SUMMER INTERNSHIP REPORT

Transcription

1 SUMMER INTERNSHIP REPORT PROJECT APPRAISIAL AND FINANCIAL MODELLING OF A THERMAL POWER PLANT UNDER THE GUIDANCE OF Mrs Indu Maheshwari, Dy Director, CAMPS, NPTI & Mrs. Priya Kumar, Senior Manager, Project Division, Power Finance Corporation Limited At Power Finance Corporation, New Delhi Submitted By Ankit Doveriyal Roll No. 15 MBA (POWER MANAGEMENT) (Under ministry of Power, Govt. of India) Affiliated to MAHARSHI DAYANAND UNIVERSITY, ROHTAK AUGUST 2013

2 DECLARATION I, Ankit Doveriyal, Roll No 15, student of MBA-Power Management ( ) at National Power Training Institute, Faridabad hereby declare that the Summer Training Report entitled PROJECT APPRAISIAL AND FINANCIAL MODELLING OF A THERMAL POWER PLANT is an original work and the same has not been submitted to any other Institute for the award of any other degree. A Seminar presentation of the Training Report was made on and the suggestions as approved by the faculty were duly incorporated. Presentation In-Charge (Faculty) Signature of the Candidate Countersigned Director/Principal of the Institute i

3 ACKNOWLEDGEMENT It is often said that life is a mixture of achievements, failures, experiences, exposures and efforts to make your dream come true. There are people around you who help you realize your dream. I acquire this opportunity with much pleasure to acknowledge the invaluable assistance of Power Finance Corporation and all the people who have helped me through the course of my journey in successful completion of this project. I wish to express my sincere gratitude to my Company Guide, Mrs. Priya Kumar (Senior Manager, Project Appraisal Division, PFC) for her guidance, help and motivation. Apart from the subject of my study, I learnt a lot from her, which I am sure, will be useful in different stages of my life. I would like to thank Mrs. Shweta Vithal (Dy Manager, Project Appraisal Division) for her help in understanding and formulating the model design and methodology as well as help me in acquitting to the Power Sector and clearing my concepts and Mr. Natesh Sarma (Officer, Project Appraisal Division) for his review and helpful comments. I would like to thank Mr. Rakesh Mohan, Senior Manager (HR) for providing me with this wonderful opportunity to work at Power Finance Corporation. I express my thanks to Mrs. Indu Maheshwari, Dy. Director, Faculty guide, NPTI for her kind cooperation during the period of my summer internship. I feel deep sense of gratitude towards Mr S.K.Chaudhary, Principal Director, CAMPS(NPTI), NPTI and Mrs. Manju Mam, Director, Mrs. Indu Maheshwari, Dy. Director, NPTI for arranging my internship at Power Finance Corporation and being a constant source of motivation and guidance throughout the course of my internship. I am grateful to my friends who gave me the moral support in my times of difficulties. Last but not the least I would like to express my special thanks to my family for their continuous motivation and support. Regards, Ankit Doveriyal Class of (NPTI) ii

4 EXECUTIVE SUMMARY Rapid economic growth has increased the burden of India s infrastructure, one of the country s week spots. An infrastructure deficit is widely considered to be one of the factors that could severely affect the economic growth of the country. In the past few years, policy makers have recognized the importance of infrastructure in economic growth and have made concrete efforts to accelerate infrastructure development. Power Sector continues to lag behind despite the introduction of progressive measures. Power shortages, increased tariffs, shortage of coal and dependence on imported fuel are on rise, while the poor health of the distribution continues to inhibit the inflows of investments which have possessed growth risk for the Indian Electricity Sector. India's demand for electricity is likely to cross 300 GW, in few years earlier than most estimates. Meeting this demand will require a fivefold to tenfold increase in the pace of capacity addition. With the growing demand of power, there is huge potential of investment in power sector of India. The power sector which is in the concurrent list of the Indian Constitution is under the purview of both the central government and the state government. The power sector which was earlier dominated by public sector undertaking is now seeing effective participation of the private sector which is now accountable for 28% of power generation in the country. Power Finance Corporation Ltd. (PFC) a public financial institution established In 1986 by the Ministry Of Power as a Financial Institution (FI) to provide financing solution to large capital intensive power project across India including generation, transmission, distribution and RM&U projects. My Summer Internship Project is Project & Entity Appraisal of Thermal Power Plant. It resolves around the appraisal of the power project promoted by the company ABC Power Limited, which has come for financial assistance of its Capital Expenditure and Working Capital Requirements. The project is being appraised after evaluating it on the various parameters set by Central Electricity Regulatory Commission (CERC) and the set parameters at PFC. My work also include appraisal of Promoters of the project which is based on set parameters at PFC.The aim of the appraisal is to finally arrive at the decision: whether PFC should finance the project or not. As per the guidelines of PFC the project is evaluated into two parts: Project Appraisal and Entity Appraisal. The format of the project report will be in the form of Agenda Note as per PFC norms. Project Appraisal is carried out by Project Appraisal Department which evaluate the financial and technical viability of the project. iii

5 Entity Appraisal is carried out by Entity Appraisal Department and involves evaluation of the promoter of the company on its financial flexibility and stability, the analysis of their business operations and the competence of the management. In the end the project involves the subjective analysis on both Project & Entity fronts and come up with the risk involved. The project reports ends with the Recommendations on whether to finance the project or not. iv

6 LIST OF ABBREVIATIONS BTG BU CEA CERC COD DPR EPC FSA FTA GCV GoI IPP IDC Kcal KV KWh MoP MoEF NOC O&M PFC PGCIL PLF PPA REC Boiler, Turbine & Generator Billion Units Central Electricity Authority Central Electricity Regulatory Commission Commercial Operation Date Detailed Project Report Engineering, procurement & construction Contract Fuel Supply arrangement/agreement Fuel Transport Agreement Gross Calorific Value Government of India Independent Power Producer Interest During Construction Kilo Calories Kilo Volts Kilo Watt Hour Ministry of Power Ministry of Environment & Forest No Objection Certificate Operations & Maintenance Power Finance Corporation Ltd. Power Grid Corporation of India Limited Plant Load Factor Power Purchase Agreement Rural Electrification Corporation v

7 LIST OF FIGURES Figure 1: Power Sector Structure...4 Figure 2: Energy Production in Billion kwh (2010)..5 Figure 3: All India Generation capacity.7 Figure 4: Business Strategy of PFC.13 Figure 5: Project Finance Structure..19 Figure 6: Actual power supply position in Tamil Nadu...40 vi

8 LIST OF TABLES Table 1: All India Region wise generation capacity..6 Table 2: Different Rating by major rating agencies.11 Table 3: Sanctions & Disbursements for the respective financial years..14 Table 4: Major Projects Funded by PFC..14 Table 5: Financial Highlights for the year Table 6: Approvals and Agreement Status...22 Table 7: Preliminary appraisal. 24 Table 8: Detailed Appraisal..26 Table 9: Approval and Agreement Status...38 Table 10: Project Cost Details..39 Table 11: Power requirement and availability for Tamil Nadu 40 Table 12: Project details...41 Table 13: Snapshot of project financial projections.45 Table 14: Sensitivity analysis sheet.46 vii

9 TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENT ii EXECUTIVE SUMMARY. iii LIST OF ABBREVIATIONS... v LIST OF FIGURES. vi LIST OF TABLES.. vii CHAPTER 1: INTRODUCTION INDIAN POWER SECTOR POWER SECTOR REFORMS INTRODUCTION TO INDIAN POWER SECTOR POWER SECTOR: DEVELOPMENTS & CURRENT STATUS MAJOR ISSUES INITIATIVES OPPORTUNITIES...9 CHAPTER 2: COMPANY PROFILE BACKGROUND MISSION CREDIT RATINGS OBJECTIVE OF PFC CLIENTS OF PFC RANGE OF SERVICES REFORMS SWOT ANALYSIS CHAPTER 3: OBJECTIVE AND SCOPE OBJECTIVE OF THE PROJECT SCOPE viii

10 CHAPTER 4: LITERATURE REVIEW AND RESEARCH METHODOLOGY LITERATURE REVIEW PROJECT FINANCE PROJECT APPRAISAL CALCULATION OF TARIFF RESEARCH METHODOLOGY...21 CHAPTER 5: PROJECT APPRAISAL & FINANCIAL MODELLING GUIDING PRINCIPAL FOR PROJECT APPRAISAL PROJECT & ENTITY APPRAISAL FINANCIAL MODELLING..28 CHAPTER 6: CASE STUDY PROJECT PURPOSE & SCOPE PROJECT DETAILS PROJECT COST CHAPTER 7: RISK ANALYSIS & SWOT ANALYSIS RISK ANALYSIS SWOT ANALYSIS LIMITATIONS..50 CHAPTER 8: CONCLUSION, RECOMMENDATION & LEARNING CONCLUSION RECOMMENDATIONS LEARNING BIBILIOGRAPHY ANNEXURE ix

11 CHAPTER 1: INTRODUCTION 1.1. INDIAN POWER SECTOR Electricity is one of the most vital infrastructure inputs for economic development of a country. The demand of electricity in India is enormous and is growing steadily. The vast Indian electricity market, today offers one of the highest growth opportunities for private developers. At the time of independence in 1947, the country had a power generating capacity of 1,362 MW. Prior to independence the power sector was regulated by The Indian Electricity Act, 1910 which was the first basic legal framework for the electricity sector in the country. Supply of energy was the main concept around which various provisions were woven. The act talked about the Licence for generating and supplying electricity, Competition in generation and supply areas, Framework of wires and works, Licensee and Consumer relationship, Safety Measures and Theft of electricity in the power sector. Post independence our priorities changed, the supply of electricity which was limited to cities and towns was to be spread across the country, especially in rural areas. This was seen as a social responsibility of the Government to provide electricity to all. Thus The Electricity Supply Act, 1948 was passed in the Central legislature to facilitate the establishment of regional co-ordination in the development of electricity which envisaged formation of State Electricity Boards (SEB) as an arm of State Government to discharge their responsibility of providing electricity to all. The act mandated that every State shall constitute a SEB. SEB s were entrusted with the task of developing power generation, transmission as well as distribution facilities. The Act also called for formation of Central Electricity Authority (CEA), which was envisaged as the main technical arm of the Central Government. It also had to perform the role of technical advisor to the State Government, SEB, Generation Company or any other agency and form regulations on certain aspects of which the most important was the technoeconomic clearance of generation projects. However, in 1970s SEBs started making losses largely on account of political interference, mismanagement and inefficiencies in operations. Flat rate tariff (near zero usage charge) were introduced for the agricultural connections and high tariff was imposed on industrial & commercial users, such cross-subsidy led to increase in theft and the losses increased. As the boards were not able to make money, they became increasingly dependent on the government for funding. Because of the shortage of funds, SEB s were unable to increase generation capacity and were not maintaining their assets. Therefore, SEB s went into a vicious cycle that led to further drop in the performance of their operations and subsequently increased their losses. In 1980s, the SEBs were able to show about 3% of statutory returns with the help of flawed accounting system but in practice the accruals were not sufficient for growth and the boards sought assistance from state governments. In this situation, the government decided to create central generating utilities i.e. National thermal power corporation (NTPC) & National Hydro Power Corporation (NHPC) to improve the condition of power sector. The government also tried to connect the generating entities scattered all over the country non-uniformly 1 P age

12 by forming The National Grid and thus trying to overcome generation demand supply gap prevalent in different states. In response to the balance-of-payment crisis in 1991, the government of India decided to open up various sectors in the economy including power sector. The power generation sector was de-licensed and the private parties were allowed to setup generating facilities. The change in notification gave numerous incentives to private sector such as 16% return on equity for plants that operated at plant load factor (PLF) of 68.5%, five year tax holiday, two part tariff, equity requirements as low as 20% of project cost and selective guarantees from central government for payment default by SEBs. This liberal set of policies initially created excitement among the private investors to setup plants. However, the excitement soon subsided because of the large political risks and payment capacity of the already bleeding SEBs. The state board s losses were increasing mainly due to theft and had to increasingly depend upon government subsidy. Less than 17,000 MW were added vis-à-vis a planned addition 40,000 MW in the period Further, such generous incentives given by the government to the foreign investors wherein almost all the risks were borne by the state board drew lot of criticism. SEBs were earning 12.2% internal rate of return on their own plants and therefore paying 16% return to IPPs which did not make sense. Under the 1910 and 1948 Acts, powers of regulation including tariff regulations were vested on the Government. This concentration of power in the Government and Government organizations resulted in inefficiencies of various sorts, the most prominent manifestation was being lack of rational and professional approach to tariff fixation. As part of reforms strategy, it was, therefore, considered necessary to distance the sensitive aspect of tariff regulation from the political executives on the independent Regulatory Commissions. Thus, Government brought in The Electricity Regulatory Commissions (ERC) act, 1998 which was the first step taken by the government to move itself away from the regulatory aspect of the power sector and fixation of tariff for the energy being used by the consumer. By this act the various losses occurring at the SEBs level and the bottleneck caused due to bureaucracy prevalent in the government organizations and political interference were tried to minimize by formation of Central Electricity Regulatory Commissions (CERC) at central level and State Electricity Regulatory Commissions (SERC) at every state. The CERC and SERC had main responsibility of tariff determination for Central Government and State Government owned generating stations respectively. Bullish economic growth story of any country depends on a robust power generation & delivery model POWER SECTOR REFORMS THE ELECTRICITY ACT 2003: A REVOLUTION Competition with regulatory oversight is the framework around which the Electricity Act, 2003 is woven - competition to encourage efficiency in performance and regulatory oversight, to safeguard consumer s interest and at the same time ensure recovery of costs for the investors. The journey of distancing of Government from regulations that started in 1998 has culminated in The Electricity Act of According to the new law The 2 P age

13 Government is distanced from all forms of regulation, viz., licensing, control over generation, captive generation, tariff fixation etc. Now the Government remains there only as a facilitator. The Act talks about the need and ways of implementing Competition in the power sector while considering the concerns associated with it, about the electrification of rural areas and about liberalization of power sector. While Liberalization is the mantra, the Electricity Act does not encourage an unbridled growth for the sector. The regulatory Commission have been envisaged as the watchdogs which have a responsibility to put a check on the cost of generation through powers to regulate tariffs for supply of electricity from a generating company to the distribution licensees on long term power purchase agreements, as also with power to look into the costs of generation. The act also provides the bases for formation of National Electricity Policy (NEP), National Tariff Policy (NTP), Rural Electrification, Open access in transmission, phased open access in distribution, Mandatory SERCs, licence free generation and distribution, power trading, mandatory metering and stringent penalties for theft. SERCs provide Regulatory guidelines on quality of service standards that are to be achieved and maintained by the utility and ensure their compliance by providing for Complaint Redressal Mechanism & Appointment of Ombudsman. SERCs mentions about the consequences that are to be followed by the utility for non-compliance of the guidelines NATIONAL ELECTRICITY POLICY In pursuance of the provisions of the Electricity Act, 2003 the Central Government came out with National Electricity Policy on 6th February The policy prescribes the following objectives: Providing universal access in next five years for which significant capacity addition and expansion would be required. Meeting the demand fully by 2012 and to have spinning reserves after meeting peak requirements. Bringing about improvements in quality of supply at reasonable rates. Increasing per capita availability to over 1000 kwh per year by Ensuring a minimum lifeline consumption of 365 kwh per year per household as a merit good by Financial turnaround and attainment of commercial viability of all entities in the sector. Protection of consumers interest NATIONAL TARIFF POLICY In pursuance with section 3 of the Electricity Act 2003, the Central Government notified the Tariff Policy on 6th January According to the Act, the CERC and SERCs are to be guided by the Tariff Policy in framing its regulations. It lays out the following objectives: Ensuring availability of electricity to consumers at reasonable and competitive rates; 3 P age

14 Ensuring financial viability of thee sector and attracting investments; Promoting transparency, consistency and predictabilityy in regulatory approaches across jurisdictions and minimizing perception of regulatory risks; ; Promoting competition, efficiency in operations and improvemeni nt in quality of supply RURAL ELECTRIFICATION POLICY Electricity has been recognized as a basic human need. It is the key to accelerating economic growth, generation of employment, eliminationn of poverty and human development especially in rural areas. The Rural Electrification Policy was notified in August 2006, with the objective of improving access and quality of electricity supply in rural areas so as to ensure rapid r economic development by providing p electricity as an input for productive uses in i agriculture, rural industries etc. For this the Central government has launched in April, 2005 an ambitious scheme Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY) aimed d to establish Rural Electricity Distribution Backbone (REDB) with w at least a 33/11 KV substation; Village Electrification Infrastructure (VEI) with at a least one Distribution transformer in a village or hamlet; Stand alone grids with generationn where grid supply is not feasible. Subsidy towards capital expenditure too the tune of 90% is channelizedc d through REC, which is a nodal agency for f implementation of the scheme. Electrification of f 1500/- per connection in all rural habitations. The Management of Rural Distribution is undertaken through franchisees. A three-tier quality monitoring has been built into the electrified Below Poverty Line (BPL) households is financed with 100% capital subsidy scheme. RGGVY has thuss resulted in huge investments s in providing electricity connections in rural India INDIAN POWER SECTOR STRUCTURE Figure 1: Power Sector Structure Source: powermin.gov.in 4 P a ge

15 1.3 INTRODUCTION TO INDIAN POWER SECTOR Electricity is one of the most vital infrastructure inputs for economic development of a country. The demand of electricity in India is enormous and is growing steadily. The vast Indian electricity market, today offers one of the highest growth opportunities for private developers. Since independence, the Indian electricity sector has grown many folds in size and capacity. The generating capacity has increased from a meagre 1,362 MW in 1947 to more than 225,113 MW by May 2013, a gain of almost 200 times in capacity addition. India's per capita energy consumption is 778kWh in a rise of almost 400 percent since Although, India's energy consumption per unit of output is still rising, but it is expected to level off and to decline in the future. India consumes two-thirds more energy per dollar of gross domestic product (GDP) as the world average. India consumes only about 18 percent of the energy per person as the world average. Over 65 per cent of India's electricity is produced in thermal facilities using coal or petroleum products. Almost 19 per cent electricity is generated by hydroelectric facilities. In its quest for increasing availability of electricity, the country has adopted a blend of thermal, hydro and nuclear sources. Out of these, coal based thermal power plants and in some regions, hydro power plants have been the mainstay of electricity generation. Of late, emphasis is also being laid on non-conventional energy sources i.e. solar, wind and tidal which constitutes about 12 percent of the total energy generation. 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,326 Figure 2: Energy Production in Billion kwh (2010) 4,207 1,145 1, Source: wikipedia.org India is one of the main manufacturers and users of energy. Globally, India is presently positioned as the fifth largest manufacturer of energy, representing roughly 2.4% of the overall energy output per annum. It is also the world s fifth largest energy user, comprising about 3.3% of the overall global energy expenditure per year. In spite of its 5 P age

16 extensive yearly energy output, Indian Power Sector is a regular importer of energy, because of the huge disparity between oil production and utilization. Usually energy, especially electricity, has a major contribution in speeding up the economic development of the country. The existing production of per capita electricity in India is above 778 kwh per annum. Ever since 1990s, India s gross domestic product (GDP) has been increasing very rapidly and it is estimated that it will maintain the pace in couple of decades. The rise in GDP should be followed by an increase in the expenditure of key energy other than electricity. The gross electricity production capability of Indian Power Sector is placed at around 2,25,133 MW as on May Though, this is still not enough. All the Regions in the Country namely Northern, Western, Southern, Eastern and North- Eastern regions continued to experience energy as well as peak power shortage of varying magnitude on an overall basis, although there were short-term surpluses depending on the season or time of day. The energy shortage varied from 19.1% in the Southern Region to 1.2% in the Western Region. As per CEA s forecast for among the regions, only the Eastern region would have a surplus of 10.2%. Region-wise picture in regard to actual power supply position in the country during the year is given below: Table 1: All India Region wise generation capacity Sl No. Region Coal Gas DSL Total Nuclear Hydro R.E.S Total 1 Northern Western Southern Eastern N Eastern 6 Islands All India Source: Power ministry as on In the past, the power sector growth has not kept pace with the economic expansion and this has resulted in India experiencing a 13 per cent shortage in peak capacity and 8 per cent in energy terms, on an overall basis. Driven by the requirement to enhance the budgetary allocations to social sectors to meet the emerging requirements of sustainable growth, the Government has envisaged a manifold increase in the role of the private sector in the financing and operations of the power sector. Significant structural and regulatory reforms have paved the way for increased private sector participation in all aspects of the sector. Many of the legal and regulatory requirements to enable this are in place, while the operational provisions are in different stages of implementation in different states. As per CEA s forecast for ,432 MW of capacity is expected to be added, comprising 15,234 MW of thermal power, 1,198 MW of hydropower and 2000 MW of nuclear power. Capacity addition during stood at 20,502 MW. 6 P age

17 1.4 POWER SECTOR: KEY DEVELOPMENTS AND CURRENT STATUS Indian government forecasted the economic growth to be 6.1% - 6.7% for the year and to sustain this growth it is imperative for the power sector to grow with the same pace. Therefore, it becomes essential to assess the power sector by analysing its current status, the key challenges faced by it, and its future growth drivers. Power is considered to be a core industry as it facilitates development across various sectors of the Indian economy, such as manufacturing, agriculture, commercial enterprises and railways. Though India currently has the fifth largest electricity generation capacity in the world pegged at 2,25,133 MW, the growth of the economy is expected to boost electricity demand in coming years Figure 3: All India Generation Capacity Source: powermin.gov.in Thermal Nuclear Hydro RES Total Captive India saw a total capacity addition of approximately 54,000 MW during the 11 th Five Year plan, of which approximately 47 per cent was contributed by the central government, 34 per cent from the state government, and a little over 19 per cent from the private sector. As per the Planning Commission report capacity addition of 88000MW is estimated in 12 th five year plan. Some examples of top public sector companies include National Thermal Power Corporation (NTPC), Damodar Valley Corporation (DVC) and National Hydroelectric Power Corporation (NHPC). Some key companies in the private sector include Tata Power and Reliance Energy Limited. In India, power is primarily generated from thermal and nuclear fuels, hydro energy and renewable sources. India s power generation capacity has significantly increased since 2008, and is also expected to show a strong growth in the future. However, India faced a power deficit of approximately 8.5 per cent and a peak demand deficit of over 10 per cent in FY11 primarily due to fuel shortage. This shortage can be attributed to aggregate technical and commercial (AT&C) losses, which is about 30 per cent with a high variance across various utilities. Therefore, it is essential for the government to work proactively to increase the sector s generation capacity in a sustainable manner by addressing key 7 P age

18 challenges, such as supply shortage and distribution losses without damaging the environment, to attain a high growth rate during the 12th Five Year Plan. To cope with the demand deficit, the Indian government has implemented various progressive measures to maximise the country s power generation capacity and improve distribution. Some examples of such measures include rural electrification programmes and ultra mega power projects. In particular, the inflow of foreign direct investments is expected to step up capacity addition significantly. The government has allowed FDI of up to 100 per cent through the automatic route in all segments of the power sector except for nuclear energy. Consequently, the sector has drawn about US$ 4.6 billion investment over the past decade, of which US$ 1.6 billion came in FY12 alone. Hence, we can comfortably say that the Indian power sector has strong future growth prospects. Consequently, we need to assess the various policy initiatives that have had a positive impact on the sector, and capitalise upon them further to ensure a strong future growth. 1.5 MAJOR ISSUES The most important sector in infrastructure is the power sector. There is about 90 GW of capacity under various stages of construction and attending to the outstanding issues facing these projects must be given a high priority. However, given the time lag involved in implementing power projects, it is necessary to ensure that projects which will be commissioned only in the Thirteenth Plan can also move ahead satisfactorily. Almost half the capacity in the Twelfth Plan is projected to come from the private sector and the position is likely to be the same in the Thirteenth Plan. Private sector investors in power generation have faced many problems in recent times. They include (i) Inadequate supply of domestic coal and unanticipated increase in prices of imported coal. (ii) Difficulties with clearances for captive mines, as well as for generating stations. (iii) Land availability (iv) Poor financial health of some state electricity distribution companies which are the main customers and which suffer from insufficient tariff adjustment plus inefficiencies in collection. (v) Inadequate availability of domestic natural gas. (vi) Inadequate fuel supply agreements for coal. (vii) More recently, difficulties in obtaining finance from both external and domestic sources. 1.6 INITIATIVES PPP IN POWER To attract private sector participation, government has permitted the private sector to set up coal, gas or liquid-based thermal, hydel, wind or solar projects with foreign equity participation up to 100 per cent under the automatic route. The government has also launched Ultra Mega Power Projects (UMPPs) with an initial capacity of 4,000 MW to attract billion of private investment. Out of the total nine UMPPs, four UMPPs at Mundra (Gujarat), Sasan (Madhya Pradesh), Krishnapatnam (Andhra Pradesh) and Tilaiya Dam (Jharkhand) have already been awarded. The remaining five UMPPs, 8 P age

19 namely in Sundergarh District (Orissa), Cheyyur (Tamil Nadu), Girye (Maharashtra), Tadri (Karnataka) and Akaltara (Chattisgarh) are yet to be awarded. To create Transmission Super Highways, the government has allowed private sector participation in the transmission sector. A PPP project at Jhajjar in Haryana for transmission of electricity was awarded under the PPP mode. Further, to enable private participation in distribution of electricity, especially by way of PPP, a model framework is being developed by the Planning Commission. ADVANCED TECHNOLOGIES It has already been announced that 50 per cent of the Twelfth Plan target and the coalbased capacity addition in the Thirteenth Plan would be through super-critical units, which reduce the use of coal per unit of electricity produced. Supercritical (SC) power plants, which operate at steam conditions 560 o C/250 bars, can achieve a heat rate of 2,235 kcal/kwh as against a heat rate of 2,450 kcal/kwh for sub-critical power plants. The specific CO2 emission for super-critical plants is 0.83 kg/ kwh as against 0.93 kg/kwh for sub-critical plants. Super-critical technology is now mature and is only marginally more expensive than sub-critical power plants. Determined efforts are needed to achieve these results, and prioritisation of coal linkages will be necessary to incentivise adoption of super-critical technology. ULTRA SUPER CRITICAL An Ultra Super Critical (USC) coal-based power plant has an efficiency of 46 per cent compared with 34 per cent for a sub critical plant and 40 per cent for a Super Critical (SC) plant. Thus, with an USC or SC plant, the savings in coal consumption and reduction in CO2 emission can be substantial. A 10,000 MW power plant will generate 60 billion units of electricity per year at around 70 per cent load factor. It has a specific heat of 1,870 kcal/kwh compared to 2,530 kcal/kwh for a sub-critical plant. Thus, every unit generated with USC will save kg [(2,530-1,870)/4,000] coal of 4,000 kcal/kg; and 60 billion units will save 9.9 million tonnes of coal per year. 1.7 OPPORTUNITIES 1. Long-term health of power sector seriously undermined (losses Rs 70,000 crore per year). However, aggregate technical and commercial (AT&C) losses are slowly coming down. State Governments must push distribution reform. 2. Hydropower development seriously hindered by forest and environment clearance procedures. Need to look at special dispensation for these States, especially Arunachal Pradesh. 3. A time-bound plan to operationalize development and evacuation of hydropower from NER required. Road connectivity is an issue for expeditious project completion. 4. Given limited connectivity of NER with other parts of the country (through Siliguri corridor), access through Bangladesh needs to be explored. 5. Electricity tariffs not being revised to reflect rising costs. Regulators are being held back from allowing justified tariff increases. 9 P age

20 CHAPTER 2: COMPANY PROFILE 2.1 BACKGROUND PFC was established in July 1986 as a Development Public Financial Institution (PFI) under Section 4A of the Companies Act, It is dedicated to the Power Sector. It is a wholly owned by Government of India. A Nav-Ratna public Sector Undertaking. It has highest safety ratings from domestic and international credit rating agencies and also ISO Certification for the Project Appraisal System. PFC provides financial assistance to all types of power projects like Generation, R&M, Transmission, Distribution, system improvement, etc. PFC encourages optimal growth and balance development of all segments of power sector through assigning priorities for financing different categories of projects. The state sector utilities are the main beneficiary of PFC s financial assistance. PFC has also been funding private sector projects for last 5-6 years. 2.2 MISSION PFC's mission is to excel as a pivotal developmental financial institution in the power sector committed to the integrated development of the power and associated sectors by channelling the resources and providing financial, technological and managerial services for ensuring the development of economic, reliable and efficient systems and institutions. * Consistently rated Excellent for its overall performance against the targets set in Memorandum of Understanding (MoU) by the Government of India (GoI) since * Nav-Ratna Public Sector Undertaking. * Ranked among the top 10 PSUs for the last four years. 2.3 CREDIT RATINGS Placed at Sovereign Rating by International Rating Agencies - Moody s and Standard & Poor s for long term foreign currency debt. Placed at the highest safety ratings by accredited rating agencies in India - CRISIL and ICRA Domestic borrowings include term loans and bonds; External borrowings take the form of Syndicated Loans, Fixed & Floating Notes. Consistently rated Excellent by the Government of India (GOI) for overall performance against the targets set in Memorandum of Understanding (MoU) between GOI and PFC. 10 P age

21 Table 2: Different Rating by major rating agencies a DOMESTIC RATING AGENCY RUPEE BORROWINGG Long Term Short Term CRISIL ICRA International Rating Agency AAA LAAA P1+ A1+ Moody s Baa3 At par with Finch BBB- sovereign Rating Standard & Poor s BBB- Source: PFC website 2.4 OBJECTIVE OF PFC PFC in its present role has the followingg main objectives: - To rise the resources from international and domestic sources at the competitive rates and terms and conditions and on-ward lend these funds on optimum basis to the power projects in India. To act as catalyst to bring institutional, managerial, operational and financial improvement in the functioning of the state power utilities To assist state power sector in carrying out reforms andd to support the state power sector during transitional period of reforms 11 P a ge

22 2.5 CLIENTS OF PFC State Electricity Boards State Power Utilities State Electricity/Power Departments Other State Departments (likee irrigation Department) engaged in the development of the power project Central Power Utilities Joint Sector Powerr Utilities operative Societies Municipal Bodies Private Sector Power Utilities and Co- 2.6 RANGE OF SERVICES Fund Based Rupee Term Loan Foreign Currency Term Loan Buyer s Line of Credit Working Capital Loan Loan to Equipment manufacturer rs Debt Restructuring/ Refinancing Take out Financing Bridge Loan Lease Financing Bill Discounting 12 P a ge

23 Non-Fund Based Guarantees Exchange Risk Management 2.7 REFORMS & RESTRUCTURING INITIATIVES PFC has been actively persuading State Govt. to initiate reformm and restructuring of their t power sector in order to make them commercially viable. In this regard following initiatives have been taken:- PFC is providing financial assistance to lending criteria/exposure limit norms. reform-minded Statess under relaxed PFC has decided to provide technical/financial assistance to State Utilities for structurall reforms off the State Power Sector. Govts. / Power Reform Group constituted in PFC to advice and assists the Statete Govt. /Power Utilities to formulate suitable restructuring programmes s. Figure 4: Business Strategy of PFC Source: PFC Website 13 P a ge

24 Table 3: Sanctions & Disbursements for the respective financial years Particulars Financial Year Sanctions Disbursement Source: PFC website Table 4: Major Projects Funded by PFC Name of the Project Capacity (MW) Cost (Crs) Amount funded Malwa TPS 2x Khaperkheda TPS Extn. 1x Kameng HEP 4x Koradi TPS 3x Mejia Extn. Unit 2x Sagardighi TPS PH1 2x Chandrapura Extn. Unit 7&8 2x Panipat TPS Stage V 2x Source: PFC website Table 5: Financial Highlights for the year Profit after Tax Loans and Grants Sanctioned Loans and Grants Disbursed Net Worth Reserves and Surplus Rs 3032 Crore Rs Crore Rs Crore Rs Crore Rs Crore No. of Employees 379 Source: PFC website 14 P age

25 2.8 SWOT Analysis Strengths Govt. of India s undertaking. Good quality management Well established, long standing relations in the power industry Implementing agency for Mop s schemes including AG &SP and APDRP Highest credit rating (due to government ownership) Weaknesses Poor asset quality with most of the lending to SEBs, whose loan repayment capabilities in the long run is doubtful. Concentration risk attributed to lending in single sector. Opportunities Power sector presents significant investment opportunities. Providing investment gateways & consultancy for domestic and external financial agencies. Having new business opportunities to cover the entire range of activities in the Power sector. Threats PFC has significant exposures entities which are loss making, financially weak an dare defaulting to most of their creditors. Delinquencies by these entities to PFC could impair the currently sound Balance Sheet of PFC. With increasing exposure to SEB s, their weak balance sheet may affect PFC s creditworthiness. 15 P age

26 CHAPTER 3: OBJECTIVE AND SCOPE 3.1 OBJECTIVE OF THE PROJECT The objective of the Project Report is: 1. Finding out the factors affecting a project s capital and operational expenditure which in turn have an impact on the cash outlay and revenue flow of the project and their study. Thus, performing Project Appraisal of a 660 MW Coal Based Supercritical Thermal Power Project. 2. A financial model of a 660 MW Coal Based Super-critical Thermal Power Project so as to study the effect of above factors on tariff and revenue flows. 3. To find out probable values of IRR, DSCR among other ratios using the financial model to study the feasibility and attractiveness of a 660 MW Coal Based Supercritical Thermal Project. 3.2 SCOPE Scope of project covers installation, commissioning, operation and maintenance of 660 MW coal fired Thermal Power Plant and associated systems. Indian power sector wants to ramp up the installed capacity to meet the growing demand. Large Power Projects enjoy economics of scale and help in lowering the tariff of supply. This project helps to find out the factors that will affect the project cost and thus have an impact on total investment and operational expenses of the project. The assessment and analysis of these factors will help in determining the project cost, the associated risks and ultimately the tariff for supply from the project and thus the revenue and cash flows. Such information is vital in making financial decisions and project appraisal. The study may also help in understanding of ways to mitigate the risks. 16 P age

27 CHAPTER 4: LITERATURE REVIEW AND RESEARCH METHODOLOGY 4.1. LITERATURE REVIEW The literature survey was carried out by reviewing various journals on project appraisal and financial model of a power plant. Few journals reviewed are: P.L.Kingston [1973] in IBM System Journals suggested, The use of computers in financial planning has become an area of increasing interest to financial management and data processing users. Computing systems facilitate the use of financial models in that they allow for the storage and retrieval of a representation of a financial plan and also for the evaluation of the consequences of what if conditions. Thus a financial model is a tool that can assist in the entire business planning process whether it be forecasting, cash management, or projection of profits. This paper presents introductory concepts that provide a basis for systems design and implementation of financial models. Described are the terminology, the basic components of financial models, and two general approaches to the construction of these models. W Wetekamp [2011] suggests how Net Present Value (NPV) can be used as a proper tool to ensure effective project management. The author proves that investment project's appraisal methods, such as e.g. NPV, can and should be used as an ongoing monitor of project health. What is more, even in case of project turbulences Net Present Value can be used as a key instrument for finding the most appropriate solutions. Robert Lundmark et al [2012] analyzed how market and policy uncertainties affect the general profitability of new investments in the power sector, and investigate the associated investment timing and technology choices. They developed an economic model for new investments in three competing energy technologies in the Swedish electric power sector. The model takes into account the policy impacts of the EU ETS and the Swedish green certificate scheme. By simulating and modeling policy effects through stochastic prices the results suggest that bio-fuelled power is the most profitable technology choice in the presence of existing policy instruments and under our assumptions. The likelihood of choosing gas power increases over time at the expense of wind power due to the relative capital requirement per unit of output for these technologies. Overall the results indicate that the economic incentives to postpone investments into the future are significant. Reports of similar projects for thermal power plants were also reviewed. The reports of previous batches on similar topic and the referenced data were helpful in determining data for this project. The literature available within the company helped a lot in understanding Project Finance and factors of project cost which are summarized as: 17 P age

28 4.2 PROJECT FINANCE Project financing is an innovative and timely financing technique that has been used on many high profile corporate projects, including infrastructural and power. Employing a carefully engineered financing mix, it has long been used to fund large scale natural resource projects, from pipelines and refineries to electric-generating facilities and hydroelectric projects. Increasingly, project financing is emerging as the preferred alternative to conventional methods of financing infrastructure and other large-scale projects worldwide. Project financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one must understand the cogent analyses of why some project financing plans have succeeded while others have failed. A knowledge base is required regarding the design of contractual arrangements to support project financing; issues for the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the project's borrowing capacity; how to analyze cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the project's feasibility. Project finance is different from traditional forms of finance because the credit risk associated with the borrower is not as important as in an ordinary loan transaction rather the identification, analysis, allocation and management of every risk associated with the project is given more importance. Project finance is the financing of long term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project. Usually, a project financing scheme involves a number of equity investors, known as sponsors. As well as a syndicate of banks which provide loans to the operations. The loans are most commonly non-recourse loans, which are secured by the project itself and paid entirely from its cash flow, rather than from the general assets or creditworthiness of the project sponsors. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms. Generally, a special purpose entity is created for each project, thereby shielding other assets owned by a project sponsor from the detrimental effects of a project failure. As a special purpose entity, the project company has no assets other than the project. Capital contribution commitments by the owners of the project company are sometimes necessary to ensure that the project is financially sound. Project finance is often more complicated than alternative financing methods. It is most commonly used in the mining, transportation, telecommunication and public utility industries. 18 P age

29 Figure 5: Project Finance Structure Sponser(s) Equity Dividend Debt Debt Service Lenders O&M Support Project Company Electricity Payments Equipment Provider Connections Civil Works Source: PFC Library Zoning Local Permits Construction Contracts Risk identification and allocation is a key component of project finance. A project may be subject to a number of technical, environmental, economic and political risks, particularly in developing countries and emerging markets. Financial institutions and project sponsors may conclude that the risks inherent in project development and operation are unacceptable (unfinanced able). To cope with these risks, project sponsors in these industries (such as power plants or railway lines) are generally completed by a number of specialist companies operating in a contractual network with each other that allocates risk in a way that allows financing to take place. The various patterns of implementation are sometimes referred to as "project delivery methods." The financing of these projects must also be distributed among multiple parties, so as to distribute the risk associated with the project while simultaneously ensuring profits for each party involved. 4.3 PROJECT APPRAISAL Licenses Certification Regulatory Authorities Electricity Deliveries Power Purchaser Tariff for such electricity Obligation to buy electricity It is an assessment of a project in terms of its economic, social and financial viability. A lending financial institution makes an independent and objective assessment of various aspects of an investment proposition. It is defined as taking a second look critically and carefully at a project by a person who is in no way involved or connected with its preparation. He is able to take independent, dispassionate and objective view of the project in totality, along with its various components. There are some steps for Project appraisal. Management Appraisal: Management appraisal is related to the technical and managerial competence, integrity, knowledge of the project, managerial competence of the promoters etc. The promoters should have the knowledge and ability to plan, implement and operate the entire project effectively. The past record of the promoters is to be appraised to clarify their ability in handling the projects. 19 P age

30 Technical Feasibility: Technical feasibility analysis is the systematic gathering and analysis of the data pertaining to the technical inputs required and formation of conclusion there from. The availability of the raw materials, power, sanitary and sewerage services, transportation facility, skilled man power, engineering facilities, maintenance, local people etc are coming under technical analysis. This feasibility analysis is very important since its significance lies in planning the exercises, documentation process, and risk minimization process and to get approval. Financial feasibility: One of the very important factors that a project team should meticulously prepare is the financial viability of the entire project. This involves the preparation of cost estimates, means of financing, financial institutions, financial projections, break-even point, ratio analysis etc. The cost of project includes the land and sight development, building, plant and machinery, technical know-how fees, preoperative expenses, contingency expenses etc. The means of finance includes the share capital, term loan, special capital assistance, investment subsidy, margin money loan etc. The financial projections include the profitability estimates, cash flow and projected balance sheet. The ratio analysis will be made on debt equity ratio and current ratio. Commercial Appraisal: In the commercial appraisal many factors are coming. The scope of the project in market or the beneficiaries, customer friendly process and preferences, future demand of the supply, effectiveness of the selling arrangement, latest information availability an all areas, government control measures, etc. The appraisal involves the assessment of the current market scenario, which enables the project to get adequate demand. Estimation, distribution and advertisement scenario also to be here considered into. Economic Appraisal: How far the project contributes to the development of the sector; industrial development, social development, maximizing the growth of employment, etc. are kept in view while evaluating the economic feasibility of the project. Environmental Analysis: Environmental appraisal concerns with the impact of environment on the project. The factors include the water, air, land, sound, geographical location etc. 4.4 CALCULATION OF TARIFF BASED ON CERC REGULATIONS The tariff for supply of electricity from a thermal generating station shall comprise two parts, namely, capacity charge (for recovery of annual fixed cost consisting of the components) and energy charge (for recovery of primary fuel cost and limestone cost where applicable). Annual Fixed Cost: The annual fixed cost (AFC) of a generating station or a transmission system shall consist of the following components Return on equity: 15.5% tax free return on total equity. Only 30% of the project cost can be treated as equity. 20 P age

31 Interest on loan capital: Year to year loan interest is calculated on full debt amount by weightage average rate of interest. Depreciation: Depreciation up to 90% of the capital cost of asset is allowed. Depreciation shall be calculated annually based on Straight Line Method and rate defined in CERC guidelines. Interest on working capital: Working capital shall include Cost of coal or lignite and limestone, if applicable, for 1½ months for pit-head generating stations and two months for non-pit-head generating stations. Cost of secondary fuel oil for two months. Operation and maintenance expenses for one month. Maintenance 20% of operation and maintenance expenses. Receivables equivalent to two months of capacity charges and energy charges for sale of electricity. Energy Cost: It is also calculated on norms of CERC, the yearly consumption of primary fuel and secondary fuel is taken for the calculation. DPR (Detailed Project Report) of various projects of similar kinds helped in understanding the project technically. Reports and notifications available on various websites listed in bibliography also helped in adding value to the project. The data mainly obtained by interviews with experts and experience of plant operations and form the basis of assumptions taken for modelling. The data thus analysed was processed in model for finding out the required ratios and check the project feasibility. 4.5 RESEARCH METHODOLOGY Methodology used for the project: Project Appraisal: To evaluate the project rating and conducting the feasibility report of a project based on the DPR/information memorandum/application form and other related materials submitted by the borrower. Assesses the capital needs of the business project and how these needs will be met. Calculating the cost of generation and relevance Calculation of DSCR, IRR and sensitivity analysis. Entity Appraisal: To assess the financial health of organizations that approach PFC for credit for power projects. This would entail undertaking of the following procedures: Analysis of past and present financial statements Examination of Profitability statements 21 P age

32 CHAPTER 5: OVERVIEW OF PROJECT APPRAISAL & FINANCIAL MODELLING 5.1. GUIDING PRINCIPAL FOR PROJECT APPRAISAL AT PFC Offering credit is an operation fraught with risk. Before offering credit to an organization, its financial health must be analysed. Credit should be disbursed only after ascertaining satisfactory financial performance. Based on the financial health of an organization, PFC assigns integrated ratings. These credit ratings are used to fix the interest rate, exposure limit and security criteria ENTITY ELIGIBILITY CRITERIA: While considering the eligibility of an entity, last two year Auditor s report and notes to annual accounts along with Income tax assessment order for last three years be also examined. Type of securities and mode of repayments is also to be suggested by the help of entity rating STATUTORY CLEARANCES: All statutory clearances requires at Central/State level for the implementation of the project are to be ensured. Depending on the cost of project, techno economic clearances of CEA/SEB may be asked. Clearances/Agreements required for implementation of project: 1. Land Acquisition 2. Water Availability 3. Stack Height: Airport Authority of India 4. Forest Clearance: Such that no sanctuary, reserve, national park within the project 5. No defence establishment 6. Ministry of environment and Forest 7. Fuel Supply Arrangement/Agreement through various coal linkages 8. Fuel Transportation Arrangement 9. PPA for selling Electricity 10. Transmission agreement with Transmission agency 11. Pollution Control Board Table 6: Approvals and Agreement Status Major Clearances/ Agreements S No Requirement Agency Status 1 Consent to establish / NoC 2 Environment Clearance MoEF 3 Forest clearance MoEF Tuticorin Airport Certified The Company has applied for the clearance. The Company has applied for the clearance 4 Water Drawl SG Agreement made 22 P age

33 5 Stack height Clearance 6 Pollution control board NOC for power plant Airport Authority of India (AAI) Tamil Nadu Pollution control board (TNPCB) 7 Land Availability State Government 8 Primary Fuel Coal India Limited 9 Transportation of Fuel Aspinwall Co Ltd 10 Transmission Line PGCIL 11 EPC / package contract Consolidated Construction Consortium Ltd. Approved All the required standards of Pollution control board are met 600 acres has been acquired Long term agreement made on 15 April 2010 Fuel Transport Agreement made Open Access and Transmission Agreement made Agreement made on 18 June COST ESTIMATE: The base date for estimation of cost shall not be more than six month old at the time of talking up the project for appraisal. Physical contingencies and the price contingencies shall be made depending on the project completion period of 1,2,3,4 and 5 years as per PFC guidelines. Also IDC, to be considered to arrive at project cost PROJECT COST-BENEFIT ANALYSIS: Calculate Financial Internal rate of return (FIRR). Techno-economically sound with Financial IRR not less than the minimum required rate. Sensitivity analysis is also done PROJECT ANALYSIS: The project is evaluated on various parameters and then ranked according to the PFC guidelines. The method is explained later on PROJECT & ENTITY APPRAISAL The Project Analysis is intended for arriving at a relative measure of merit for the project. This model involves: 1. Entity rating 2. Project rating ENTITY APPRAISAL METHODOLOGY Analysis and critical comments on the strength and weakness of organization, management, its working result, financial position etc. are made on the basis of organization set up, capital/financial structure, operating/working results, credit worthiness, financial result, entity related risks and mitigation measures proposed. Power Sector entities are evaluated with reference to a set of qualitative and quantitative factors to arrive at the Aggregate Entity Score. In addition to the performance parameters, milestones giving weightage to core reform activities have also been included in the overall grading mechanism. Both the public and private entities are evaluated separately on set of measures. 23 P age

34 It is a two-stage process i.e. preliminary evaluation and detailed evaluation in which all the promoters are evaluated for their ability to contribute equity, carry the project to completion and operate the project as per the contracts. PRELIMINARY APPRAISAL In this, the scrutiny is based on the analysis of quantitative parameters, so as to access the financial strength of the promoters, track record of the project implementation and the credit worthiness. The scoring of all the factors is on a six- point scale, with 6 being the best and 1 being the worst. It involves analysis under two categories for Preliminary Evaluation: Business analysis Financial flexibility I. BUSINESS ANALYSIS Business analysis evaluates the performance of the present business of the promoters. The analysis involves evaluation of the market position and financial position of the company along with a view on management expertise and integrity of the promoters. The parameters and factors used in business analysis have been enumerated below: a) Market Position Here relative market share of the company is determined. It is calculated as the ratio of the turnover of the promoting company divided by the turnover of the market leader in the business. In case of diversified companies the same process is repeated for each division. b) Financial Risk It evaluates the past financial performance of the promoting companies. Performance of at least the last three years is evaluated. Financial risk parameter is represented by 5 ratios, which cover various aspects of company s financial performance: Table 7: Preliminary appraisal Ratios Meaning of Scoring Attribute Return on Capital Employed Quantitative Return on Investment (ROCE) Operating Margin Quantitative Profitability of the Business Debt Service Coverage Ratio Quantitative Coverage Ratio (DSCR) Total Debt to Net Worth Quantitative Gearing Cash Flow From Operation Quantitative Cash Flow to Total Debt Source: PFC Library Return on Capital Employed (ROCE) ROCE = PBIT/ Opening capital employed 24 P age

35 Here, Capital Employed = (Capital + Reserves + Short term debt + Long term debt evaluation reserves Capital work in progress)roce is scored as a simple average of the last three years but if the latest ROCE is lower than one for the preceding year then the latest ROCE should be used for calculation instead of the average. Operating Margin OM = Operating Profit before Depreciation, Interest and Taxes/ Income from operations Debt Service Coverage Ratio (DSCR) DSCR = (PBIT Taxes)/ (Repayment due to Long term Loan + Interest on long term and Short term loans) Total Debt/Total Net Worth Total debt/ total net worth = (Long term loans + Short term loans + Working Capital loans)/(capital + Reserves Revaluation reserve Loss brought forward Intangible Assets) Cash Flow from Operation / Total Debt Cash flow from operations/ Total debt = Cash flow from Operations/ (Long term loans + Short term loans + Working Capital Loans from Banks) II. FINANCIAL FLEXIBILITY It is used to judge the ability of promoters to financially manage the project. Thus, key points evaluated are: Ability to contribute equity to the project Ability to bring the project to financial closure Ability to fund temporarily funding mismatches Ratios Meaning Attribute being Evaluated Equity Funding Potential Quantitative Equity Raising Potential Bridge Finance Ability Quantitative Quarterly cash surplus from operations Track Record of Fund raised Quantitative Funds raised in last 10 years Aggregate Project cost Quantitative Projects established in last 10 Handled years Source: PFC Library Equity Funding Potential: A Promoting company can contribute equity to the project by raising debt on its books or raising equity or through cash surpluses in the books. Bridge Financing Ability: This parameter basically judges the ability of company to fund short term cash flow imbalances in the project. This attribute is useful to prevent delay in project implementation due to small disbursals from the institutions. 25 P age

36 Track Record of Fund Raised: This technique is basically used to judge the promoter s ability to achieve financial closure and tie up funds for the project. This factor is scored by comparing the aggregate fund raised in the last ten years as a proportion of the project cost with the benchmark, to arrive at a score. Aggregate Project Cost: This factor evaluates the ability of the promoters to manage new project. Scoring is done by comparing the aggregate cost of the project implemented by the promoting group in the last years as a proportion of the cost of the present projects with the benchmark, to arrive at a score. DETAILED APPRAISAL It involves Qualitative Analysis of Promoter Company. The scoring of all the factors is on a four-point scale. The factors are judgmental and the model provides broad guidelines for the evaluation for the same. It involves analysis under two categories parameters for Detailed Evaluation: Management risk Management past experience I. MANAGEMENT RISK It evaluates two factors: Table 8: Detailed Appraisal Ratios Meaning Attribute being Evaluated Managerial Competency Business and Financial Policy Source: PFC Library Quantitative Quantitative Competency in running the business Risk Propensity II. MANAGEMENT EXPERIENCE Ratios Meaning Attribute being Evaluated Experience in Power Sector Experience in Setting the Project Size Experience in India Quantitative Quantitative Quantitative Power Sector Experience Project Management Capability Experience in dealing with Developed Economies Project Preparedness Source: PFC Library Quantitative Preparedness of the group to Execute the Project 26 P age

37 PROJECT RATING The project is rated against a set of qualitative and quantitative parameters. The qualitative parameters being Cost/MW, first full year of generation, levellised cost of generation and DSCR. The qualitative parameters are type of implementation structure, security of fuel, power sale agreement and satisfactory operation and maintenance. The weightage of parameter in calculating the score of qualitative and quantitative parameters is assigned on the company norms and policies. The upper and lower limits of qualitative and quantitative parameters are fixed and then on basis of pro-rata basis, assigning of rank is done. The parameter s point and their allocation are also discussed on the set of standards. Quantitative Parameters First full year cost of generation w/o RoE. Levellised tariff/ cost of generation with RoE and tax Average DSCR Qualitative Parameters Power off take Fuel supply o Long term agreement o Short term agreement o Captive Coal mine o Transportation facility Construction Contract o Warranty o Market standard o Performance Type of contract and bidding Experience of the EPC contractor Commercial terms of Contract O&M o Past Experience o Management Team and efforts The criteria of two parameters are evaluated, assessed and quantified on the above factors, there is a set of scoring range and on the basis of that model project is ranked. 27 P age

38 5.3. FINANCIAL MODELING: A TOOL FOR PROJECT APPRAISAL In every project finance deal, where everyone s financial security rests on the future performance of a new undertaking, a thorough analysis of the project s finances under a arrange of assumptions is prerequisite for arranging debt and equity funding, financial model play a crucial role in decision-making STEPS TAKEN FOR DESIGNING A MODEL The essential steps to be taken for designing a financial model for any infrastructure project financing through private participation are as follow: Determining the scope of the project and the related EPC cost. Determining other expenditure such as Development expense, Preliminary & Preoperative expenses, financial costs, etc. Determine the total Cost of the project with interest during construction. Assessment of tariff in order to determine revenue potential for the project. Determine O&M cost through the concession period. Calculating the fixed and variable cost relating to the project. Financial analysis to determine the most efficient means of financing PURPOSE AND USES OF FINANCIAL MODEL The financial model provide a basic analysis, usually based on relatively raw, preliminary data and simplified financing assumptions, to establish weather a given project is worth pursuing further. The required output may be: Basic Project IRR Debt service Coverage Ratios and other debt ratios. Establishing a financial structure that is sustainable by the project. An indication of tariff levels required for achieving appropriate returns. Preparation of sensitivity analysis. 28 P age

39 CHAPTER 6: CASE STUDY 6.1 PROJECT PURPOSE AND SCOPE PURPOSE To bridge the nation s energy deficit, both average and peak load, by capacity addition of 660 MW by setting-up Coal fired Thermal Power Project based on super critical technology at Tamil Nadu, India. SCOPE Scope of this project covers installation, commissioning, operation and maintenance of 660 MW with Super critical & Pulverised Coal fired boiler and associated systems. The Scope shall broadly cover: 660 MW power plant and associated systems. Construction and commissioning of the Balance of Plants (BoP) required for efficient reliable and safe operation of the plant. Installation of BTG, their auxiliaries and commissioning. Construction of water intake system for the project site. Transportation Arrangement for Coal to the Project site. Power evacuation system including transmission lines. Construction of facilitation infrastructure such as administration building. 6.2 PROJECT DETAILS LOCATION The location of the proposed plant is in Tamil Nadu. The project site is located at a distance of about 14 kms from the National High way and 15 kms from Trichendur town. The site elevation is +12 m above mean sea level. The site terrain is generally plain requiring minimum efforts to grade them suitable for construction of the project. The site was selected considering the followings: SNo Geographic Items Details 1 Location Tamil Nadu State 2 Nearest Railway Station Thoothukkudi 3 Road Approach Madurai Tiruchendur- Manapad 4 Altitude +12 m above MSL 5 Nearest Airport Thoothukkudi 29 P age

40 6 Nearest Port Thoothukkudi 7 Rainfall (Annual) 600 mm 8 Climatic Conditions Tropical Climate 9 Latitude / Longitude 8 o 48 N / 78 o 10 E 10 Soil bearing capacity 25 T/M² There is no cultivation in the project site and rehabilitation of resident population from the project site does not arise. Around the project site there is no reserve forest within 15 Km radius LAND The project is being implemented in Tamil Nadu. The company has already acquired 600 acres of land and site development works will commence shortly. The land is currently not in use and there are no inhabitants requiring rehabilitation or resettlement. Specifications Land area(acres) Plant area 260 Ash disposal 130 Colony 10 Green belt others 100 Others 100 Total 600 The site identified for the Project is generally plain requiring minimum efforts to grade them suitable for construction of the project.. Around the project site there is no reserve forest within 15 Km radius. The Company has paid Rs. 50 Crore towards allotment of land and development works. The Company proposes to use the allotted land for setting up Main Power Plant, colony and Ash Dyke requiring about 400 acres. The remaining allotted land, about 100 acres, would be used for Green Belt development. The balance land of about 100 acres would be acquired by the Company in due course. The site development for the Proposed Project site, covering levelling, boundary wall, internal and approach roads and other miscellaneous requirements, is estimated to cost about Rs. 20 Crore WATER The requirement of water for the plant will be for meeting the requirement of make up for the water system, dust suppression system in coal handling plants, ash disposal 30 P age

41 system and the D.M. water plant which will be supplying the power cycle make up requirements. In addition the water requirements will be for drinking and service purposes. The total requirement of water for the plant will be around 150 m³/hr for the project. Water requirement for the plant Sl No. Item Quantity (m³/hr) 1 ACW System make up 80 2 Power Cycle make up 45 3 Service Water Requirement 15 4 Portable Water Requirement 10 Total 150 ABC Ltd. has made an agreement of minimum SG portable water supply of 4000m 3 /day of SG portable water by SG. A raw water reservoir of 25200m 3 capacity to hold 7 days requirement for plant requirement of water will be constructed at the plant site. Air cooled condenser for turbine is proposed. Water drawl approval has been obtained by the company. The basic features of the sweet water system and auxiliary cooling water for the proposed station will be proposed to buy from prospective water suppliers. Air cooled condenser is proposed for condensing steam. At the Plant, a water reservoir will be installed to meet 7 days requirement of the plant. The overall cost of water arrangement as estimated by the Company is about Rs. 90 Crore and has been considered in the Project cost SUPER CRITICAL TECHNOLOGY The Proposed Project is based on Super Critical Boiler Technology instead of more prevalent Sub-Critical Boiler Technology in India. The basic difference between the two technologies is the steam pressure at which the boiler is operated. In case of Sub Critical Technology the operating pressure in boiler is less than 19 MPa as against 24 MPa in typical subcritical power plant. The supercritical power plant can achieve considerably higher cycle efficiencies with resulting savings in fuel costs and reductions in CO2 and other emissions. Plant costs are comparable for both the technologies. However, overall economics for super critical technology are more favorable because of the increase in cycle efficiency. Economic performance is also influenced by other factors, including plant availability, flexibility of operation and auxiliary power consumption. The once-through boiler design used in super critical technology based plants is inherently more flexible than drum designs used in subcritical technology based plant, due to fewer thick section components allowing increased load change rates. Typical average availability of super 31 P age

42 critical technology based power plants is about 85%. However, with appropriate design and materials, a plant availability of >90% is achievable. Efficiencies of supercritical power generation are also less affected by part load operation, with efficiency reductions less than half those experienced in subcritical plant. The major environmental benefit of supercritical power generation is from reduced coal consumption per unit of electricity generated, leading to lower CO2 and other emissions. CO2 emissions for supercritical plant would be 17% lower than for a typical subcritical plant. Similarly, all other emissions e.g. NOx and SOx, would also be reduced pro-rata with the reduction in coal consumption. However, for optimum environmental performance, supercritical power generation technology can benefit from advanced emissions-control technologies to minimize harmful emissions. These include flue gas desulphurization (FGD), low-nox combustion, selective catalytic reduction (SCR), selective non-catalytic reduction (SNCR), air staging and reburn technologies. The lower CO2 emissions from super critical plants are quantifiable and the project can be registered as a CDM project for accruing CERs which can be traded with international markets. This can potentially work as an additional revenue stream for the project TECHNOLOGY Thermodynamic cycle Thermodynamic reheat cycle. The thermodynamic reheat cycle consists of steam generator, steam turbine generator with condenser, the Condensate extraction and boiler feed pumps along with H.P & L.P feed water heaters & deaerator. Technical and performance parameters This project is based on supercritical technology. The critical pressure point of water and steam is 22.1 MPa, below this pressure it is called sub-critical pressure and above this pressure it is called as supercritical pressure. In the supercritical region, co-existence of water and steam is not present, therefore in the absence of steam/water mixture, the recalculating boiler technology adopted for subcritical pressure could not be used. This was the key to the advancement of cycle efficiency through the adoption of economic and reliable once-through supercritical boilers. The drive for enhancing the efficiency of generating plants in and environmentally friendly manner has been realized mainly through advancing the steam conditions, i.e. increasing pressure and temperature. This led to the development of some new power generation technologies like integrated gasification combined cycle (IGCC) and pressurized fluidized bed boilers (PFB). Boiler Feed Pump Three nos., horizontal, multistage, centrifugal type boiler feed pumps will be provided. Two nos. pumps will be turbine driven with steam extracted from turbine & one no pump will be motor driven as standby. Each boiler feed pump will have one matching capacity single stage booster pump. The booster pump will take suction from feed water storage tank and discharge into the suction of corresponding main boiler feed pump 32 P age

43 which in turn, will supply feed water to boiler through the high pressure heaters and feed control station. Condensate extraction pumps The condensate extraction pumps will be vertical, multi stage enclosed canister type with flanged connection driven by electric motor. Two nos. condensate extraction pumps are used in this system. Supercritical Boilers Different boiler technology is used which is the critical requirement in the adoption of supercritical pressure and temperature. With supercritical pressure boiler need to increase the wall thickness of the pressure components and also use advanced materials for its effective working. Super critical steam turbine Steam turbine is of 3000rpm and is designed for main steam parameters of 247kg/cm2 & 540 C before emergency stop. High pressure steam turbines must be designed to withstand the higher pressure and temperature. Typical feedwater temperatures are around 275 C to 290 C compared to around 235 C to 250 C for sub-critical plants. With supercritical pressures, because of the greater steam pressure range in the turbine from inlet through to the condenser, there is greater scope for including an extra stage or stages of feedwater heating. This will further increase the cycle efficiency PRIMARY FUEL The primary fuel for the Proposed Project would be domestic coal. The Company proposes to use coal available from CIL mines. Coal India Limited has made a LoA with the company for use of coal in the Proposed Project. The Company has approved the agreement. The average calorific value of the coal is expected to be about 3400 kcal/kg. Considering this Gross Calorific Value and PLF of 85% the coal requirement of the Project works out to be about TPA. The Company has estimated the capital investment of Rs. 900 per tonne at an escalation of 5% p.a and the same has been incorporated in the overall Project Cost SECONDARY FUEL HFO, which is the secondary fuel for pulverized coal, will be used for flame stabilisation at low loads and for supporting purposes. Heavy fuel oil will be supplied from oil depot by means of truck. Two HFO storage tanks each of capacity 1000m³ with necessary heating arrangement within the tank will be provided. The estimated maximum annual requirement of HFO is 4914 KL. Capital investment of Rs 50 per kg at an escalation of 4% p.a has been estimated. LDO system will be designed for 7.5 % of BMCR, which will be considered sufficient to introduce heavier grade fuel. The light diesel oil will have provision for supply to the steam generator for startup purpose. The estimated maximum annual requirement of LDO is 1000 KL. 33 P age

44 6.2.8 TRANSPORTATION Coal will be transported from the Indian Coal fields to the Paradeep Port by Rail and from the port to the Manappadu Port located near to the project site by ship. Coal unloaded from ship will be stored in a separate coal yard to be set up by prospective Coal sellers at Manappadu port and coal will be supplied at the plant boundary by conveyors. Calorific value of Indian F grade coal will be in the range of 3400 kcal/kg. Rail route already exists upto Tiruchendur. About 12 km of rail route from Tiruchendur to project site is under approval. For transportation of coal, the Company would enter into Coal Transportation Arrangement (CTA) with the Indian Railways. Due to the availability of port facilities for transportation of coal from the mines, it is convenient and economical to unload and transport the coal to the plant. Coal will be also be transported from the port to the Manappadu Port located near to the project site by ship. Alternatively trucks will also be used for coal transfer from port to plant. Company has made a logistic agreement with Aspinwall Co Ltd for transportation of coal from port and railway station to the plant EPC CONTRACT Under an EPC contract, the contractor designs the installation, procures the necessary materials and builds the project, either directly or by subcontracting part of the work. EPC contract for this project is been given to Consolidated Construction Consortium Ltd. It is proposed to entrust the entire work of project execution covering all civil works, electrical and mechanical systems to a single EPC (Engineering, Procurement and Construction) Contractor who will take overall responsibility for timely project execution and plant performance and provide guarantees for the same. SCOPE The EPC Contractor s scope of work includes design, engineering, manufacture, supply, erection, testing and commissioning within the Power Plant site. The EPC Contractor would be responsible for all basic and conceptual engineering, detailed system engineering, design & drawings for all mechanical and electrical systems, detailed designs and construction drawings for all civil works, manufacture of equipment as applicable, procurement of sub-contracted equipment and materials, review of sub-contractor s design and engineering, inspection and expediting of sub- contracted equipment, transport of equipment and materials to site, stores management at site, overall site management covering construction, erection and commissioning activities and performance testing for the complete Power Plant. The contractor agrees to provide all civil and structural works including supplies of cement, reinforcement steel and structural steel etc. The lump sum amount of Rs 524 crore represents the lump sum fixed price towards the services to be provided by the contractor, pursuant to the scope of work under this Agreement. The contractor shall complete all the works as per project schedule approved by owner, pursuant to various conditions of this agreement, within 30 months from the start of project commencement date. 34 P age

45 OPERATION AND MAINTENANCE In order to ensure a high level of performance of the power station, it is proposed to entrust the operation and maintenance of the power station to an experienced O&M Contractor. In order to ensure that the design and construction of the power station incorporates all necessary features required for easy and efficient operation and maintenance of the proposed power plant, the proposed O&M Contractor will also be consulted during the review of EPC contract documents, plant design features, operational and maintenance features of plant systems and equipment. O&M Contractor s general manager would have primary responsibility for the operation & maintenance of the power station. O&M Contractor s site organisation is expected to comprise four broad functional areas viz. operations, maintenance, engineering and administration. Operation of Power Plant, coal and ash handling systems, water systems including water treatment system, switchyard and other auxiliary plant. Operations manager would be overall in charge of operations, all other operation personnel would work on three - shift basis. Shift personnel manpower planning for key areas has been generally done on (3+1) concept to take into account leave taken by shift personnel. Maintenance of all mechanical and electrical plant, control systems, buildings, roads, drainage and sewage systems, etc., operation of the plant workshop, planning for scheduled maintenance works and deciding requirement of spare parts. The O&M team of the power station would be headed by a Senior Vice President, under whom separate groups viz. Operation, Mechanical, Electrical, Civil and C&I maintenance would operate. In addition to these groups, operation and efficiency improvement group and maintenance planning group would monitor the efficiency in operations and maintenance management respectively and suggest continual improvements INFRASTRUCTURAL REQUIREMENTS Construction Power The company has received approval for drawl of construction power from nearby substation of Tamil Nadu Power Distribution Company Ltd. (TNPDCL). Construction Water The total water requirement for the project is 2000 m 3 /day. This water will be sourced from nearby desalination plant. The requirement of construction water for potable and service purposes will be met by the nearby desalination plant located within the allotted land for the Project. The Company has taken over the desalination plant along with the auxiliary and paid about Rs. 50 Crore for the same EVACUATION OF POWER The power generated from the plant will be evacuated at 400 KV through PGCIL / TNEB grid lines. Three / Four 400 KV transmission line circuits are proposed from 35 P age

46 400KV switch yard to Udangudi STPP Substation for further connectivity to southern grid. Company s generation project shall implement, maintain and operate dedicated transmission system for immediate evacuation of power from their generation projects. a) Company s Power generation switchyard-tuticorin pooling station 400kV D/c quad/high capacity line. b) Two nos of 400kV bays each at Company s switchyard & Tuticorin Pooling POWERGRID station. The cost of the transmission line is estimated by the Company is about Rs. 52 Crore ENVIRONMENTAL ASPECTS The project site is located at a distance of about 14 kms from the National High way and 15 kms from Trichendur town. There is no cultivation in the project site and rehabilitation of resident population from the project site does not arise. Around the project site there is no reserve forest within 15 Km radius. Since all necessary pollution control measures to maintain the emission levels of dust particles and sulphur dioxide within the permissible limits would be taken and necessary treatment of effluents would be carried out, there would be no adverse impact on either air or water quality in and around the power station site on account of installation of the proposed plant. Ash Handling System The fly ash generated in thermal power stations has commercial value because of its usage in cement and construction industries in various forms. Fly ash generated from the proposed power plant would be commercially utilized in one or more of the following industries, to the extent possible a. Manufacture of fly ash bricks b. Manufacture of aerated wall blocks and panels c. Fly ash Aggregate d. Land reclamation e. Ready Mixed Fly Ash Concrete f. Utilisation in Roads/Paving g. Use in cement manufacturing using fly ash in combination h. Manufacture of fly ash bricks i. Export of Fly ash to countries like Bangladesh and Middle East. Water Handling System Hydrochloric acid and caustic soda would be used as reagents in the proposed water treatment plant. The acid and alkali effluents generated during the regeneration process of the ion exchangers would be drained into an underground neutralising pit. The effluent would be neutralised by the addition of either acid or alkali to achieve the required ph. 36 P age

47 Waste water from the Coal yard suppression system and leaching water is collected in the settling tank. The clear water will be disposed to the nallah through CEMS. The Sludge will be dried in a Drying Pond and then Reused. Sewage water from power plant and canteen will be collected in the Anaerobic treatment pond and from there it will be sent to the clarifier. The treated water will be used for horticulture purpose. The oily waste water will be treated in an Oily Water Separator. The clear water is disposed through CEMS and the Oily Sludge is disposed offsite. Air Handling System The height of the stack which disperses the pollutants have been fixed based on the above guidelines of the Indian Emission Regulations. The electrostatic precipitators which remove most of the fly ash from the flue gas, thereby limiting the quantity of fly ash emitted to atmosphere. By selecting a suitable furnace and burner for the steam Generator, NOx formation has been avoided and no additional equipment for NOx control is required. Although there is no statutory stipulation for regulation of NOx emission, the boiler will be designed for maximum of 750 mg/nm3 with provision of low NO burners. Dust nuisance due to Coal handling would be minimised by providing suitable dust suppression/extraction systems at crusher house, junction towers etc. For the coal stockyard, dust suppression system would be provided. Boiler bunkers would be provided with ventilation system with bag filters to trap the dust in the bunkers. Noise Handling System As per State Pollution Control Board, Ambient noise level for Industrial area will be Sl. No Time db (A) 1. Day Time 6 AM to 9 PM Night Time 9 PM to 6 AM 70 The above noise level at plant boundary during normal operation is ensured by proper selection of the system. Controlled noise level from originating equipment and green belts around the plant area. Project clearances received from statutory authorities, Tamil Nadu State Pollution Control Board (TNPCB) and the concerned agencies of the Government of Tamil Nadu and India. Statutory Clearances All statutory clearances requires at Central/State level for the implementation of the project are to be ensured. Depending on the cost of project, techno economic clearances of CEA/SEB may be asked. Clearances/Agreements required for implementation of project: 1. Land Acquisition 2. Water Availability 3. Stack Height: Airport Authority of India 4. Forest Clearance: Such that no sanctuary, reserve, national park within the project 5. No defense establishment 37 P age

48 6. Ministry of environment and Forest 7. Fuel Supply Arrangement/Agreement through various coal linkages 8. Fuel Transportation Arrangement 9. PPA for selling Electricity 10. Transmission agreement with Transmission agency 11. Pollution Control Board Table 9: Approval and Agreement Status Major Clearances/ Agreements S No Requirement Agency Status 1 Consent to establish / NoC 2 Environment Clearance MoEF 3 Forest clearance MoEF Tuticorin Airport Certified The Company has applied for the clearance. The Company has applied for the clearance 4 Water Drawl SG Agreement made 5 Stack height Clearance 6 Pollution control board NOC for power plant Airport Authority of India (AAI) Tamil Nadu Pollution control board (TNPCB) 7 Land Availability State Government 8 Primary Fuel Coal India Limited 9 Transportation of Fuel Aspinwall Co Ltd 10 Transmission Line PGCIL 11 EPC / package contract Consolidated Construction Consortium Ltd. Approved All the required standards of Pollution control board are met 600 acres has been acquired Long term agreement made on 15 April 2010 Fuel Transport Agreement made Open Access and Transmission Agreement made Agreement made on 18 June PROJECT COST COMPONENTS OF PROJECT COST The Project is estimated to be set up at an aggregate cost of Rs Crore comprising of expenditure towards Land, EPC Cost, Transmission Line, Coal Transportation Arrangement, Water Arrangement, Preliminary & Preoperative Expenditure, Contingencies, Interest During Construction Period and Margin Money for Working Capital. A summary of the components of Project cost is presented below: 38 P age

49 Table 10: Project Cost Details Sl No. Particulars Total Cost 1 Land & Site Development 50 2 Total Plant & Equipment Civil Works Electric Works Miscellaneous Total Hard Cost Overhead & Pre-Op. Expenses Interest During Construction Working Capital Margin Total Soft Cost (in crore) Total Project Cost FINANCING PLAN The tentative financial plan for the proposed project is as follows: Particulars Percentage Debt Equity Ratio 3.00 Cost (Rs Crore) Equity 25% Debt 75% Upfront Equity 51.5% Total 100% DEMAND AND SUPPLY Inspite of 18,382 MW of installed capacity the state of Tamil Nadu is struggling to fulfil its electricity demand. The electricity demand in the State had increased but the capacity of the generating facilities had dropped due to inefficiencies resulting in shortfall. Most of the districts in Tamil Nadu face power cuts lasting over six hours. Between April 2012 and February 2013, the energy and peak shortage of power in Tamil Nadu were 17.4 % and 12.3 % respectively of the demand. 39 P age

50 Electricity deficit in the state has increased from 1% in to 11% in Between and , electricity requirement grew at CAGR of 9%, while availability only grew at around 7% leading to increasing electricity deficits. Figure 6: Actual power supply position in Tamil Nadu Requirement Availability % deficit % 12% 10% MU % 8% 6% % 1% 1% FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY % 8% 6% 4% 2% 0% Source: CEA website Table 11: Power requirement and availability for year for Tamil Nadu Peak Peak Energy Energy Energy Peak Availabilit Deficit/Surp Requiremen Availabilit Deficit/S Period Demand y lus t y urplus (MW) (MW) (MW) (MU) (MU) (MW Apr May June July Aug Sep Oct Nov Dec Jan P age

51 Feb Mar TOTAL Source: CEA, Load Generation Balance Report ( ) COST BENEFIT ANALYSIS Table 12: Project details sheet No. of units 1 Capacity per unit 660 MW Total project capacity 660 MW Without IDC 3595 Rs Crore IDC 656 Rs Crore With IDC 4251 Rs Crore Equity (25%) Rs Crore Debt (75%) Rs Crore Upfront Equity (51.5%) Rs Crore Interest Rate pre COD 13.25% p.a. Interest rate post COD 13.25% p.a. Working Capital 13% p.a. Repayment Period 12 Years Moratorium Period 6 Months Principle Repayment Start Date 01-Jul-14 Date Principle Repayment End Date 01-Jan-26 Date Interest Repayment Start Date 01-Jan-14 Date Interest Repayment End Date 01-Jan-26 Date MOU with PTC (including all units) % of total capacity 70% PPA Tariff As per CERC based tariff Rs/unit No. of years 25 years Selling through Merchant Basis (including all units) % of total capacity 30% PPA Tariff 3.5 Rs/unit No. of years 25 years Escalation per year 5% Corporate Tax 33.99% MAT 20.96% 41 P age

52 GSHR 2392 kcal/kwh Auxiliary Consumption 7% % Plant Load Factor 85% % O&M Escalation 5.72% % O&M Expense crore/mw Fuel Price 900 Rs/tonne Price Escalation 5% p.a. Gross Calorific Value 3400 kcal/kg Secondary Fuel Price 50 Rs/kg Gross Calorific Value kcal/kg Secondary Fuel Consumption 1 ml/kwh Specific Gravity value of Secondary Fuel 0.95 Price Escalation 4% p.a. Transportation & Handling Charges Escalation Coal Stock 2 Months Secondary Fuel 2 Months O&M Expenses 1 Month Maintenance Spares (20% of O&M Expense) 1 Year Receivables from Energy Sales 2 Months Rate For Tariff Calculation 5.28% Land 0% Civil Works & Building 3.34% Plant & Machinery 5.28% Max Depreciable Value 90% Machinery 15% Building 10% Discount Rate 13.10% % Return on Equity 15.50% % Return on Equity pre tax (first 12 years) 19.38% % Return on Equity pre tax (last 13 years) 22.95% % Project Life 25 years Total units generated MU 42 P age

53 6.3.5 FINANCIAL MODELLING AND PROJECTIONS After doing through study of the information Memorandum and all the contracts and the agreements signed by ABC Ltd. the Financial Analysis is performed. Various parameters that need to be calculated as a part of the financials of the project are: INTEREST DURING CONSTRUCTION In the Interest during construction phase is the period were the power plant is in the process of making and during this time it generates no revenues. The complete infusion of term loan and the equity by the financers and promoters respectively is done in this phase. This period starts from the date when the sub debt and then the upfront equity starts flowing into the project (upto 51.5 % of the total equity) by the promoters, when the Upfront Equity part finishes Upfront Debt starts flowing till the time Debt Equity ratio becomes 75:25. Once, the ratio is achieved the Matching Debt and Matching Equity flows simultaneously in the ratio of 75:25. During the construction period the project has to pay the interest on the debt fused till that month. The interest rates depends on the Pre COD Rates and sub debt rates are specified by the leading Financial Institution (FI), which is also the syndicator of the project. (IDC Sheet Attached in Annexure III) DEBT PAYMENT When the project is commissioned then the borrower company has to pay the interest on the Term Loan. The interest rate used is the weighted average of Post COD Rates and sub debt rates are specified by the leading Financial Institution (FI), which is also the syndicator of the project. The First Six months after the project commissioning is the Moratorium Period that is during this period no principle repayment will be done but the interest will be charged according to the Post COD Rates. After the Moratorium period the project has to pay both the principle repayment and interest on the term loan. (Sheet is attached in the Annexure V) FUEL REQUIREMENT The main objective of this part is to calculate the requirement of fuel for the project and thus calculate overall cost of fuel required per annum for each of the next 25 years of operation of the plant from the date of start of operations, which is assumed as the life of the Thermal Power plant. Here we first calculate the primary fuel cost and secondary fuel cost on yearly basis for 25 years depending upon the energy exported and GCV of the fuel that will be charged to the project. While calculating the fuel cost we consider the Fuel Charges Escalation (as mentioned in Power Purchase Agreement).For this we calculate the amount of units that the project will be producing every year for 25 years. This is done on the basis of installed capacity (MW) from the point the very first unit becomes operational to the point 25 years ahead of the last commissioning of last unit. Plant Load factor (PLF) is also taken into consideration. This collectively gives the amount of fuel required to generate the stipulated amount of power. After knowing the amount of fuel required and the cost for 25 years we calculate the fuel cost on yearly basis. (Fuel requirement sheet is attached in Annexure VI) 43 P age

54 TARIFF This is among the most important parameters of the project. In this the main objective is to calculate the Variable Cost and Fixed Cost of generation of one unit of electricity. This cost is the cost to the company. This cost is compared with the Quoted Tariff, as specified in the PPA so as to figure it that whether the company is selling the electricity on profit and loss. VARIABLE TARIFF: Variable tariff only takes into account the primary fuel cost. This is obtained by using formula: Variable Cost Electricity Units sold FIXED TARIFF: As per CERC norms, the fixed cost takes the following parameters into consideration: Secondary Fuel Cost Interest on Loan Capital Return on Equity Depreciation O&M Expenses Interest on Working Capital Fixed tariff is calculated as: Fixed Cost Electricity Units sold The sum of variable cost and the fixed cost gives the total Tariff that should be charged to get the desire return on Equity. (Tariff sheets attached in Annexure VIII) DEPRECIATION Depreciation is calculated on the Machinery and Building strictly according to the CERC Guidelines. Depreciation shall be calculated on straight line method and at rates specified in the CERC guidelines for the assets of the generating station but the company files the tax according to IT ACT section 80. (Tariff sheets attached in Annexure IV) WORKING CAPITAL REQUIREMENT The working capital requirements as specified in the CERC guidelines are as follows: Working Capital Limits Primary Fuel Stock 2 Months Secondary Fuel Stock 2 Months 44 P age

55 O&M Expense 1 Month Maintenance Spares 20% O&M Receivables from energy sales 2 Months (Detailed Working Capital requirement sheets is attached in Annexure VII) CASH FLOW The Objective of this part is to calculate the total cash flow Inflow and Outflows, and then to calculate the excess/shortfall. (Detailed Cash flow sheets is attached in Annexure X) PROFIT AND LOSS ACCOUNT The main aim of this part is to calculate the Profit & Loss of the project for the 25 years after the commissioning of first unit. In case of PTC (long term) the levelised cost of electricity is Rs 2.475/kWh and that for short term is Rs 3.5/kWh. The sale of electricity to PTC is done at the rate of Rs 2.475/kWh for aggregate cap of 70% and rest at variable cost of Rs 0.63/kWh. (Detailed P&L is attached in Annexure IX) BALANCE SHEET This part accounts for the assets and liabilities per year for the project for 25 years from COD. (Detailed Balance sheet is attached in Annexure XI) RATIOS This part is used to calculate the relevant ratios in order to determine the financial viability of the project. The Minimum, average and maximum Debt Service Coverage Ratio is calculated along with Internal Rate of Return and Net present Value are calculated. (Detailed Ratios sheet is attached in Annexure XII) SNAPSHOT OF FINANCIAL PROJECTIONS The financial projections, based on the capital/project cost as specified by the borrower, would be as below: Table 13: Snapshot of project financial projections Particular Value Value Parameters DSCR Minimum Average P age

56 Maximum Project IRR, 25 years 18.54% Equity IRR, 25 years 21.41% Levelised cost of generation Rs/kwh SENSITIVITY ANALYSIS A sensitivity analysis of the Company s financial position has been carried to ascertain the robustness of its financials. Various scenarios for which the sensitivities was carried out and the results are as follows: Table 14: Sensitivity analysis sheet Project IRR Scenario Min DSCR Avg DSCR (%) Equity IRR (%) Base Case Case 1: PLF at 65% Case 2: Increase Fuel cost by 20% Case 3: Increase project cost by 10% Case 4: Decrease in calorific value of coal by 1000 kcal/kg Case 5: Increase interest rate by 100 bps It may be observed from above mentioned results that project financials are quite robust in various scenarios and the DSCR levels are above satisfactory. 46 P age

57 CHAPTER 7: RISK ANALYSIS AND SWOT ANALYSIS 7.1 RISK ANALYSIS i) PRE CONSTRUCTION Sno Risk Mitigation / Allocation 1 2 Grant of approvals / Clearances Finalization of Contracts Obtain all statutory and non statutory clearances including the MOEF clearance, Pollution Control Board NOC and agree to comply with all the conditionality of these clearances. The Company has already awarded the EPC Contract Project. The service contract has also been awarded by the Company. The EPC contract has provided for liquidated damages in case of delay in implementation and for plant s various performance parameters below stipulated level. 3 Procurement of land Land has been already acquired which is sufficient for the main power block, Ash Dyke and Raw Water Reservoir. ii) CONSTRUCTION Sno Risk Mitigation/Allocation 1 Cost estimate Since the technology is based on super critical parameters, it is difficult to fairly compare costs and to estimate the cost precisely. 2 3 Cost increase and price Escalation Completion delay and Equipment Supply delay Package contracts are expected to have suitable safeguards and will be subject to LIE review. Also, any increment in project cost would be met by the promoters without recourse to either the project or its lenders. The package contract is expected to have suitable provision for timely project completion. Also, LDs have been stipulated for delay in equipment supply. 47 P age

58 4 Equity infusion The equity in company will be infused by promoter s Group as also by raising funds from financial/strategic investors. iii) POST CONSTRUCTION Sno Risk Mitigation/Allocation 1 Fuel supply risk 2 Fuel price risk The Company has made a long term fuel agreement with CIL. Hence, fuel supply risk is perceived to be moderate. The fuel supply agreement is yet to be signed. The fuel supply agreement shall be subject to review by Lenders / Lenders agencies. 3 Performance shortfall The EPC Contract is expected to provide suitable defect liabilities / warranties. LD clauses would also be stipulated for ensuring performance. As a preventive measure, the design shall be subject to review by both the Owners Engineer and LIE. 4 Technology risk 5 Force Majeure 6 Off take risk 7 Price risk 8 Payment risk EPC contract have been awarded to a contractor having super critical technology and sufficient experience. Company is also implementing other project on the same technology, which again reduces the risk. The risk will have to be borne by the project Company, and may prove to be damaging for the project and by extension the lenders. This may be mitigated to some extent by ensuring adequate security for the lenders. The Company would sell 70% of net power to State Discom through a long term PPA at a levelized tariff and rest at Rs 3.5 per unit on merchant basis with escalation of 3% p.a. The cost of generation, is lower than the assumed average purchase price of power. The risk may be perceived to be low. Payment risk is perceived to be low as the major portion of power is being sold to State Discom under a long term take or pay PPA. 48 P age

59 9 10 Environmental Hazards Lower cost power producers Also, LDs have been specified in the PPA for payment security. Obtained MOEF Clearance and Pollution Control Board NOC. With newer technology, the cost of energy generated might be significantly lower than cost of energy. Older plants, with depreciated assets would also be able to compete with company. 7.2 SWOT ANALYSIS STRENGTH The Project has long term fuel supply agreement with Coal India Limited of Coal for use in the Project. The Project is located in severe power shortage region. State itself has been facing severe power shortage and the power deficit is likely to continue in short and medium term. The Company has already acquired 600 Ha land which is adequate for the main power plant block. The work on site may start immediately without any delay. Promoting Group has demonstrated its infrastructure project development and execution skills in the port sector and is on the verge of completion of the power project. The Project is based on Super Critical Technology which is expected to provide efficiency gains to the Company resulting in lower cost of generation. Use of Super Critical Technology will reduce the pollution and the Project may be qualified to get CER under CDM. This would act as additional revenue stream for the Project and improve the financials of the Company. WEAKNESS Company shall be selling 30% of power on Merchant Basis and may get lower return than the levelised cost of generation. Environment and Forest Clearances still to be obtained. 49 P age

60 OPPORTUNITY The Electricity Act 2003 and subsequent National Electricity Policy and Tariff Policy have opened up several opportunities for the power sector. The Act allows the IPPs and captive power producers open access to transmission system, thus allowing them to bypass the SEBs and sell power directly to bulk consumers. These provisions will give credence to the concept of merchant power. With the advent of the era of competitive bidding for tariff for procurement of power, the new capacities would not be subject to regulated tariff and regulated return of equity and thus provide investment opportunities to Developers in the power sector where returns would be market determined. There is huge power deficit in the country and the demand supply situation in the country is expected to remain favourable to power generators for the next 8/10 years at least. This presents huge opportunities in the power sector for power generators. THREATS A part of power generated will be sold on Merchant basis and may get lower return than the levelised cost of generation. Fuel supply agreement with Coal India Limited may result in delay 7.3 LIMITATIONS This analysis is limited to an examination of annualized expenses and revenue and represents a prototypical year of operations. This analysis should examine alternative pay as- you-go and debt financed scenarios, be conducted in year-of-expenditure, and address the underlying uncertainties associated with inflation, interest rates, project cost (exclusive of inflation), foreign exchange rate, grant funding levels and rates of payment, and other factors over which the project sponsor will have no direct control. The assumptions and sources of information underlying the development of the capital and operating cost estimates are an integral part of the financial analyses documented in this report. Uncertainties associated with fluctuating economic conditions and other factors may result in the actual results of the financial program varying from the projections in the financial analyses, and the variations could be material. Some of the major limitations and issues regarding the project appraisal are as follow: The rate of escalation is taken as constant over the life of the project (about 25 years); being the life of project large it is not easy to predict the actual cost and inflationary effect on the price of fuels and other inputs with the change in market conditions. Cash flows not really known until the project is in service no history of cash flows. 50 Page

61 Value of debt and equity driven by cash flow. Measure the value of different securities supported by project cash flow. Risk analysis depends on contracts used to allocate risk to different parties. 51 P age

62 CHAPTER 8: CONCLUSION, RECOMMENDATIONS AND LEARNING 8.1 CONCLUSION Company has proposed to set-up 660 MW Coal fired Thermal Power Project based on Super Critical Technology. State Government has supported this Project and has issued letter of support to provide all kind of administrative support required. The Company has already acquired the land required for the Main plant from Industrial Development Corporation and has made the requisite payments. The remaining required land has been identified and the process of acquisition is underway. The Proposed Project will be implemented by way of a turnkey Engineering, Procurement and Construction (EPC) contract to be awarded on Competitive Bidding Process. The Project requires about TPA coal based on average GCV of 3400 kcal/kg and PLF of 85%. The company made an FSA with CIL for the Proposed Project. Appropriate arrangements are proposed to be done. The Project will require about 150 cubic meter per hour make-up water during operation. A raw water reservoir of 25200m 3 capacity to hold 7 days requirement for plant requirement of water will be constructed at the plant site. Of the total 462 MW of power is proposed to be sold as PPA as per CERC tariff. Balance 198 MW will be sold on Merchant basis at Rs 3.5 per unit with an escalation of 3% p.a. Considering the cost of generation of Rs per unit, company does not envisage any difficulties in selling the power through merchant route. Power Evacuation will be through two double circuit 400 KV transmission lines connecting the Project to the PGCIL substation and State TRANSCO substation. The Electricity Act 2003 and subsequent National Electricity Policy and Tariff Policy have opened up several opportunities for the power sector. The Act allows the IPPs and captive power producers open access to transmission system, thus allowing them to bypass the SEBs and sell power directly to bulk consumers. Slowly open access in distribution system is also being allowed. Assessment of the financial feasibility of the Proposed Project, delivers satisfactory financial parameters as per base financial model. It has also assessed the viability of the Project under the impact of various scenarios, which could be at variance with the base case scenario assumed. Subject to the weaknesses and threats enumerated in the SWOT analysis and the impact of the various scenarios as envisaged under the sensitivity analysis, the Proposed Project is viewed as economically viable. Thus, loan amount should be granted by PFC equal to the request of the borrower. 52 P age

63 8.2 RECOMMENDATIONS To minimize the risk, the extent of financing to a single project should be proportionate; it will also affect the exposure limit for borrower or utilities and chance to fund in more projects rather in some. With the deficit of electricity in our country, there is need of many projects and the exposure limit should be increased to effectively assist the new projects. The exposure limit of some utility is going to reached, which resist PFC to fund. With the increasing IPPs in power generation the exposure to them should be more and the portfolio size for IPPs should be increased. It will increase the revenue because of higher interest rate and some extra charges. Currently PFC has less % funding in renewable energy, PFC should also concentrate to increase its share in renewable energy. With the changes in project parameters, the re-rating of project should be done at an appropriate time and linkages of interest rate, exposure limit and security to the new project rating should be done. There should be more bifurcation in the linkages to integrated project rating. A detailed and comprehensive model study should be made for accordingly. 8.3 LEARNING The experience and know-how gained from this internship, has left me in more compliant form and stature in order to fare better in areas of similar interest. Now I here make it sort with few but most important points what I have learned: A practical exposure of financial world. Learnt about investment scenario in power generation. Know about various complicacies in power generation and their mitigation. Know about project implication and investment. Learnt financing aspect of various investment related parameters. Learnt the formulation and analysis of various financials sheets through model. Learnt corporate culture. 53 P age

64 BIBILIOGRAPHY 1. Chandra Prasanna, Project Management, 4th Edition, I.M.Pandey, Financial Management, 9 th Edition, PFC website: Operational policy statement of PFC 7. Project Appraisal Manual 8. Load Generation Balance Report for , CEA 9. Integrated Project Rating Model Manual 10. Detailed Project Report of the Company Power Finance Corporation, Project Term Loan and Short Term Loans 54 P age

65 ANNEXURE 55 P age

66 ANNEXURE I: ASSUMPTION SHEET Project Capacity No. of units 1 Capacity per unit 660 MW Total project capacity 660 MW Project Cost Without IDC 3595 Rs Crore IDC 656 Rs Crore With IDC 4251 Rs Crore Financing Plan Equity (25%) Rs Crore Debt (75%) Rs Crore Upfront Equity (51.5%) Rs Crore Interest Rate pre COD 13.25% p.a. Interest rate post COD 13.25% p.a. Working Capital 13% p.a. Repayment Details Repayment Period 12 Years Moratorium Period 6 Months Principle Repayment Start Date 01-Jul-14 Date Principle Repayment End Date 01-Jan-26 Date Interest Repayment Start Date 01-Jan-14 Date Interest Repayment End Date 01-Jan-26 Date PPA Details PPA with PTC (including all units) % of total capacity 70% PPA Tariff As per CERC based tariff Rs/unit No. of years 25 years Selling through Merchant Basis (including all units) % of total capacity 30% PPA Tariff 3.5 Rs/unit No. of years 25 years Escalation per year 5% Tax Rates Corporate Tax 33.99% MAT 20.96% Technical Parameters GSHR 2392 kcal/kwh Auxiliary Consumption 7% % Plant Load Factor 85% % O&M Escalation 5.72% % O&M Expense crore/mw Fuel : Primary Fuel Fuel Price 900 Rs/tonne Price Escalation 5% p.a. Gross Calorific Value 3400 kcal/kg

67 Secondary Fuel Price 50 Rs/kg Gross Calorific Value kcal/kg Secondary Fuel Consumption 1 ml/kwh Specific Gravity value of Secondary Fuel 0.95 Price Escalation 4% p.a. Transportation & Handling Charges Escalation Working Capital Limits Coal Stock 2 Months Secondary Fuel 2 Months O&M Expenses 1 Month Maintenance Spares (20% of O&M Expense) 1 Year Receivables from Energy Sales 2 Months Depreciation Rate For Tariff Calculation 5.28% Land 0% Civil Works & Building 3.34% Plant & Machinery 5.28% Max Depreciable Value 90% Depreciation Rate for IT Machinery 15% Building 10% Miscellaneous Discount Rate 13.10% % Return on Equity 15.50% % Return on Equity pre tax (first 12 years) 19.61% % Return on Equity pre tax (last 13 years) 23.48% % Project Life 25 years Total units generated MU

68 ANNEXURE II: PROJECT COST Sl No. Particulars Base Amount Escalation Total Cost 1 Land & Site Development 50 0% 50 2 Total Plant & Equipment % Civil Works 545 0% Electric Works Miscellaneous Total Hard Cost Overhead & Pre-Op. Expenses Interest During Construction Working Capital Margin Total Soft Cost Total Project Cost 4251 MEANS OF FINANCE Particulars Percentage Cost (Rs Crore) Debt Equirt Ratio 3.00 Equity 25% Debt 75% Upfront Equity 51.5% Total 100% 4251

69 PROJECT COST BREAKUP i) Land & Site Development Particulars Amount (In Crore) Land 30 Site Development 20 TOTAL 50 ii) Civil Construction Particulars Amount (In Crore) Civil & Construction Works 545 TOTAL 545 iii) Plant & Equipment Particulars Amount (In Crore) Steam generators (boilers) & Steam turbine generators with all auxiliaries Coal handling system 50 Ash handling plant 50 CW System 10.5 DM plant including all accessories 5.05 Air conditioning plants 2.15 Fire protection system 4.25 Miscellaneous pumps 2.5 CW treatment plant 3.3 IDCT Electro-Mechanical 6 Effluent treatment system 2.38 Chemical laboratory equipment 1.5 Cranes and hoists 2.23 Air compressors and accessories 2.05 Instrumentation and Control system 5 Computers and software 1.05 Emergency D.G. Sets 3.05 Fuel unloading, storage and forwarding system 6.2 Workshop Equipment 2.75 Cost of Mechanical Spares 4 Freight and Insurance Excise and Central Sales tax Erection testing and commissioning Transmission Line 52 Service tax TOTAL

70 iv) Overheads & Preoperative Expenses Particulars Amount (In Crore) Start-up fuel Design, engineering, construction supervision, inspection and expediting and project 56.3 management Pre-operative Expenses Insurance during construction TOTAL v) Electric Works Expenses Particulars Amount (In Crore) Power transformers 21 GCB 8 Other electric equipments Cost of Electrical Spares 2.65 Miscellaneous TOTAL 135 vi) Miscellaneous Particulars Amount (In Crore) Coal conveyor from Port 12 Railway siding 55 Water intake 29.5 Desalination plant and auxiliaries 50 TOTAL Date of Commencement 01-Apr-10 No. of quarters of construction 15 Period of Construction 45 months End of Construction 31-Dec-13 Commercial operation period 01-Jan-14

71 ANNEXURE III: INTEREST DURING CONSTRUCTION Particulars Amount Total Upfront Balance Project Cost without IDC 3595 Equity 25% IDC 656 Debt 75% Project Cost with IDC 4251 Upfront 51.50% Interest Rate pre COD 13.25% Interest Rate post COD 13.25% PROJECT PHASING Month Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Financial Year Total Percentage 100% 1.50% 1.50% 1.50% 2.00% 2.00% 2.00% 2.00% 2.00% 1.00% 1.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% Amount Upfront Equity Upfront Debt Matching Equity Matching Debt Total Equity Total Debt Total Senior Debt Total Sub Debt Opening Balance Monthly Disbursement Closing Balance Interest During Construction YEARLY PHASING Year Ending on 31 March Total Expenditure IDC Expenditure less IDC Total Equity Debt

72 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar % 2.00% 2.00% 2.00% 2.00% 2.50% 2.00% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 3.00% 2.50% 2.50%

73 ANNEXURE IV: DEPRECIATION Depreciation as per IT act Civil Works Opening Balance Depreciation Closing Balance Plant & Machinery Opening Balance Depreciation Closing Balance Total Dep as per IT Depreciation rate after taking the weighted avg. 4.89% Depreciation Cumulative Depreciation

74

75 ANNEXURE V: DEBT SERVICING Year Quarters Loan Opening Balance Quarterly Interest Principle Amount Loan Repayments Outstanding Balance Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Year Quarters Loan Opening Balance Quarterly Interest Principle Amount Loan Repayments Outstanding Balance Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Year Quarters Loan Opening Balance Quarterly Interest Principle Amount Loan Repayments Outstanding Balance Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec

76 Year Quarters Loan Opening Balance Quarterly Interest Principle Amount Loan Repayments Outstanding Balance Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec

77 ANNEXURE VI: ENERGY CHARGE PRIMARY FUEL (COAL) Gross station heat rate (kcal/kwh) Gross Calorific value of Secondary Fuel oil (kcal/l) Heat contribution from secondary fuel oil (kcal/kwh) Heat contribution from primary fuel oil (kcal/kwh) Gross calorific value for coal (kcal/kg) Coal required to produce 1 unit of electricity (kg/kwh) Cost of Coal (Rs/kg) Coal price to produce 1 unit of electricity (Rs/kwh) SECONDARY FUEL Secondary Fuel Oil Consumption (L/kwh) Specific gravity of Secondary Fuel Oil Secondary Fuel Oil Consumption (kg/kwh) Secondary Fuel Oil cost (Rs/kg) Secondary Fuel Oil cost per unit of electricity (Rs/kwh) Total Fuel Oil consumption per annum (Rs Crs) ENERGY CHARGE Variable charges for single unit (Rs/kwh) Auxiliary Consumption Rate of Energy delivered to Ex Bus % 0.59 Year Total Coal cost per annum (in crs) Total secondary fuel oil cost per annum (in crs)

78 ITEMS Year ANNEXURE VII: WORKING CAPITAL Primary Fuel 2 Months Secondary Fuel 2 Months O&M Expense 1 Month Maintenance Spares 20% O&M Receivables 2 Months WORKING CAPITAL Total Working Capital Increase in Working Capital Working Capital Debt Interest on Working Capital CURRENT ASSETS Total Current Assets Increase in Current Assets

79

80 ANNEXURE VIII: TARIFF Year Variable Tariff Energy Available Million for Sale Units Variable Fuel Cost Rs Crore Variable Fuel Cost per Rs/kwh Unit Fixed Tariff Interest Rs Crore Return on Equity Rs Crore Depreciation Rs Crore Cumulative Depreciation Rs Crore O&M Expense Rs Crore Interest on Working Capital Rs Crore Fixed Cost Rs Crore Fixed Cost per unit Rs/kwh Total Cost per unit Rs/kwh PV Calculation PV Factor Discounted Tariff Variable Tariff Rs/kwh Fixed Tariff Rs/kwh Total tariff Rs/kwh Levelised Tariff Rs/kwh 2.475

81 ANNEXURE IX: PROFIT & LOSS Year Revenue from Energy Sale to PTC Revenue from energy sale on Merchant basis Total Revenue Expenses Fuel O&M Expenses Depreciation Interest payments Total Expenditure Profit before tax, PBT PBT+Dep on books PBT for IT purposes MAT Corporate Tax Payable Tax Profit after tax, PAT

82

83 ANNEXURE X: CASH FLOW Year Inflow Equity Debt Term Loan WC Debt PBT Depreciation Total cash inflow Outflow Project expenditure Increase in WC Tax Loan repayments Total cash outflow Excess/Shortfall Opening Balance Closing Balance

84

85 ANNEXURE XI: BALANCE SHEET Year Liabilities Equity Capital Reserve and Surplus Loan Funds Term Loan Working Capital loan Total Liabilities Assets Project Asset Depreciation Current Asset Coal Stock Secondary Fuel Maintenance Spares Receivables Cash Total Assets Difference

86

87 ANNEXURE XII: RATIOS Cash Outflow Cash Inflow PAT Add: Depreciation Add: Interest on loan Add: Interest on WC Add: Tax Total cash inflow Cash to the project Project IRR % Cash Outflow Cash Inflow Cash to equity holder Equity IRR %

88

89 ANNEXURE XIII: DSCR Year PAT Add: Depreciation Add: Interest on Term Loan Add: Tax Total Principal Repayment Interest Payment Total Debt Services DSCR Minimum DSCR Average DSCR Maximum DSCR 4.212