FUTURE PFC Chairmans Speech

Ladies and Gentlemen,


It gives me great pleasure to welcome you all to the 31st Annual General Meeting of your Company.


Your Company is a lead financier in Indian power sector and is the largest Infrastructure Finance Company in the country based on net worth. As per DPE Survey (March, 2017), your company is the 7th highest profit making PSU among 320 PSUs based on profit for FY 2015-16. I would like to share with you some of the business highlights of FY 2016-17. For the first time, the annual loan sanctions crossed a figure of Rs,1,00,000 Crore during FY 2016-17, reflecting an increase of 55% from Rs,65,042 Crore achieved during the FY 2015-16. Annual disbursements of Rs.62,798 Crore in FY 2016-17 registered a growth of 35%, highest growth in a decade. Loan Assets too witnessed a positive growth despite Rs,28,400 Crore prepayments under UDAY. The Company borrowed Rs,66,800 Crore during the year, the highest ever in any financial year, at a competitive marginal cost of 7.47% which was below the REUTER''''s benchmark rates. During the FY 2016-17, your Company earned a net profit of Rs,2,126 Crore.


Your Company''''s profit and other financial parameters for FY 2016-17 were adversely impacted on account of transition from Ministry of Power (MoP) approved norms to RBI approved restructuring norms retrospectively. Earlier, PFC was following MOP approved restructuring norms for generation loans sanctioned before 1st April, 2015. However, in view of RBI''''s direction dated 11th April, 2017 regarding restructuring norms, PFC decided to align itself with RBI norms for generation loans sanctioned before 1st April, 2015 also and accordingly applied RBI norms retrospectively w.e.f. 1st April, 2015. As a result of this, loans worth Rs,23,309 Crore got downgraded to NPAs and loans amounting to Rs,35,995 Crore got downgraded to Restructured Assets. Thus, the total impacted loans are Rs,59,304 Crore. All these assets which were downgraded are generation projects and all are 100% government-owned companies. All these Companies have demonstrated 100% recovery rate in FY 2016-17 and none of these borrower accounts have ever been declared NPAs prior to this year.


Your Company does not see any stress in these loan assets affected due to RBI norms as they are likely to turn standard over next few years and provisions will start reversing from the second quarter of FY


2017-18. Out of the downgraded assets, about 80% of the recognized NPAs and 58% of the Restructured Assets are likely to get an upgrade in FY 2017-18 and FY 2018-19 respectively. We would like to reassure


our shareholders that your Company is making all efforts to ensure that these downgraded assets get an upgrade. I am happy to inform you that out of Rs,23,309 crore NPAs about Rs,11,000 crore have already got an upgrade w.e.f. 15th July, 2017.


After considering the above, the Domestic & International Credit Rating Agencies have retained your company''''s credit ratings (domestic highest ratings of AAA & international ratings at par with sovereign rating).


Overview of Economy


Indian economy is one of the fastest growing emerging market economies and remains a bright spot in the global landscape. The reduction in global oil prices boosted economic activity in India, further improved the external current account and fiscal positions, and helped in lowering inflation. In addition, continued fiscal consolidation, by reducing government deficits and debt accumulation, and an anti-inflationary monetary policy stance have helped cement macroeconomic stability.


The government has made significant progress on important economic reforms, which will support strong and sustainable growth going forward. In particular, introduction of Goods and Services Tax (GST) was a historic tax reform, which will create a common Indian market, improve tax compliance and governance, and boost investment and growth.


As per estimates of Central Statistics Office (CSO), economic growth rate for 2016-17 stands at 7.1%. According to World Bank, the Indian economy is expected to grow at 7.6% in 2017-18 and 7.8% in 2018-19. International credit rating agency Moody''''s has accorded the Government of India''''s Baa3 rating with a positive outlook stating that the reforms by the government will enable the country perform better compared to its peers over the medium term.


Overview of the Power Sector


In FY 2016-17, India has turned around from a net importer of electricity to net exporter of electricity exporting around 6,444 Million Units to Nepal, Bangladesh and Myanmar. The overall generation has increased from 1,174 BU during 2015-16 to 1,242 BU during 2016-17, showing an overall growth rate of 5.83%. The total capacity addition in the 12th Plan was 99,210 MW against a target of 88,537 MW. India''''s Installed Capacity was 3.26 GW as on 31st March 2017. The share of private sector in the total installed capacity was about 44%.


Coal continues to remain the most widely available and used fuel. Coal availability has improved dramatically over the past one year with abundant domestic coal production by CIL. In order to cut down on use of imported coal and ensuring adequate supply of fuel to the power plants awaiting fuel supply, Government of India launched a Scheme for Harnessing and Allocating of Koyala (coal) Transparently in India (SHAKTI). The scheme has been envisaged to make optimal allocation of the natural resource across power units. As per a research done by CRISIL, over the next 5 years, domestic non-coking coal supply to the power sector is expected to increase at a CAGR of 8-9% to 728 million tons in 2020-21.


In order to address the issues faced by the hydro projects, Government is planning to come up with a proactive hydro power policy to push stalled hydro projects and explore possibility of extending benefits for hydro projects up to 100 MW (existing 25 MW) as available to renewable projects like wind and solar projects.


India''''s inter-regional power transmission capacity stands at 75 GW as on March, 2017. Strengthening and expanding the regional and intra-state grids along with improved rural electrification is expected to lower the power purchase costs by making available surplus power at low rates and will also benefit power generators.


Distribution is a critical link in the power sector value chain. Keeping in view the weak financial position of the distribution companies, Government of India launched Ujwal DISCOM Assurance Yojana (UDAY) which aims to improve financial health of Discoms. The savings accrued to DISCOMs on account of interest benefits due to takeover & restructuring of loans work out to Rs,12,000 Crore approximately by December, 2016. Further, it is expected that ACS-ARR gap would narrow significantly by 2020-21 with implementation of UDAY scheme. At overall level, the gap has already reduced from 59 paisa per unit in FY 16 to about 45 paisa per unit in FY 17 (December, 2016). Additionally, two distribution schemes namely, IPDS & DDUGJY with total estimated outlay of Rs,1.41 Lakh Crore were launched by the Government of India for urban and rural areas respectively, with an intention of giving a push to distribution sector across the country. These schemes will surely strengthen the distribution sector to a great extent.


Other business highlights


1. PFC Consulting Limited


PFCCL is a wholly owned subsidiary of PFC and offers consultancy services in various areas of power sector. PFCCL rendered consultancy services to 57 clients spread across 23 States/UTs. 104 assignments have been undertaken so far. Additionally, PFCCL is also undertaking works relating to development of Ultra Mega Power Projects and is also acting as Bid Process Coordinator for Independent Transmission Projects.


During the FY 2016-17, total income of PFCCL was Rs,120.67 Crore as against Rs,73.55 Crore in FY 2015-16. PFCCL earned a net profit during of Rs,57.85 Crore during FY 2016-17 as against the net profit of Rs,37.06 Crore during FY 2015-16.


2. PFC Green Energy Limited


The Board of Directors of PFC GEL and PFC accorded its in-principle approval for merger of PFC GEL with PFC in their respective meetings held on July 18, 2016 and August 9, 2016 respectively. The merger process is currently under progress. Considering the proposed merger of the Company with its holding Company, it has disbursed Rs,283.51 Crore to various ongoing renewable energy projects already sanctioned by it. As on March 31, 2017, the Company has a loan portfolio of Rs,629.60 Crore.


During FY 2016-17, total revenue from operation grew by 67% to Rs,64.79 Crore from Rs,38.71 Crore in FY 2015-16 and Profit After Tax (PAT) grew by 33% to Rs,30.15 Crore from Rs,22.60 Crore in FY 2015-16.


3. PFC Capital Advisory Services Limited


Board of Directors of PFC approved merger of PFC Capital Advisory Services Ltd. (PFCCAS) with PFC Consulting Ltd. (PFCCL) subject to regulatory and other compliances. The process of merger is currently under progress.


During FY 2016-17, income from operations of PFCCAS was Rs,1.53 Crore while net profit after tax of the Company is Rs,1.06 Crore. PFCRs,s support for Ministry of Power, Government of India Schemes


1. Integrated Power Development Scheme (IPDS)


Your Company has been designated as the Nodal Agency for IPDS. Under the scheme, projects amounting of Rs,3,018 Crore have been sanctioned during FY 2016-17 and projects amounting to Rs,26,066 Crore have been sanctioned cumulatively. Your Company has also disbursed Rs,2,333 Crore during FY 2016-17 and Rs,2,660 Crore cumulatively to the State Utilities for projects sanctioned under IPDS.


R-APDRP (subsumed in IPDS)


Your Company sanctioned projects amounting to Rs,37,956 Crore cumulatively for 1,405 towns under Part-A IT, 72 towns under Part-A (SCADA) and 1,228 towns under Part-B of R-APDRP. Your Company also disbursed Rs,1,581 Crore during FY 2016-17 and Rs,10,187 Crore cumulatively to the State Utilities for projects sanctioned under R-APDRP.


The reduction in AT&C loss is already visible in 1024 R-APDRP towns (as per Post Go-Live reports) because of establishment of IT system and Part-B completion in various towns coupled with administrative and other measures. Thus, your Company shall be contributing towards improving financial health of Distribution Utilities.


2. Ultra Mega Power Projects (UMPPs)


PFC is designated as the ‘Nodal Agency'''' by Ministry of Power (MoP), Government of India, for development of Ultra Mega Power Projects (UMPPs), with a capacity of about 4,000 MW each. Fifteen such UMPPs have been identified at various locations across the country.


Till March 2017, nineteen Special Purpose Vehicles (SPVs) were established by the Company for UMPPs. Out of these, fourteen SPVs (operating SPVs) were incorporated to undertake preliminary site investigation activities necessary for conducting the bidding process for the projects. These SPVs shall be transferred to successful bidder(s) selected through Tariff Based International Competitive Bidding Process for implementation and operation. Additionally, SPVs (Infra SPVs) were incorporated by PFC for holding the land for power plant and land for coal blocks in case of domestic coal based UMPPs (Odisha, Bihar and Deoghar UMPPs) and for holding land for power plant/port in case of imported coal based UMPP (Cheyyur UMPP). These SPVs would be transferred to the respective procurers of power from these projects.


3. Independent Transmission Projects (ITPs)


Ministry of Power has also initiated Tariff Based Competitive Bidding Process for development and strengthening of Transmission system through private sector participation. Till March 2017, twenty five Special Purpose Vehicles (SPVs), two by PFC and other twenty three by PFC Consulting Limited were established as wholly owned subsidiaries for ITPs. Out of these twenty five SPVs, Bokaro-Kodarma Maithon Transmission Company Limited was liquidated in December 2010 and seventeen SPVs were transferred to the successful bidders till March 31, 2017. During the year, Ministry of Power appointed PFC Consulting Limited as Bid Process Coordinator (BPC) for four new Independent Transmission Projects to be implemented through Tariff Based Competitive Bidding Process. PFC Consulting Limited incorporated four SPVs as its wholly owned subsidiaries for these projects and initiated bidding process accordingly.


Corporate Social Responsibility


PFC''''s CSR and Sustainability Policy aims to ensure that your Company becomes a socially responsible corporate entity committed to improving the quality of life of the society at large by undertaking projects for Sustainable Development, mainly focusing on fulfillment of Power and Energy needs of the society. During the year, PFC implemented wide range of activities in the field of Solar energy, Skill development, Sanitation, Health, Environment sustainability and supported the differently abled. For the FY 2016-17, the Board had approved a CSR budget of Rs,166.15 Crore based on 2% of the average stand-alone Profit Before Tax as per Companies Act, 2013. During FY 2016-17, Rs,125.87 crore has been disbursed for CSR activities.


Corporate Governance


Your Company''''s philosophy of Corporate Governance stems from its belief that the spirit of good governance lies in adherence to highest standards of transparency, accountability, ethical business practices, compliance of law in true letter and spirit, adequate disclosures, corporate fairness, social responsiveness and commitment to the organization to meet stakeholders aspirations and societal expectations. Your Company has been complying with the requirements of corporate governance as stipulated in the Companies Act, Listing agreement and DPE guidelines and has aligned its corporate governance philosophy to its corporate structure, conduct of business and disclosure practices.


Strategy


GoI has a mission of adding 175 GW of renewable energy by 2022 and hence offering a number of incentives to renewable energy developers across solar and non-solar sources. The amendment in the Tariff Policy includes Renewable Purchase Obligation to be 8% from solar energy by March, 2022 and developers with new coal based thermal projects have a Renewable Generation obligation. The increased focus of GoI towards renewable energy has created attractive opportunities for investments in this sector. It is estimated that about Rs,6 lakh Crore of investment is required in renewable sector by 2022. Your Company targets to tap significant market share of this business opportunity. During REINVEST 2015, PFC committed to provide a financial assistance of Rs,15,000 Crore during 2015-19 out of which the Company has already sanctioned Rs,9,954 Crore and disbursed Rs,6,260 Crore to various Renewable Energy projects with a total capacity of 2,880 MW.


Additionally, your Company in order to accelerate business growth will also focus on debt refinancing opportunities available in the market. Your Company also intends to fund private transmission projects being bid out and also transmission projects of JVs formed


Other areas that your Company intends to explore for sustainable growth include funding renewable equipment manufacturers, balance of equipment, nuclear power projects, backward linkages to power sector like installation of LNG terminals, gas piping, coal mining etc. Govt. of India is also envisaging various equity funds in power sector, your Company would also look at opportunities of investment in these equity funds.


Your Company will continue to play critical role in various flagship programmes of GoI aimed at overall development of Indian power sector. Your Company will also tap various business opportunities both fund based and fee based emerging out of such various programmes of GoI towards power sector. Your Company therefore will continue to play a significant role in the overall development of the Indian power sector.


Acknowledgements


I am extremely thankful to the shareholders, who have reposed faith in us. My sincere and heartfelt thanks go out to the Hon''''ble Minister of State (I/C) for Coal, Power, New & Renewable Energy & Mines and officials of the Ministry of Power for their continued support and guidance. I am also truly grateful to Board of Directors, Investors and Valued Clients for their support.


I also convey my gratitude to Ministry of Finance, Reserve Bank of India, Department of Public Enterprises, Securities and Exchange Board of India, National Stock Exchange of India Limited, Bombay Stock Exchange Ltd., NITI Aayog, CEA, C&AG, Statutory Auditors, Registrars, various Commercial Banks, Financial Institutions, and other concerned Government Department/Agencies at the Central and State level for their continued support. I also appreciate the continuous and unwavering support by our partners in the Print and Electronic Media.


Finally, I must thank all the employees without whose continuous and untiring efforts none of this would have been possible.


(Rajeev Sharma)


Chairman and Managing Director


DIN.: 00973413

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