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No. F.11(570)/ DERC/2010-11/C.F. No.2293/ 21.06.2010

To,

The Chief Executive Officer

M/s. BSES Yamuna Power Ltd.,

Shakti Kiran Building,

Karkardooma,

New Delhi – 110 092.

Sub.: Factual position vis-a-vis representation given by you to the GoNCTD on

03.05.2010 – Confirmation of excellent financial position of your company by

Financial Institutions (Lenders).

Sir,

We have received your letter no. RCM/10-11/96 dated 01.06.2010 on the above-

mentioned subject in response to our letter dated 28.05.2010 communicating the

factual position vis-a-vis representation given by you to the GoNCTD.

2. It may be recalled that vide letter 28.05.2010, you were requested to let us know

the discrepancies, if any, in the figures in the audited accounts or in the report of the

Credit Rating Agency. However, in your reply dated 01.06.2010 you have not pointed

out any discrepancies and have thus confirmed that the financial position as reflected

in the audited accounts and the report of the Credit Rating Agency is correct. I also find

that in your reply you have merely reiterated the position mentioned by you in your

representation to GoNCTD.

3. In the representation to the GoNCTD you had emphasised the critical financial

health of your company, mentioning that the Lender’s covenants [Debt Equity Ratio

(DER) and Debt Service Coverage Ratio (DSCR)] have been severely breached. Based

on your audited accounts and report of the Credit Rating Agency, the correct Debt

Equity Ratio and Debt Service Coverage Ratio have already been mentioned in our

letter dated 28.05.2010, showing very clearly that both DER & DSCR shown by you in

your representation to GoNCTD were not correct at all. This is further supported from

the facts that you have been regularly submitting correct DER & DSCR to your Lenders

which are different from the DER & DSCR mentioned in the Annexure to the

representation to GoNCTD. This is again proved from the fact that the Banks have been

continuously sanctioning loans to all three DISCOMs and in some cases the sanction

letters of the Banks have mentioned Debt Equity Ratio also on different dates. For

example: In case of BYPL, in the sanction letter dated 27.08.2009 (copy enclosed) of

State Bank of Patiala the Debt Equity Ratio of the company has been shown at 2.37

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against requirement of not more than 2.33. Such ratio has been calculated not by us

but by the Banks sanctioning the loan. It is also seen from the sanction letters that being

impressed by the financial health of your company, the sanctioning Bank like State

Bank of Hyderabad has given 50% concession in upfront fee, which is again a

recognition by the Bank of the reliable financial health of your company. You will

appreciate that financial covenants on any particular date will always remain constant

and same and, therefore, it is appropriate if the same covenants are given in all forums,

be it Government, DERC or Lenders. However, this was not found to be true as no

Lender (Banks as well as other Financial Institutions) has so far reported any breach of

financial covenants even though they monitor your DER & DSCR regularly. On the

contrary, they keep on sanctioning new loans based on your excellent covenants.

4. The loan sanction letters issued to you by several Banks also support the above-

mentioned facts wherein they have mentioned the method and formula of calculating

DER and DSCR also and based on this the financial health of your company is again

seen as excellent, completely negating your representation saying breach of financial

covenants. Besides this, we also noticed that very recently BSES Rajdhani Power Ltd.

has been sanctioned Term Loan of Rs. 150 crores by the Indian Bank on 02.06.2010. A

copy of the sanction letter is enclosed herewith. This is the latest loan sanction letter for

a DISCOM received in the Commission wherein the financial covenants for the Borrower

have been mentioned as under:

“(a) The Borrower shall maintain a minimum Fixed Asset Cover of 1.10 times

during the tenor of the Term Loan. FACR shall be calculated as per the

following formula: [(Fixed Assets) divided by {Total Term Loan (TTL)}].

(b) During the tenor of the Term Loan, the adjusted Debt Service Coverage

Ratio (DSCR) to be minimum of 1.10 times. DSCR shall be calculated as per

the following formula: [(Total Cash available) divided by (Debt Servicing

Requirement)]

Fixed Assets means the net book value of Fixed Assets (determined from the latest

financial statements excluding revaluation reserves) including capital work in

progress.

TTL shall be defined as the sum of all term debt including senior debt, sub-debt,

lease obligation and unsecured debt other than promoters’ unsecured loans (to

the extent of undertaking for non-interest bearing, non-repayable during tenor of

Bank’s loan).

Total Cash Available: It will be calculated as per the following formula:-

PAT + Depreciation + Interest – Accounted Regulatory Asset + Debt Drawdown +

Equity Infusion – Capital Expenditure – Increase in Working Capital + Opening Cash

Balance + Consumer contribution for Capital Works + Consumer Security Deposits +

Cash Credit (WC Loan) + Movement in reserves

Debt Servicing Requirement shall include all interest expenses,

commitment/guarantee fees, principal repayments and Lease Rentals in respect of

debt/liabilities contracted and shall include interest on working capital borrowing.”

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5. The latest sanction letter of the above-mentioned Bank may be taken as

standard for calculating FACR and DSCR. Based on the above-mentioned formula, we

have calculated FACR and DSCR of all three DISCOMs on the basis of audited

accounts as on 31.03.2010. The result is as under:

FACR and DSCR of DISCOMs as on 31.03.2010

(in Rs. Crores)

Particulars NDPL BRPL BYPL

Net Fixed Assets (incl. CWIP) 2364.01 2784.21 1558.07

Loan Funds excluding Working Capital loans 1321.77 2643.86 1531.09

FACR ( required minimum of 1.10:1) 1.79 1.05 1.02

Profit after Tax 357.79 186.61 76.85

Add: Depreciation 111.02 132.55 80.48

Add: Interest 94.73 275.46 155.67

Add: Debt Drawdown (Cl.Debt+Repayment-Opening Debt)except WC 624 890.08 580.13

Equity Infusion 0 0 0

Less: Capital Expenditure (Cl.Gross Block-Op.Gross Block+ -432.1 -298.51 -176.16

including CWIP)

Less: Increase in Working Capital -22.54 -153.49 5.25

Add: Opening Cash Balance 48.92 27.23 15.37

Add: Consumer Contribution as on 31/03/2010 246.21 386.49 169.7

Add: Consumer Security Deposit as on 31/03/2010 239.72 311.12 187.08

Add: Cash credit (WC Loan) as on 31/03/2010 109.15 294.67 104.89

Add: Movement in Reserve 357.8 -0.91 17.35

Total Cash Available* 1734.7 2051.3 1216.61

Interest Expenses 94.73 275.46 155.67

Loan Repayment as per Representation 110.18 302 182.00

Total Debt Servicing Requirement 204.91 577.46 337.67

DSCR (required minimum of 1.10:1) 8.47 3.55 3.60

* There is no Regulatory Asset in the Tariff Order issued by the Commission. Regulatory Asset has

been defined in Clause 5.42 of MYT Regulations and has to be created by the Regulatory

Commission in the Tariff Order only if there is large variation on account of uncontrollable items,

“and if it is not feasible to recover in one year alone, the Commission may take a view to create

a Regulatory Asset, as per the guidelines provided in Clause 8.2.2 of the National Tariff Policy.”

The Commission has not taken any such view .It is, therefore, inappropriate for you to show an

imaginary figure of Rs. 262.55 crores as Regulatory Asset.

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6. We have also gone through the sanction letters/loan agreements issued by

different Banks in last one year to NDPL, BRPL and BYPL and find that almost similar

formulae of DSCR have been mentioned. By any standard formula FACR and DSCR

remains more than 1.10. No Bank or Financial Institution has ever recognised Revenue

gap, proposed to be absorbed in the subsequent year as per the Tariff Order as a

Regulatory Asset for the purpose of DER or DSCR. You will appreciate that DSCR of 3.60,

being more than required minimum of 1.10, shows that there is no financial emergency

or cash crunch and financial covenants have been never breached.

7. You will appreciate that the position of financial covenants as mentioned above

and earlier in the letter dated 28.05.2010 are based only on the documents of the

Banks, Credit Rating Agencies and your own audited accounts. We have not taken

any figures from any other source. The good financial health of your company is a

matter of appreciation indicating the success of Power Sector Reforms in Delhi. In such

a situation it is really surprising as to why there is a need for you to show the financial

health of your company in a bad light which is contrary to the factual position.

Yours faithfully,

Sd/-

(A. K. Singh)

Director (Tariff)

Encls:

1. Sanction letter of Indian Bank dated 02.06.2010 in case of BRPL containing the

formulae of FACR and DSCR;

2. Letter dated 27.08.2009 of State Bank of Patiala showing DER;

3. Letter dated 22.09.2009 of State Bank of Hyderabad showing concession in

upfront fee.