46268-002: Clean Energy Finance Investment Program – Tranche 1 · Completion Report Project Number: 46268-002 Loan Number: 3186 September 2020 India: Clean Energy Finance Investment

Completion Report

Project Number: 46268-002 Loan Number: 3186 September 2020

India: Clean Energy Finance Investment Program (Tranche 1) This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – Indian rupee (₹)

At Appraisal At Project Completion (12 September 2014) (19 March 2020)

₹1.00 = $0.01640 $0.014286 $1.00 = ₹60.966 ₹70.00

ABBREVIATIONS ADB – Asian Development Bank AFD

CAGR CAR COVID-19 CPS EIRR ESMR ESMS

– – – – – – – –

Agence Française de Développement compound annual growth rate capital adequacy ratio coronavirus disease country partnership strategy economic internal rate of return environmental and social monitoring report environmental and social management system

GW – gigawatt IREDA – Indian Renewable Energy Development Agency Limited IT

JICA MFF

– – –

information technology Japan International Cooperation Agency multitranche financing facility

MNRE MOU MW

– – –

Ministry of New and Renewable Energy memorandum of understanding megawatt

NDSI-NBFC NPL PMU RBI SPS TA US

– – – – – – –

non-deposit-taking systemically important nonbanking financial company nonperforming loan project management unit Reserve Bank of India Safeguards Policy Statement technical assistance United States

NOTES

(i) The fiscal year (FY) of the Government of India and its agencies ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020.

(ii) In this report, “$” refers to United States dollars.

Vice-President Shixin Chen, Operations 1 Director General Kenichi Yokoyama, South Asia Department (SARD) Director Takeo Konishi, Public Management, Financial Sector and Trade Division

(SAPF), SARD Team leader Manohari Gunawardhena, Financial Sector Specialist, SAPF, SARD Team members Jigar Arvindbhai Bhatt, Project Officer (Energy), India Resident Mission

(INRM), SARD Monica Mei V. Carino-Young, Project Analyst, SAPF, SARD Ma. Kristina Hidalgo, Senior Financial Sector Officer, SAPF, SARD Neha Munjal, Associate Project Analyst, INRM, SARD Karen Grace Ochavo, Associate Environment Officer, Energy Division, SARD Ma. Virginia Panis, Senior Operations Assistant, SAPF, SARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. PROJECT DESIGN 1

A. History 1 B. Scope of Operations 1 C. Relationship with ADB and Other Lenders 2 D. Project Design and Formulation 2 E. Technical Assistance 4

III. PROJECT IMPLEMENTATION 4

A. Lending Policies 4 B. Characteristics of Subloans 5 C. Implementation and Internal Operations of Subprojects 5 D. Organization and Operations of the Indian Renewable Energy Development Agency 6 E. Lending Portfolio of the Indian Renewable Energy Development Agency 8 F. Financial Statements and Ratios (FY2015–FY2019) 8 G. Covenants 9

IV. SUBLOAN IMPLEMENTATION 9

A. Loan Appraisal 9 B. Implementation 10

V. EVALUATION OF PROJECT PERFORMANCE 11

A. Relevance 11 B. Effectiveness 11 C. Efficiency 12 D. Sustainability 12 E. Development Impact 13 F. Performance of the Indian Renewable Energy Development Agency 13 G. Performance of ADB 13 H. Overall Assessment 14

VI. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14 B. Recommendations 15

APPENDIXES

1. Design and Monitoring Framework 16 2. Status of Compliance with Loan Covenants 19 3. Business Performance 28 4. Characteristics of Subloans Under Project 1 32 5. Projected and Actual Subloans Given by IREDA Under Project 1 36 6. Safeguards Analysis of Subprojects Visited by ADB Mission 38 7. Subproject Visit Photos 50 8. Methodology for the Computation of Economic Internal Rate of Return 51 9. Technical Assistance 64

BASIC DATA A. Loan Identification 1. Country India 2. Loan number and financing source 3186 (ordinary capital resources) 3. Loan title Clean Energy Finance Investment

Program (Tranche 1) 4. Borrower Indian Renewable Energy Development

Agency Ltd. 5. Name of financial intermediary Indian Renewable Energy Development

Agency Ltd. 6. Amount of loan $200,000,000.00

B. Loan Data 1. Appraisal – Date started – Date completed

11 June 2014 12 June 2014

2. Loan negotiations – Date started – Date completed

1 September 2014 2 September 2014

3. Date of Board approval 17 November 2014 4. Date of loan agreement 27 October 2015 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

25 January 2016 1 February 2016 1

6. Terminal date for commitments – In loan agreement – Actual – Number of extensions

not applicable not applicable not applicable

7. Loan closing date – In loan agreement – Actual – Number of extensions

30 April 2019 25 September 2018 not applicable

8. Financial closing date – Actual

25 September 2018

9. Terms to the borrower – Interest rate – Maturity (number of years) – Grace period (number of years) – Free limit – Repayment terms

London Interbank offered rate + 0.50% 20 years 5 years none 15 years

10. Terms of relending (if any) not applicable 11. Interest rate for subloans – Original – Revised

not applicable 10.85% to 12.65%

ii

12. Disbursements

a. Dates

Initial Disbursement 22 March 2016

Final Disbursement 3 July 2018

Time Interval 27.39

Effective Date 1 February 2016

Actual Closing Date 25 September 2018

Time Interval 31.79

b. Amount ($ million)

Subloan

Original

Allocation (1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2-3)

Amount

Disbursed (5)

Undisbursed

Balancea

(6 = 4 – 5)

001—Azure Clean Energy Pvt. Ltd.

13.20 0.00 0.00 13.20 13.20 0.00

002—Chattel Construction Pvt. Ltd.

22.10 0.00 0.00 22.10 22.10 0.00

003—Hiraco Renewable Energy Pvt. Ltd.

17.55 0.00 0.00 17.55 17.55 0.00

004—Orange Anantapur Wind Power Pvt. Ltd.

28.47 0.00 0.00 28.47 28.47 0.00

005—Rising Bhadla 1 Pvt. Ltd.

29.15 0.00 0.00 29.15 29.15 0.00

006—Rising Bhadla 2 Pvt. Ltd.

29.15 0.00 0.00 29.15 29.15 0.00

007—Orange Urvakonda Wind Power Pvt. Ltd.

28.71 0.00 0.00 28.71 28.71 0.00

008—Etesian Urja Ltd. 30.00 0.00 0.00 30.00 30.00 0.00

009—SSJ Power Projects & Infrastructures Pvt. Ltd.

1.67 0.00 0.00 1.67 1.67 0.00

Total 200.00 0.00 0.00 200.00 200.00 0.00 a Undisbursed balance is above the loan amount of $200 million and has no impact on the total loan amount.

C. Implementation Data

1. Number of subloans—9

2. Sector distribution of subloans

Sector (Energy) Projected Actual

Number Amount ($ million) Number Amount ($ million)

Wind 8 158.61 3 87.18 Solar 11 96.85 6 112.82 Biomass Power and Cogeneration 2 19.93 0 0.00 Small Hydro 4 54.83 0 0.00 Waste to Energy 1 0.50 0 0.00 Total 26 330.72 9 200.00

3. Size of subloans (actual) ($ million)

Range Number of Subloans Aggregate Amount ($million)

Up to $5 million 1 1.67 From $5 million to $15 million 1 13.20 From $16 million to $25 million 2 39.65

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Range Number of Subloans Aggregate Amount ($million) Over $25 million 5 145.48 Total 9 200.00

4. Subloans above free limit—No free limit provided in Tranche 1

5. Project performance report ratings

Implementation Period Ratings

From 1 February 2016 to 31 December 2016 Satisfactory From 1 January 2017 to 31 December 2017 Satisfactory From 1 January 2018 to 25 September 2018 Satisfactory

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons

No. of Person-

Days

Specialization of Membersa

Consultation Mission 1 22–24 May 2013 4 9 f/g,a,i

Consultation Mission 2 25–29 Nov 2013 6 30 f/g,a/g,b,c,h,d

Consultation Mission 3 4–10 Feb 2014 3 21 f/g,a/g

Fact-finding Mission 2–16 Apr 2014 8 120 f/g,a/g,h,d,i,j

Consultation Mission 4 11–12 Jun 2014 3 6 a/g,f

TPRM 1 9–10 Feb 2015 4 8 p/g,f,o,q

TPRM 2 7–Dec 2015 5 5 p/g,a,f,o,q

TPRM 3 30–31 Jan 2016 5 10 p/g,a,f,o,q

Project Review Mission 1 2–3 Feb 2016 1 2 a/g

Project Review Mission 2 14–15 Jul 2016 1 2 a/g

TPRM 4 16–17 Sep 2016 4 2 p/g,a,o,q

Project Review Mission 3 24–28 Oct 2016 1 5 a/g

Project Review Mission 4 6–7 Dec 2016 1 2 a/g

Project Review Mission 5 19–Jan 2017 1 1 a/g

Project Review Mission 6 20–21 Feb 2017 1 2 a/g

TPRM 5 6–7 Apr 2017 5 10 p/g,a,k,o,q

Project Review Mission 7 5–8 Sep 2017 4 16 a/j,f,k,o

TPRM 6 26–27 Oct 2017 5 10 p/g,a,k,o,q

SPAM 23, 28 Nov 2017, 8–10 and 25 Jan 2018

7 16 k/g,l,m,f,e,n

TPRM 7 19–20 Feb 2018 4 8 p/g,k,o,q

Project Review Mission 8 11–Sep 2018 2 2 k/g,j

TPRM 8 25–26 Oct 2018 4 8 p/g,k,o,q

Project Completion Review Mission 24 Feb–2 Mar 2020 5 7 a/g,d,j,k,l

SPAM = special project administration mission, TPRM = tripartite portfolio review meeting. a a = finance specialist, b = counsel, c = safeguard specialist, d = environment specialist, e = safeguard consultant, f

= energy specialist, g = team lead, h = social development specialist, i = young professional, j = project analyst, k = project officer-energy, l = environment safeguard officer, m = social safeguard officer, n = consultant, o = principal portfolio management specialist, p = deputy/director general, q = country director.

E. Related Loans (to some financial intermediaries)—Not applicable

I. PROJECT DESCRIPTION 1. The Clean Energy Finance Investment Program for India is a multitranche financing facility (MFF) totaling $500 million with a tenor of 20 years extended to a financial intermediary, the Indian Renewable Energy Development Agency Limited (IREDA). The Asian Development Bank (ADB) approved the MFF in October 2014. The first tranche of the MFF (project 1) for $200 million was signed on 27 October 2015. The MFF was to provide support to IREDA’s subproject lending on a sustainable, long-term basis for biomass, cogeneration, hydro, solar, and wind technologies through three tranches. Project 1 was expected to generate 395 megawatts (MW) in renewable energy power. In August 2015, ADB approved a capacity development technical assistance (CDTA) project to complement implementation of the MFF. IREDA was the borrower as well as the executing agency of the program. This report is on the progress of project 1. The program seeks to contribute to the Government of India’s programs targeting renewable energy development by making long-term debt financing available for eligible projects. It is expected to address constraints to economic growth brought about by chronic electricity shortages. It is aligned with India’s upscaling of renewable energy investment to balance the conflicting objectives among growth, climate change, and energy security. 2. The program, supported by ADB at the request of the government, was designed to increase renewable energy infrastructure (project 1—16.5% of total capacity by 2027) while achieving an outcome of facilitated investment in renewable energy (at least 70.0 gigawatts [GW] of additional renewable energy capacity by 2027). The intended outputs were (i) enhanced availability of long-term financing to support renewable energy projects, and (ii) improved institutional capacity of IREDA. Key activities to achieve these outputs are (i) using MFF funds to finance the renewable energy subprojects and (ii) implementing an IREDA institutional capacity development program (footnote 12).

II. PROJECT DESIGN A. History 3. The program was designed to be executed through IREDA. IREDA is categorized as a non-deposit-taking systemically important nonbanking financial company (NDSI-NBFC) by the Reserve Bank of India (RBI) under the administrative oversight of the Ministry of New and Renewable Energy (MNRE).1 ADB had approved a $100 million senior loan to IREDA on 26 September 1996.2 This loan was disbursed and closed on 25 October 2002. B. Scope of Operations 4. In 2014, IREDA’s lending comprised 11% of total renewable energy lending in India.3 Its main competitive advantages are (i) its experience and deep sector knowledge regarding the technical and commercial risks in renewable energy projects, and (ii) its ability to fund good renewable energy projects from smaller and less capitalized sponsors. Unlike most other Indian

1 IREDA is a public limited government company established as a nonbanking financial institution in 1987. It is engaged

in promoting, developing, and extending financial assistance for setting up projects relating to new and renewable sources of energy and energy efficiency and/or conservation.

2 ADB. 1996. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the Indian Renewable Energy Development Agency Limited for the Renewable Energy Development Project. Manila. (Loan 1465-IND).

3 Other major lenders include the Power Finance Corporation, the State Bank of India, and the ICICI Bank. It is noted that IREDA’s subprojects are not strategically different from subprojects funded by other commercial banks .

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financial institutions, which mainly lend on the basis of collateral, IREDA engages in some cash-flow-based project lending. The government approved an increase of IREDA’s authorized capital from $157 million to $943 million on 5 November 2014.4 In contrast to commercial banks, IREDA’s capital base enables lending to renewable energy projects for long tenors of up to 15 years. 5. IREDA’s long-term plan (2014–2024) includes a disbursement of $6.6 billion to the renewable energy sector (Appendix 5, Table 5). IREDA lends on a 75:25 maximum debt–equity ratio to its subprojects. It aims to leverage ADB’s $500 million MFF with an estimated $300 million of equity and other investments from subproject sponsors and at least $200 million from other lenders, totaling $1 billion, which translates into about 990 MW of renewable energy capacity addition while the $6.6 billion aims to generate 13.4 gigawatt-hours. C. Relationship with ADB and Other Lenders 6. In September 1996, ADB extended its first loan—$100 million over 25 years—to IREDA.5 This loan supported a power generation capacity of 318 MW. The MFF is the second facility from ADB. IREDA has several relationships with bilateral and multilateral lenders, including the Agence Française de Développement (AFD), the European Investment Bank, the International Bank for Reconstruction and Development, the Japan International Cooperation Agency (JICA), KfW, and the Nordic Investment Bank. Its domestic resource mobilization happens through bank loans and debt securities, which are non-convertible redeemable debentures, and Masala bonds issued in the local Indian bond markets.6 D. Project Design and Formulation 7. Rationale of the project. The program was designed to increase renewable energy infrastructure in India through facilitation of investment in renewable energy by enhancing the long-term financing and improving the institutional capacity of the selected borrower as well as the executing agency. ADB selected IREDA as the borrower and executing agency to extend financing and develop institutional capacity. ADB’s support to IREDA was consistent with the bank’s Energy Policy (2009), which includes promoting renewable energy to increase energy security and facilitate the transition to a low-carbon economy. It is also consistent with ADB’s country partnership strategy (CPS) for India, 2013–2017, which emphasizes clean and renewable energy expansion.7 ADB’s support aligns with the CPS in terms of its energy sector road map and financial sector development (catalyzing infrastructure investments, including through investment funds and credit lines). The project’s rationale thus directly aligns with multiple facets of the CPS. 8. Policy alignment. The program was aligned with India’s National Plan for Climate Change.8 In order to achieve the targets outlined in the plan, the government is leveraging IREDA’s position as a uniquely specialized renewable energy financier. The Integrated Energy Policy, 2006 identified the need to expand the use of renewable energy technologies as a key pillar for energy sector development.9 The program’s design catered to the government’s request

4 IREDA is rated AAA by local rating agencies India Ratings and Research Private Limited and Brickwork Ratings India

Private Limited as at fiscal year (FY) 2019. 5 ADB. 2004. Completion Report: Renewable Energy Development Project in India. Manila. 6 IREDA. Resource mobilization. https://ireda.in/resource-mobilization. 7 ADB. 2013. Country Partnership Strategy: India, 2013–2017. Manila. 8 In 2008, India launched the National Plan for Climate Change to (i) promote sustainable development by using clean

technologies to limit greenhouse gas emissions and (ii) increase the share of power generation by renewables to 15% by FY2022.

9 Government of India, Planning Commission. 2006. Integrated Energy Policy: Report of the Expert Committee. New Delhi.

https://ireda.in/resource-mobilization

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for making long-term finance available to the renewable energy sector and related policies and initiatives. These include (i) the New Hydro Policy, 2008, which streamlines hydropower investment and tendering procedures; (ii) the Jawaharlal Nehru National Solar Mission, which launched in 2010 (20,000 MW of solar power by 2022); and (iii) renewable energy policy incentives, including tax incentives, feed-in tariffs, generation-based incentives, and regulations establishing minimum renewable purchase obligations for power distribution utilities.10 9. Multitranche financing facility modality. The program was structured through an MFF ($500 million) spanning 10 years of availability, including three tranches, which was consistent with IREDA’s funding and disbursement projections. The tenor of each tranche at 20 years inclusive of 5 years of grace ensures IREDA can match its onlending demand for long-term funds from renewable energy generation companies. The MFF mechanism also assists IREDA to offer innovative financial products such as local currency financing, partial risk guarantees, and other credit enhancement products. 10. Project formulation. The MFF was used to fund a portion of the long-term credit IREDA needs to meet its renewable energy development funding target. The program formulation considered lessons learned from the previous ADB loan to IREDA and another similar MFF from ADB to the India Infrastructure Finance Company (footnote 5). The program was justified in terms of (i) creating enough deal flow to ensure a pipeline of subprojects being in place for financing over the medium term, (ii) building institutional capacity at the executing agency (IREDA), (iii) installing a well-designed monitoring and reporting mechanism to comply with ADB’s implementation requirements, and (iv) catering to the changing needs of IREDA in terms of new financial products and services, and effective partnerships that promote sector growth. Development partner coordination is achieved at the central level through a decision support system by the Ministry of Finance’s Department of Economic Affairs.11 This ensures efficient disbursement of funds for different areas of IREDA’s lending operation. The design and monitoring framework targets were appropriate to measure the impact of the project. 11. Environmental and social management system. The program was classified as category FI for impacts on the environment, involuntary settlement, and indigenous peoples under ADB’s Safeguard Policy Statement (2009); the same is expected for all future tranches.12 ADB perceived that renewable energy subprojects generally offer environmental benefits because they serve as an alternative to fossil fuel extraction and combustion associated with conventional power generation. The subprojects funded under the MFF are expected to have environmental and social impacts. Under the MFF, IREDA was expected to set up an environmental and social safeguards unit satisfactory to ADB (and over time to other development partners who are lenders to IREDA), including the nomination of two designated full-time staff members for day-to-day implementation of the environmental and social management system (ESMS) and a responsible institutional compliance officer. This has been achieved and the ESMS is expected to continue assisting IREDA in filtering future subprojects beyond the tenor of the MFF (Appendix 6).

10 A specified per kilowatt-hour payment, paid out of funds allocated for such a program, to supplement the effective

electricity sale price earned by renewable energy generators. 11 IREDA has an ongoing balance from ADB, the AFD, the International Bank for Reconstruction and Development, the

International Development Association, JICA, KfW, and the Nordic Investment Bank. 12 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility to India for the Clean Energy Finance Investment Program. ESMS Arrangement (accessible from the list of linked documents in Appendix 2). Manila.

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E. Technical Assistance 12. Capacity development technical assistance. ADB supported a program for IREDA through Technical Assistance to India for Capacity Building of the Indian Renewable Energy Development Agency.13 The government had agreed with the TA project’s impact, outcome, outputs, implementation arrangements, cost and financing arrangements, and consultants’ terms of reference. The TA’s objectives were to (i) improve and sustain IREDA’s capacity in administrative areas of the MFF implementation, and (ii) build a plan for financing and credit risk management to further improve IREDA’s lending policies and operations. As a result, IREDA’s capacity increased to mobilize available development assistance, catalyzing private sector investment and facilitating renewable energy development more efficiently and effectively in India (Appendix 9).14 Technical Assistance to India for Capacity Building of the Indian Renewable Energy Development Agency was extended till November 2020.15 The TA projects were implemented in coordination with other development partners.16 13. Achievement of technical assistance outputs. Through support and capacity development by TA consultants, IREDA’s project administration and capacity improved to absorb funds from ADB and other external funding agencies, reflected by the timely disbursement and liquidation of funds—project 1 for $200 million was fully disbursed and financially closed on 25 September 2018, ahead of the closing date of 30 April 2019. IREDA’s safeguard compliance capacity has improved with the setting up of the ESMS (including training staff), approval of the ESMS Policy, and alignment of the ESMS with international requirements.

III. PROJECT IMPLEMENTATION A. Lending Policies 14. Policy direction. IREDA is a state-owned public company dedicated to lending to the renewable energy sector in India.17 IREDA’s lending policies are guided by the government’s policies to develop the renewable energy sector. They also comply with RBI’s directions and prudential requirements as required by an NDSI-NBFC. The company’s lending objectives are both commercial and developmental. In the developmental sphere, IREDA has been an active participant in the implementation of numerous MNRE programs and schemes. 15. Risk policy and lending guidelines. The company has a Risk Management Policy that defines their risk appetite and risk management framework. IREDA’s continuous and close association with renewable energy projects through the initial stages of the still-evolving sector has enabled it to acquire unique technical skills and understanding of the sector, which influences

13 ADB. 2015. Technical Assistance to India for Capacity Building of the Indian Renewable Energy Development

Agency. Manila. A separate TA completion report will be circulated separately. 14 The plan was to provide TA to IREDA with support from other development partners—the AFD, JICA, and German

development cooperation through KfW—as these development partners had ongoing TA projects in various areas of capacity development. At the time of ADB’s Board approval, IREDA had an ongoing TA project from ADB—TA to India for Preparing Clean Energy Finance Investment Program (TA 8365-IND).

15 TA-8937 was extended till November 30, 2020—11 months after the original TA completion date—to include additional activities. The original extension was only till August 2020, however, this was revised because of coronavirus disease (COVID-19).

16 IREDA worked with the AFD, JICA, and KfW, covering risk management, treasury operations, a credit-risk-rating system, and international financial reporting standards. The AFD’s TA focused on the development of new renewable energy technologies. JICA focused on preparing TA for new renewable energy technologies, financial mechanisms for commercialization, and a computerized database for project monitoring and performance evaluation.

17 IREDA became an NDSI-NBFC on 10 February 2008.

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its lending policies. IREDA has several policies and manuals to guide lending operations.18 Once enforced, ADB’s TA for improving risk management will see positive changes in IREDA’s lending policies and operations (Appendix 9). B. Characteristics of Subloans 16. Criteria for subprojects under project 1. IREDA was expected to channel funds from project 1 to provide long-term finance to eligible renewable energy (and energy efficiency) subprojects within a framework that will apply to all subprojects that utilize ADB funds and in accordance with IREDA’s internal guidelines and due diligence process.19 Project 1 permitted funds to be allocated as follows: 20% to retroactive financing (maximum 1 year before signing of project 1 loan agreement), 20% to take out financing, and 60% to IREDA’s new subprojects. There were no free limits for subprojects financed under project 1.20 All subprojects under project 1 complied with the eligibility criteria outlined in the facility administration manual.21 17. Composition of subprojects under project 1. During implementation, project 1 was expected to fund 16 subprojects spread over five sectors. IREDA was not able to find projects in the small hydro, waste to energy, and biomass sectors that fulfilled ADB’s lending and environmental criteria under project 1 (Appendix 4). IREDA’s subprojects are given in Table 1.

Table 1: Subprojects Funded from ADB Funds

Sector

Number of projects

Capacity (megawatts)

ADB funding ($ million)

Solar 6 230.0 112.8 Wind 3 250.8 87.2

Total 9 480.8 200.0 C. Implementation and Internal Operations of Subprojects 18. Project management. To comply with project 1’s reporting requirements, IREDA set up a project management unit (PMU) headed by its general manager, finance. The PMU reported to ADB semiannually (March and September) in compliance with safeguards, loan undertakings, and covenants as per the framework financing and loan agreements. TA was given to help IREDA build strong project administration capacity for efficient project implementation (footnote 15). The scope of the work was to cover developing long-term project implementation capacity to enable IREDA to undertake any development assistance projects (Appendix 9).

18 The policies are (i) Financing Norms, updated to 31 May 2020; (ii) Compendium of Regulations & Tariff Orders Issued

by Regulatory Commissions for Renewable Energy Sources in India, March 2016; (iii) Compendium of State Government Policies on the Renewable Energy Sector in India; (iv) Operational Guidelines as updated on 25 February 2020; and (v) Compendium of Policies, Regulations, Technical Standards and Financing Norms for Solar Power Projects (these policies have been updated or created since ADB’s evaluation of the previous loan to IREDA in 1997) (footnote 9, paras. 26 and 27).

19 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to India for the Clean Energy Finance Investment Program. Framework Financing Agreement (accessible from the list of linked documents in Appendix 2). Manila.

20 Under tranches 2 and 3, ADB may, subject to its policies and procedures, permit on request a free limit up to a specified threshold, based on ADB’s assessment of IREDA’s operating performance, appraisal standards, portfolio quality, and average loan size during the facility implementation.

21 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to India for the Clean Energy Finance Investment Program. Facility Administration Manual (accessible from the list of linked documents in Appendix 2). Manila. pp. 5 and 6.

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19. Project environmental and social safeguards application during loan processing and implementation. The project loan agreement limits the application of ADB funds to environment and social safeguards category B and C projects only, with ADB’s review and clearance required only for category B projects.22 Under the ESMS, environmental safeguards review and evaluation against ADB’s Safeguards Policy Statement (SPS) (2009) would only occur for category A projects. Review of category B and C projects would follow national law. As a result, ADB lacks an explicit mandate to review and evaluate subprojects to the standards of ADB’s SPS. However, IREDA has demonstrated a greater degree of oversight for safeguards than is required under India’s national laws.23 This is evident especially with respect to the sample subprojects selected for physical visits under this project completion review: Rising Bhadla 1 and 2 Private Limited (solar) and Orange Anantapur Wind Power Private Limited (wind) (Appendix 6).24 20. Implementation and internal operations of subprojects. As part of ADB’s requirements in the loan agreement, IREDA developed its ESMS in compliance with Indian national regulations. ESMS officers in the mission did a gap analysis between the ESMS and ADB’s SPS and identified that IREDA could strengthen its screening and categorization process, ensuring meaningful consultation with project affected people.25 A grievance redress mechanism was established to address project concerns (para. 65). D. Organization and Operations of the Indian Renewable Energy Development Agency

1. Organization, Management, and Staffing 21. Organizational structure and governance. IREDA is managed by a government-appointed board of directors comprising eight members, of which two are government officials; seven are functional directors (one full-time and six part-time, including two government nominees); and four are independent directors with experience in professional areas, including finance, industry, and academia. The post of chairperson is combined with that of the managing director. Each year, IREDA contracts a memorandum of understanding (MOU) with the MNRE that defines approvals and disbursement targets, financial covenant fulfilment, portfolio quality improvement, and other performance parameters. 22. Internal committees. IREDA follows the Guidelines on Corporate Governance for Central Public Sector Enterprises (2010) issued by the Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises, Government of India.26 Its operations are managed through seven board-level committees.27 23. Staffing. As at March 2019, IREDA employed 162 staff members (as compared with 135 staff members in 2004), excluding board members. Executive staff accounted for 86% of total

22 ADB and IREDA. 2015. Loan Agreement (Ordinary Operations) (Clean Energy Finance Investment Program –

Project 1) between Asian Development Bank and Indian Renewable Energy Development Agency, 27 October 2015. Loan Number 3186-IND.

23 Indian national laws do not require environmental clearances for wind power development and solar power parks, including exemptions from the State Pollution Control Board to obtain Consent to Establish and Consent to Operate.

24 Of the nine projects, three were categorized C and six were categorized B for environment. All of the projects were categorized C for involuntary resettlement and indigenous peoples.

25 ESMS Section IV-A, pp. 6 and 7. 26 IREDA. 2019. Annual Report, 2018–2019. Annexure VIII on Corporate Governance. New Delhi. 27 These include the Audit Committee (7 members), the Loan Committee (7 members), the Nomination and

Remuneration Committee (4 members), the Corporate Social Responsibility Committee (6 members), the Investment Committee (4 members), the Stakeholders Relationship Committee (6 members) and the IT Strategy Committee (6 members).

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staff. It is noted that IREDA increased the loan portfolio tenfold in 16 years, but it added only 27 staff. The loan value per staff has increased by 8.4 times, from ₹156.0 million to ₹1.3 billion.

2. Personnel Administration 24. Human resources policy. IREDA’s human resource policy focuses on capacity building to ensure that its staff are trained to be competent and productive to maintain the organization’s competitiveness. Some of the policies include the Equal Opportunity Policy, the Policy on Apprenticeship, and increased efficiency in human resource services through information technology (IT)-based processes. IREDA’s board approved the People Capability Maturity Model (PCMM), which has a maximum scale rating of 5, in December 2018.28 IREDA was found to be at overall Maturity Level 2 with certain practices at Maturity Level 3 on the PCMM. In December 2018, IREDA’s board planned and approved career paths for all levels of staff to retain talent, increase motivation, and improve morale. 25. Training. IREDA has trained 27% of its staff (38 out of 140), excluding board-level staff, at India’s Centre of Excellence. Its managers have been trained at prestigious Indian institutions such as the Indian Institute of Technology and the Indian Institute of Management and IREDA continues to hold a series of lectures by reputed persons in specialized fields to ensure upskilling of its staff.

3. Lending Operations 26. Operating guidelines. IREDA’s annual MOU with the MNRE sets the company’s compulsory, optional, and additional criteria parameters using a scoring system.29 The compulsory parameters are based on revenue and profitability metrics while optional parameters are based on loan growth, asset quality, and cost of funds. Additional criteria parameters are based on human resources management, capacity development and lending to specific renewable energy subsectors.30 In addition to the MOU, IREDA’s lending operations (lending to subprojects) are guided by its Operational Policy Statement (footnote 19). IREDA’s distribution model consists of business development associates and other financial intermediaries. 27. Credit approvals and structuring. IREDA has a centralized credit approval process. The average time to process a loan is 60–90 days. All appraisals are subject to a credit rating process. At the time of the project completion report, for each sub-borrower, IREDA seeks an external rating from six credit rating agencies and compares them with their internal rating.31 IREDA generally funds 75% of the project cost of a renewable energy project, which may vary by sector. Independent auditors and engineers monitor subproject implementation and performance. These officials periodically visit the sites of subprojects. IREDA has credit risk management committees, a problem-solving committee, an internal review committee, and a settlement advisory committee to strengthen credit approval, monitoring, and management of recoveries. Asset quality is

28 PCMM provides guidance for improving the capability of an organization’s workforce. These best practices help

identify skill gaps, break down workflow bottle necks, and empower team members to develop skills that will help the organization succeed. https://cmmiinstitute.com/pm; and IREDA. 2019. Annual Report, 2018–2019. New Delhi.

29 https://www.ireda.in/doc/mou/mou-2019-20.pdf 30 These include floating solar, hybrid wind and solar, storage application, energy efficiency, bio-energy palletization of

agro waste, and similar hydro and waste energy. 31 Brickwork Ratings, Credit Analysis and Research Limited (CARE Ratings), CRISIL, ICRA Limited, India Ratings and

Research Limited, and SMERA Gradings & Ratings Private Limited.

https://cmmiinstitute.com/pm

8

managed on both pre- and post-credit approval as well as upon reaching nonperforming status based on RBI and internal IREDA guidelines (Appendix 2).32

4. Other Operations 28. The majority of IREDA’s assets (93.9%) are in loans. Apart from its own lending operations, IREDA is also the conduit for MNRE-sponsored lending programs to the renewable energy sector.33 The sectors in these programs are small hydropower, biomass, briquetting, solar thermal, waste to energy, and cogeneration IREDA’s loan portfolio under these programs was at ₹217 million, which was 0.1% of the total loan portfolio as at March 2019. Asset quality on the loan portfolio is managed based on IREDA’s lending policy and RBI’s prudential requirements on loan classification. E. Lending Portfolio of the Indian Renewable Energy Development Agency 29. Portfolio mix. IREDA’s lending portfolio has an average maturity of 15 years. The portfolio is distributed in solar 39.2%, wind 25.0%, small hydropower 11.1%, biomass 0.7% and cogeneration 6.2% (Appendix 3, Table 4). The subprojects are spread across 23 states in India with 19.5% in Tamil Nadu and 15.1% in Andhra Pradesh. IREDA’s loan approvals grew at a compound annual growth rate (CAGR) of 27.3% while loan disbursements grew at a CAGR of 37.6%. IREDA’s loan sanctions comprised 12.8% wind, 48.1% solar, 1.1% hydropower, and 0.2% biomass power and cogeneration sectors by end FY2019. Nearly 100% of the loans were term loans while 93% were secured by tangible assets and the balance were unsecured as at FY2019.34 F. Financial Statements and Ratios (FY2015–FY2019) 30. Balance sheets. IREDA’s loan portfolio grew at a CAGR of 23.7% while total assets grew at a CAGR of 24.3% (Appendix 3, Table 1). Loans sanctioned grew at a CAGR of 27.3% and loans disbursed grew at a CAGR 37.6%. The high loan growth was matched by a CAGR of 26.0% in total borrowings. Loan assets comprised 95% of total earning assets in FY2019 in comparison with 80% in FY2016, which reflects a change in asset composition. There was no fresh equity infusion during FY2015–FY2019 as IREDA relied on borrowings. 31. Income statements. IREDA’s operating income remained stable with the steadily increasing portfolio. Net interest income grew by 61.8% from FY2015 to FY2019 while the loan growth rate was 134.4% over the same period. The net interest margin declined from 9.3% to 3.8% because of the decline in net spread from 5.7% to 2.9% (Appendix 3, Table 6). Capital formation ratio averaged 10.7% because of the high dividend payout ratio of an average 33.6%. 32. Key ratios. Total capital adequacy ratio (CAR) is at 16.3% and tier 1 capital ratio is at 14.7%, well above the RBI’s regulatory thresholds of 12.0% (CAR) and 8.0% (tier 1 capital ratio) required by 31 March 2020 for NDSI-NBFCs. Asset quality ratio (gross nonperforming loans [NPLs] over gross loans) averaged 5.9% while the highest was at 6.3% in FY2018 and the lowest at 5.3% in FY2015 (the ADB covenant under project 1 was at 3.9%) (Appendix 3, Table 3). Return on equity stood at 9.8% with return on assets at 1.4% as at FY2019. IREDA complied with the

32 https://www.ireda.in/doc/financing-norms/financing_norms_and_schemes_31_01_2020(1).pdf 33 Loans under these programs are not subject to the RBI’s prudential requirements on loan classification. 34 IREDA. 2019. Annual Report, 2018–2019. New Delhi.

9

mandatory requirements of the MNRE during FY2016–FY2019 on revenue from operations, operating profit, and return on investment.35 G. Covenants 33. Financial covenants. IREDA has not complied with the required gross NPL level of 3.9% during FY2015–FY2019 (gross NPL ratio was 3.8% at the time of appraisal in 2013, hence the threshold set at 3.9%). The gross NPL ratio in FY2014 had already reached 4.2%. This report notes that because of the adverse operating environment (slow credit growth with a high number of NPLs in the financial sector), the gross NPL ratio for nonbanking finance companies in the infrastructure sector in India grew from 1.1% to 7.5% during FY2015–FY2018, while IREDA’s gross NPL ratio increased from 5.3% to 6.3% within the same period.36 34. Measures to address noncompliance. IREDA had already taken steps to (i) reduce exposure to the biomass, cogeneration, and small hydro sectors by capping lending exposure at 50% of the total project cost for new projects; (ii) strengthen credit appraisal mechanisms; and (iii) increase monitoring to ensure early warning signals are managed effectively. In addition, IREDA increased provisions that improve their loan loss reserves ratio (loan loss reserve ratio FY2019 is at 40.4% compared with 21.6% in FY2015).

IV. SUBLOAN IMPLEMENTATION A. Loan Appraisal

1. Distribution of Subloans

35. Subprojects funded by ADB. IREDA gave nine loans to sub-borrowers under project 1 (three wind projects and six solar projects). However, IREDA included only one ADB-funded subproject from the 81 subprojects in the pipeline submitted to ADB at the time of appraisal. This report also notes that hydropower and biomass and cogeneration sectors were not funded by ADB funds. The demand for solar and wind had increased considerably during the period and some projects in the other sectors in the pipeline did not comply with ADB’s ESMS requirements. The pipeline was used to allocate subprojects to other bilateral and multilateral lenders. It is noted that IREDA was successful in distributing the full amount of project 1 ahead of the scheduled financial closure (Appendix 5).37 36. IREDA checks the subprojects’ ESMS compliance through regular reporting from the subprojects and occasional site visits by IREDA staff. The subprojects submit semiannual safeguard monitoring reports to IREDA, which consolidates the information and then submits semiannual environmental and social monitoring reports (ESMRs) to ADB. The ESMRs provided information on compliance to health, safety, and environmental management protocols as well as a general description of the regular trainings on health and safety for site workers. No health, safety, and environmental incidents were reported in the ESMRs (Appendix 6)

35 IREDA’s financing is long-term with positive cashflow up to 3 years. All borrowed funds have been used in loans and

bank deposits in short term investments (Appendix 3). 36 The industry comparison may not be appropriate as most other NBFCs are not single-product NBFCs dedicated to

renewable energy. 37 IREDA has funded 75% of project cost on average. All loans were given in local currency. Seven of the subprojects

are direct financing from IREDA and two are from takeout financing. All financing has been for new enterprises (Appendix 5). The differences between forecast and actual were not significant and had no adverse impact on the overall development objectives.

10

2. Covenants 37. Change in covenants. It is proposed to implement a new financial covenant—“net NPL ratio to be measured semiannually”—because it incentivizes higher provisions in IREDA’s loan asset portfolio and improves building additional capital to protect itself from loan losses apart from periodic monitoring of NPLs. IREDA’s net NPL ratio was at 6.8% as of September 2019. Net NPL ratio of nonbanking finance companies in the infrastructure sector was at 5.8% as of FY2018. The stepdown timeline may be discussed during the processing of tranche 2. IREDA has already complied with RBI’s road map for increased capital requirements (September 2019 CAR is at 16.2% as compared with RBI’s stipulation of 12.0%).

3. Quality of Appraisal 38. Project selection. The modality chosen for ADB’s intervention addresses the financing needs of the renewable energy sector, which have been accurately analyzed as insufficient availability of long tenor funding with spaced out repayment periods at a reasonable price. The MFF spanning 10 years (2015–2024) aligns with the government’s target of achieving renewable energy of 175 GW by FY2022.38 39. Borrower and executing agency selection. Selection of IREDA as the financial intermediary to intervene through an MFF under the program is also correct as compared with the comparators (Power Finance Corporation, State Bank of India, and ICICI Bank). IREDA’s strengths—a long track record in lending to the renewable energy sector, specialized knowledge, and its ability to understand small- to medium-sized developers and analyze project risk rather than engage in balance sheet lending—made IREDA a good choice. IREDA’s corporate plan (FY2014–FY2024) was aligned with the MFF, which included a $6.6 billion disbursement program (Appendix 5, Table 5). 40. Improvements required in appraisal. The project is a loan to a financial intermediary that is exposed to a single sector (renewable energy). The appraisal should have been strengthened with a credit performance analysis of the renewable energy sector with subsector analysis and a credit analysis of IREDA’s portfolio. In addition, the analysis should have included the performance of the NBFC sector within which IREDA operates. The potential asset quality risks resulting from concentration risks faced by IREDA’s loan portfolio would have been better understood and suitable covenants could have been designed. B. Implementation 41. Implementation at the Indian Renewable Energy Development Agency. The project design and resultant financial intermediary modality with an MFF structure was appropriate for the successful implementation of project 1. The MFF structure permitted IREDA to drawdown funds based on the availability of a deal pipeline, funding plan, and operating environment. The capacity building provided by the TA, which included setting up a PMU at IREDA, was especially relevant and helpful to IREDA in achieving the efficiency required for compliance with project documentation and submission of semiannual reports to ADB. IREDA chose to utilize the option

38 Government of India, National Institution for Transforming India. 2015. Report of the Expert Group on 175 GW RE

by 2022. Delhi. https://niti.gov.in/writereaddata/files/175-GW-Renewable-Energy.pdf.

https://niti.gov.in/writereaddata/files/175-GW-Renewable-Energy.pdf

11

of borrowing in United States (US) dollars at a floating rate benchmarked to the London interbank offered rate, which was provided in the loan agreement.39 42. Changes in implementation arrangements. During implementation, two requests were made to the project team: (i) change the reimbursement currency for incurred costs from Indian rupees to US dollars for eligible projects under retroactive financing (it helped IREDA to efficiently manage its US dollar exposure); and (ii) use the Indian rupee sub-imprest account as an Indian rupee pool account instead of dedicating it to project 1 proceeds. The project team was able to approve the requests with a minor change in implementation arrangements. 43. Challenges in foreign exchange risk and financial covenant compliance. Apart from the changes in implementation arrangements referred to in para. 42, IREDA faced foreign exchange volatility (even though it had hedged the exposure) as the borrowing from project 1 is in US dollars and the subproject cash flows are in Indian rupees. In addition, during the implementation until closure, the NPL covenant was not complied with. During this period, IREDA reported noncompliance and had requested an increase in the NPL threshold to 8.0% from 3.9%. The financial management consultant analyzed the NPLs and the project team decided to address the noncompliance at the time of tranche 2.

V. EVALUATION OF PROJECT PERFORMANCE A. Relevance 44. The project is rated relevant because of its alignment with (i) ADB, India, and IREDA’s 10-year plan (ADB was only one of the funders); (ii) the project design through the MFF modality, which is the most appropriate intervention (para. 10) with adequate TA support undertaken in coordination with IREDA’s development partners (para. 6); (iii) the selection of IREDA, which is an NBFC dedicated to renewable energy lending, as the executing agency and borrower; and (iv) IREDA’s demonstrated ability to meet the financing plan from FY2016 to FY2018.40 The MFF spanning 10 years (2015–2024) aligns with the government’s target of achieving renewable energy of 175 GW by FY2022.41 IREDA’s capacity improved through the TA (para. 12), ensuring a sound partnership with ADB over a longer time frame, which justifies using the MFF modality. The program complemented the work of other development partners (para. 6). The DMF was relevant and contained specific, measurable targets (Appendix 1). B. Effectiveness 45. The project is rated effective because all of the outcome and most of the output indicators under project 1 were achieved. Under the outcome targets, investments in renewable energy reached $556 million by September 2018 (target $400 million), renewable energy capacity of 481 MW (target 395 MW) was achieved, and 1.1 million metric tons (target 1.2 million metric tons) of carbon dioxide was avoided (Appendix 1). Under the enhanced comprehensive capacity building plan for financing and credit risk management at IREDA, the financial management consultant commenced work from August 2018, ahead of the target date of September 2018. The other

39 The administration of project 1 and TA 8937 was transferred to the India Resident Mission in September 2017 for

better convenience and interaction with IREDA as both offices are in New Delhi. Project 1 achieved financial closure in September 2018, ahead of the targeted closure of end April 2019.

40 ADB. 2019. Strategy 2030. Operational Plan for Priority 3: Tackling Climate Change, Building Climate and Disaster Resilience, and Enhancing Environmental Sustainability, 2019–2024. Manila.

41 IREDA was able to satisfy the six preconditions for the use of the MFF: (i) road map, (ii) policy framework, (iii) strategic context, (iv) investment program, (v) financing plan, and (vi) undertakings.

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technical consultants commenced work in 2020. All output indicators were achieved or likely to be achieved42 except for the NPL target. IREDA was noncompliant throughout with the NPL ratio threshold, which was a financial covenant. Despite this noncompliance, IREDA was able to disburse all funds and generate power exceeding project 1’s targets ahead of the scheduled financial closure (Appendix 1). IREDA’s implementation of ESMS in line with national regulations was satisfactory. While IREDA’s compliance-oriented approach to safeguards implementation are generally satisfactory, there remains room for improvement in terms of quality assurance and risk mitigation (para. 65 and Appendix 6). C. Efficiency 46. The project is rated efficient. Of the four subprojects for which economic analysis was completed, three had economic internal rates of return (EIRRs) exceeding 12%. No information on the five other subprojects was available at the time of this report. The methodology is discussed in Appendix 8. Reduction of carbon dioxide emissions was used as a measure of efficiency as it is more representative of environmental benefits. One solar project had EIRRs below 12% at both project appraisal and completion, although the EIRR at completion was higher than at the time of appraisal. One of the significant reasons for the low EIRRs is the relatively high cash outlays at the outset, which are not sufficiently compensated by the renewable energy tariffs. D. Sustainability 47. The project is rated most likely sustainable because IREDA (i) is strongly capitalized; (ii) complies with compulsory and optional criteria under the MOU with the MNRE, which is crucial for obtaining capital infusion from the government; (iii) has good access to liquidity; and (iv) has gradually implemented recommendations by ADB’s TA to improve sustainability (risk management). IREDA has fared well under the adverse operating environment with strong and resilient management. 48. Growth and financial performance of the Indian Renewable Energy Development Agency. IREDA is a well-capitalized institution (total CAR is at 16.3%, which is above the regulatory threshold of 10%, as at FY2019) with good profit metrics despite (i) adverse pressure on its loan portfolio resulting in increasing NPLs (in line with other NBFCs) and reduced profits; (ii) the adverse impact of the RBI’s new NPL classification rules; and (iii) the adoption of Indian Accounting Standards (Ind AS) (the Indian version of International Financial Reporting Standards 9). The company was able to meet all MNRE parameters based on the MOU and grew the loan portfolio by a CAGR of 23.7% during FY2015–FY2019. IREDA has a diversified set of lenders.43 49. Progress of technical assistance under project 1. ADB’s TA for financial risk management was to help IREDA improve its financial and operational risk management, which is also part of improving IREDA’s sustainability as a lending institution. The TA recommended modifications, some of which have already being implemented, to foreign exchange risk management and Asset and Liability Management Committee policies. As a result, IREDA decided to hedge foreign exchange exposure of fresh loans from inception and manage net interest income as a key driver of financial performance. Improved IT systems to facilitate better

42 The other technical consultants commenced work in calendar 2020 and their works are expected to be completed

by the end year. 43 As at FY2019, IREDA mobilized $143 million from a private placement in the domestic market and issued

redeemable, non-cumulative, non-convertible, and subordinated tier 2 bonds to the value of $21.5 million, reflecting investor confidence in the company (footnote 26).

13

information flow to proactively manage NPLs within individual subsectors and strengthen the recovery process too were recommended.44 E. Development Impact 50. The project aimed to increase renewable energy infrastructure in India. Strong policy incentives estimated an increase of 30 GW of renewable energy by FY2017. However, by the end of financial closure of project 1 in FY2018, the share of renewable energy stood at 7.79% and 39.5 GWs of renewable energy had been added since the baseline year of 2013. 51. Development impact is rated satisfactory as renewable energy is on track to reach 16.5% of total capacity by 2027 and the CAGR of renewable energy has grown at 18% as compared with a CAGR of 4.8% for non-renewable energy during 2015–2018.45 The subprojects financed under the ADB loan were made aware, through the IREDA ESMS, of the importance of mitigating and monitoring the potential negative environmental and social impacts of the subproject activities during construction and operation. F. Performance of the Indian Renewable Energy Development Agency 52. The overall performance of the Indian Renewable Energy Development Agency is rated satisfactory. IREDA has strong ownership and reflects good governance as a result of multiple regulators. IREDA’s lending function is organized by geographic region and by sector in terms of loan appraisal. Its credit sanction process is based on an internal credit rating system and a validation system using accepted external credit ratings. IREDA set up a PMU and appointed a sufficiently senior officer (general manager, finance) as the project director with full authority. The PMU was adequately staffed with at least three people. IREDA installed the ESMS ahead of the targeted deadline. It has complied with all reporting requirements although in the submission of financial statements and the auditor’s report certain delays were observed. 53. Overall good compliance with one noncompliance. IREDA was compliant with all loan covenants except for the gross NPL covenant. The noncompliance resulted from increasing NPLs, which are attributable to the deteriorating operating environment, stricter regulation, and renewable-sector issues. IREDA engaged proactively with ADB to increase the covenant threshold to achieve compliance.

G. Performance of ADB 54. The performance of ADB is rated satisfactory for the program and project 1. ADB’s facility has taken note of the lessons learned and recommendations from the previous project completion report on the loan to IREDA (footnote 5). One of the lessons highlighted was the consolidation of renewable energy sectors under one policy, which is now in place—the Integrated Energy Policy, 2006 of India. In addition, the program used the financial intermediary modality as ADB’s intervention, which permitted IREDA to lend at market-based pricing. IREDA has remained a robust financial institution with sound capital ratios. It is still owned and regulated by the government, and follows government policies. However, IREDA has already commenced

44 Net interest income refers to interest income minus interest expense. 45 Project’s contribution the ADB’s results framework: Project 1 achieved 481 MW of renewable energy capacity. (OP

3.1.4) and 1.06 tons of CO2 annual reduction (OP 3.1).

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discussions with the Securities and Exchange Board of India about having an initial public offering in the near future. 55. The project design was good in terms of (i) the modality selected—MFF—which ensured disbursement based on deal flow and a pipeline of subprojects at IREDA; (ii) the TA for building the ESMS and setting up an Alternative Investment Fund and securitization of IREDA’s selected loans; and (iii) the semiannual reporting system, which was designed to get salient information to ADB. 56. Pre- and post-implementation support by ADB. ADB provided sufficient support during loan signing and effectiveness, although approval to effectiveness took about 16 months. The delay resulted from IREDA’s decision on when funds should be drawn.46 Timely guidance and regular monitoring helped to expedite project implementation and enabled the PMU to recover from initial delays to complete project 1 ahead of time. ADB provided IREDA with quality support, especially in ensuring compliance with safeguard policies. Adequate review missions both pre- and post-delegation of the project to the India Resident Mission guaranteed the successful implementation of project 1 and timely responses to client needs. H. Overall Assessment 57. The overall project is rated successful because of the relevant design, which enabled IREDA to use ADB’s funds and build a solid renewable energy pipeline, and improve financial risk management though technical expertise as well as governance. IREDA was able to exceed the target for additional renewable energy capacity and close project 1 ahead of time through active utilization. Despite noncompliance with the NPL covenant, IREDA retained its operational status because of its robust profitability, liquidity, and capital metrics. The project delivered the expected results efficiently, with positive sustainability prospects and in line with India’s development priorities and ADB’s country partnership strategy (Table 4).

Table 4: Overall Ratings Criteria Rating

Relevance Relevant

Effectiveness Effective Efficiency Efficient Sustainability Most likely sustainable Overall Assessment Successful Impact Satisfactory Performance of IREDA Satisfactory Performance of ADB Satisfactory

ADB = Asian Development Bank, IREDA = Indian Renewable Energy Development Agency Limited. Source: Asian Development Bank.

VI. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons 58. The following issues remain relevant: 59. Credit risk management function. The absence of a credit risk team independent of credit origination is required to improve better credit underwriting. It is noted that ADB has already

46 IREDA and other Indian financial institutions are very price sensitive and prefer to avoid commitment fees. They

wished to draw on the funds when it was most required and not competitive in terms of other loan pricing.

15

provided TA to strengthen financial performance and risk management. IREDA needs to improve asset quality management through proactive monitoring and provisions. 60. The covenant structuring in the multitranche financing facility is a significant lesson for ADB. The NPL covenant needs to be set considering potential changes in the operating environment. The safeguard covenant of the loan agreement prescribes the use of IREDA’s ESMS in screening and categorizing the subprojects for environment and social safeguard compliance prior to loan approval.47 A gap analysis between the latest ESMS updated by IREDA for the ADB line of credit and ADB’s SPS is recommended in the next tranche. B. Recommendations 61. Introduction of an separate enhanced credit risk management function with a dedicated team—independent of credit origination and reporting to the chief risk officer—producing pre- and post-credit appraisal validation and performing key risk analytics for decision making will be crucial to IREDA to keep pace with its corporate plan and anticipated growth in the next 5 years when tranches 2 and 3 will be disbursed. 62. Strengthening of financial performance. The existing NPL covenant should be revised in a manner acceptable to both ADB and IREDA (it is proposed that a new financial covenant be implemented for tranche 2). Periodic missions to review IREDA’s financial and risk management performance are recommended. 63. Further action or follow-up. It is recommended that IREDA works with ADB Financial Management to develop an efficient method of reporting on the loan’s performance. During the life of the MFF, it is important to clarify pricing dynamics to ensure timely drawdown.48 64. Timing of the project performance evaluation report. A project performance evaluation report should be completed, post financial closure, for each tranche to enable the lessons learned from one tranche to be included in the next tranche, thus achieving ADB’s objective of making IREDA a well-managed, robust financial intermediary. 65. Environmental and social management system gap analysis. A thorough gap analysis between the latest version of the ESMS (uploaded on IREDA’s website) and the ADB SPS 2009 must be done prior to Tranche 2 approval for improved clarity and consistency of the screening and categorization requirements. In terms of safeguard reporting, it is recommended that IREDA update its ESMR format to include more details on monitoring parameters, grievance redress and corrective actions, especially if the subproject is at the pre-construction or construction stage at the time of loan approval. Other related recommendations: (i) revise ESMS to extend application of safeguard provisions to Category B projects to better align with Loan Agreement provisions; (ii) refine process for IREDA loan sanctioning to ensure adequate safeguards analysis prior to Board decision and issuance of Sanction Letters; (iii) ensure project safeguards classification and ADB clearance occur prior to Board decision and issuance of Sanction Letters; and (iv) extend further training to IREDA staff for analyzing subproject safeguards.

47 The ESMS only applies ADB’s SPS for category A projects (ESMS Section II-B.9(ii), p. 2) and yet category A projects

cannot be financed under an ADB loan per the loan agreement covenant (LA Schedule 3–10(a), p. 17). ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to India for Clean Energy Finance Investment Program. Loan Agreement (accessible from the list of linked documents in Appendix 2). Manila.

48 The pricing of the loan is significantly higher than that of the competition, especially in a low-interest-rate regime, because of the guarantee fee that the Department of Economic Affairs charges IREDA.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance

Indicators/Targets Achievements Assessment Impact Increased renewable energy infrastructure

Installed generation capacity of renewable energy is 16.5% of total capacity by 2027 (2013 baseline: 9.25%) At least 70.0 gigawatts of renewable energy capacity is added by 2027 (2013 baseline: 29.5 gigawatts)

March 2018: 7.79%a

March 2018: 39.52 gigawatts of renewable energy was added since 2013c

On track. Share of renewable energy consistently increasedb from 5.56% in 2015 to 7.79% in 2018. The renewable energy power generation compound annual growth rate from FY2015 to FY2018 is at 18.17% against non-renewable energy generation of 4.78%. On track. Renewable energy capacity has consistently increased.

Outcome Facilitated investment in renewable energy

By 2018, $80 million of additional finance and about $120 million private sector equity and other funds leveraged by IREDA in order to achieve $400 million of investments in renewable energy (2014 baseline: 0) By 2018, at least 395 megawatts of additional renewable energy capacity added through IREDA’s provision of long-term financing, generating an

September 2018: $555.77 million of investments in renewable energy 2018: 6 solar and 3 wind subprojects approved resulting in 480.8 megawatts of additional renewable energy, generating 810 megawatt hours of electricity annuallyd

Achieved. $555.77 million of subproject costs was funded with a 73.73% / 26.27% debt-to-equity ratio. ADB debt: $200.00 million Debt from other financial institutions: $202.96 million Private sector equity: $145.99 million Exceeded target capacity by 21.72%

Appendix 1 17


Indicators/Targets Achievements Assessment estimated 1,500 gigawatt hours of electricity annuallyd (2014 baseline: 0) By 2018, approximately 1.2 million additional tons of CO2 avoided annually (2014 baseline: 0)

1.06 million additional tons of CO2 avoided annually

Sustainability Achieved.

Outputs 1. Enhanced availability of long-term financing to support renewable energy projects 2. Improved institutional capacity of IREDA

At least 10 private sector subprojects approved and funded by IREDA under this tranche 1 loan by 2018 (2014 baseline: 0) Timely disbursement of tranche 1 An integrated environmental and social management system approved and operational by December 2014 ADB’s environment and social safeguard system and other ADB facility agreements independently and successfully implemented by IREDA (by

9 subprojects were approved Project was financially closed on 5 September 2018 The environmental and social management systeme was approved and operational by May 2014 The gross nonperforming loan covenant of 3.9% was not complied with

Substantially achieved. However, ADB’s committed $200 million loan was also 100% disbursed, which leveraged additional debt of $203 million and private sector equity of $146 million. Exceeded target. In the loan agreement, tranche 1 was scheduled to close by 31 April 2019, much later than the actual closing date. Exceeded target. The ESMS system was approved and uploaded in ADB’s website on May 2014, much earlier than the December 2014 target Achieved. Met target with the exception on the gross nonperforming loan covenant of 3.9%. (Part III, Section G)

18 Appendix 1


Indicators/Targets Achievements Assessment December 2016) ADB facility approval, disbursement, and liquidation successfully carried out by IREDA on a timely basis IREDA maintains nonperforming loans at below 3.9% of disbursed subprojects maintained by IREDA (by March 2015) (2013 baseline: gross nonperforming loan 3.9%) Semi-annual performance reports including risk management reports submitted to ADB by December 2018. Enhanced comprehensive capacity building plan for financing and credit risk management developed by IREDA by 2018.

Complied FY2019: 6.12% FY2018: 6.30% FY2017: 6.00% FY2016: 5.79% FY2015: 5.32% Five semi-annual progress reports were submitted to ADB from project effectiveness to project closing On the request of IREDA, national Financial Management consultant has been recruited under TA 8937 and mobilized in September 2018 to prepare the capacity building plan.

Achieved. Not Achieved. Discussed in Part III, Section G Achieved. Likely to be achieved (with delay).

a Government of India Ministry of Power Central Electricity Authority. 2018. Annual Report 2017–2018. New Delhi. b Each year, the following share of renewable energy to total capacity: 5.56% in FY2015, 5.61% in FY2016, 6.57% in

FY2017. c Government of India Ministry of Power Central Electricity Authority. 2018. Annual Report 2017–2018. New Delhi. d Actual annual generation figures were requested from IREDA. However, 4 subprojects are closed and IREDA could

provide the actual figures. Capacity factors for wind and solar of 0.3 and 0.1, respectively, were used to estimate the annual electricity generation. These capacity factors were assumed during appraisal stage.

e ADB. 2014. Environment and Social Management System Arrangements. https://www.adb.org/projects/documents/mff-clean-energy-finance-investment-program-facility-esms

Source: Asian Development Bank.

https://www.adb.org/projects/documents/mff-clean-energy-finance-investment-program-facility-esms

Appendix 2 19

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan

Agreement Status of Compliance The Borrower shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the FAM. Any subsequent change to the FAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the FAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

Schedule 3, para. 1

Being complied with.

The Borrower shall carry out the undertakings set out in Schedule 6 of the FFA in an efficient and timely manner.

Schedule 3, para. 2


The Borrower shall ensure that each Qualified Enterprise: (a) has sufficient resources and financial

capability to raise resources to complete and operate the relevant Qualified Subproject successfully;

(b) is not in default of any prior loan from the Borrower or any other lenders;

(c) be able to provide appropriate security as required by the Borrower;

(d) maintains appropriate financial records of income and expenditure to the

satisfaction of the Borrower and ADB; and (e) complies with, and ensures that the relevant

Qualified Subproject complies with, ADB’s policies and procedures and national and state level policies, laws and regulations relating to environment, resettlement and indigenous peoples.

Schedule 3, para. 3


The Borrower shall ensure that that all Qualified Subprojects are selected and approved in accordance with the selection criteria and approval process stipulated in Schedule 4 to the FFA.

Schedule 3, para. 4

Complied.

The Borrower may utilize up to 20% of the Loan proceeds for the purposes of the Takeout Financing Scheme.

Schedule 3, para. 5

Complied.

20 Appendix 2

Covenant

Reference in Loan

Agreement Status of Compliance The Borrower shall ensure that all Subprojects to be financed through Takeout Financing Scheme (a) will be required to satisfy the Qualified Subproject criteria set out in paragraph 4 of this Schedule 3 and that the Subloan Agreement for such Subprojects shall satisfy the requirements set out in Section 4.02 of this Loan Agreement; (b) follow IREDA’s Takeout Financing Guidelines, Reserve Bank of India regulations and comply with the same ADB requirements as any other Subprojects funded under the Project including compliance with the Procurement Guidelines, the Consulting Guidelines, and all applicable environmental and social safeguard requirements set out in the ESMS.

Schedule 3, para. 6

Complied.

The Borrower shall, at all times, comply with the prudential regulations which the Guarantor has made applicable to Borrower including capital adequacy, income recognition, classification, and provisioning of nonperforming assets.

Schedule 3, para. 7


The Borrower shall (a) maintain positive profitability and (b) comply with the relevant Reserve Bank of India capital adequacy ratios for nonbank financial institutions.

Schedule 3, para. 8


Towards improving credit risk management and reporting system, with effect from not later than 31 March 2015, the Borrower shall ensure gross non-performing loans level to be below 3.9%.

Schedule 3, para. 9

Not complied. To be discussed in section G.

The Borrower shall ensure that before any Qualified Subproject is approved for financing: (a) the ESMS is used to screen and categorize

the significance of potential environmental, indigenous peoples or involuntary resettlement impacts associated with such Qualified Subproject;

(b) an IEE, an EMP, a RP and/or an IPP are prepared for such Qualified Subproject as required pursuant to the ESMS; and

(c) the IEE, the EMP, the RP and/or the IPP (as applicable) are cleared by ADB if such Qualified Subproject is Category A or Category B within the meaning of the SPS.

Schedule 3, para. 10

Complied.

Appendix 2 21

Covenant

Reference in Loan

Agreement Status of Compliance The Borrower shall not provide financing under the Project for any Qualified Subprojects which may be classified as Category A for environment, resettlement or indigenous peoples within the meaning of the SPS.


Complied.

The Borrower shall ensure that the preparation, design, construction, implementation, operation and decommissioning of each Qualified Subproject and all Project facilities comply with (a) all applicable laws and regulations of India relating to environment, health, and safety; (b) the Environmental Safeguards; (c) the ESMS; and (d) all measures and requirements set forth in the respective IEE and EMP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.


Being complied with. The ESMRs submitted by IREDA to ADB have confirmed compliance to all applicable laws and regulations of India relating to environment, health and safety, the ESMS, and the pre-construction, construction, and operational safeguards requirements in the EMP of each subproject. Corrective action plans implemented for the reported grievances

The Borrower shall ensure that all land and all rights-of-way required for each Qualified Subproject are made available to the Works contractor in accordance with the schedule agreed under the related Works contract and all land acquisition and resettlement activities are implemented in compliance with (a) all applicable laws and regulations of India relating to land acquisition and involuntary resettlement; (b) the Involuntary Resettlement Safeguards; (c) the ESMS; and (d) all measures and requirements set forth in the respective RP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.


Being complied with. The project will not finance IR Category A projects. All lands acquired for IR Category B and Category C projects follow national law, and this process is evident in project Safeguard Monitoring Reports.

Without limiting the application of the Involuntary Resettlement Safeguards, the ESMS or the RP, the Borrower shall ensure that no physical or economic displacement takes place in connection with any Qualified Subproject until: (a) compensation and other entitlements have

been provided to affected people in accordance with the RP; and

(b) a comprehensive income and livelihood restoration program has been established in accordance with the RP.


Being complied with. Projects involving land acquisition have occurred primarily on barren lands. Involuntary resettlement has been avoided through willing-buyer, willing-seller transactions.

22 Appendix 2

Covenant

Reference in Loan

Agreement Status of Compliance The Borrower shall ensure that the preparation, design, construction, implementation and operation of each Qualified Subproject comply with (a) all applicable laws and regulations of India relating to indigenous peoples; (b) the Indigenous Peoples Safeguards; (c) the ESMS; and (d) all measures and requirements set forth in the respective IPP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.


Being complied with. The project has avoided impacts on Indigenous Peoples.

The Borrower shall ensure that (a) necessary budgetary and human resources are made available to fully implement the ESMS; and (b) each Qualified Enterprise receiving a Subloan makes necessary budget and human resources to fully implement the respective EMP, RP and IPP.


Being complied with. The borrower has retained qualified consultants and staff in subproject review and processing.

The Borrower shall do the following: (a) submit semi-annual Safeguards Monitoring

Reports to ADB; (b) if any unanticipated environmental and/or

social risks and impacts arise during Qualified Subproject implementation promptly inform ADB of the occurrence of such risks or impacts, with detailed description of the event and proposed corrective action plan; and

(c) report any actual or potential breach of compliance with the measures and requirements set forth in the ESMS and any EMP, RP or IPP promptly after becoming aware of the breach.


Being complied with. The borrower has submitted timely reports to ADB.

The Borrower shall ensure or cause the Qualified Enterprise to ensure that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.


Being complied with. The project has not financed any activities prohibited by ADB.

The Borrower shall ensure that towards smooth implementation of the Project, grievances if any from stakeholders, relating to implementation of the Project or any Qualified Subproject or use of funds, are addressed effectively and efficiently. The Borrower shall ensure that the Qualified


Being complied with. The project informed stakeholders through consultation about its grievance redress mechanism. Project

Appendix 2 23

Covenant

Reference in Loan

Agreement Status of Compliance Enterprises (a) make the existence of a grievance redress mechanism publicly known; and (b) proactively and constructively review and redress grievances of affected people in relation to the Project or any Qualified Subproject.

monitoring reports to ADB address grievances received.

The Borrower shall ensure that civil works contracts under Qualified Subprojects under Subloan agreements follow all applicable national and state level labor laws and that these further include provisions to the effect that contractors: (a) carry out HIV/AIDS awareness programs for labor and disseminate information at worksites on risks of sexually transmitted diseases and HIV/AIDS as part of health and safety measures for those employed during construction; and (b) follow and implement all statutory provisions on labor (including not employing or using children as labor, equal pay for equal work), health, safety, welfare, sanitation, and working conditions. Such contracts shall also include clauses for termination in case of any breach of the stated provisions by the contractors.


Being complied with. According to the ESMRs submitted by IREDA, the subprojects complied with the labor standards of India, ensuring no children are employed at the facilities. However, in terms of HIV/AIDS awareness programs, this was not reported in the ESMRs.

The Borrower shall comply with ADB’s Anticorruption Policy (1998, as amended to date) and (i) shall ensure that the anticorruption provisions acceptable to ADB and the Borrower are included in all bidding documents and contracts financed by ADB in connection with the Project, including provisions specifying the right of ADB to review and examine the records and accounts of the Borrower, the Qualified Enterprises and all contractors, suppliers, consultants, and other service providers as they relate to the Qualified Subprojects and the Project, and as included in the FAM; (ii) shall allow and assist ADB’s representatives to carry out random spot checks on the work in progress and utilization of funds for the Project; (iii) acknowledge that ADB reserves the right to investigate directly or through its agents any alleged corrupt, fraudulent, collusive or coercive practice relating to the Project; and (iv) cooperate with any such investigation and extend all necessary



24 Appendix 2

Covenant

Reference in Loan

Agreement Status of Compliance assistance for satisfactory completion of such investigation, and as included in the FAM.

The Borrower shall: (a) comply with applicable laws and regulations

of the Guarantor on combating money laundering and financing of terrorism and ensure that Loan proceeds are not used, directly or indirectly, in money laundering or financing of terrorism;

(b) formulate and implement internal control procedures, including customer due diligence procedures, to prevent violation of subparagraph (a) hereinabove; and

(c) promptly inform the Guarantor and ADB if there is any violation or potential violation of subparagraph (a) hereinabove. In the event that ADB informs the Borrower of its concern that there has been such an alleged violation, the Borrower shall: (i) cooperate in good faith with ADB and its representatives so that ADB can determine whether such a violation has occurred; (ii) respond promptly and in reasonable detail to any query from ADB; and (iii) furnish documentary support for such response upon ADB’s request.



(a) The Borrower shall carry out the Project with due diligence and efficiency and in conformity with sound applicable technical, financial, business and development practices.

(b) In the carrying out of the Project and in the conduct of its business, the Borrower shall perform all the obligations set forth in Schedule 3 to this Loan Agreement.

Loan Agreement, Section 5.01

Complied except for financial covenant discussed in Section G.

The Borrower shall at all times make adequate provision to protect itself against any loss resulting from changes in the rate of exchange between Indian Rupees and the currency or currencies in which the Borrower's outstanding money obligations will have to be met.


Complied.

The Borrower shall not make a Subloan to any Qualified Enterprise unless such Qualified Enterprise has at its disposal, or has made


Complied.

Appendix 2 25

Covenant

Reference in Loan

Agreement Status of Compliance appropriate arrangements to obtain as and when required, all funds, including adequate working capital, and other resources which are required by such Qualified Enterprise for the carrying out of its Qualified Subproject in respect of which the Subloan is to be made.

The Borrower shall maintain records and accounts adequate to record the progress of each Qualified Subproject (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, the operations and financial condition of the Borrower.


Complied.

The Borrower shall furnish to ADB all such reports and information as ADB shall reasonably request concerning the Qualified Enterprises, the Qualified Subprojects (including costs thereof), and the Subloans.


Complied.

(a) The Borrower shall (i) maintain separate accounts and records for the Project; (ii) prepare annual Statement of Subprojects for the Project in accordance with accounting principles acceptable to ADB; (iii) have such Statement of Subprojects audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; (iv) as part of each such audit, have the auditors prepare a report (which includes the auditors’ opinion on the financial statements, use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement as well as on the use of the procedures for imprest fund(s) and statement of expenditures) and a management letter (which sets out the deficiencies in the internal control of the Project that were identified in the course of the audit, if any); and (v) furnish to ADB, no later than 6 months after the end of each related fiscal year, copies of such audited financial statements, audit report and management letter, all in the English language, and such other information concerning these documents and the audit


Complied.

26 Appendix 2

Covenant

Reference in Loan

Agreement Status of Compliance thereof as ADB shall from time to time reasonably request. (b) ADB shall disclose the annual audited Statement of Subprojects for the Project and the opinion of the auditors on the Statement of Subprojects within 30 days of the date of their receipt by posting them on ADB’s website. (c) The Borrower shall enable ADB, upon ADB's request, to discuss the Statement of Subprojects for the Project and the Borrower's financial affairs where they relate to the Project with the auditors appointed pursuant to subsection (a)(iii) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB. This is provided that such discussions shall be conducted only in the presence of an authorized officer of the Borrower, unless the Borrower shall otherwise agree. (d) In addition to annual audited Statement of Subprojects referred to in subsection (a) hereinabove, the Borrower shall (i) provide its annual financial statements prepared in accordance with national accrual-based financing reporting standards acceptable to ADB; (ii) have its financial statements audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; and (iii) furnish to ADB, no later than 1 month after approval by the relevant authority, copies of such audited financial statements in the English language and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request.

The Borrower shall enable ADB's representatives to inspect any Qualified Enterprise, any Qualified Subproject, the Goods and Works, and any relevant records and documents maintained by the Borrower.


Complied.

(a) The Borrower shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations


Complied.

Appendix 2 27

Covenant

Reference in Loan

Agreement Status of Compliance and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business. (b) The Borrower shall at all times conduct its business in accordance with sound applicable technical, financial, and business practices, and under the supervision of competent and experienced management and personnel. (c) Except as ADB may otherwise agree, the Borrower shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this Loan Agreement. Source: Asian Development Bank.

Summary of IREDA’s asset quality management process IREDA’s Operational Guidelines outline the entire credit approval process including nonperforming loan management. The loan committee comprising of board directors are responsible (a) for sanction of loans for projects as per delegation, (b) for approval of reschedulement proposals and other issues relating thereto for projects carrying IREDA’s loans as per delegation, (c) for approval of Settlement proposals and other issues relating thereto for projects carrying IREDA’s loan as per delegation, and (d) for approval of finance, site, guarantee(s), validity and other terms & conditions of loan in respect of projects which are within the ambit of the committee. The loans are classified as nonperforming following RBI guidelines issued to all NBFCs. In addition, IREDA has guidelines on loan reschedulement, and identification of willful defaulters. IREDA will normally not allow rescheduling of installment(s) of loan as incorporated in the loan agreement. However, in exceptional cases, IREDA may consider revision of original repayment schedule if such a measure is desirable in the interest of the project and recovery of IREDA loan amount.

28 Appendix 3

BUSINESS PERFORMANCE 1. This section considers (i) the financial position of Indian Renewable Energy Development Authority (IREDA), which is adequate except for asset quality; and (ii) sensitivity analysis based on higher provisions in IREDA’s loan asset portfolio to protect IREDA from loan losses. A. Financial Highlights

Table A3.1: Financial Highlights (₹ million)

Classification 2015 2016 2017 2018 2019 CAGR (%)

Balance sheet Gross loans 91,217 103,593 136,175 158,225 213,764 23.73 Total assets 102,250 131,458 186,961 202,653 243,728 24.25 Borrowings 74,392 100,047 127,851 149,929 187,529 26.00 Total liabilities 80,461 108,494 162,727 178,520 218,086 28.31 Total equity 21,788 22,965 24,234 24,132 25,641 4.15 Loans sanctioned 45,488 78,065 101,990 121,300 119,419 27.29 Loans disbursed 26,195 42,574 65,935 83,284 93,854 37.58 Income statement Net interest income 4,605 5,676 6,562 6,824 7,449 12.78 Total operating income 4,637 5,044 7,551 7,307 8,067 14.85 Net income 2,720 2,982 3,650 3,705 2,441 (2.67) CAGR = compound annual growth rate. Source: IREDA’s audited financial statements.

Table A3.2: Breakdown of Sanctioned Loans by Sector FY2015–FY2019 (%)

Sector 2015 2016 2017 2018 2019

Biomass and Cogeneration

4.17

3.98

1.44

1.35

0.21

Hydro 10.14 5.07 3.23 4.21 1.13 Solar 28.39 34.39 46.85 38.17 48.14 Wind 56.21 35.08 24.12 27.77 12.77 Waste to energy 0.03 0.18 - 2.62 2.74 Short term loan 1.06 20.18 20.00 22.92 32.07 Others - 1.13 4.35 2.95 2.95 Total 100.00 100.00 100.00 100.00 100.00

Source: IREDA’s audited financial statement.

2. Loan growth and portfolio composition. IREDA has been able to disburse loans at a higher CAGR than the sanctioned loans which enabled steady portfolio growth. The borrowings have grown in tandem with more than 80% of loans being funded from borrowings. The bulk of the sector composition of sanctioned loans is solar comprising nearly 50% of the portfolio. Since biomass/cogeneration, hydro and waste energy are insignificant short-term loans make up 32% of the portfolio FY2019, rising from 1% of the portfolio in FY2015. This includes IREDA’s lending to DISCOMs ensuring ringfencing of payables to IREDA’s sub-borrowers. However, this upstream financing poses systemic risks and is a trend which needs to be examined in the coming years.

Appendix 3 29

B. Business Analysis

Table A3.3: Asset Quality (%)

Ratios 2015 2016 2017 2018 2019 Gross NPL ratioa

IREDA 5.32 5.79 6.00 6.30 6.12 Indian NBFCs 4.10 4.50 6.10 5.30 6.10 Indian NBFCs- Infrastructure Finance Companies

1.10 3.60 7.80 7.50 not available

Net NPL ratiob IREDA 3.56 3.86 3.34 3.39 3.04 Indian NBFCs 2.50 2.50 4.40 3.30 3.40 Indian NBFCs- Infrastructure Finance Companies

0.80 2.70 6.30 5.80 not available

Loan loss reserves ratioc IREDA 21.59 23.99 32.77 40.72 40.40

IREDA = Indian Renewable Energy Development Authority, NBFC = nonbanking finance companies, NPL = nonperforming loan. a Gross non-performing loan ratio = gross non-performing loans/ gross loans. b Net non-performing loan ratio = (gross non-performing loans – loan loss reserves)/ gross loans. c Loan loss reserves ratio = specific loan loss reserves/ gross nonperforming loans. Source: IREDA’s audited financial statements and Reserve Bank of India’s reports.

Table A3.4: Loan Portfolio by Sector as of 30 September 2019 (₹ million)

Sector Gross Loans

% of loan portfolio

Nonperforming loans

% of nonperforming

loans

Biomass 1,534 0.7 1,450 7.0 Co-generation 13,246 6.2 6,597 32.0 Small hydro 23,818 11.1 4,147 20.1 Solar 84,497 39.2 371 1.8 Wind 53,783 25.0 5,912 28.6 Waste to energy 2,042 0.9 90 0.4 Energy efficiency 570 0.2 95 0.5 Others 35,889 16.7 1,983 9.6 Total 215,379 100.0 20,644 100.0 Source: IREDA’s unaudited financial statement.

3. Asset quality. NPLs had increased continuously, however, it is noted that gross NPLs have performed better than the infrastructure peers in FY2017 and FY2018. IREDA’s loan loss provisions have increased which accounts for its better than infrastructure peers net NPL ratio (Table 3). Asset quality decline is attributed to both external and internal factors. Externally the DISCOMs had delays in payments, renewable energy sector issues, fallout of the financial crisis affecting all NBFCS and tighter NPL recognition imposed by the Reserve Bank of India during

30 Appendix 3

Project 1’s implementation impacted IREDA’s asset quality.1 Internally a few projects in the biomass, small hydro power and wind sector turned in to NP status which were the mainstay of IREDA’s NPLs. 4. NPL concentration and gross portfolio implications. IREDA’s NPLs in the cogeneration/biomass hydro, and wind sectors comprise 88% of the NPL portfolio by September 2019 while these sectors comprised only 15% of the sanctioned loans in March 2019. It is noted that solar with a 48% concentration of sanctioned loans FY2019 contributed only 1.8% to the total NPLs as of September 2019 (Tables 2, 4). The converse characteristics of gross loan and NPL portfolio concentration is a positive. 5. Capital adequacy. Capital adequacy is adequate and meets the requirements. Although capital ratios declined FY2015–FY2019 (Table 5), IREDA complies with the Reserve Bank of India’s (RBI) requirements. Further, RBI will impose a step-up capital requirement FY2019–FY20222 which IREDA complies with at 14.65% tier 1 risk weighted capital ratio and 16.32% total capital over risk weighted assets of 16.32% FY2019. Further, IREDA is 100% government owned, systemically important institution and so, government infusion is expected.

6. Strong capital. IREDA’s ownership by the state ensures regular capital injections will take place provided IRDA meets with all requirements of the MOU between MNRE and IREDA. The tier 1 and total CAR of IREDA as at FY2019 above the regulatory requirements for NDSI-NBFCs reflect sound loss absorption capacity and ability to make higher loan loss provisions.

Table A3.5: Capital Adequacy (%)

Ratios 2015 2016 2017 2018 2019 Tier 1 risk weighted capital ratio

23.14 19.99 19.17 18.05 14.65

Total capital/ risk weighted assets

23.14 19.99 19.17 18.05 16.32

Dividend payout 12.87 60.55 41.39 42.40 10.77 Source: IREDA’s audited financial statements.

Table A3.6: Profitability (%)

Ratios 2015 2016 2017 2018 2019 Return on assets 5.32 2.55 2.35 1.90 1.43 Return on equity 24.96 13.32 15.47 15.32 9.81 Net interest margina 9.25 5.04 4.67 4.16 3.83 Cost-to-income ratio 10.68 9.72 7.54 13.67 16.40 Net income (Rs. millions) 2,720 2,982 3,650 3,705 2,441 a Net interest margin = (interest earned – interest expended)/ average net interest earning assets. Source: IREDA’s audited financial statements.

7. Earnings. IREDA’s core earnings are derived through interest income. The net interest margins have dropped from 9.25% to 3.83% for the period of FY2015 to FY2019. Low NIMs are due to lower asset yields and higher borrowing costs (Table 6). Further, net income declined because of RBI’s stringent NPL recognition effected FY2019, resulting in higher loan loss

1 Reserve Bank of India’s 31 May 2018 circular states that by 31 March 2020, NBFCs should classify NPLs after 90

days and after 120 days by 31 March 2019. Previously, NPLs are classified after 180 days based on 1 September 2016 circular.

2 Tier 1 capital ratio requirement of 7%, 8%, 9% and 10% FY2019–FY2022 and total capital over risk weighted assets requirement of 10%, 12%, 13% and 15% over the same period.

Appendix 3 31

provisions affecting profitability metrics in FY2019. Since IREDA would need to make enhanced provisions due to declining asset quality NIM management and cost rationalization will be important in the coming years. 8. Liquidity. IREDA has sufficient liquidity. As a NDSI-NBFC they comply with all asset and liability management requirements of RBI. The cashflow mismatches are positive up to 3 years as IREDA is not dependent on short-term financing and benefits from access to long-term stable funding through bonds, local bank borrowings and multilateral development loans. The annual cashflow analysis reveals that net cashflow has been reducing.

Table A3.7: Cashflow (₹ million)

Classification 2015 2016 2017 2018 2019

Cashflow from operations (3,890) (21,342) (17,760) (18,531) (46,965) Cashflow from financing activities

7,221 23,010 30,110 (534) (365)

Cashflow from investing activities

(19) (81) (1,539) 17,083 34,262

Source: IREDA’s audited financial statements.

9. Sensitivity to market risk. IREDA is subject to interest rate risk. Interest rate risk mismatches arise in the repricing of its loan assets, which generally reprice every two years, and its liabilities, which are generally long-term and reprice every six months. Throughout Project 1, the interest rates have increased3 and liabilities repriced more quickly at higher rates than its assets. IREDA effectively managed this risk by entering interest rate swap transactions and periodic review of lending rates based on market conditions and incremental cost of borrowing. 10. To manage fluctuations in its foreign currency loans, IREDA entered into foreign exchange swaps and forward contracts. Further, open exposure on foreign currency loans is capped at 40% of foreign borrowings. FY2019, open exposure was at 24.77%. 11. Overall assessment. With the exception of asset quality, IREDA has shown sound profitability, liquidity and capital adequacy despite a challenging operating environment and more stringent regulations. Although financial projections during the appraisal stage were not met, this is attributed to unanticipated external factors. Furthermore, IREDA is aligned with industry benchmarks and have operated well without relying on government’s capital infusion FY2015–FY2019.

C. Sensitivity Analysis 12. A sensitivity analysis was performed to anticipate the decline in asset quality and to gauge a more appropriate financial metric than Gross NPL. Net NPL may be a better covenant because it incentivizes higher provisions in IREDA’s loan asset portfolio and improves building additional capital to protect itself from loan losses. From its current level FY2019, IREDA may increase its provisioning by 60%, without relying on government equity infusion.

3 6-month LIBOR FY2015 was at 0.40% and increased to 2.66% FY2019.

https://www.macrotrends.net/1433/historical-libor-rates-chart

https://www.macrotrends.net/1433/historical-libor-rates-chart

32 Appendix 4

CHARACTERISTICS OF SUBLOANS UNDER PROJECT 1

Subproject Name

State Sector Project Commission Date

Loan Start Date

Loan Maturitya (Years)

Capacity generated in mega watts

Amount funded by IREDAb

(₹ million)

Amount funded by IREDAb ($ million)

Amount committed by ADBc

(₹ million)


($ million)

Amount disbursed

by ADB

(₹ million)

Amount disbursed

by ADB ($ million)

Amount funded by

counterpart

(₹ million)

Amount funded by

counterpart ($ million)

Credit Rating

Solar

Azure Clean Energy Pvt. Ltd.

Rajasthan Solar 28 April 2015

23 July 2014

13.75 40.0 2,050.00 27.09 1,353.89 20.42 875.00 13.20 657.83 9.20 ICRA Sponsor Moderate (Grade 2) Internal Project Satisfactory (Grade 4)

SSJ Power Projects and Infrastructures Pvt. Ltd.

Telangana Solar 2 November 2014

5 May 2015

12.25 5.0 246.65 3.26 180.03 2.62 114.44 1.67 113.41 1.59 ICRA Sponsor Satisfactory (Grade 3) Project Satisfactory (Grade 4)

Chattel Construction Pvt. Limited

Gujarat Solar 30 December

2012

14 December

2015

7.67 25.0 1,617.02 21.37 1,502.9 22.10 1,502.90 22.10 1,388.78 19.41 Internal Project Satisfactory (Grade 4)

Hiraco Renewable Energy Pvt. Limited

Gujarat Solar 18 April 2012

15 December

2015

7.67 20.0 1,281.51 16.94 1,193.76 17.55 1,193.76 17.55 1,106.00 15.46 Internal Project Satisfactory (Grade 3)

Rising Bhadla 1 Pvt. Ltd.

Rajasthan Solar 29 September

2017

9 November

2016

16.5 70.0 3,388.50 44.78 2,000.00 29.15 2,000.00 29.15 1.129.60 15.79 Internal Sponsor Moderate (Grade 4) CARE Project Good ability to repay debt (Grade 3)

Rising Bhadla 2 Pvt. Ltd.

Rajasthan Solar 1 November

2017

9 November

2016

16.5 70.0 3,388.50 44.78 2,000.00 29.15 2,000.00 29.15 1,126.60 15.79 CARE Sponsor Moderate CARE Project Good ability to repay debt (Grade 3) Internal Project Moderate

Appendix 4 33

a Includes grace, construction and repayment period. b IREDA’s approved loan amount based on board approval. c Claim amount for ADB financing in ADB’s subproject disbursement approval memo.

Source: IREDA’s sanction letters, board documents, environmental and social safeguards due diligence reports and detailed project report and ADB’s subproject disbursement approval memo and subloan evaluation forms.

Subproject Name

State Sector Project Commission Date

Loan Start Date

Loan Maturitya (Years)

Capacity generated in mega watts

Amount funded by IREDAb

(₹ million)

Amount funded by IREDAb ($ million)


(₹ million)


($ million)

Amount disbursed

by ADB

(₹ million)

Amount disbursed

by ADB ($ million)

Amount funded by

counterpart

(₹ million)

Amount funded by

counterpart ($ million)

Credit Rating

Wind

Orange Anantapur Wind Power Private Limited

Andra Pradesh

Wind 21 July 2016

2 July 2015

16 100.0 1,836.10 24.26 3,684.65 57.13 1,836.10 28.47 5,754.00 80.44 ICRA Sponsor Satisfactory (Grade 3) Project Satisfactory (Grade 3)

Orange Urvakonda Wind Power Pvt. Limited

Andra Pradesh

Wind 30 November

2016

16 December

2015

17 100.8 2,000.00 26.43 1,983.60 30.75 1,851.81 28.71 5,890.10 82.35 CARE Sponsor Strong Internal Satisfactory (Grade 3)

Etesian Urja Ltd.

Madhya Pradesh

Wind 31 March 2017

1 February

2017

16 50.0 2,280.00 30.13 2,188.25 33.55 1,956.83 30.00 2,096.50 29.31 Brickwork Sponsor Low risk (Grade 1) Internal Reasonable ability to fund project (Grade 1)

34 Appendix 4

A. NPL Analysis 1. IREDA’s sub-borrowers are renewable energy developers. These developers are paid by distribution companies (DISCOMs).1 Some of the DISCOMs are experiencing cash flow difficulties due to (i) delays in capital infusion by the state governments, (ii) high tariff rates which have been signed previously with developers, and (iii) diversion of funds. IREDA’s sub-borrowers who are exposed to DISCOMs with strained cash flows have experienced collection/payment delays by DISCOMs. These delays have caused late/non-repayments by the developers to IREDA. It is noted that IREDA has also moved up the power sector value chain and started lending to selected DISCOMs. These lendings are entered into with careful ringfenced processes and suitable collateral to avoid evergreening.2 2. The high growth coupled with the weakness in the operating environment in the banking and financial services industry and tighter prudential rules imposed by RBI resulted in a significant increase in the NPLs at IREDA.3 NPLs have increased significantly at a CAGR of 22% from 2015 to 2019 (NPLs rose by 2.7 times from FY2015 to FY2019 reflecting a 169% increase in 4 years). This was due to the sharp increase in loan disbursements (CAGR of 38% from FY2015 to FY2019). As at FY2019 32% of the NPLs were from the cogeneration sector while, 29% were from wind and 20% were from small hydro power sectors (Appendix 3, Table 4). Sub-borrowers in the biomass sector had faced rising prices in raw materials which were not hedged by power purchase agreements with DISCOMs and non-availability of a regular supply. The hydro sector sub-borrowers were affected due to delays in water supply and design flaws in hydrology. All three affected sectors faced payment delays on the part of DISCOMs with whom the sub-borrowers had entered into payment agreements. 3. There were 24 loan assets which rescheduled in FY2016–FY2017 period with an increase of 5% in loan loss provisions. In order to assist with the cash flow difficulties faced by their sub-borrowers IREDA has introduced restructuring of scheduled repayment structures. B. General 4. During the period FY2015 to FY2019 IREDA experienced payment delays/non-repayment from sub-borrowers in wind, hydro power and biomass sectors (none of the subprojects funded by Project 1 faced these difficulties). The composition of nonperforming loans (NPL) included 39% wind, 29% biomass/cogeneration and 20% hydro power sectors.

1 DISCOMs are said to be an important link in the power sector value chain in India. 2 Evergreening refers to ensuring that a borrower who is in payment difficulties to a financial institution is supplied with credit to ensure he is able to repay the

borrowing without actually producing a cash flows on its own. 3 Reserve Bank of India’s 31 May 2018 circular states that by 31 March 2020, NBFCs should classify NPLs after 90 days of out of order dates instead of 120 days

with effect from 31 March 2019. Previously, NPLs are classified after 180 days based on 1 September 2016 circular.

Appendix 4 35

1. Hydro power sector 5. Affected by (i) social issues such as delays in land acquisition which resulted in higher project costs, (ii) delays due to reduced/non availability of water and sedimentation/ silting issues, (iii) economic issues such as lower tariffs and escalating project costs, and (iv) technical factors, like lower plant load factors than assessed at appraisal, design of hydrology that did not leave sufficient head for generation were identified as causative factors. 2. Biomass sector 6. Affected by poor weather conditions and lack of ground water, led to less availability of sugarcane that affected supply. There were some instances when there was management risk that materialized in biomass projects due to incomplete information and incorrect analysis of the loan off taker’s risk.4 IREDA needs to improve in (i) assessing the hydrology design and making hydraulic calculations at appraisal stage in the hydro sector, and (ii) assessing the fuel price risk and management risk due to incomplete information provided by the off taker. 3. DISCOMs 7. IREDA’s sub-borrowers are subject to buyer’s risk. Hence the analysis of discoms who buy power from subproject developers, power purchase agreements contracted by developers with DISCOMs and financial viability of developers (most developers are financially backed by promoters) are analyzed prior to approval.

4 Price Waterhouse and Coopers Study done on IREDA’s NPL portfolio, December 2017.

36 Appendix 5

PROJECTED AND ACTUAL SUBLOANS GIVEN BY IREDA UNDER PROJECT 1

Indicative New Subprojects of IREDA at the time of loan approval and Actual Subprojects funded by IREDA under Project 1.

Table A5.1: Small Hydro Power Sector

Type of financing

No of projects

Amount approved ($ million)

Expected MW

Actual No of projects

Actual Financing ($ million)

New direct 9 104.6 164.0 - -

Retroactive 10 92.8 1347.0 - - Takeout 2 25.7 37.5 - -

Total 21 223.1 1548.5 - -

Table A5.2: Biomass and Cogeneration

Type of financing

No of projects


Expected MW

Actual No of

projects


New direct 7 57.8 140.0 - - Retroactive - 51.3 122.0 - -

Takeout - 31.5 8.2 - - Total 7 140.6 170.2 - -

Table A5.3: Solar

Type of financing

No of projects


Expected MW



New direct 17 176.8 265 4 12104

Retroactive 11 96.8 142 - - Takeout 4 23.4 20 2 5400

Total 32 297.0 427 6 17504

Table A5.4: Wind Type of financing

No of projects


Expected MW



New direct 8 224.7 430 3 19.8

Retroactive 13 265.7 634 - - Takeout - - - - -

Total 21 590.4 1064 3 19.8

Appendix 5 37

Table A5.5: IREDA Financing Plan (FY2014–FY2024)

Source Amount ($ million)

Share of Total (%)

Share of Total FY2019 (%)

Asian Development Bank 500 7.6 5.2 Other foreign borrowinga 1,581 24.1 44.7 Local borrowingb 1,600 24.4 26.0 IREDA net repayments 1,855 28.3 14.4 IREDA internal accruals and government equity contributionsc

1,021 15.6 9.7

Total 6,557 100.0 100.0 IREDA= Indian Renewable Energy Development Agency Limited. a Includes bilateral and multilateral sources in the forms of credit lines. b IREDA raises domestic bonds and term loans. c This includes an estimated $411 million in government equity contributions if required. Source: ADB. 2014. Framework Financing Agreement. Clean Energy Finance Investment Program: Report and Recommendation of the President. Manila.

Table A5.6: Facility Investment Program ($ million)

Item Total MFF

Share Total (%)

Tranche 1 (Actual)

Tranche 2 (Actual)

Tranche 3 (Actual)

Asian Development Bank loan funds

500 50 200 150 150

Supplementary finance 200 20 80 60 60 Sub-borrowers equity and others

300 30 120 90 90

Total 1,000 100 400 300 200 Source: ADB. 2014. Framework Financing Agreement. Clean Energy Finance Investment Program: Report and Recommendation of the President. Manila.

Table A5.7: IREDA borrowing composition FY2015–FY2019a ($ million)

Item 2015 2016 2017 2018 2019

Loans disbursed 4.2 6.4 10.2 12.8 13.5 International borrowings 7.6 8.4 12.1 15.2 17.1 Domestic borrowings 4.3 6.7 8.0 7.8 9.9 Total borrowings 11.9 15.1 20.1 23.0 27.0

a foreign exchange rate based on the year ended March. Source: IREDA annual reports.

38 Appendix 6

SAFEGUARDS ANALYSIS OF SUBPROJECTS VISITED BY ADB MISSION A. M/S Rising Bhadla 1 & 2 [solar] 1. The Rising Bhadla 1 and Rising Bhadla 2 subprojects each involve the construction and commissioning of 70 MW Solar PV Power Projects at Bhadla Solar Park Phase II, in village Bhadla, Tehsil Phalodi, Jodhpur District in the state of Rajasthan, India. Both these subprojects are located adjacent to each other on plots of 140 hectares—located approximate 68.2 km from Phalodi, the second largest town in the District and is also the sub-divisional headquarter, and about 227 km from Jodhpur.

1. Initial environment and social safeguards due diligence 2. Prior to IREDA’s loan sanctioning, the Rising Bhadla 11 and Rising Bhadla 22 subprojects prepared nearly identical ESIA reports, both submitted in October 2016, covering several social and environmental issues, e.g. water availability, waste water treatment and disposal, construction-related disturbances (minor excavation and leveling, hauling, cutting and drilling, erection of concrete and steel structures, road construction, etc.), air impacts, noise impacts, traffic congestion etc. With respect to involuntary resettlement safeguards, both projects summarized potential risks relating to labor influx as stress on infrastructure and effects on social fabrics of the areas surrounding the project. Some activities that could result in economic displacement were identified, namely labor influx of and construction of temporary work camps. These risks were deemed ‘insignificant’ due to their short duration as well as dur to requirements placed on the location of construction camps within project premises, which were to be to be situated in areas acquired for the project and located at least 500 m from highly populated areas, water bodies, natural flow paths, agricultural lands, important ecological habitats and residential areas. 3. Main mitigation measures were defined in the ESIA’s ‘Labour Deployment and Labour Camp Management Plan’, which committed to tent encampments for outstation laborers, separate accommodation and sanitation arrangements for women, and special provisions for camp water access. The ESIA also identified a need to monitor diseases corresponding to labor influx via regular health screening labors and surrounding populations via mobile health care facilities. The ESIA committed the developer to improving the infrastructure of the area such as roads, schools, hospitals, etc. With respect to impacts on land, following the construction phase, temporarily modified areas to be totally removed during the operation stage to similar or better conditions than prior to construction. 4. To help manage its environmental and social safeguards, IREDA agreed—under the project—to establish an Environment & Social Management Cell (ESMC) at corporate and site levels. The ESMC coordinates and implements all environmental and social activities. During implementation, the ESMC addresses the occurrence of new and significant impacts resulting

1 M/s Gensol Engineering Pvt. Ltd. 2016. Environmental & Social Impact Assessment Report for 70 MW Solar PV

Project at Bhadla Solar Park, Jodhpur District, Rajasthan [Rising Bhadla 1 Pvt. Ltd]. Gujarat: Rising Sun Energy Private Limited. [Hereinafter ‘Rising Bhadla 1, 2016 – ESIA’.]; and 2M/s Gensol Engineering Pvt. Ltd. 2016. Environmental & Social Impact Assessment Report for 70 MW Solar PV Project at Bhadla Solar Park, Jodhpur District, Rajasthan [Rising Bhadla 2 Pvt. Ltd]. Gujarat: Rising Sun Energy Private Limited. [Hereinafter ‘Rising Bhadla 2, 2016 – ESIA’.]

Appendix 6 39

from project activities and integrating sound mitigation measures into the EMP, as well as manage environmental, social and safety issues identified during project screening. The ESMC to include a safeguard specialist and supporting staff. The ESIA also called for the project to establish a Grievance Redressal Mechanism (GRM).

2. Sub-project loan agreements 5. The November 2016 sanction letters for Rising Bhadla 13 and Rising Bhadla 24 loan underwriting each state under its general terms and compliance conditions that the sub-project company must provide Environmental Impact Assessment (EIA), Social Impact Assessment (SIA) and also Environmental Management Plan (EMP) and SMP if and as required by IREDA. As described above, the subproject company had already prepared and submitted and ESIA to IREDA in October 2016. 6. With regard to social safeguard issues, the minutes of the IREDA Board Meeting to sanction and underwrite the loans for both Rising Bhadla 1 and Rising Bhadla 2 each noted that the project was not anticipated as involving significant social impacts and framing anticipated impacts as employment opportunities for the skilled / unskilled local inhabitants. As part of pre-sanction inspection, an official [ATO-TS] visited the project site on 27 October 2016 and observed that the project land was barren and that no displacement was envisaged. Land-levelling activities had yet to commence, and bush clearing/ grass cutting was under progress at site. The Pooling Substation of RRECL, located at approximately 300 meters from the proposed switchyards, was expected to be commissioned by end of the following month. Bitumen Approach Road and Internal Road had been constructed. Water pipeline for module cleaning purpose had been laid.

3. Safeguards implementation after loan sanctioning 7. In a July 2017 draft safeguards due diligence report to ADB regarding the Bhadla 1 and 2 subprojects5 IREDA noted that is Environmental and Social Safeguards Unit (ESSU) was function with a designated officer at the level of Asst. General Manager, a compliance officer, and one full-time environmental and social safeguards officer. The ESSU was performing safeguard due

3 IREDA. 2016. “Underwriting of a Term Loan of Rs. 33,885.00 Lakhs (with a hold portion of Rs.20,000 Lakhs) to M/s.

RISING BHADLA 1 PVT.LTD. (RB1PL), for their 70.00 MW (87.50 MWp DC Capacity) Grid connected Solar PV project at Village Bhadla, Tehsil Phalodi, District Jodhpur, Rajasthan (Project No 2257). [November 9, 2016]” [hereinafter ‘IREDA 2016 RB1PL Sanction Letter’]. These terms are also included in the Board Decision: IREDA. 2016. Extracts of Minutes of the 282ND Meeting of the Board of Directors of IREDA Ltd. - To sanction & underwrite a term loan of 338.85 Crores (with a hold position of 200 Crores) to M/s. Rising Bhadla 1 Pvt. Ltd. (RB1PL) for their proposed 70 MW Solar Photovoltaic Grid Connected Power Project to be set up at Village Bhadla, Tehsil Phalodi, District Jodhpur, Rajasthan under National Solar Mission (NSM) Phase II, Batch II, Tranche I. [7 NOVEMBER, 2016] [hereinafter ‘IREDA 2016 RB1PL Board Decision’].

4 IREDA. 2016. “Underwriting of a Term Loan of Rs. 33,885.00 Lakhs (with a hold portion of Rs. 20,000 Lakhs) to M/s. RISING BHADLA 1 PVT.LTD. (RB2PL), for their 70.00 MW (87.50 MWp DC Capacity) Grid connected Solar PV project at Village Bhadla, Tehsil Phalodi, District Jodhpur, Rajasthan (Project No 2258). [November 9, 2016]” [hereinafter ‘IREDA 2016 RB2PL Sanction Letter’]. These terms are also included in the Board Decision: IREDA. 2016. Extracts of Minutes of the 282ND Meeting of the Board of Directors of IREDA Ltd. - To sanction & underwrite a term loan of 338.85 Crores (with a hold position of 200 Crores) to M/s. Rising Bhadla 2 Pvt. Ltd. (RB2PL) for their proposed 70 MW Solar Photovoltaic Grid Connected Power Project to be set up at Village Bhadla, Tehsil Phalodi, District Jodhpur, Rajasthan under National Solar Mission (NSM) Phase II, Batch II, Tranche I. [7 NOVEMBER, 2016] [hereinafter ‘IREDA 2016 RB2PL Board Decision’].

5 IREDA. 2017. Due Diligence Report on Environmental and Social Safeguards (TA 8397 IND: Clean Energy Investment Program) Subproject: Bhadla 1 -70MW and Bhadla 2- 70 MW Capacity Solar Power Project (s) at Bhadla Solar Park Phase II, Jodhpur District, Rajasthan State; and Subproject Developers: M/s Rising Bhadla 1 Private Limited & M/s Rising Bhadla 2 Private Limited (subsidiaries of M/s Rising Sun Energy Private Limited (RSEPL) [July 2017].

40 Appendix 6

diligence of the Bhadla 1 and 2 subprojects as they were being considered for financing through an ADB line of credit (LoC)—in accordance with the ESMS. On the basis of the review of (sub)project information and site observation, Social Safeguard Screening Checklists were completed and the subprojects were categorized as ‘Category-C’ for both Involuntary Resettlement and Indigenous Peoples as the subproject did not involve land acquisition or impacts on Indigenous Peoples. 8. IREDA’s December 2017 finalized social safeguards due diligence report (DDR)6 further noted that, under the ESMS, the following social safeguard requirements apply to the developer: carry out social impact assessment, to carry out consultations with local communities, to make a gender assessment, to disclose the social impact assessment and social management plan, and to establish grievance redressal mechanism. 9. Reviewing the Bhadla 1 and Bhadla 2, IREDA’s December 2017 finalized social safeguards DDR found that the developer has not done any formal consultation with the local communities under the subprojects, including during the preparation of the ESIA report. IREDA’s finalized social safeguards DDR also noted that no Grievance Redressal Committee (GRC) had been created at the subproject level as the subprojects did not involve any land acquisition, but that the developer had its own grievance redressal system by maintaining a complaint register at the site office, which had not received any complaints at the time of the DDR site visit. To comply with the ADB’s social protection measures, the IREDA recommended the following:

(i) Involve and employ local people in project construction and operation activities. (ii) Engage with local community through planning and implementation of CSR

activities. (iii) Disclose social management plan and CSR plan to the local communities. (iv) Adhere to national labor laws and regulations in managing health and safety of

workers. (v) Encourage employment of women in suitable jobs including unskilled labor during

operation and maintenance.

4. Analysis

10. The foregoing review of IREDA social safeguards performance during Bhadla 1 and Bhadla 2 subproject E&S screening, loan sanctioning, and implementation indicates that while IREDA is undertaking a compliance-oriented approach to safeguards implementation, there remains room for improvement in terms of quality assurance and risk mitigation. It should also be reiterated that the structure of ADB’s FI loan to IREDA is not designed in a manner conducive to assisting IREDA with social risk and impact identification and mitigation.

a. Land acquisition 11. At the time of IREDA Board Approval of Rising Bhadla 1 and Rising Bhadla 2, the subprojects were in the process of securing leasehold rights and registering them with the state of Rajasthan. As noted above, during pre-sanction inspection, an official visited the project site and observed that no displacement was envisaged.

6 IREDA. 2017. IND: Clean Energy Finance Investment Program - Tranche 1 [46268-002]; Subproject: 70 MW Solar

Photovoltaic Power Project at Bhadla Solar Park (Plot-1), (RBPL 1), 70 MW Solar Photovoltaic Power Project at Bhadla Solar Park (Plot-2), (RBPL 2) [December 2017].

Appendix 6 41

12. The PCR safeguards team notes that, while the project site may have been physically barren at the time of IREDA’s pre-sanction inspection, greater scrutiny of government claims that the land was previously uninhabited would have been merited. For example, routine satellite review suggests that lands may have been used for agriculture purposes prior to February 2014, after which land clearing activities are distinguishable.

b. Labor and Employment 13. The Rising Bhadla 1 and Rising Bhadla 2 subproject ESIA estimated potential benefits as increases in local employment opportunities that would result in a corresponding increase socioeconomic standards. ESIA also identified a potential need for unskilled labors during construction, estimated at an average 150 laborers for 6 months. The ESIA did not, however, provide a clear hiring plan preferring locals for unskilled job, nor did it define hiring quotas. Furthermore, the subproject ESIA did not undertake any detailed analysis of the potential for economic displacement induced by in-migrant workers arriving to the project area, such as analysis of the consequences of the boom-and-bust cycle for the local economy. The issues of subproject labor impacts—and the need to substantiate project assurances that these impacts would be beneficial to affected community members—was picked up to some extent in the December 2017 finalized social safeguards DDR. Specifically, the social safeguards DDR reported on the total number of local community members hired to support project operations, totaling 735 skilled and unskilled laborers.

42 Appendix 6

c. Indigenous peoples 14. The Rising Bhadla 1 and Rising Bhadla 2 subproject ESIA undertook no detailed review of Indigenous Peoples policy triggers or safeguards issues as they might apply to the project. The categorization of ‘Category C’ for Indigenous Peoples therefore appears to be predicated on the assumption that all affected people are of Rajasani ethnicity and part of the state mainstream. It should be noted, however, that Rajastan is home to numerous other castes and communities, some of which may trigger ADB’s IP policy criteria. Sub-project impact assessment documentation should therefore—at the very least identify—the ethnic composition of the project-affected community. Good practice would have been to seek to identify those people utilizing the land as recently as 2013, at which time small, non-titled farm operations appear to have been razed (refer to the above analysis of land acquisition issues).

d. Community participation and other social issues 15. The ESIA emphasized the importance of public consultation, participation and disclosure. In this context, the ESIA referenced the standard of Free, Prior and Informed Consultation, which notably differs from ADB’s provisions for consent based on Broad Community Support (BCS). It is notable that—as recounted above—IREDA’s December 2017 finalized social safeguards DDR found that the developer has not done any formal consultation with the local communities under the subproject, despite ESIA provisions. While this finding reflects adequate oversight by IREDA in identifying the issue, it is unclear to ADB’s PCR safeguards team whether there was follow up. Given that the project involved rapid construction of vast solar arrays—entirely surrounding at least one village (see images below)—the lack of adequate community consultation constitutes a potential safeguards-related risk.

e. Environment safeguards 16. As for the sub-project’s implementation of environmental, health and safety protocols, four safety officers were stationed at the site during the installation stage. No safeguards related incidents nor grievances were reported during this stage. Currently in operation, the Project Manager is acting as safety officer. Safety training is provided to staff at the site on a quarterly basis. To date, no incidents have been reported at the site. The nearest local hospital is about 25 km and a vehicle is available on site in case of medical emergencies. 17. SCADA provides real time status of components at the facility, and if there is an issue (e.g. equipment tripping), staff are alerted and goes to the concerned area within 5 minutes. Cleaning of panels is done daily using manually driven tractors with automatic sprinklers, with a low water pressure at 10–15 bar that is sufficient to clean the panels. Water is provided daily via

Appendix 6 43

tankers by the Public Health Electrical Department (PHED) and sourced from an off-site canal in the locality. 18. For the site’s waste management, burying (composting) is done for biodegradable wastes, and single-use plastic is banned on site. Oil spills in the transformer area are recovered for reuse. There is a secure (fenced and gated) stockyard at the site where scrap metal and similar wastes are segregated.

19. Seasonal adjustment of the solar panel angle (tilting) is done manually via sub-contractors. These subcontractors hire a mix of personnel from the Bhadla community, and from other localities in Rajasthan. About 10–15 personnel are required in the manual adjustment per table of solar panels, and over-all about 100 to 200 personnel are present during the tilting activity that lasts from 10 to 15 days in March (adjustment to 5°) and September (adjustment to 30°). During this period, safety officers are provided by each sub-contractor. 20. Sandstorm occurs at the site seasonally, the last one was in May–June 2019. Sandstorms typically last one day, with wind speed of about 20–40 kph. During sandstorms, staff stay indoors for protection. Staff also stay indoors during the hottest months when temperature reaches up to 50°C. 21. The project follows the local labor laws and strictly prohibits child labor on site. No females are subcontracted at the project site due to the nature of manual labor. 22. Tree planting (ornamental trees and shrubs) has been done around the MCR buildings as well as near the stockyard. 23. No complaint has been raised from the local community to date. Any complaints can be brought to the Project Manager and will be dealt with right away if possible. The land occupied by the project site is barren (i.e. uncultivated arid land with no settlers) owned by the government, so there was no land acquisition from private owners, nor any resettlement required.

24. IREDA staff has visited the site during pre-sanction and pre-disbursement stages of the subproject. Currently during operation, visits from IREDA are as needed particularly if there are generation gaps. 25. During the project completion Mission by ADB on 25 February 2020, the facility was observed to be well maintained and kept clean and orderly. Safety and emergency protocols and reminders were placed at key components, and PPE (e.g. hardhats) were used at the transformer area. However, safeguard documentation was not available on site such as site-specific environmental management plan and emergency action plan.

26. As it is assessed that the environmental risks at the site during operations is low and mainly related to the cleaning of solar panels and waste disposal, it is recommended that the sub-project continue its compliance to the EMP in this respect and to improve the documentation of environmental, health and safety monitoring on site. The subproject is encouraged to maintain regular communication and updating with IREDA, especially in case of unanticipated incidents or grievances, and IREDA to conduct more regular site visits (at least twice a year) to monitor the implementation of EMP at the site.

44 Appendix 6

B. M/S Orange Anantapur Wind Power Private Limited [wind] 27. The Orange Anantapur Wind Power subproject involves installation of 50 wind turbine generators (WTGs), each of MW capacity for a total capacity of 100 MW. The site is located in the northwest part of Anantapur District of Andhra Pradesh—situated across an area of 8 kms and spanning five villages of Uravakonda Mandal (Assembly Constituency): Amidyala, NImbagallu, Mopidi, Indravathi and Renumakulapalli. Orange Anantapur Wind Power Private Limited (ANPWPL) has contracted Gamesa Renewables to provide turnkey solutions for micro-siting, wind resource analysis, supply, erection, commissioning and operation & maintenance of the project WTGs.

1. Initial environment and social safeguards due diligence 28. Prior to IREDA’s loan sanctioning, IREDA received a document, `Project Information Memorandum for 100 MW Wind Power Project at Nimbagallu, Anantapur District, Andhra Pradesh Being Set Up by Orange Anantapur Wind Power Pvt Ltd’, which summarized key aspects of the subproject company and the proposed subproject’s technological design, land usage, and permitting requirements. This document noted that the developer, Gamesa Renewables, would be responsible for acquisition of the approximately 125 acres of private lands needed for the subproject, all of which were reported as being privately held.

2. Sub-project loan agreements 29. The November 2016 sanction letter7 for the Orange Anantapur loan underwriting stated under its conditions for availing of first disbursement that the sub-project company shall provide evidence that they have appointed a consultant/agency to carry out and ESIA [environmental and social impact assessment] study for the project to the satisfaction of IREDA, and that the final 5% loan disbursement would require the company to submit a copy of the ESIA report.

3. Safeguards implementation after loan sanctioning 30. In May 2016, IREDA received the final ESIA report for the Orange Anantapur Wind Project, recommending that the subproject be categorized as ‘Category B’ for environment safeguards following IFC guidelines.8 31. The ESIA identified that proposed project activity would require an area of 2.5–3.0 acres for each WTG, with a total of 160 acres estimated for WTGs, as well as 10 acres for the access road, and 10 acres for transmission lines. Additionally, 5–10 acres would be required for a storage yard and 10 acres for a pooling substation in Nimbagalu village—both of which would be common facilities for other upcoming wind farms in the region. ESIA analysis concluded that that subproject would not involve any involuntary resettlement, as land could be acquired via voluntary transactions (i.e., market transactions in which the seller is not obliged to sell and the buyer cannot resort to expropriation or other compulsory procedures if negotiations fail). The ESIA also reported that all lands to be acquired by the project were farming lands used for rain-fed agriculture that went unutilized for part of the year and which were absent of structures or settlements. Lands to

7 IREDA. 2015. Sanction of a Term Loan of RS. 200 Cr. To M/s. Anantapur Wind Power Pvt. Ltd. toward part financing

of their 100 MW Wind Farm Project (50 Nos. of 2000 KW each Gamesa make WEGs) to be set up at village limits of Amidyala, Nimbagallu, Mopidi, Indravathi, Renimakulapali, Tehsil Uravakonda, District Anantpur in the state of Andhra Pradesh (Project No. 2152).

8 Kosher Climate India Private Limited. Environment and Social Impact Assessment for 100 MW Wind Power Project in Nimbagallu. 2016.

Appendix 6 45

be acquired would be distributed across several individual landowners, who were reported as owning large land areas, of which the portions to be acquired by the subproject were not significant. ESIA analysis therefore further concluded the subproject would have limited adverse impacts to agricultural production, as crop yields in the region are very low and sparse vegetation is available for grazing for cattle and livestock. The ESIA also acknowledge risks and benefits of migrant labor influx—while noting that the proposed subproject itself was not planning to engage unskilled migrant labor. 32. To mitigate potential adverse effects of land acquisition, the ESIA provided that subproject lands would not be purchased from small/marginal landholders and that land sellers would receive counseling on how to best utilize compensation. The ESIA also provided that preference in subproject employment would be given to families who sold land, subject to their suitability for the job, and that resources for the project would be procures from local sources to encourage more employment in supply chains. To decrease impacts on agriculture, only the central area comprising of the wind turbine generator and transformer would be fenced. The ESIA provided that the details of transmission lines and access roads to the WTGs would be discussed with affected families and the community, and that the subproject would implement a community grievance redress mechanism for receiving any project-related issue, including complaints about compensation. To mitigate risks for cultural conflicts and to avoid migration of labor from far off places, the ESIA noted that civil works would be handled by contractors from Anantapur or nearby regions. 33. With regard to potential subproject impacts to Indigenous Peoples, the ESIA noted that no indigenous communities, tribes, ethnic minorities, aboriginals etc, were identified in the project area or its surroundings. The ESIA concluded that Scheduled Tribe (ST) populations as classified by Government of India do not qualify as indigenous peoples, as they are integrated with mainstream populations; share the same local customs, traditions, and social and legal structures; speak the same dialects; and are equally dependent on the surrounding natural resources as the general population. The also ESIA noted that the population of Scheduled Tribes communities in the region is extremely limited (94 of 18002 people, or 0.005%). The ESIA noted that land acquisition may impact Indigenous Peoples by result in loss of job for agricultural laborers but assessed these impacts to be insignificant. 34. In August 2016, IREDA submitted to ADB a Due Diligence Report (DDR) on Environmental Safeguards.9 The 2016 Environment DDR reviewed much of the ESIA findings and reiterated the project categorization as ‘Category B’ following IFC guidelines. The 2016 Environment DDR also conveyed to ADB the subproject’s ‘Rapid Environmental Assessment (REA) Checklist’, which identified no need for involuntary resettlement and no expected impacts on Indigenous Peoples and noted that these issues were being assessed separated by social specialists. A September 2016 Update to this DDR10 added further discussion of social issues and adjusted some analysis to further align with ADB’s 2009 SPS. The September 2016 Updated DDR noted that the subproject is categorized as ‘Category-C’ for both Involuntary Resettlement and Indigenous Peoples. The September 2016 Updated DDR confirmed that land purchase did

9 Orange Anantapur Wind Power Pvt Ltd. 2016. Due Diligence Report on Environmental Safeguards (TA 8397 IND –

Clean Energy Investment Program). Subproject: 100MW Wind Power Project at Nimbagallu, Anantapur District, Andhra Pradesh [August 2016].

10 Orange Anantapur Wind Power Pvt Ltd. 2016. Due Diligence Report on Environmental & Social Safeguards (TA 8397 IND – Clean Energy Investment Program). Subproject: 100MW Wind Power Project at Nimbagallu, Anantapur District, Andhra Pradesh [September 2016]. Subproject Developer: Orange Anantapur Wind Power Pvt Ltd (Subsidiary of Orange Renewable Power Private Limited). SEPTEMBER 2016

(August 2016 version updated with compliance to ADB review comments)

46 Appendix 6

not involve small and marginal farmers and that subproject lands were distance from settlement areas. The September 2016 Updated DDR noted that local villagers, including women, were engaged as laborers. The September 2016 Updated DDR also confirmed that no indigenous people were present in the subproject-affected villages and none of the land purchased for the subproject belongs to Scheduled Tribes communities. Finally, the DDR observed that a GRM complaint register was available in the subproject site office, but that no complaints had been registered. The 2016 Updated DDR concluded that no further actions with respect to involuntary resettlement or Indigenous Peoples safeguards were required

4. Analysis

a. Land acquisition 35. IREDA provided oversight of subproject land acquisition activities. The subproject proponent appears to have adequately prepared the project to avoid land acquisition issues.

b. Labor and Employment 36. The subproject proponent ESIA identified some risks with respect to economic displacement (migrant labor influx) and noted some mitigation measures. This is an area where further analysis may be merited, given that claims for the subproject’s potential for benefiting the local economy and project supply chains may be over-estimated. Overall, the project appears to have been scoped to avoid displacement-related risks.

c. Indigenous peoples 37. Information provided in the ESIA and DDR indicates that the subproject conclusion that no indigenous communities, tribes, ethnic minorities, aboriginals etc, were identified in the project area or its surroundings. The ESIA concluded that Scheduled Tribe (ST) populations as classified by Government of India do not qualify as indigenous peoples, as they are integrated with mainstream populations; share the same local customs, traditions, and social and legal structures; speak the same dialects; and are equally dependent on the surrounding natural resources as the general population.

d. Environment safeguards 38. During the project completion Mission by ADB on 28 February 2020, it was confirmed that an over-all HSE manager together with three safety officers are assigned at the site to implement and monitor the environment, health and safety protocols. For minor incidents, the safety officers can provide first aid, but in case of major medical incidents, a vehicle is available to bring personnel to a hospital in Anantapur. Up to 5 ambulances are available for the site and nearby community. 39. An online portal is used at the facility to log and report HSE matters. So far, no major incidents have occurred, but there are near misses and unsafe acts reported and immediately dealt with by the safety officers. “Train the trainers” are provided to the HSE staff at the site. 40. Noise monitoring is done monthly and included in the report submitted to IREDA. So far, there are no complaints regarding shadow flicker from the turbines as the local community is situated away from the turbines (check the distance).

Appendix 6 47

41. Security patrolling is done 24/7 via shifts for the 150 wind turbines at the site. A monthly inspection and review are done by the HSE staff. So far, no bird strikes have been reported. 42. No complaints from the nearby local community has been received. There is a grievance redress procedure in place, and the site personnel conduct consultation with the local community every six months to know about their issues, but none raised to date. 43. Maintenance is done semi-annually and annually which includes checking of the electrical parts, lubrication, and oil replacement, among others. 44. Water is not required for the operation of the wind turbines and used only in the substation buildings in which water is sourced from a bore well. There is a septic tank for wastewater, as well as drainage in place for rainwater at the substation area. 45. IREDA conducts quarterly visits at the site, while the state government (DISCOMS) conducts monthly visits. 46. The corporate social responsibility (CSR) activities being done by the sub-project for the local community are as follows:

- Education: Books and sports kits were provided to government schools. - Healthcare: Health and sanitation awareness were provided to the project workforce as

well as the local community including school children. General medical care and eye care (cataract operation, provision of spectacles) were also provided to the local community.

- Environment: Environmental awareness and orientation about the project was conducted for the local community. Tree plantation at the project site and at the nearby community was done with about 30,000 trees planted.

- Skills Development / Livelihood: Training for local people for demand-driven courses were provided (bike mechanic, mobile phone mechanic, beautician, tailor).

- Rural Development: Social and resource mapping was conducted, and public toilets and water filtration was provided to the local community.

47. These CSR activities are supported by the state administration, and the information and updates are included in the reports to IREDA. 48. No female personnel are hired at the site due to the nature of the labor as well as cultural norms observed in the community. 49. The HSE report is submitted monthly by the site team to their corporate office, and every six months a monitoring report is submitted by the corporate office to IREDA. Any urgent or emergency matters at the site are reported immediately to the corporate office. 50. During the site visit, the facility (substation grounds) was observed to be well maintained and kept clean and orderly. All visitors were immediately escorted to the office for the safety induction and provided with note cards with safety protocols and emergency numbers, aside from the PPE mentioned above. Safety protocols were also observed during the visit to one wind turbine. 51. It is noted that the site personnel who met the Mission are not aware of a fatal incident reported in the due diligence report prepared for the ADB FI loan approval. The incident occurred in 2015 during construction prior to commissioning, so the staff currently assigned at the site were

48 Appendix 6

not yet onboard at the time of the incident. Although no major incident (accident, injury or fatality) has occurred at the site while currently in operation, it is recommended that the details of this incident be shared to the site personnel for learning and maintaining best compliance to HSE protocols. C. Development Impact

52. The Clean Energy Investment Program [3186] has clearly contributed to IREDA internalization of the need for quality environmental and social due diligence. IREDA has established an internal E&S cell that is requiring environmental and social screening of projects above the requirements of national law. The project appears to be selecting projects that are scoped to avoid and minimize safeguard risks, and due diligence of investments is identifying issues for follow-up action or otherwise verifying the adequacy of risk and impact assessment. At the same time, ADB appears to be providing considerable resources to support IREDA’s safeguards activities, and the extent to which IREDA is preparing to fully internalize these responsibilities is uncertain. 53. It should also be noted that, if evaluated on the technical merits of the investment design with respect to environmental and social safeguards (as opposed to the quality of implementation), the development impact of this FI is low. That is, the structure of the FI agreement effectively means that there is no mandate on IREDA to apply ADB standards. D. Recommendations

(i) Revise the ESMS to extend the application of safeguard provisions also to Category B projects to better align with Loan Agreement provisions.

(ii) Refine process for IREDA loan sanctioning to ensure that adequate analysis of safeguards issues occurs prior to Board decision and issuance of Sanction Letters.

(iii) Ensure that project safeguards classification and ADB clearance occur prior to Board decision and issuance of Sanction Letters.

(iv) Extend further training to IREDA staff for analyzing subproject safeguards.

E. Further Action or Follow-up 54. ADB will need to follow up with IREDA to ensure that adequate staff have been recruited in the environmental and social safeguards units. It is also advisable for IREDA to formalize its pool of consultants, and to arrange for staff and consultant training in ADB safeguard policy compliance as well as training in good international and industry practice in risk and impact assessment and mitigation. It is recommended that semi-annual submission of ESMR during pre-construction or construction stage, and annual submission during operation stage since environmental risks would be less likely during operation and land acquisition and resettlement would have been completed by then. The subprojects should also monitor the positive development impact to the affected communities. A thorough gap analysis between the latest version of the ESMS (uploaded on IREDA’s website) and the ADB SPS 2009 must be done prior to Tranche 2 approval for improved clarity and consistency of the screening and categorization requirements. In terms of safeguard reporting, it is recommended that IREDA update its ESMR format to include more details on monitoring parameters, grievance redress and corrective actions, especially if the subproject is at the pre-construction or construction stage at the time of loan approval

Appendix 6 49

Table A6: Subproject summary of Environmental and Social categorization Subproject Environmental

category Involuntary

Resettlement category

Indigenous People

category

Rising Bhadla 1 Private Limited

C C C


C C C

Chattel Constructions Private Limited

B C C

Azure Clean Energy Private Limited

B C C

SSJ Power Projects and Infrastructure Private Limited

C C C

Hiraco Renewable Energy

B C C

Orange Anantapur Wind

B C C

Orange Urvankonda Wind Power

B C C

Etesian Urja Limited

B C C

Source: IREDA. 2019. Environmental and Social Monitoring Report. New Delhi.

50 Appendix 7

SUBPROJECT VISIT PHOTOS

1. Rising Bhadla 1 and Rising Bhadla 2. The following pictures were taken during the site visit on 25 February 2020.

2. Orange Anantapur Wind Power Private Limited. The following pictures were taken during the site visit on 28 February 2020.

Appendix 8 51

METHODOLOGY FOR THE COMPUTATION OF ECONOMIC INTERNAL RATE OF RETURN 1. Introduction. Economic internal rate of return (EIRR) is the rate for which the present value of net economic benefits equal to zero. The feasibility of the project will be based on the EIRR at 12%, the economic opportunity cost of capital. The analysis of the subprojects is taken at two points: (i) at project appraisal, and (ii) and at completion. 2. Guidelines used. The economic analysis follows ADB's Guidelines for the Economic Analysis of Projects.1 Economic costs and benefits were estimated by comparing the with and without project scenarios. Project costs included the cost of capital and operations and maintenance. Benefits include incremental, non-incremental, and environmental benefits. Inputs on the subproject were obtained from Indian Renewable Energy Development Agency. 2 A. Economic Costs

3. Project cost. The financial cost of capital and operations and maintenance (and other costs) were converted to economic costs by (i) excluding taxes, subsidies, interest payments, price contingencies; and (ii) multiplying non-traded inputs with the Standard Conversion Factor (SCF-0.90 at appraisal and 0.96 at completion). IREDA has confirmed that traded costs are applicable to the imported modular equipment, while the remaining project costs are domestic (non-traded).

Table A8.1: Project Costs ($‘000)

Subproject Project Cost at Appraisal

Economic Cost at

Appraisal

Actual Project Cost at the end of

Tranche 1

Economic Cost at

the end of Tranche 1 Traded

Costs Non-

traded Costs

SCF Traded Costs

Non-traded Costs

SCF

Solar


- 59,182 0.90 53,263 - 59,011 0.96 56,651


- 57,296 0.90 51,566 - 59,015 0.96 56,654

Chattel Constructions Private Limited

- 39,203 0.90 35,282 - 38,526 0.96 36,985

Azure Clean Energy Private Limited

19,436 16,032 0.90 33,865 n.a. n.a. 0.96 n.a.


2,894 1,956 0.90 4,655 n.a. n.a. 0.96 n.a.

Hiraco Renewable Energy

14,355 17,019 0.90 29,672 - - 0.96 -

Wind

Orange Anantapur Wind

7,133 94,177 0.90 91,892 46,845 48,186 0.96 93,104

1 https://www.adb.org/sites/default/files/institutional-document/32256/economic-analysis-projects.pdf. 2 Even if the subprojects reviewed at appraisal was different from the actual subprojects funded, assumptions used

for the solar and wind models were used without amendments. However, there are differences in the financial costs: initial project cost and operations and maintenance assumptions.

https://www.adb.org/sites/default/files/institutional-document/32256/economic-analysis-projects.pdf

52 Appendix 8

Subproject Project Cost at Appraisal

Economic Cost at

Appraisal

Actual Project Cost at the end of

Tranche 1

Economic Cost at

the end of Tranche 1 Traded

Costs Non-

traded Costs

SCF Traded Costs

Non-traded Costs

SCF

Power Private Limited

Orange Urvakonda Wind Power Private Limited

- 98,286 0.90 88,457 n.a. n.a. 0.96 n.a.

Etesian Urja Limited

- 56,781 0.90 51,103 n.a. n.a. 0.96 n.a.

n a. = not available Source: IREDA and ADB.

4. Operating and maintenance (O&M) cost. The components of the annual operating cost- annual operations and maintenance cost3 and insurance, were converted into economic terms by (i) applying the world price numeraire, and (ii) identifying traded and non-traded costs. The SCF used for appraisal and at the end of tranche 1 were approximately the same. Most costs were deemed non-traded based on confirmation as being domestically sourced by IREDA. The SCF removed the effect of taxes, subsidies and other distortions that affect the value of non-traded costs. The O&M cost sensitivity rate switch was fixed at 1 to represent the base case. Since the actual figures are already available, sensitivity analysis is no longer required. B. Economic Benefits

5. The variables used to calculate the annual economic benefits of the project are the subproject’s capacity in megawatts, plant load factor, standard conversion factor, and value of economic benefit (based on displaced energy type). The plant load factor at appraisal is based on the projected average plant load factor while at the end of Project 1, it is based on the actual annual plant load factor. The subprojects’ capacities did not change from appraisal to the end of Project 1. 6. Changes to incremental benefits assumptions. Components of the annual economic benefits that would change from the appraisal assumptions are (i) the weight applied for incremental benefits based on the energy mix, and (ii) economic cost of coal. During the appraisal stage, solar projects are weighted at 100% while wind projects were assumed 0% for incremental benefits. For the PCR, it is assumed that all energy outputs or generation were non-traded. Thus, (i) the market price for solar and wind projects were considered as a proxy of the willingness to pay, instead of coal, and, (ii) the weight applied should reflect the unique demand from each subproject’s state, and so, the incremental and non-incremental benefit weights were changed to reflect the power mix of each state. The willingness to pay price for solar projects dropped from ₹28.06 per kilowatt hour FY20104 to ₹2.44 per kilowatt hour at FY2017. The willingness to pay

3 Operations and maintenance cost at appraisal are based on the operations and maintenance contract. Nature and

quality of the contract are not assessed and may not be signed during IREDA’s review. The contract has a fixed O&M amount at the beginning of the project and an annual escalation cost throughout the project’s life.

4 International Renewable Energy Agency. 2020. Renewable Power Generations Costs in 2019. Abu Dhabi. https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019#:~:text=More%20than%20half%20of%20the,cost%20trends%20for%20renewables%20accelerating.

https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019#:~:text=More%20than%20half%20of%20the,cost%20trends%20for%20renewables%20accelerating.

https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019#:~:text=More%20than%20half%20of%20the,cost%20trends%20for%20renewables%20accelerating.

Appendix 8 53

price for wind projects was at ₹2.82 FY2019 from ₹2.44 FY2018.5 Prices were based on the winning tariffs in the auctions held by the Solar Energy Corporation of India. 7. Changes to non-incremental benefits assumptions. Non-incremental output is the electricity supply that will replace the most expensive alternatives. It is valued using resource cost savings. The most expensive power generation is from diesel at ₹23.13 per kilowatt hour, which was assumed as the resource cost savings.6 Weights for non-incremental benefit depends on the power mix of the state the project site is located. 8. Environmental. The greenhouse gas (GHG) reduction is based on the additional renewable energy generated through this project that is assumed to displace carbon-intensive alternatives. The global social cost of carbon of $36.30 per CO2 ton was applied to each subprojects CO2 avoided figures. The CO2 figures were based on the actual power generated in megawatt hours per year throughout tranche 1 and multiplied by India’s grid emission standard factor.7

Table A8.2: Summary of economic internal rates of return (%)

Subproject Sector At Appraisal End of Project 1

Rising Bhadla 1 Private Limited Solar 14.48 13.70

Rising Bhadla 2 Private Limited Solar 14.68 12.96

Chattel Constructions Private Limited Solar 4.52 1.98

Azure Clean Energy Private Limited Solar 11.46 Not available


Solar 7.78 Not available

Hiraco Renewable Energy Solar 3.71 Not available

Orange Anantapur Wind Wind 12.12 12.42

Orange Urvankonda Wind Power Wind 18.83 Not available

Etesian Urja Limited Wind 20.87 Not available

Table A8.3: Rising Bhadla 1 at Appraisal

($ million)

At Appraisal ($ million)

Year Capital Cost

O&M Cost

Total Cost

Non-Incremental

Benefits Incremental

Benefits Environmental

Benefits Net

Benefits

2017 -53.26 -0.01 -53.27 2.45 2.34 2.54 -45.94

2018 0 -0.44 -0.44 2.45 2.34 2.54 6.89

2019 0 -0.46 -0.46 2.23 2.36 2.59 6.72

2020 0 -0.49 -0.49 2.23 2.36 2.64 6.75

2021 0 -0.51 -0.51 2.23 2.36 2.70 6.78

2022 0 -0.54 -0.54 2.23 2.36 2.75 6.81

2023 0 -0.56 -0.56 2.23 2.36 2.81 6.83

2024 0 -0.59 -0.59 2.23 2.36 2.86 6.86

2025 0 -0.62 -0.62 2.23 2.36 2.92 6.89

2026 0 -0.65 -0.65 2.23 2.36 2.98 6.92

5 Fitch Solutions. 2020. India Renewables Report Q1 2020. London. https://store.fitchsolutions.com/all-products/india-

renewables-report 6 The Economic Times. Diesel price in India. (accessed on 9 July 2020)

https://economictimes.indiatimes.com/wealth/fuel-price/diesel 7 Government of India Ministry of Power. Central Electrical Authority. 2018. CO2 Baseline Database for the Indian

Power Sector. New Delhi. http://www.cea.nic.in/reports/others/thermal/tpece/cdm_co2/user_guide_ver13.pdf

https://store.fitchsolutions.com/all-products/india-renewables-report

https://store.fitchsolutions.com/all-products/india-renewables-report

https://economictimes.indiatimes.com/wealth/fuel-price/diesel

http://www.cea.nic.in/reports/others/thermal/tpece/cdm_co2/user_guide_ver13.pdf

54 Appendix 8


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2027 0 -0.68 -0.68 2.23 2.36 3.04 6.95

2028 0 -0.71 -0.71 2.23 2.36 3.10 6.98

2029 0 -0.75 -0.75 2.23 2.36 3.16 7.00

2030 0 -0.78 -0.78 2.23 2.36 3.22 7.03

2031 0 -0.82 -0.82 2.23 2.36 3.29 7.06

2032 0 -0.86 -0.86 2.23 2.36 3.35 7.08

2033 0 -0.90 -0.90 2.23 2.36 3.42 7.11

2034 0 -0.95 -0.95 2.23 2.36 3.49 7.13

2035 0 -0.99 -0.99 2.23 2.36 3.56 7.16

2036 0 -1.04 -1.04 2.23 2.36 3.63 7.18

2037 0 -1.09 -1.09 2.23 2.36 3.70 7.20

2038 0 -1.15 -1.15 2.23 2.36 3.78 7.22

2039 0 -1.20 -1.20 2.23 2.36 3.85 7.24

2040 0 -1.26 -1.26 2.23 2.36 3.93 7.26

2041 0 -1.32 -1.32 2.23 2.36 4.01 7.27

2042 0 -1.39 -1.39 2.23 2.36 4.09 7.29

EIRR

14.48%

EIRR = economic internal rate of return, O&M = operating and maintenance. Source: Indian Renewable Energy Development Agency Limited.

Table A8.4: Rising Bhadla 1 at the End of Operations End of Tranche ($ million)

End of Project 1 ($ million)

Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2017 -56.65 0.00 -56.65 2.54 0.61 3.94 -49.56

2018 0 -0.43 -0.43 2.54 0.61 3.94 6.66

2019 0 -0.45 -0.45 2.57 0.61 4.02 6.75

2020 0 -0.47 -0.47 2.57 0.61 4.10 6.81

2021 0 -0.49 -0.49 2.57 0.61 4.18 6.87

2022 0 -0.52 -0.52 2.57 0.61 4.26 6.93

2023 0 -0.54 -0.54 2.57 0.61 4.35 6.99

2024 0 -0.56 -0.56 2.57 0.61 4.44 7.06

2025 0 -0.59 -0.59 2.57 0.61 4.52 7.12

2026 0 -0.61 -0.61 2.57 0.61 4.61 7.18

2027 0 -0.64 -0.64 2.57 0.61 4.71 7.25

2028 0 -0.67 -0.67 2.57 0.61 4.80 7.31

2029 0 -0.70 -0.70 2.57 0.61 4.90 7.38

2030 0 -0.73 -0.73 2.57 0.61 4.99 7.44

2031 0 -0.77 -0.77 2.57 0.61 5.09 7.51

2032 0 -0.80 -0.80 2.57 0.61 5.20 7.58

2033 0 -0.84 -0.84 2.57 0.61 5.30 7.64

2034 0 -0.88 -0.88 2.57 0.61 5.41 7.71

2035 0 -0.92 -0.92 2.57 0.61 5.51 7.78

Appendix 8 55


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2036 0 -0.96 -0.96 2.57 0.61 5.62 7.84

2037 0 -1.01 -1.01 2.57 0.61 5.74 7.91

2038 0 -1.06 -1.06 2.57 0.61 5.85 7.98

2039 0 -1.11 -1.11 2.57 0.61 5.97 8.04

2040 0 -1.16 -1.16 2.57 0.61 6.09 8.11

2041 0 -1.22 -1.22 2.57 0.61 6.21 8.18

2042 0 -1.27 -1.27 2.57 0.61 6.33 8.24

EIRR

13.70%


Table A8.5: Rising Bhadla 2 at Appraisal ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2017 -51.57 0.00 -51.57 2.47 2.32

-46.79

2018 0 -0.44 -0.44 2.49 2.34 2.54 6.93

2019 0 -0.46 -0.46 2.49 2.34 2.59 6.96

2020 0 -0.49 -0.49 2.49 2.34 2.64 6.99

2021 0 -0.51 -0.51 2.49 2.34 2.70 7.02

2022 0 -0.54 -0.54 2.49 2.34 2.75 7.05

2023 0 -0.56 -0.56 2.49 2.34 2.81 7.08

2024 0 -0.59 -0.59 2.49 2.34 2.86 7.11

2025 0 -0.62 -0.62 2.49 2.34 2.92 7.14

2026 0 -0.65 -0.65 2.49 2.34 2.98 7.17

2027 0 -0.68 -0.68 2.49 2.34 3.04 7.19

2028 0 -0.71 -0.71 2.49 2.34 3.10 7.22

2029 0 -0.75 -0.75 2.49 2.34 3.16 7.25

2030 0 -0.78 -0.78 2.49 2.34 3.22 7.28

2031 0 -0.82 -0.82 2.49 2.34 3.29 7.30

2032 0 -0.86 -0.86 2.49 2.34 3.35 7.33

2033 0 -0.90 -0.90 2.49 2.34 3.42 7.35

2034 0 -0.95 -0.95 2.49 2.34 3.49 7.38

2035 0 -0.99 -0.99 2.49 2.34 3.56 7.40

2036 0 -1.04 -1.04 2.49 2.34 3.63 7.42

2037 0 -1.09 -1.09 2.49 2.34 3.70 7.44

2038 0 -1.15 -1.15 2.49 2.34 3.78 7.46

2039 0 -1.20 -1.20 2.49 2.34 3.85 7.48

2040 0 -1.26 -1.26 2.49 2.34 3.93 7.50

2041 0 -1.32 -1.32 2.49 2.34 4.01 7.52

2042 0 -1.39 -1.39 2.49 2.34 4.09 7.53

EIRR

14.68%


56 Appendix 8

Table A8.6: Rising Bhadla 2 at the End of Operations ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2017 -56.65 0.00 -56.65 2.56 0.60 3.66 -49.84

2018 0 -0.43 -0.43 2.56 0.60 3.66 6.39

2019 0 -0.45 -0.45 2.59 0.61 3.73 6.47

2020 0 -0.47 -0.47 2.59 0.61 3.80 6.53

2021 0 -0.49 -0.49 2.59 0.61 3.88 6.58

2022 0 -0.51 -0.51 2.59 0.61 3.96 6.64

2023 0 -0.53 -0.53 2.59 0.61 4.04 6.70

2024 0 -0.56 -0.56 2.59 0.61 4.12 6.75

2025 0 -0.58 -0.58 2.59 0.61 4.20 6.81

2026 0 -0.61 -0.61 2.59 0.61 4.28 6.87

2027 0 -0.64 -0.64 2.59 0.61 4.37 6.92

2028 0 -0.67 -0.67 2.59 0.61 4.46 6.98

2029 0 -0.70 -0.70 2.59 0.61 4.55 7.04

2030 0 -0.73 -0.73 2.59 0.61 4.64 7.10

2031 0 -0.76 -0.76 2.59 0.61 4.73 7.16

2032 0 -0.80 -0.80 2.59 0.61 4.82 7.22

2033 0 -0.84 -0.84 2.59 0.61 4.92 7.28

2034 0 -0.88 -0.88 2.59 0.61 5.02 7.34

2035 0 -0.92 -0.92 2.59 0.61 5.12 7.40

2036 0 -0.96 -0.96 2.59 0.61 5.22 7.45

2037 0 -1.01 -1.01 2.59 0.61 5.33 7.51

2038 0 -1.05 -1.05 2.59 0.61 5.43 7.57

2039 0 -1.10 -1.10 2.59 0.61 5.54 7.63

2040 0 -1.16 -1.16 2.59 0.61 5.65 7.69

2041 0 -1.21 -1.21 2.59 0.61 5.76 7.75

2042 0 -1.27 -1.27 2.59 0.61 5.88 7.80

EIRR

12.96%


Table A8.7: Orange Anantapur Wind at Appraisal ($ million)


Year Capital

Cost O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2016 -91.89 -0.59 -92.48 1.50 0.117 1.45 -89.42

2017 0 -1.21 -1.21 5.99 0.47 5.79 11.04

2018 0 -0.62 -0.62 5.99 0.47 5.91 11.74

2019 0 -1.33 -1.33 5.99 0.47 6.03 11.15

2020 0 -1.40 -1.40 5.99 0.47 6.15 11.20

Appendix 8 57


Year Capital

Cost O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2021 0 -1.47 -1.47 5.99 0.47 6.27 11.26

2022 0 -1.54 -1.54 5.99 0.47 6.39 11.31

2023 0 -1.62 -1.62 5.99 0.47 6.52 11.36

2024 0 -1.70 -1.70 5.99 0.47 6.65 11.41

2025 0 -1.79 -1.79 5.99 0.47 6.79 11.46

2026 0 -1.88 -1.88 5.99 0.47 6.92 11.50

2027 0 -1.97 -1.97 5.99 0.47 7.06 11.55

2028 0 -2.07 -2.07 5.99 0.47 7.20 11.59

2029 0 -2.17 -2.17 5.99 0.47 7.35 11.63

2030 0 -2.28 -2.28 5.99 0.47 7.49 11.67

2031 0 -2.40 -2.40 5.99 0.47 7.64 11.70

2032 0 -2.51 -2.51 5.99 0.47 7.80 11.74

2033 0 -2.64 -2.64 5.99 0.47 7.95 11.77

2034 0 -2.77 -2.77 5.99 0.47 8.11 11.79

2035 0 -2.91 -2.91 5.99 0.47 8.27 11.82

2036 0 -3.06 -3.06 5.99 0.47 8.44 11.84

2037 0 -3.21 -3.21 5.99 0.47 8.61 11.85

2038 0 -3.37 -3.37 5.99 0.47 8.78 11.87

2039 0 -3.54 -3.54 5.99 0.47 8.95 11.87

2040 0 -3.72 -3.72 5.99 0.47 9.13 11.87

2041 0 -3.90 -3.90 5.99 0.47 9.32 11.87

2042 0 -4.10 -4.10 4.49 0.47 9.50 10.37

EIRR 12.12%


Table A8.8: Orange Anantapur Wind at the End of Operations End of Tranche 1 ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2016 -93.10 -0.01 -93.12 1.11 0.216 1.45 -90.34

2016 0 -0.14 -0.14 4.44 0.86 5.79 10.96

2017 0 -0.14 -0.14 4.44 0.86 5.91 11.07

2018 0 -0.14 -0.14 4.44 0.86 6.03 11.18

2019 0 -0.15 -0.15 4.44 0.86 6.15 11.29

2020 0 -0.16 -0.16 4.44 0.86 6.27 11.41

2021 0 -0.17 -0.17 4.44 0.86 6.39 11.53

2022 0 -0.18 -0.18 4.44 0.86 6.52 11.65

2023 0 -0.19 -0.19 4.44 0.86 6.65 11.77

2024 0 -0.19 -0.19 4.44 0.86 6.79 11.89

2025 0 -0.20 -0.20 4.44 0.86 6.92 12.02

2026 0 -0.21 -0.21 4.44 0.86 7.06 12.15

2027 0 -0.23 -0.23 4.44 0.86 7.20 12.28

2028 0 -0.24 -0.24 4.44 0.86 7.35 12.41

58 Appendix 8


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2029 0 -0.25 -0.25 4.44 0.86 7.49 12.54

2030 0 -0.22 -0.22 4.44 0.86 7.64 12.72

2031 0 -0.22 -0.22 4.44 0.86 7.80 12.87

2032 0 -0.22 -0.22 4.44 0.86 7.95 13.03

2033 0 -0.22 -0.22 4.44 0.86 8.11 13.19

2034 0 -0.22 -0.22 4.44 0.86 8.27 13.35

2035 0 -0.22 -0.22 4.44 0.86 8.44 13.51

2036 0 -0.22 -0.22 4.44 0.86 8.61 13.68

2037 0 -0.22 -0.22 4.44 0.86 8.78 13.86

2038 0 -0.22 -0.22 4.44 0.86 8.95 14.03

2039 0 -0.22 -0.22 4.44 0.86 9.13 14.21

2040 0 -0.22 -0.22 4.44 0.86 9.32 14.39

2041 0 -0.22 -0.22 3.33 0.65 9.50 13.25

EIRR 12.42%


Table A8.9: Orange Urvankonda Wind Power at Appraisal ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2016 -88.46 -88.46 -88.46

2017 0 0.00 0.00 5.61 0.44 10.98 17.03

2018 0 0.00 0.00 5.61 0.44 11.20 17.25

2019 0 -1.46 -1.46 5.61 0.44 11.42 16.01

2020 0 -1.53 -1.53 5.61 0.44 11.65 16.17

2021 0 -1.61 -1.61 5.61 0.44 11.88 16.32

2022 0 -1.69 -1.69 5.61 0.44 12.12 16.48

2023 0 -1.78 -1.78 5.61 0.44 12.36 16.64

2024 0 -1.86 -1.86 5.61 0.44 12.61 16.80

2025 0 -1.96 -1.96 5.61 0.44 12.86 16.96

2026 0 -2.06 -2.06 5.61 0.44 13.12 17.12

2027 0 -2.16 -2.16 5.61 0.44 13.38 17.28

2028 0 -2.27 -2.27 5.61 0.44 13.65 17.43

2029 0 -2.38 -2.38 5.61 0.44 13.92 17.59

2030 0 -2.50 -2.50 5.61 0.44 14.20 17.75

2031 0 -2.62 -2.62 5.61 0.44 14.48 17.91

2032 0 -2.76 -2.76 5.61 0.44 14.77 18.07

2033 0 -2.89 -2.89 5.61 0.44 15.07 18.23

2034 0 -3.04 -3.04 5.61 0.44 15.37 18.39

2035 0 -3.19 -3.19 5.61 0.44 15.68 18.54

2036 0 -3.35 -3.35 5.61 0.44 15.99 18.70

2037 0 -3.52 -3.52 5.61 0.44 16.31 18.85

2038 0 -3.69 -3.69 5.61 0.44 16.64 19.00

Appendix 8 59


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2039 0 -3.88 -3.88 5.61 0.44 16.97 19.15

2040 0 -4.07 -4.07 5.61 0.44 17.31 19.29

2041 0 -4.27 -4.27 5.61 0.44 17.66 19.43

EIRR 18.83%


Table A8.10: Etesian Urja Limited at Appraisal ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2017 -51.10 -0.02 -51.12 2.55 0.244 5.45 -42.89

2018 0 -0.03 -0.03 3.40 0.33 5.55 9.25

2019 0 -0.81 -0.81 3.40 0.33 5.66 8.58

2020 0 -0.84 -0.84 3.40 0.33 5.78 8.66

2021 0 -0.88 -0.88 3.40 0.33 5.89 8.74

2022 0 -0.91 -0.91 3.40 0.33 6.01 8.83

2023 0 -0.95 -0.95 3.40 0.33 6.13 8.91

2024 0 -0.98 -0.98 3.40 0.33 6.25 9.00

2025 0 -1.02 -1.02 3.40 0.33 6.38 9.09

2026 0 -1.06 -1.06 3.40 0.33 6.51 9.17

2027 0 -1.10 -1.10 3.40 0.33 6.64 9.26

2028 0 -1.14 -1.14 3.40 0.33 6.77 9.35

2029 0 -1.19 -1.19 3.40 0.33 6.91 9.44

2030 0 -1.23 -1.23 3.40 0.33 7.04 9.53

2031 0 -1.28 -1.28 3.40 0.33 7.18 9.63

2032 0 -1.33 -1.33 3.40 0.33 7.33 9.72

2033 0 -1.39 -1.39 3.40 0.33 7.47 9.81

2034 0 -1.44 -1.44 3.40 0.33 7.62 9.91

2035 0 -1.50 -1.50 3.40 0.33 7.78 10.01

2036 0 -1.55 -1.55 3.40 0.33 7.93 10.10

2037 0 -1.62 -1.62 3.40 0.33 8.09 10.20

2038 0 -1.68 -1.68 3.40 0.33 8.25 10.30

2039 0 -1.75 -1.75 3.40 0.33 8.42 10.40

2040 0 -1.81 -1.81 3.40 0.33 8.59 10.50

2041 0 -1.89 -1.89 3.40 0.33 8.76 10.60

2042 0 -1.96 -1.96 3.40 0.33 8.93 10.70

2043 0 -2.04 -2.04 0.85 0.08 9.11 8.01

EIRR

20.87%


60 Appendix 8

Table A8.11: Chattel Constructions Private Limited at Appraisal

($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2015 -35.28 -0.19 -35.47 0.89 0.43 0.91 -33.23

2016 0 -0.19 -0.19 0.90 0.44 0.93 2.08

2017 0 -0.20 -0.20 0.90 0.44 0.94 2.09

2018 0 -0.20 -0.20 0.90 0.44 0.96 2.11

2019 0 -0.20 -0.20 0.90 0.44 0.98 2.12

2020 0 -0.21 -0.21 0.90 0.44 1.00 2.14

2021 0 -0.21 -0.21 0.90 0.44 1.02 2.15

2022 0 -0.21 -0.21 0.90 0.44 1.04 2.17

2023 0 -0.22 -0.22 0.90 0.44 1.06 2.19

2024 0 -0.22 -0.22 0.90 0.44 1.08 2.21

2025 0 -0.22 -0.22 0.90 0.44 1.11 2.22

2026 0 -0.23 -0.23 0.90 0.44 1.13 2.24

2027 0 -0.23 -0.23 0.90 0.44 1.15 2.26

2028 0 -0.24 -0.24 0.90 0.44 1.17 2.28

2029 0 -0.24 -0.24 0.90 0.44 1.20 2.30

2030 0 -0.24 -0.24 0.90 0.44 1.22 2.32

2031 0 -0.25 -0.25 0.90 0.44 1.25 2.34

2032 0 -0.25 -0.25 0.90 0.44 1.27 2.36

2033 0 -0.26 -0.26 0.90 0.44 1.30 2.38

2034 0 -0.26 -0.26 0.90 0.44 1.32 2.40

2035 0 -0.26 -0.26 0.90 0.44 1.35 2.42

2036 0 -0.27 -0.27 0.90 0.44 1.38 2.45

2037 0 -0.27 -0.27 0.90 0.44 1.40 2.47

2038 0 -0.28 -0.28 0.90 0.44 1.43 2.49

2039 0 -0.28 -0.28 0.90 0.44 1.46 2.52

2040 0 -0.29 -0.29 0.90 0.44 1.49 2.54

EIRR

4.52%

Table A8.12: Chattel Constructions Private Limited at the End of Operations ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2015 -36.99 -0.19 -37.17 0.90 0.11 0.83 -35.33

2016 0 -0.20 -0.20 0.91 0.11 0.85 1.67

2017 0 -0.19 -0.19 0.85 0.10 0.87 1.62

2018 0 -0.18 -0.18 0.77 0.09 0.89 1.56

2019 0 -0.17 -0.17 0.78 0.09 0.90 1.61

2020 0 -0.18 -0.18 0.84 0.10 0.92 1.69

Appendix 8 61


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2021 0 -0.18 -0.18 0.84 0.10 0.94 1.71

2022 0 -0.18 -0.18 0.84 0.10 0.96 1.72

2023 0 -0.19 -0.19 0.84 0.10 0.98 1.74

2024 0 -0.19 -0.19 0.84 0.10 1.00 1.76

2025 0 -0.19 -0.19 0.84 0.10 1.02 1.77

2026 0 -0.20 -0.20 0.84 0.10 1.04 1.79

2027 0 -0.20 -0.20 0.84 0.10 1.06 1.80

2028 0 -0.21 -0.21 0.84 0.10 1.08 1.82

2029 0 -0.21 -0.21 0.84 0.10 1.10 1.84

2030 0 -0.21 -0.21 0.84 0.10 1.12 1.86

2031 0 -0.22 -0.22 0.84 0.10 1.15 1.88

2032 0 -0.22 -0.22 0.84 0.10 1.17 1.89

2033 0 -0.23 -0.23 0.84 0.10 1.19 1.91

2034 0 -0.23 -0.23 0.84 0.10 1.22 1.93

2035 0 -0.24 -0.24 0.84 0.10 1.24 1.95

2036 0 -0.24 -0.24 0.84 0.10 1.27 1.97

2037 0 -0.25 -0.25 0.84 0.10 1.29 1.99

2038 0 -0.25 -0.25 0.84 0.10 1.32 2.01

2039 0 -0.26 -0.26 0.84 0.10 1.34 2.03

2040 0 -0.26 -0.26 0.84 0.10 1.37 2.06

EIRR

1.98%

Table A8.13: Azure Clean Energy Private Limited at Appraisal

($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2015 -33.87

-33.87 1.14 1.10 1.45 -30.18

2016 0 -0.15 -0.15 1.15 1.10 1.45 3.55

2017 0 -0.16 -0.16 1.15 1.10 1.48 3.57

2018 0 -0.17 -0.17 1.15 1.10 1.51 3.59

2019 0 -0.18 -0.18 1.15 1.10 1.54 3.61

2020 0 -0.18 -0.18 1.15 1.10 1.57 3.64

2021 0 -0.19 -0.19 1.15 1.10 1.60 3.66

2022 0 -0.20 -0.20 1.15 1.10 1.64 3.68

2023 0 -0.21 -0.21 1.15 1.10 1.67 3.70

2024 0 -0.22 -0.22 1.15 1.10 1.70 3.73

2025 0 -0.24 -0.24 1.15 1.10 1.74 3.75

2026 0 -0.25 -0.25 1.15 1.10 1.77 3.77

2027 0 -0.26 -0.26 1.15 1.10 1.81 3.79

2028 0 -0.27 -0.27 1.15 1.10 1.84 3.82

2029 0 -0.29 -0.29 1.15 1.10 1.88 3.84

2030 0 -0.30 -0.30 1.15 1.10 1.92 3.86

2031 0 -0.32 -0.32 1.15 1.10 1.95 3.89

62 Appendix 8


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2032 0 -0.33 -0.33 1.15 1.10 1.99 3.91

2033 0 -0.35 -0.35 1.15 1.10 2.03 3.93

2034 0 -0.36 -0.36 1.15 1.10 2.07 3.96

2035 0 -0.38 -0.38 1.15 1.10 2.12 3.98

2036 0 -0.40 -0.40 1.15 1.10 2.16 4.00

2037 0 -0.42 -0.42 1.15 1.10 2.20 4.03

2038 0 -0.44 -0.44 1.15 1.10 2.24 4.05

2039 0 -0.47 -0.47 1.15 1.10 2.29 4.07

2040 0 -0.49 -0.49 1.15 1.10 2.34 4.10

EIRR

11.46%

Table A8.14: SSJ Power Projects and Infrastructure Private Limited at Appraisal ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2014 -4.65 -0.01 -4.66 0.03 0.02 0.17 -4.44

2015 0 -0.03 -0.03 0.16 0.13 0.17 0.43

2016 0 -0.03 -0.03 0.17 0.13 0.17 0.44

2017 0 -0.03 -0.03 0.17 0.13 0.18 0.44

2018 0 -0.04 -0.04 0.17 0.13 0.18 0.44

2019 0 -0.04 -0.04 0.17 0.13 0.18 0.44

2020 0 -0.04 -0.04 0.17 0.13 0.19 0.44

2021 0 -0.04 -0.04 0.17 0.13 0.19 0.44

2022 0 -0.04 -0.04 0.17 0.13 0.20 0.45

2023 0 -0.04 -0.04 0.17 0.13 0.20 0.45

2024 0 -0.05 -0.05 0.17 0.13 0.20 0.45

2025 0 -0.05 -0.05 0.17 0.13 0.21 0.45

2026 0 -0.05 -0.05 0.17 0.13 0.21 0.45

2027 0 -0.05 -0.05 0.17 0.13 0.22 0.46

2028 0 -0.06 -0.06 0.17 0.13 0.22 0.46

2029 0 -0.06 -0.06 0.17 0.13 0.22 0.46

2030 0 -0.06 -0.06 0.17 0.13 0.23 0.46

2031 0 -0.07 -0.07 0.17 0.13 0.23 0.46

2032 0 -0.07 -0.07 0.17 0.13 0.24 0.46

2033 0 -0.07 -0.07 0.17 0.13 0.24 0.46

2034 0 -0.06 -0.06 0.14 0.11 0.25 0.43

EIRR

7.78

Appendix 8 63

Table A8.15: Hiraco Renewable Energy at Appraisal ($ million)


Year Capital Cost

O&M Cost

Total Cost

Non-Incremental



Benefits Net

Benefits

2016 -29.67 -0.08 -29.75 0.48 0.23 0.67 -28.37

2017 0 -0.12 -0.12 0.73 0.35 0.68 1.64

2018 0 -0.13 -0.13 0.73 0.35 0.69 1.66

2019 0 -0.13 -0.13 0.73 0.35 0.71 1.67

2020 0 -0.13 -0.13 0.73 0.35 0.72 1.68

2021 0 -0.13 -0.13 0.73 0.35 0.74 1.69

2022 0 -0.14 -0.14 0.73 0.35 0.75 1.70

2023 0 -0.14 -0.14 0.73 0.35 0.77 1.71

2024 0 -0.14 -0.14 0.73 0.35 0.78 1.73

2025 0 -0.14 -0.14 0.73 0.35 0.80 1.74

2026 0 -0.15 -0.15 0.73 0.35 0.81 1.75

2027 0 -0.15 -0.15 0.73 0.35 0.83 1.77

2028 0 -0.15 -0.15 0.73 0.35 0.85 1.78

2029 0 -0.16 -0.16 0.73 0.35 0.86 1.79

2030 0 -0.16 -0.16 0.73 0.35 0.88 1.81

2031 0 -0.16 -0.16 0.73 0.35 0.90 1.82

2032 0 -0.17 -0.17 0.73 0.35 0.92 1.84

2033 0 -0.17 -0.17 0.73 0.35 0.94 1.85

2034 0 -0.17 -0.17 0.73 0.35 0.95 1.87

2035 0 -0.18 -0.18 0.73 0.35 0.97 1.88

2036 0 -0.18 -0.18 0.73 0.35 0.99 1.90

2037 0 -0.18 -0.18 0.73 0.35 1.01 1.91

2038 0 -0.19 -0.19 0.73 0.35 1.03 1.93

2039 0 -0.19 -0.19 0.73 0.35 1.05 1.95

2040 0 -0.20 -0.20 0.73 0.35 1.07 1.97

2041 0 -0.07 -0.07 0.24 0.12 1.10 1.39

EIRR

3.71%

64 Appendix 9

TECHNICAL ASSISTANCE

1. TA funding. The TA of $1 million was to be financed up to $750,000 on a grant basis by the Asian Clean Energy Fund under the Clean Energy Financing Partnership Facility for Capacity Building of IREDA while counterpart support was to be provided by IREDA in the form of staff, office accommodation, office supplies, secretarial assistance, domestic transportation, and other in-kind contributions. The value of IREDA’s contribution was anticipated at 25% of the total TA cost. The TA was to be administered by ADB while IREDA was to be the EA of the TA. The above TA became effective on 11 July 2016 before it was delegated to ADB’s India Resident Mission (INRM) effective 11 September 2017. 2. Progress of TA to date. As of 25 May 2018, out of the TA amount of $750,000, $509,420 has been contracted and $215,696 has been disbursed. Five consultants had been recruited in the categories of (i) strategy consultant and team leader (international), (ii) financial management consultant (international), (iii) environment safeguard consultant (national), (iv) social safeguard consultant (national), and (v) project administration consultant (national). 3. The financial management consultant’s (international) contract had been financially closed on 3 April 2018 based on contract termination request from the consultant. The EA had requested to hire a financial management expert with local presence which was achieved through a minor variation to the TA on 11 June 2018. In addition, three national consultants were recruited in the areas of financial management, human resources and project management as a result of strategic initiatives proposed by the strategy consultant. The areas were identified as areas of priority by IREDA to (i) improve operational performance over the long-term, (ii) meet international best practices in renewable energy finance, and (iii) fulfil project implementation and compliance requirements of international lenders. 4. In a request for a further minor change in scope to the contract in 1 November 2019, permission was requested to recruit five individual national consultants on an intermittent working modality: (i) consultant for establishment of alternate investment fund, (ii) consultant to guide asset-backed securitization, (iii) legal consultant (iv) tax consultant, and (v) project completion report consultant. As a result, a first extension to the original TA completion date of 31 December 2019 was approved. The consultants were recruited and commenced work in January 2020. However, due to the coronavirus disease lockdown the earlier scheduled extension until August 2020 had to be extended to 30 November 2020. 5. Operational capacity improvement. At the time of this report, IREDA’s operational capacity was being improved through the TA. The Financial Management Consultant has helped to draft the asset and liability management (ALM) and treasury risk management, FX risk management policies. The reports are to be incorporated into the management information system of IREDA. The HR Consultant’s reports were evaluated by IREDA in December 2019. The Project Management Consultant will help oversee and coordinate the implementation with selected vendor for a new information technology platform and will arrange and train the IREDA staff to build capacity. Four contracts under the TA have been closed financially. The amount contracted stands at 68% and the uncontracted amount will be available for the recruitment of further consultants.

Documents

46268-002: Clean Energy Finance Investment Program – Tranche 1 · Completion Report Project Number: 46268-002 Loan Number: 3186 September 2020 India: Clean Energy Finance Investment