Orient Green Power C Chairman Speech

Dear Shareholders,

It is with great pleasure that I welcome you all to the Eleventh Annual General Meeting of the Company (Orient Green Power Company Ltd)

The Indian Power sector has undergone progressive transformation in recent times marked by substantial growth in capacity addition, introduction of power trading, enhanced Transmission & Distribution (T & D) system resulting in reduced power loss and theft. India’s electricity production in 2017 grew by 34% over seven years resulting in the country emerging as the third largest electricity producer in the world overtaking Russia and Japan. The Government has set a target of 175 GW for renewable energy by 2022 which is expected to meet 35% of the India’s total requirement of 490 GW. Some of the key demand drivers for Renewable Energy include the Government’s push to supplement conventional vehicles with Electric Vehicles (EV) in the near future, which is destined to have a larger implication on energy and allied sector.

India’s installable wind energy potential has been estimated by the National Institute of Wind Energy to be 302 GW with towers of a height of 100 meters. India is the fourth largest wind market globally with an installed capacity of 34.0 GW. Wind constitutes the largest share of the Country’s overall Renewable Energy pie with a share of 49%. The stupendous success witnessed by this Sector is to a large extent driven by the Government’s supportive and growth oriented policies.

Your Company is one of the leading wind energy generating Companies and its wind assets currently aggregates to 425 MW. The Company’s wind assets are located across some of the country’s best wind sites. Your Company’s revenue has grown steadily over the last 5 years aided largely by its improving asset base and attractive tariff rates. In addition to the impressive revenue growth, the operating profitability of the Company has also seen a sharp improvement over this period. Growing share of newer assets coupled with persistent efforts towards improving operational efficiencies have been the primary reasons for driving the profitability. The performance would have been even better had it not been for the operation of external factors ranging from frequent grid back downs, deteriorating financial performance of the State Electricity Board and the muted performance under REC mechanism. However, the situation has improved significantly in the recent past owing to persistent actions on the part of TANGEDCO and the Company.

Renewable Energy Certificate (REC) is a market-based instrument promoting renewable energy. The mechanism aims to enable obligated entities to meet their requirements of generating a percentage of power from renewable sources. Over the years, REC trading had been very subdued at 1.4% to 22% levels due to lack of enforcement of the RPO obligations. However the financial year 201718 was a good year for REC trading despite the abrupt start wherein trading in RECs discontinued for a couple of months following CERC’s order to lower REC prices. Trading resumed in the month of July last, following Hon’ble Supreme Court’s decision on an appeal of Indian Wind Power Associations (IWPA) to allow the trading of renewable energy certificates (RECs) . The Order was restricted to non-solar RECs to comply with the earlier prices. Volumes picked up sharply following the Court’s order on the back of a strong demand from the buyers following a strict enforcement of obligations by state regulators. The financial year 2017-18 was the first year after 2012 wherein the total demand in the market for RECs exceeded the supply. The Company generated revenues of Rs.116 Crores under the REC Mechanism during the financial year as against Rs.38 Crores in the past year. The Company has liquidated it entire REC inventory during the financial year by selling 662,640 certificates in 2017-18 as against 201,366 certificates in the previous year.

Your Company has been working diligently towards reviving the business operations and restoring profitability. The Company has undertaken a number of strategic initiatives towards addressing the legacy issues and putting in place necessary measures towards ensuring a steady trajectory of growth and profitability. One of the key reasons impacting the overall profitability of the business has been the subdued performance of the biomass business. We had already drawn your notice to this. The Biomass business has contributed largely to the losses of the Company over the last three years. Further against a high operating margin for Wind business, the Biomass business has been consistently running at a negative margin.

Against this backdrop and, after contemplating number of alternative measures towards reviving the business, the Board decided to divest off the loss making business by selling 8 biomass units to one of its Promoter Companies M/s. Janati Bio Power Pvt Ltd. (Janati) The transaction resulted in OGPL receiving an equity consideration of Rs.80 Crores while Rs.193 Crores of debt has been take over by Janati. The transfer of debt against assets and proceeds from the sale resulted in moving out of biomass related debt of Rs.330 Crores. Overall reduction in the debt of this magnitude should result in the strengthening of the financial position of the Company and accelerate a value creation for Shareholders. Further the Company is also moving towards completing the sale of the remaining biomass units and expects to complete it shortly.

Your Company is also undertaking a number of measures in the area of cost reduction such as restructuring a part of its high cost debt, negotiating with the bankers towards lowering the interest rate and extending the tenure of the loans. Owing to such actions, the Company has been successful in lowering the interest cost from Rs.286 Crores in Financial year 2015 to Rs.235 Crores in the financial year 2018. The Company is in active discussions with banks for refinancing debts to the tune of Rs1000 Crores to a single digit interest rate (from current average cost of debt of 13%). All such measures are expected to significantly improve in the near future, the bottom line and cash flow and liquidity profile of the Company.

The financial year 2017-18 witnessed the Company’s best ever annual performance. The improved performance in effect partly captures the management’s recent efforts towards reviving the business. Revenue from continued business operations amounted to Rs.394 Crores as against Rs.384 Crores generated during the financial year 2016-17, higher by 3%. The business to a large extent benefited by improved grid infrastructure especially in Tamil Nadu wherein grid availability stood in excess of 90% during the year. EBITDA for the year stood at Rs.302 Crores as against Rs.292 Crores reported during last year again, higher by 3%. Higher revenue generation coupled with better operating efficiencies resulted in a steady margin for the business. The Company is well positioned to deliver a consistent growth going forward on the back of its recent strategic initiatives and improving macros. Having addressed its legacy issues, the Company is confident of meeting its true potential and capitalizing on the sector’s growth opportunities.

On behalf of the Board of Directors of the Company,

I acknowledge the support received from the shareholders, employees, Government and banks in putting the Company into the track of sustainable growth

N. Rangachary

Chairman