Financing Energy Sector

Requirements, Challenges and Opportunities

Jagannatha Kumar,
CFO, Reliance Petroleum Ltd.

July 2006

RIL’s Existing Refinery At Jamnagar, Gujarat

Contents

Financing Requirements for Energy Sector

Key Challenges in Financing

Sources of Finance

Key Requirements

RPL - A case Study

www.ril.com 2
Contents

Financing Requirements for Energy Sector

Key Challenges in Financing

Sources of Finance

Key Requirements

RPL - A case Study

www.ril.com 3
 Increase in World Energy – Production and Consumption

1971-2000 2001-2030

Almost all the increase in production will occur outside OECD

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Source :IEA 4
 Energy Investment by Region 2001-2030

More than $ 16 Trillion ($550 bn/ year) needs to be invested

in Energy Supply infrastructure till 2030. India needs average
investment of USD ~25 Bn per annum
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Source : IEA 5
 World Energy Investment 2001-2030

Except for electricity, production accounts for majority of investment

in supply chain
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Source : IEA 6
Energy investment share in GDP 2001-2030

Much higher share of GDP in developing countries than in OECD

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 Energy Investment and Domestic Savings

Challenge is to channel some of the domestic savings to

investments in Energy sector
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Source :IEA 8
Contents

Financing Requirements for Energy Sector

Key Challenges in Financing

Sources of Finance

Key Requirements

RPL - A case Study

www.ril.com 9
Financing- Challenges

 Pressure on Public Sources

 Limitations of Private Investments
 Availability of Institutional Finance:
– Bankability of Projects
– Risk Appetite of Banks/FI
– Exposure Norms
 Sector caps and
 Company/Group caps

Need to Diversify
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Contents

Financing Requirements for Energy Sector

Key Challenges in Financing

Sources of Finance

Key Requirements

RPL - A case Study

www.ril.com 11
Sources Of finance

 Need to tap all possible sources of finance.

– Promoter and Market Equity (Availability of funds,
expectations of returns, cost of servicing)
– Domestic Banks and FIs (Lack of depth, Exposure Norms,
cost of borrowing)
– Domestic Bond Market (Under developed, lack of depth)
– Offshore debt (Exchange risk, Political/Regulatory risks,
Lack of appetite for longer tenors)

Need to have proper balance of various sources

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Contents

Financing Requirements for Energy Sector

Key Challenges in Financing

Sources of Finance

Key Requirements

RPL - A case Study

www.ril.com 13
Key requirements to get finance

 Stable regulatory framework

 Robust Business Model
 Resourceful Promoters with adequate experience and
financial strength
 Optimum Debt Equity Mix
 Competitive Costs
 Optimum Size
 Risk Allocation amongst various parties
Need to have a well structured project
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Contents

Financing Requirements for Energy Sector

Key Challenges in Financing

Sources of Finance

Key Requirements

RPL - A case Study

www.ril.com 15
RPL: Key Strengths
Strong Promoters
– India’s only private sector company in Fortune Global 500
Low capital costs
– Amongst lowest both in terms of $/bbl as well as $/complexity bbl
Global size and scale
– Will be amongst Top-10 refineries globally
Superior complexity
– Nelson Complexity Index of ~14
Robust Business Model
– Wide feedstock and product options and positive GRM outlook

Well structured project meeting requirements of various

parties
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Results So Far…………

 Entire Equity Raised Including by way of Pre IPO placement of

USD 600 Mn and Net Public Offer of USD 600 Mn.
 Chevron invested Rs 1350 Crores (~USD 300 mn) in the project
for 5% equity stake
 IPO generated demand for 23,050 Mn shares (~USD 32 Bn)
against offer size of 450 Mn shares
 QIB demand of over ~25 Bn including FII demand of ~USD 21
Bn;
 Over 1.4 Mn investors.

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Set New Benchmarks

RPL Prev. Best

Overall 290%
Subscription 51.22x 13.14x

QIB Demand USD 25.37 BN USD 10.69 BN 137%

Retail Demand USD 2.77 BN USD 1.07 BN 250%

# Applications 2.10 MM 1.45 MM 45%

Monies Collected USD ~7 BN USD 4.49 BN 39%

Note: (1) IPOs above USD 500 MM

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Summary

 Large investment requirements

 Limited availability of long term sources

 Need to attract investments from diverse sources

 Enabling investment framework is key requisite

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Thank You