Spanco Nagpur Discom Limited

Active

On 23rd February 2011, Maharashtra State Electricity Distribution Company Limited (MSEDCL)and Spanco Limited signed a Distribution Franchisee Agreement for Nagpur (Urban) city in the state of Maharashtra. Spanco would distribute power in Nagpur Urban distribution divisions comprising Civil Lines, Gandhibagh and Mahal divisions for the next 15 years. In this area, the Company would distribute power as an agent of the present distribution licensee - MSEDCL. There were about 400,000 registered power consumers in the city spread over approximately 400sq. kms. with an estimated annual power consumption of about 1100 Million Units. Spanco Limited established Spanco Nagpur Discom Limited (SNDL),a special purpose vehicle, to execute this distribution franchise. However in September 2012, Essel Utilities Distribution Company Limited (Essel) bought 95% stake into this SPV so as to relieve Spanco of its fund crunch. The primary obligation of the Distribution Franchise (SNDL) included - (a) undertaking the distribution and supply of power to the consumers of MSEDCL in the designated Distribution Franchise Area, (b) undertaking reading of meters, generating of bills, payment collection, as per the retail tariff structure deterined by MERC (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 MSEDCL,(e) collection of MSEDCL's outstanding arrears as their agent and remittance of the same. Spanco Limited was selected through a competitive bidding process undertaken by MSEDCL in November 2010. The bid variable was the highest price at which power was purchased from MSEDCL (Discom) for subsequent distribution in the franchise area. The bids were evaluated on the basis of highest Net Present Value of the Input energy rate per Kwh (unit) for each year of the entire project tenure of 15 years. 11 companies including - CESC, A2Z, Indu Project, Vijay electrical, CGL, SMS, Spanco, GTL, Tata Power, Reliance,India Bulls, had finally submitted their bids.Spanco won the bid by quoting the highest NPV (over 15 years) of US$ 1001.9mn (INR 53500mn @53.4 INR/USD). The current revenue for Nagpur city covering the bid areas was about US$ 7.1mn (INR 380mn) per month. The average billing rate for the base year was INR 4.27/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 38%. SNDL would purchase power from the MSEDCL and would distribute it to consumers on the rates approved by MERC. SNDL may procure power from other sources for expected shortfall in supply with concurrence of MSEDCL and MERC and subject to regulatory provisions. Franchisee would remit a pre-determined share (65%) of the revenue collection at regular intervals to the Licensee, as per the Distribution Franchisee Agreement. SNDL was mandated to invest USD 57mn (INR 3340 mn @58.6 INR/USD) in Nagpur (Urban) for infrastructure upgrade to reduce T&D losses and improve collections. Capital expenditure incurred by SNDL shall be subject to MERC (state regulator) approval. The project achieved financial closure on 13th May 2013 at a debt/equity ratio of 63/37.The estimated project cost at the time of financial closure was USD 57mn (INR 3340mn @58.6 USD/INR). Financing comprised a 12-year 6-months term loan of USD 35.8mn (INR 2100mn),and sponsor equity of USD 21.2mn (INR 1240mn). Financing also comprised a INR 1000mn 1-year fund based working capital facility, a INR 1000mn 1-year non-fund based working capital facility. State Bank of India was the sole arranger for the term loan.The other participating banks were SBI, IIFCL,Canara Bank, State Bank of Patiala, and Punjab National Bank. SNDL commenced distribution franchisee operations in Nagpur Urban in May 2011.