MSPL Limited

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	25115
Company name	MSPL Limited
Country	India
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Active

Date SPI disclosed	February 27, 2007
Projected board date	March 30, 2007
Date revised SPI disclosed	February 28, 2007
Previous Events	Invested: July 16, 2007 Signed: June 22, 2007 Approved: May 29, 2007

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

MSPL Limited (MSPL or the company), a family-owned company, is one of the largest private iron ore producers in India. The company is over 40 years old and, while its background is in the mining business, the company is currently the largest private generator of wind power in the country (installed capacity is 111.6 MW as of July 2006). In FY 2006, sales of iron ore represented 91% of total revenues, while sales of wind energy represented 8% of total revenues.

The project consists of the installation, operation and maintenance of 36.6 MW of wind power generators in the states of Karnataka and Gujarat in India, to be implemented by MSPL. Electricity will be sold through long-term power purchase agreements to state-owned electricity distribution companies. After the project, MSPL’s wind portfolio would be 148.2 MW.

Project sponsor and major shareholders of project company

MSPL is one of India’s leading exporters of high-grade processed iron ore to China (annual exports of approximately 4.5 million tons). It is part of the Baldota Group (the Group), a large Indian, family-owned industrial group comprising several companies in the business of iron ore mining, processing and exporting; wind power generation; and production and distribution of industrial gases.

The Group was founded in 1961 by Mr. Abheraj H. Baldota, trader in non-ferrous metals and President of the Bombay Metal Exchange in 1960. Current business operations are headed by the son of the founder, Mr. Narendrakumar A. Baldota, and the founder’s two grandsons, Messrs. Rahulkumar and Shrenikkumar N. Baldota, who are also the main shareholders of the company.

Mr. Narendrakumar A. Baldota and his two sons own 76.6% of the company’s common shares and together with other family members, they own 99.99%. It is expected that after the completion of an Initial Public Offering (expected to be completed in 2007), Mr. Narendrakumar A. Baldota and his sons will directly own 60.96% of the company’s shares, and together with other family members who will retain 19.03% shares, they will own 79.99% of the company’s capital. The remaining 20.0% shares will be sold in the market through the planned IPO.

Total project cost and amount and nature of IFC's investment

Total project costs are estimated at $43 million equivalent, based on $1.16 million/MW installed, which is the company’s average cost in its existing wind parks. The financial plan contemplates long-term debt financing of $33 million in US Dollars from IFC to be structured as a corporate loan to MSPL. The remaining amount will be funded through internally generated cashflows.

The proposed IFC A Loan is a corporate loan of up to $33 million to be used to finance the company’s new investments in wind power. The repayment of the IFC Loan would be a corporate undertaking of MSPL.

Location of project and description of site

One wind park with a total installed capacity of 16.2 MW will be installed in the State of Gujarat (Kutch area) and another wind park with a total installed capacity of 20.4 MW will be located in the state of Karnataka in western India.

Anticipated development impact of the project

- Renewable energy:

The project will contribute to increase the country’s installed capacity from renewable energy sources and will contribute to the development of cleaner sources of energy. IFC’s support of this and similar projects will help increase the production of wind energy in India, a zero-emission energy source. The project will contribute to meeting India’s goal of increasing power generated from renewable energy from the current level of 5% to 25% by 2030 and is expected to benefit from carbon credits. This could have positive demonstration effects on other potential generators of renewable energy.

- Reduction of power shortages:

India faces severe shortages of electricity, with peak shortages estimated at approximately 12% of total demand. The project will contribute to reduce this demand-supply gap, which has resulted in erratic supply of electricity with fluctuations in voltage and/or power outages. The consequences of the power shortage are far-reaching and adversely impact commerce, industry, agriculture, education, and socioeconomic development.

- Hedge against high fuel prices:

Diversifying India’s generation portfolio and investing in wind power offers a hedge against potential future increases in fossil fuel prices.

- Linkages to local economy:

It is estimated that the equipment produced locally by wind turbine manufacturers has 80% of domestic content; this creates jobs and linkages to the local economy.

IFC's expected development contribution

The project is consistent with IFC’s strategy to expand its support for renewable energy projects. During the June 2004 International Conference on Renewable Energies held in Bonn, the WBG pledged to achieve an average growth rate of 20% per year over the next five years in its financial commitments for renewable energy and energy efficiency projects. The WBG’s strategy, through programs and policies, “will aim to ensure that renewable energy and energy efficiency are seen as economically viable and essential ingredients in the energy choices of the member nations”. IFC’s support of commercially viable wind energy projects reinforces the WBG’s commitment and contributes towards meeting this target.

IFC’s role in the project mainly consists of:

- supporting the development of renewable energy in the country. In light of the non polluting aspects of wind energy and the energy shortfall in India, an IFC investment in this project will help promote further investments in renewable energy projects in India;
- demonstration effect, since it will send a strong signal to other investors; and
- long-term funding.

An IFC investment will also help in attracting other long term lenders to India’s wind energy sector.

Environmental and social issues - Category B

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects. The key environment, health, safety and social aspect of the project that were analyzed include: Social and Environment assessment and environmental, social, and health and safety management systems; Labor and working conditions; and Pollution prevention and abatement. Additional details have been provided in the Environmental and Social Review Summary (ESRS) and Environment and Social Action Plan (ESAP).

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