REQUEST FOR PROPOSALS (RFP) SERVICE CONTRACT TENDER DOCUMENT (Value Driven) Kluane Lake Wind-Diesel Project Business Plan ADDENDUM #1 KLUANE WIND-DIESEL PROJECT BUSINESS PLAN OUTLINE AND STATEMENT OF WORK TABLE OF CONTENTS Preamble... 1 1.0 Executive Summary... 2 2.0 Purpose... 2 3.0 Contact Information... 2 4.0 Business Description... 2 5.0 Project Costs and Financing... 2 6.0 Industry/Market Analysis... 3 7.0 Promotion/Marketing... 3 8.0 Management/Personnel... 4 9.0 Operations... 4 10.0 Environmental Issues... 4 11.0 Financial Projections and Analysis... 5 12.0 Risks and Mitigation... 5 13.0 Consultations... 5 14.0 Implementation Plan/Exit Strategy... 5 15.0 Recommendation... 5 16.0 Supporting Documents... 6
Preamble The primary intent of a business plan is to investigate and address any aspect of the proposed endeavour that will concern an investor, including the owner/proprietor, lenders, or government funding program. Such aspects include an adequate description of the proposed business, any identified risks, and how those risks will be managed. The plan must contain sufficient data and rigour to achieve the desired response from a potential investor: I should invest in this business! Purpose of a business plan: Support a Positive Investment Decision: The business plan should be intended to hold up under the utmost scrutiny. The intended audience should be a bank or other investment agency. Act as a Management Tool: The business plan should provide a roadmap in short and longrun. A good business plan is: Understandable (readable, concise, to the point, nothing extra). Consistent (no conflicting information). Complete (nothing missing). Verifiable (proves what you say, supported by evidence from independent and quality sources). Realistic (can it be implemented). Useable (completes due-diligence = answer all the reader s questions, including your own). Objective (honest analysis of potential or not) Ultimately an investor (including a lender and/or funding agency, owner/proprietor) will decide if the business plan meets their needs or if the information in the plan provides them with a reason to invest. Sometimes a plan will support a decision that is not expected. The original idea may have to change or stop. If the plan is deficient or the information leads an investor to make a decision that you do not agree with, you may have to provide them with a revised plan. Other investors, including lenders and funding agencies, are not obligated to provide the business with any funds it is at their discretion! The following is an overview of basic business plan requirements and the typical categories of information required. Before starting the plan you should discuss the individual objectives and information requirements with each potential investor. This Statement of Work is a tool to help prepare a detailed business plan for the Kluane Wind- Diesel Project. 1
1.0 Executive Summary 2.0 Purpose A business plan for the Kluane First Nation Wind-Diesel project should clearly articulate How the project will work The business plan will: o Be clear and concise. o Build on, refine and when necessary clarify, the business case prepared by Frontier Power Systems in 2015. o Provide clarity on issues and considerations not currently addressed. o Provide a high-quality and comprehensive response to investment considerations. 3.0 Contact Information Business/Proprietor Name Kluane Community Development Corporation: Colin Asselstine, General Manager. P.O. Box 61, Burwash Landing, Yukon, Y0B 1H0, 867-841-4274, ext. 251, gm@kluanecorp.ca, http://www.kluanecorp.ca. Business Consultant Names JP Pinard Consulting Engineer: JP Pinard, Project Manager, 703 Wheeler Street, Whitehorse, Y1A 2P6, 867-393- 2977, jpp@northwestel.net. Frontier Power Systems Inc: Carl Brother, Wind Project Developer, P.O. Box 72, 392 Church St., Alberton, PE, C0B 1B0, 902-853-6800, cbrothers@frontierpowersystems.ca. 4.0 Business Description Provide a concise accurate description of the business, the product and services to be provided, including its physical location, and the assets/equipment/facilities required. Provide all information necessary to describe the Wind-Diesel project using existing sources. Specifically the business plan must: o Describe and rationalize the of ownership structure of the wind-diesel project. o Provide an overview of the ownership model as envisioned by Kluane First Nation and Kluane Community Development Corporation (KCDC) including the project s position within the KCDC umbrella. o List required business permits, licenses, and certificates required for operation. 5.0 Project Costs and Financing An itemized schedule of project costs must be provided, rationalizing: o Start-up capital, construction, and operating estimates. The estimates provided by the proponent should be evaluated for reasonableness and incorporated into the business plan unless deemed substantively inaccurate or misleading. o The financial structure of the project. Client equity, debt and government contributions should be clearly established. Equity should be explored with sufficient rigour to rationalize investment. All costs should be reasonable, and the key terms and conditions of any commercial or government financing should be described (term loan, interest rate, security/collateral or performance conditions, etc.) Include price estimates/quotes for any major purchases/leases. 2
6.0 Industry/Market Analysis The business plan will provide an assessment of the history and outlook of diesel electricity generation for Burwash Landing with the intent of providing some estimate of load development (historic and forecast) based on estimates derived from ATCO Electric Yukon for the region. This analysis should provide the basis for establishing: o A defined market that the proposed wind-diesel facility will serve (i.e. what is the market that the winddiesel project will serve?), including sales volumes, and proposed sales volume growth over time. o What are the key success factors demonstrated by similar industry projects including marketing and pricing considerations and can the proposed business take advantage of these key factors? Any barriers to entry must be determined, including, but not limited to, high technical or professional standards, high capital costs, patents, remote location, narrow market niche, competition, satisfaction of any legislative or regulatory requirements, and any factors limiting local capacity to respond to challenges, such as guaranteeing sales volumes, responding to demand changes, or operations issues as they arise. A purchase price for demonstrated power must be established, incorporating ongoing negotiation with ATCO Electric Yukon on a purchase price based on the avoided cost of diesel, including the provision of selling terms for ATCO and an evaluation of those resources/cash flow on the part of KCDC necessary to survive any longterm repayment terms. The business plan must also provide a response to: o o Will power be available at a competitive price? How price is to be determined, what price will be charged, how does it compare with the alternative? This evaluation should include some evaluation of the draft Independent Power Producer policy of the Government of Yukon. o What are the selling terms (cash/credit), if credit; does the business possess enough resources or sufficient cash-flow to survive long repayment terms? o How will distribution be affected over time, given the limited market anticipated for power produced by the project could the business be adversely affected by limited access? o How will these risks be addressed? Determine the impact the proposed business will have on the operations of ATCO Yukon, including demonstrating a net benefit through an avoided cost of diesel Determine if the proposed business can overcome any barriers identified through this analysis. 7.0 Promotion/Marketing Promotion and marketing of the wind-diesel project should be clearly outlined, including a response to the following questions: o How should the business be marketed (e.g. the four-ps: product, price, promotion, place)? o How should the business be promoted, including an outline of the specific activities to be undertaken, their costs and schedule of activities (web page, media advertising, brochures, catalogues, trade shows, signage, word of mouth, etc.)? o What impact will specific activities have on revenues and is the cost justified? o How should the product or service be sold direct sales (retail location), sales representatives, website, wholesaler, etc? This analysis should be predicated on the understanding that the Kluane Wind-Diesel Project is a remote electricity generating project focused on power sales to a single customer, ATCO Electric Yukon. The analysis should therefore focus on the benefits that promotion and marketing can provide KCDC if and when they choose to expand or leverage this business to meet other objectives. After sales and service policies and guarantees should also be outlined. 3
8.0 Management/Personnel 9.0 Operations Provide the Name(s), Title, Roles and Responsibilities, Level of Involvement, Salaries/Drawings of management and personnel required by the project. Outline management s education, experience, drive and capacity to successfully implement and operate the proposed business. o Describe management s knowledge of the industry, competitors and how they will distinguish themselves in the marketplace? o Clearly establish key management and employee positions, include a brief job description for each including duties and responsibilities Establish the key management controls for this business including cash, inventory, scheduling, credit, quality control, etc. How will this be managed and controlled? Describe the strengths and weaknesses necessary for effective management of the wind-diesel project, in terms of: o The number of employees required, including their qualifications and training. o Some assessment of the recruitment needs of KCDC during early stages of project operations (How will KCDC recruit and retain staff?). If necessary develop a mitigation strategy to overcome any observed weaknesses management or technical training courses, on-site mentoring, learn and utilize accounting and information management systems, seek and utilize professional advice; accountant, lawyer, banker, other professionals. o The skill level is required for skilled positions. o How the demand for potential employees will be adequately met (i.e. what job training maybe required and what will it cost?). Evaluate and rationalize payment methods for management and personnel and articulate required hourly, salary, commission, or other compensation strategies. Establish: o How much will labour cost, including owner(s) and management compensation; and is this normal for the industry? o What workplace insurance, benefits and permits are required, including cost? Provide a detailed description of the facilities (buildings/leasehold), generating and distribution infrastructure, required equipment, intellectual property, supplies, inventory, overhead (utilities, rent, insurance, and communications) and storage requirements of proposed business, including their costs based on information provided by the proponent, clarifying and addressing gaps or inconsistencies as needed. The business plan should explore the benefits or drawbacks of purchasing or leasing of facilities and/or equipment and other services. Provide a general description of the day to day operations of the wind-diesel project (hours of operation, seasonality of business, daily activities (who does what), suppliers, etc.) Describe any special requirements and how will they be provided, by whom and at what cost roadways, potable water, sewage disposal/drainage, hazardous waste, ventilation, health and safety inspections, etc. 10.0 Environmental Issues Outline whether or not any environmental concerns exist. If yes, how will they be addressed and at what cost? Describe any consultations or community support for the proposed business. Outline the environmental approvals, permits and licenses required, how and when they will be acquired? Describe the mitigation strategies in place to limit environmental damage; insurance, disaster and clean-up plans, cost (if relevant e.g., retaining dykes), etc. 4
11.0 Financial Projections and Analysis If available, include historical financial statements (balance sheet and income statement) for the last 3-years as well as an analysis outlining strengths, weaknesses or any area(s) of concern. Financial projections should consist of the following: o Opening Balance Sheet (at start of proposed project) o Balance Sheet (at end of year 1, 2 & 3) o Cash Flow Statement (for years 1, 2 & 3, with the first 12-months being presented on a monthly basis) o Income Statement (for years 1, 2 & 3, with the first 12-months being presented on a monthly basis) Financial projections should be accompanied by all assumptions; e.g. sales are based on what analysis - historical sales, market analysis, etc. Outline any strengths, weaknesses or area(s) of concern with financial projections. Financial analysis should include: o Breakeven analysis how much sales volume is required to cover costs o Ratio Analysis, e.g. Liquidity: Current Ratio = Current Assets/Current Liability Leverage: Debt to Equity (%) = Total Debt/Equity * 100 Profitability: Return on Equity (%) = Net Income/Owner s Equity * 100 o Return on Investment (%) = Net Income/Total Assets * 100 Ratio analysis should include a comparison against industry norms (Dun & Bradstreet Canada, Performance Plus ic.gc.ca) and explanation of any significant variances that occur. o A sensitivity analysis showing the effect of different financial structures including relative levels of debt, proponent equity, and contributed equity across three scenarios. 12.0 Risks and Mitigation Describe all potential risk factors to the business (e.g. regulatory, legal, environmental, political, economic, financial, market) and outline the plans to manage these risks. 13.0 Consultations List all third-parties contacted, date and provide a brief outline on the discussions undertaken. 14.0 Implementation Plan/Exit Strategy Outline key dates and targets for implementing of the plan; explain who will be doing what? Identify key performance dates or targets (e.g. construction/leasehold, financing, human resources, permits, inventory, supplies/equipment, contracts, deadline for opening/completion, etc.) for management to achieve and ensure a process for the timely implementation of the proposed business venture. Identify methods for mitigating long-term investment risk: o How easy is it to exit from this business? o Should it not succeed what steps are necessary for the orderly closure of the business? o What portion of the investment might be recovered? 15.0 Recommendation Given the identified risk and potential return, is it worth investing in this business, should the owner(s) undertake the project? Provide an overall opinion of the project s viability and why it will (or will not) be a success? 5
16.0 Supporting Documents The following is a list of documents that should be attached to the plan: o Ownership agreements o Organizational chart, job descriptions, resumes o Detailed list of assets/investments/net worth, credit check, letters of reference o Contracts, leases, letters of intent, business permits, licenses o Environmental reports and permits o Property appraisals, insurance coverage, etc. A parcel of Crown Land has been selected and a land lease for the project is currently being negotiated by KCDC with the Government of Yukon. The consultant is responsible for collecting all necessary information not provided by the proponent and the research conducted is from independent and quality sources. 6