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Report and Recommendation of the Presidentto the Board of Directors

Project Number: 45915October 2011

Proposed Loan

Dahanu Solar Power Private Limited

Dahanu Solar Power Project

(India)

This RRP contains information that is subject to disclosure restrictions agreed between ADB andthe relevant sponsor or recipient of funds from ADB. Recipients should therefore not disclose itscontent to third parties, except in connection with the performance of their official duties. UponBoard approval, ADB will make publicly available an abbreviated version of this RRP which willexclude confidential information and ADBs assessment of project or transaction risk.

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CURRENCY EQUIVALENTS(as of 6 September 2011)

Currency Unit Indian rupee/s (Re/Rs)Re1.00 = $0.022

$1.00 = Rs46.096

ABBREVIATIONS

ADB Asian Development BankCERC Central Electricity Regulatory CommissionCOD commercial operations dateCPS country partnership strategyDMC developing member countryDSPPL Dahanu Solar Power Private LimitedEPC engineering, procurement, and constructionEx-Im Bank ExportImport Bank of the United StatesO&M operation and maintenance

R-Infra Reliance Infrastructure LimitedRPL Reliance Power LimitedRVPNL Rajasthan Vidyut Prasaran Nigam Limited

WEIGHTS AND MEASURES

km kilometerkV kilovoltkWh kilowatt-hourMW megawattMWh megawatt-hour

NOTES

(i) The fiscal year (FY) of Dahanu Solar Power Private Limited ends on 31 March.FY before a calendar year denotes the year in which the fiscal year ends,e.g., FY2010 ends on 31 March 2010.

(ii) In this report, $ refers to US dollars.

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Vice-President L. Venkatachalam, Private Sector and Cofinancing OperationsDirector General P. Erquiaga, Private Sector Operations Department (PSOD)Director M. Barrow, Infrastructure Finance Division 1, PSOD

Team leader A. Patil, Investment Specialist, PSOD

Team members P. Bailet, Counsel, Office of the General CounselS. Gupta, Principal Investment Specialist, PSODV. Medina, Safeguards Officer, PSOD

J . Munsayac, Safeguards Specialist, PSODM. Pascua, Senior Safeguards Officer, PSODD. Purka, Principal Investment Specialist, PSODM. Tsuji, Principal Safeguards Specialist, PSOD

In preparing any country program or strategy, financing any project, or by making anydesignation of or reference to a particular territory or geographic area in this document, theAsian Development Bank does not intend to make any judgments as to the legal or other statusof any territory or area.

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CONTENTS

Page

PROJ ECT AT A GLANCE

I. THE PROPOSAL 1II. THE PROJ ECT 1

A. Project Identification and Description 1B. Development Impact, Outcome, and Outputs 2C. Alignment with ADB Strategy and Operations 3D. Project Cost and Financing Plan 4E. Implementation Arrangements 4F. Projected Financial and Economic Performance 5

III. THE PROPOSED ADB ASSISTANCE 5A. The Assistance 5B. Value Added by ADB Assistance 5C. Risks 5

IV. POLICY COMPLIANCE 6A. Safeguards and Social Dimensions 6B. Anticorruption Policy 7C. Investment Limitations 7D. Assurances 7

V. RECOMMENDATION 8

APPENDIXES

1. Design and Monitoring Framework 9

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loanof up to $48 million to Dahanu Solar Power Private Limited (DSPPL) for the Dahanu SolarPower Project in India.

II. THE PROJECT

A. Pro ject Identi fi cat ion and Descript ion

1. Project Identification

2. Reliance Power Limited (RPL) is one of the largest private power developers in Indiawith market capitalization of Rs221 billion.1 However, 86% of its portfolio is fossil-fuel based(predominantly coal and gas). RPL is looking to reduce its dependency on fossil fuel resourcesand develop a renewable energy portfolio of wind and solar power assets. Solar energy is oneof the focus areas for RPL as recent regulatory initiatives (such as mandatory renewablepurchase obligations and revised tariff guidelines) have improved the viability of solar power

projects in India. The Dahanu Solar Power Project will be the first solar power project to bedeveloped by RPL and will be the largest solar photovoltaic plant in India.

3. The Asian Development Bank (ADB) was approached by RPL in J uly 2011 to helpfinance the project. From initial discussions, ADB viewed that the project possessed soundfundamentals in various aspects including the financial strength of the sponsor, high-qualityproject preparatory work, and attractive offtake tariff. In addition, with its direct purchase ofrenewable energy by a private utility company to satisfy its renewable purchase obligations, theproject promotes a sustainable market platform for the development of renewable energy inIndia and endorses the recent regulatory reform in solar energy. The project will stronglycomplement ADBs ongoing initiatives in solar energy in India.

2. Project Design

4. The project entails the construction of a 40-megawatt (MW) solar photovoltaic powergeneration plant near the village of Dhursar in J aisalmer district of Rajasthan state. The projectsite is 180 kilometers (km) west of the city of J odhpur and 10 km from the J odhpurJ aisalmernational highway (NH-114). The annual global horizontal irradiance2 at the project site isestimated to be 2,064 kilowatt-hours (kWh) per square meter, one of the highest in the country.

5. The project will use fixed-tilt cadmium telluride thin film solar photovoltaic modules.Cadmium telluride technology is suited to warm and dry environment such as Rajasthan where

ambient air temperatures can exceed 40C in summer, which can reduce the net energy yield ofthe modules. The solar photovoltaic modules have a projected degradation of 1.0% per year for

the first 10 years of operation and 0.6% per year for the next 15 years of operations.

6. The electricity generated from the project will be evacuated from the project site to theexisting 220-kilovolt (kV) Dechu substation of Rajasthan Vidyut Prasaran Nigam Limited(RVPNL) through a 30 km long, 220 kV double-circuit transmission line to be built by DSPPL.

1National Stock Exchange, 14 September 2011.

2Measure of intensity and availability of sunlight in a given location, which can be converted to electricity eitherthrough photovoltaic solar panels or concentrating solar thermal power technology.

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The transmission line has been sized to evacuate additional phases of DSPPLs solarphotovoltaic project.

3. The Borrower and Sponsor

7. The borrower, DSPPL, is a special purpose vehicle set up by RPL exclusively to develop

the project. DSPPL is a 100% subsidiary of RPL. RPL is a listed group company of the RelianceAnil Dhirubhai Ambani Group (Reliance ADA Group), established to develop, construct, andoperate power projects in India and abroad. The Reliance ADA Group is one of Indias largestconglomerates with a strong presence in telecommunications, media and entertainment,financial services, infrastructure, and energy.

8. RPL has a portfolio of 33,440 MW of power generation capacity in various stages ofdevelopment. The operational portfolio is 600 MW while 15,060 MW is under construction and17,780 MW is under development. Coal-fired power plants (including the three ultra-megapower projectsSasan, Tilaya, and Krishnapatnam) account for 61% of the total portfolio, gas-fired plants comprise 25%, and hydropower plants represent 14%. The proposed project is itsfirst solar energy project. RPLs renewable energy pipeline for the next 5 years is in Table 1.

Table 1: Renewable Energy Projects Being Developed by Reliance Power Limited

Project FuelCapacity

(megawatt) LocationYear of

Commissioning

Dahanu Solar Power Project (Phase I) Solar 40 Rajasthan 2012Rajasthan Concentrating Solar Power Project Solar 100 Rajasthan 2013Vashpet Wind Power Project Wind 200 Maharashtra 2013Dahanu Solar Power Project (Phase II) Solar 60 Rajasthan 2014Urthing Sobla Hydroelectric Project Hydro 400 Uttarakhand 2016Source: Reliance Power Limited annual reports.

9. During FY2011, RPL generated revenues of Rs105,478 million and a net profit after taxof Rs7,604 million on a consolidated basis. As of 31 March 2011, RPL had a net worth of

Rs168,333 million.

3

10. RPL is owned 45% by Reliance Infrastructure Limited (R-Infra) and 40% by AAA ProjectVentures Private Limitedboth of which are part of the Reliance ADA Group. The remaining15% free float is two-thirds held by retail investors and one-third by institutional investors. RPLis listed on the Bombay Stock Exchange and the National Stock Exchange.

B. Development Impact, Outcome, and Outputs

1. Impact

11. The project is designed to promote sustainable economic growth by diversifying Indiasenergy mix through the addition of renewable energy capacity. The development impact of theproject also includes environmental benefits through more efficient use of indigenous renewableenergy resources with almost no emission of pollutants or greenhouse gases. In addition, thebuilding of the project will help prove the feasibility of utility-scale solar power projects in Indiaand the operational performance in a location (Rajasthan) where substantial development insolar power is planned during 20122017.

3RPL. 2011.Audited Financial Results for the Year Ended March 31, 2011. Mumbai.

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2. Outcome

12. The project will demonstrate the profitability and sustainability of utility-scale private solarpower generation in India by generating 56,160 megawatt-hours (MWh)4 of clean energy perannum while delivering adequate returns for the private sponsor.

3. Outputs

13. Successful implementation of the project will result in the construction and operation ofIndias first utility-scale solar photovoltaic power plant and increase solar power generationcapacity in the country by 40 MW.

C. Alignment with ADB Strategy and Operations

1. Consistency wi th Strategy 2020 and Country Strategy

14. The project supports two of the five core operational areas of Strategy 2020infrastructure and environment. 5 The project is aligned with the India country partnership

strategy (CPS), 20092012. One of the four strategy pillars of the CPS is to support inclusiveand environmentally sustainable growth through continued focus on infrastructure developmentand enhanced focus on renewable energy. The project is consistent with one key outcomeindicator of the CPS, which targets an addition of at least 70 MW of solar power generationthrough ADB assistance by 2012.6

2. Consistency with the Energy Policy and the Asia Solar Energy Initiative

15. Under ADBs Energy Policy, ADBs investments will focus on energy efficiency andrenewable energy projects, as well as expansion of energy access. The policy states thatsupport for renewable energy projects will be prioritized and broadened, with an objective tocreate a framework that makes investing in renewable energy commercially viable. The policy

envisages that in the process of facilitating private investments in renewable energy, ADB willassume greater (but thoroughly assessed) risks and act as a catalyst for investments that theprivate sector might not otherwise be willing to make.7

16. The project is also directly aligned with ADBs Asia Solar Energy Initiative, which aims to(i) facilitate knowledge sharing and transfer for solar power; (ii) help develop, finance, andcommission 3,000 MW of solar power generation capacity in developing member countries(DMCs) by May 2013; and (iii) pilot test innovative financing mechanisms and risk mitigationmeasures specifically for solar power. The initiative seeks to stimulate solar power developmentin DMCs with the goal of (i) increasing economies of scale to reduce costs and improve solarenergys competitiveness within the grid; (ii) exploiting select DMCs solar radiation resources toserve their fast-growing electricity demand and utilize their greater availability of land compared

with most developed countries; and (iii) promoting DMCs potential to become global andregional manufacturing hubs for solar technology goods and equipment.

4Average energy production per annum over the life of the project.

5ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 20082020.Manila.

6ADB. 2009. Country Partnership Strategy: India, 20092012. Manila.

7ADB. 2009. Energy Policy. Manila.

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3. Consistency with ADB Operations

17. The project strongly complements ADBs current initiatives in solar energy in India. InApril 2011, the ADB Board of Directors approved the Solar Power Generation GuaranteeFacility, which will issue partial credit guarantees in an aggregate principal amount of up to$150 million (or its equivalent in Indian rupees or other foreign currency acceptable to ADB), in

favor of foreign and local commercial financial institutions (partner commercial banks) lending tosolar power generation projects in India. The facility will support multiple solar generationprojects up to a maximum capacity of 25 MW under a solar power program with the central orstate governments. This facility will catalyze commercial lending and private investment for thesmaller solar generation projects, while the proposed project aims to catalyze private investmentin larger solar generation projects with a capacity greater than 25 MW. This highlights ADBsmultiproduct approach to promote private investment in solar energy and its ability to customizebased on market needs and associated risks.

D. Project Cost and Financing Plan

18. The project is estimated to cost $147.5 million.

CONFIDENTIAL INFORMATION DELETED

E. Implementation Arrangements

19. Table 4 summarizes the implementation arrangements.8

Table 4: Summary of Implementation ArrangementsAspects Arrangements

Regulatory framework The Maharashtra Electricity Regulatory Commission has specified that alldistribution licensees in Maharashtra state will have to purchase 0.25% of theirtotal electricity requirements from solar energy sources from FY2011 to FY2013.

This renewable purchase obligation increases to 0.50% beginning FY2014.

Implementation period The construction period is from September 2011 to March 2012. The term of theenergy purchase agreement is 25 years from COD.

Construction arrangementsEngineering, procurement,and construction

On the basis of international competitive bidding, DSPPL has entered into a fixedprice turnkey EPC contract with R-Infra for (i) procurement and supply of foreignand domestic equipment; and (ii) erection, construction, and services for theproject.

Equipment supplier Under the EPC contract, R-Infra will source the cadmium telluride solarphotovoltaic modules from First Solar (USA).

Operations arrangementsRevenue structure DSPPL has entered into an energy purchase agreement with R-Infra to sell 100%

of the output of the project for a period of 25 years at a fixed tariff as specified bythe CERC RE Tariff guidelines 2009.

R-Infra distributes electricity to 2.8 million retail, commercial, and industrialconsumers in Mumbai. The electricity purchased from the project will be used byR-Infra to offset its renewable purchase obligations stipulated by the MaharashtraElectricity Regulatory Commission.

Operation and maintenance

8Details of Implementation Arrangements (accessible from the list of linked documents in Appendix 2).

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Aspects Arrangements

DSPPL will enter into a suitable agreement for O&M of the plant.

Performance monitoring Key performance indicators will be reported by DSPPL and monitored by ADB andthe ExportImport Bank of the United States. In addition, during the constructionphase, ADB will appoint an independent lenders technical advisor to monitorprogress, attend performance testing, and certify COD.

ADB =Asian Development Bank, COD =commercial operations date, DSPPL =Dahanu Solar Power Private Limited,EPC =engineering, procurement, and construction, FY =fiscal year, km =kilometer, kV =kilovolt, kWh =kilowatt-hour, O&M =operation and maintenance, R-Infra =Reliance Infrastructure Limited, USA =United States of America.Source: Dahanu Solar Power Private Limited.

F. Projected Financial and Economic Performance

20. The project is financially viable and is economically sustainable as the economic internalrate of return is higher than the social discount rate.

CONFIDENTIAL INFORMATION DELETED

III. THE PROPOSED ADB ASSISTANCE

A. The Ass istance

21. The proposed ADB loan of up to $48 million to DSPPL to finance the construction of theDahanu Solar Power Project will be provided from ADBs ordinary capital resources withoutgovernment guarantee. The ADB loan will have a tenor of up to 17.5 years, including a graceperiod of up to 12 months and will be repaid semiannually. The ADB loan will carry an interestrate as well as other fees as approved by ADBs investment committee.

B. Value Added by ADB Assistance

22. The proposed transaction merits ADBs assistance for the following reasons:(i) The project will promote the efficient use of a relatively untapped, indigenous

energy resource resulting in low-cost, carbon-efficient electricity generation.Once commissioned, the project will be the largest solar photovoltaic project inIndia.

(ii) The proposed ADB assistance will provide long-term, limited recourse financing,which is not readily available for large solar power generation projects in India.

(iii) ADB participation in the project will help promote global standards for projectdevelopment and due diligence in a nascent sector, thus enabling long-termcommercial financing for future solar power generation projects in India.

C. Risks

23. Tariff reset risk. The tariff is established in the energy purchase agreement inaccordance with the Central Electricity Regulatory Commission (CERC) renewable energy tariffregulations of 2009, which are in effect until 31 March 2012. In case COD is delayed beyond31 March 2012, the tariff will be determined by the new order passed by the CERC to extendthe tariff regulations beyond 31 March 2012. A lower tariff will reduce cash flows from theproject.

CONFIDENTIAL INFORMATION DELETED

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24. Technology risk. Cadmium telluride is a proven technology that has been incommercial operation globally since 2002. However, its long term reliability has not yet beenproven and the data evidencing long term degradation in performance is limited. Unique localconditions such as high ambient air temperatures and high levels of dust and soiling couldimpair module performance. The performance warranties provided by First Solar and

conservative forecast of energy yields mitigate this risk. The financial analysis has factored inthe loss in performance caused by high temperatures, soiling, and other factors.

CONFIDENTIAL INFORMATION DELETED

25. Foreign exchange risk. The ADB loan will be denominated in US dollars, but theproject revenues will be in Indian rupees. The loan documentation will specify hedgingstrategies to mitigate this risk.

CONFIDENTIAL INFORMATION DELETED

26. Interconnection risk. DSPPL is responsible for constructing the 30 km, 220 kV double-

circuit transmission line from the project site to the Dechu substation of RVPNL. DSPPL is in theprocess of signing a grid connectivity agreement with RVPNL. A delay in construction of thetransmission lines will result in loss of revenue for the project. ADB will closely monitor thetransmission line construction progress during the implementation period.

CONFIDENTIAL INFORMATION DELETED

27. Operation and maintenance risk. O&M for a solar photovoltaic plant is primarily limitedto ensuring adequate cleaning of the panels and replacement of inverter components after10 years. Therefore, the O&M risk is not considered to be significant. After 5 years, the O&Mactivities will be undertaken in-house by DSPPL.

CONFIDENTIAL INFORMATION DELETED

IV. POLICY COMPLIANCE

A. Safeguards and Soc ial Dimensions

28. The project is classified under category B for environment, category B for involuntaryresettlement, and category C for indigenous people under ADBs Safeguard Policy Statement2009. The potential environmental and social impacts and risks of the project have beenidentified and effective measures to avoid, minimize, mitigate, and compensate for the adverseimpacts and to ensure compliance with ADBs Social Protection Strategy 2001 are incorporatedin the safeguard reports and plans. The institutional capacity and commitment of DSPPL to

manage the projects social and environmental risks are deemed adequate. Informationdisclosure and consultations with affected people are conducted in accordance with ADBrequirements.9 DSPPL will ensure that the project is in compliance with applicable national lawsand regulations and will establish and maintain appropriate environmental and socialsafeguards arrangements to manage impacts and risks, all in accordance with ADBs SafeguardPolicy Statement 2009 and Social Protection Strategy 2001.

9Summary Poverty Reduction and Social Strategy; Safeguards and Social Dimensions Summary (accessible fromthe list of linked documents in Appendix 2).

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29. The project will be constructed on vacant and barren public land. The findings of theSocial Safeguards Compliance Audit show that there are no permanent or temporary dwellingsor cultivation at the site. Initial survey of the 30 km transmission line right of way indicates that itwill pass through vacant public and private lands characterized predominantly by sandy dunes,light vegetation and barren land. The route and location of the transmission towers has not been

finalized. Hence the project has been conservatively classified under category B for involuntaryresettlement and a Resettlement Framework has been prepared in accordance with ADBsrequirements.

30. Environmental impacts during construction such as dust and noise from transportation ofmaterials and construction camps are likely to be short term and limited to the project site.Impacts during operations are expected to be minor and limited to soil quality, ecology andoccupational health hazards. Impacts during decommissioning due to the dismantling of thesolar modules will be addressed by collection and recycling of the solar modules by theequipment supplier.

31. DSPPL and its contractors will enter into covenants in relation to core labor standards

and formulate a corporate human resources policy embodying this. Compliance with suchcovenants will be monitored by DSPPL and included in the regular reporting. DSPPL hasconducted consultations with various stakeholders including local villagers, village heads, non-government organizations, and state officials. During project construction and the operationsphase, DSPPL will continue such consultations and promote womens participation incommunity development programs, which the project will jointly implement with the communityas part of DSPPLs corporate social responsibility initiative.

B. Anticorrup tion Policy

32. DSPPL has been advised of ADBs anticorruption policy and its policy of implementinginternational best practices relating to the combating of money laundering and the financing of

terrorism. ADB will ensure that the loan documentation includes appropriate anticorruptionprovisions and remedies for ADB in the event of non-compliance.

C. Investment Limitations

33. The proposed loan is within the country, industry, group, and single project exposurelimits for nonsovereign investments.

CONFIDENTIAL INFORMATION DELETED

D. Assurances

34. Consistent with the Agreement Establishing the Asian Development Bank, theGovernment of India will be requested to confirm that it has no objection to the proposedassistance to DSPPL. ADB will enter into suitable finance documentation, in form andsubstance satisfactory to ADB, following approval of the proposed assistance by the Board ofDirectors.

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V. RECOMMENDATION

35. I am satisfied that the proposed loan would comply with the Articles of Agreement of theAsian Development Bank (ADB) and, acting in the absence of the President, under theprovisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Boardapprove the loan of up to $48,000,000 to Dahanu Solar Power Private Limited for the Dahanu

Solar Power Project in India from ADBs ordinary capital resources, with such terms andconditions as are substantially in accordance with those set forth in this report, and as may bereported to the Board.

Ursula Schaefer-PreussVice-President

12 October 2011

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Appendix 1 9

DESIGN AND MONITORING FRAMEWORK

Design SummaryPerformance Targets

and/or IndicatorsData Sources and/or

Reporting MechanismsAssumptions

and Risks

ImpactsDiversified energy mixthrough the addition of

renewable energycapacity

Replication of utility-scale (>25 MW) solarpower generationprojects

15% of energy to comefrom renewable sources

by 2020

2 GW of solar powergeneration capacity isinstalled by 2014

At least five other utility-scale solar photovoltaicpower plants are installedby 2014 of which at leastthree are located inRajasthan.

Statistics published by theMinistry of New and

Renewable Energy

Ministry of New andRenewable Energy annualreports

Assumpt ions

Continued macroeconomic

and political stability at thecentral and state levels

Continued regulatory supportfor solar power projects

Risk

Market price of fossil fuelsdramatically decreases

OutcomeDemonstratedprofitability andsustainability of autility-scale privatesolar power generationproject

56,160 MWh per year ofelectricity from solar poweris delivered to the offtakerduring the life of theproject

Average carbon dioxideemission avoidance of41,000 tons per annumduring the life of theproject

Project financial internalrate of return (nominal)exceeds 10%

Company financialstatements

Company progress andperformance reports

ADB annual reviews

Assumpt ion

Offtaker complies with energypurchase and paymentobligations

Risk

Operational risks causingdisruption in power production

Outputs

Construction andoperation of Indias firstutility-scale solarphotovoltaic powergeneration facility

Successful commissioningof the 40 MW solarphotovoltaic power plantby 2012

Company progress reports

ADB annual reviews

Lenders technical advisorreports

Assumpt ion

Project agreements areadhered to as agreed by thirdparties

Risk

Delays in project construction

Act iv it ies w ith Milestones Inputs1. Financial close by 30 November 20112. Full commission to be achieved by 31 March 2012

Debt funding by ADB and EX-IM Bank

Equity funding by RPL

ADB =Asian Development Bank, GW =gigawatt, MW =megawatt, MWh =megawatt-hour.Source: Asian Development Bank.