INR 3.726 per unit. Minimum LIP was Rs. 2.422/unit among all quoted LIPs. The 2nd ranker in the bid was Spanco at INR 3.050/Unit.At the end of FY 2010-11, AT&C losses, (which included line loses, theft as well as non-billing) were to the tune of 40.81%. As per the DF agreement, EVVSPL needed to bring down power losses to 15 % by the end of FY2013-14. EVVSPL would purchase power from the MPPVVCL and would distribute it to consumers on the rates approved by the MP 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. EVVSPL was mandated to invest USD 11.9mn (INR 700 mn @58.6 INR/USD) in Ujjain for infrastructure upgrade to reduce T&D losses and improve collections. EVVSPL had projected to improve the collection efficiency from 93.95% at present to 99.50% by the end of FY2013-14. The project achieved financial closure in August 2013 at a debt/equity ratio of 64/36.The estimated project cost at the time of financial closure was USD 18.8mn (INR 1100mn @58.6 USD/INR). Financing comprised a term loan of USD 8.4mn (INR 490mn), and sponsor equity of USD 4.7mn (INR 276mn). Financing also comprised a long term credit line of INR 55mn, Standby Letter of Credit of INR 110mn, and Performance Guarantee facility of INR 70mn. EVVSPL commenced distribution franchisee operation in Sagar in December 2012.