Anshul Mangal Kribhco A 1802010147 MBA-IB

SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN INTERNATIONAL

BUSINESS

Feasibility Report for Revamping Of Captive Power & Steam Generation Plant (SGPG) At Hazira

SUBMITTED BY:(Name)Anshul Mangal

MBA-IB (2010-2011) Roll No. : A1802010147

INDUSTRY GUIDE FACULTY GUIDEMR.K.C.GUPTA Ms. Deepmala Soni

C.M. (F&A)

AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA

AMITY UNIVERSITY – UTTAR PRADESH

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CERTIFICATE OF ORIGIN

This is to certify that Ms./Mr.___________________, a student of Post Graduate Degree in _____________________, Amity International Business School, Noida has worked in the ____________________, under the able guidance and supervision of Mr./Ms._________________________, designation______________, Company___________________________.The period for which he/ she was on training was for ______weeks, starting from ___________to _____________. This Summer Internship report has the requisite standard for the partial fulfillment the Post Graduate Degree in International Business. To the best of our knowledge no part of this report has been reproduced from any other report and the contents are based on original research.

Signature Signature(Ms. Deepmala Soni) (Anshul Mangal)

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ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr. K.C. Gupta, C.M. (F&A), KRIBHCO, for his able guidance, continuous support and cooperation throughout my project, without which the present work would not have been possible.

I would also like to thank the entire team of Finance Department (KRIBHCO) especially Mr. S.K. Dewan, for the constant support and help in the successful completion of my project.

Also, I am thankful to my faculty guide Ms. Deepmala Soni of my institute, for her continued guidance and invaluable encouragement.

Signature(Anshul Mangal)

Table of ContentsEXECUTIVE SUMMARY.................................................................................................................4

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Introduction.................................................................................................................................................6

Objectives...........................................................................................................................................6

Industry Profile..................................................................................................................................8

Introduction.............................................................................................................................................8

Major companies in Fertilizer Industry..................................................................................................13

Growth and Trends in Fertilizer Industry...............................................................................................16

Company Profile...............................................................................................................................20

KRIBHCO.............................................................................................................................................20

Organization Chart................................................................................................................................21

Growth Trend and Financial Performance.............................................................................................23

Captive Power Plant......................................................................................................................30

Reflections on what has been learned during the training experience..............................................38

ANALYSIS...........................................................................................................................................49

Capital Budgeting Decisions.................................................................................................................49

Net Present Value..................................................................................................................................49

Debt-Service Coverage Ratio................................................................................................................51

Conclusion........................................................................................................................................56

Recommendation..............................................................................................................................57

Bibliography.....................................................................................................................................58

Annexure-1................................................................................................................................................60

Annexure-2................................................................................................................................................62

Annexure-3................................................................................................................................................64

Case-study- Solar Photovoltaic Power plant.....................................................................................73

Synopsis............................................................................................................................................84

EXECUTIVE SUMMARYKRIBHCO (Krishak Bharati Cooperative Ltd.) is a Multi Cooperative Society which manufactures, distributes and does the marketing of the Fertilizers. KRIBHCO has setup a

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Fertilizer Complex to manufacture Urea, Ammonia & Bio-fertilizers at Hazira in the State of Gujarat, on the bank of river Tapti, 15 Kms from Surat city on Surat – Hazira State Highway.Thus, the Captive Power Plant has been installed for KRIBHCO Fertilizer complex. In other words, the consistent fertilizer production needs uninterrupted, reliable Electrical Power & High Pressure Steam for running the different equipments/ Exchangers/ vessels of the Fertilizer complex. So, it basically a co-generation type Thermal Captive Power Plant.Steam Generation Plant- It has three boilers producing high pressure steam. Each boiler is designed to produce 275 t/hr of steam at 105 kg/cm2 absolute & 510 degree C. the high pressure steam is required for steam turbine drives for Electric Power Generation, Pumps, Compressors of Process Pants & for other heat exchangers. Boilers were supplied and commissioned by M/s Foster Wheeler Power Product, UK limited. The project is divided into 2 cases where case has been taken to ensure compatibility of selected models in such a way that augmentation from Case-I to Case-II is ensured smoothly.KRIBHCO Captive Power PlantKRIBHCO has undertaken a major revamp project of Ammonia and Urea plant for capacity enhancement. In this report the financial feasibility of the project is checked through various alternatives in different cases through Capital Budgeting tools such as

1. Pay Back Period2. Net Present value3. Debt coverage Ratio 4. Internal Rate of Return

As well keeping other factors in mind for Case-1 of project which will be completed Oct-2011such as

Alternative’s Cost of Project

Capacity of Plant

Auxiliary consumption

Alternative-1 3950 101Mw 1%Alternative-2 4300 101Mw 1%Alternative-3 3950 26.5Mw 0%Alternative-4 4300 26.5Mw 0%Alternative-5 3950 35Mw 0%Alternative-6 4300 35Mw 0%

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Introduction

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Introduction

Objectives

Primary Objectives

To study the financial and investment viability of different alternatives for the revamp according to capital budgeting decisions.

Secondary Objective

To follow the internship schedule and learn about different areas in finance department :-

MIS/Budget/FICC

Book/Taxation Section

Cash section

Investment / Trusts

Oman Section/ Finance Concurrence

Marketing Accounts

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Industry Profile

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Industry ProfileFertilizer can be described as any substance, organic or inorganic, natural or artificial, which supplies one or more of the chemical elements required for plant growth. According to experts sixteen elements are identified as essential elements for plant growth, of which nine are needed in larger quantities and seven elements are required in smaller quantities. Carbon, oxygen and hydrogen are directly supplied by air and water and therefore not treated as nutrients by the fertilizer industry.

Historical and Anticipated Annual VariationIn Regional Fertilizer Demand around the world between 2007/08 and

2010/11 (Mt nutrients)

Source: Heffer, IFA, June 2010

IntroductionThe fertilizer industry presents one of the most energy intensive sectors within the Indian economy and is therefore of particular interest in the context of both local and global environmental discussions. Increases in productivity through the adoption of more efficient and cleaner technologies in the manufacturing sector will be most effective in merging economic, environmental, and social development objectives. A historical examination of productivity growth in India’s industries embedded into a broader analysis of structural composition and policy changes will help identify potential future development strategies that lead towards a more sustainable development path.Issues of productivity growth and patterns of substitution in the fertilizer sector as well as in other energy intensive industries in India have been discussed from various perspectives.Historical estimates vary from indicating an improvement to a decline in the sector’s productivity. The variation depends mainly on the time period considered, the source of data, the type of indices and econometric specifications used for reporting productivity growth. Regarding patterns of substitution most analyses focus on inter-fuel substitution possibilities in the context

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of rising energy demand. Not much research has been conducted on patterns of substitution among the primary and secondary input factors:Capital, labor, energy and materials. However, analyzing the use and substitution possibilities of these factors as well as identifying the main drivers of productivity growth among these and other factors is of special importance for understanding technological and overall development of an industry.

Indian Fertilizer Industry

Indian Fertilizer industry is one of the vital industries for the Indian economy, since it manufacturers a very critical raw material for agriculture. The fertilizer industry especially the ammonia urea plants are energy demanding in their operation. The main objective of the fertilizer industry is to ensure the supply of primary and secondary nutrients in the required quantities.

The fertilizer industry in India has performed a vital role in enabling the necessary increase in the use of plant nutrients for achieving the objectives of self sufficiency in food grains production and accelerated and continuous agricultural growth. The fertilizer industry which is one of the most energy intensive sectors is very important from the context of environmental discussions. Due importance to increasing productivity through the implementation of competent and pollution free technologies in the manufacturing sector would be most desirable in combining economic, environmental and social development objectives.

Sector -wise and Nutrient - wise Installed Capacity of Fertilizer Manufacturing Units (as on 31.3.2009)

S.No

Sector Capacity Percentage Share ( Lakh MT)

Nitrogen

Phosphatic

Nitrogen

Phosphatic

1Public Sector 34.98 4.33 29 7.65

2Cooperative Sector 31.69 17.13 26.27 30.27

3Private Sector 53.94 35.13 44.73 62.08

Total 120.61 56.59 100 100

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Pre LiberalizationIn India the per hectare consumption of fertilizer in 1950-51 was less than 1/4th of the global average. Production was by and large in the purview of public sector and co operative sector.

In 1977 the government introduced the Retention Price Scheme (RPS) with the goals of providing fertilizers to farmers at reasonable rates without affecting the profitability of the manufacturers. Under this policy the government would pay the manufacturers, the difference between the administered price (sale price) and the retention price (cost of production).

Over and above the retention price subsidy, the equated freight subsidy was introduced to enable the manufacturers to cover the cost of transportation.

Post LiberalizationThe policy of economic liberalization has its effect on the fertilizer industry too. The government in a move aimed at reducing subsidy, decontrolled all the phosphatic and potassic fertilizers in 1992.This strained the ratio of fertilizer utilization. With this policy of liberalization, the retention pricing scheme (RPS) which had been introduced in 1977, got confined only to urea.

Post liberalization, the government strategized a long term fertilizer policy to be completed in three different phase, beginning in 2000-01 and ending in 2006-2007.

Phase 1: 2000-01 and 2001-02

Evaluate existing capacity. Increase in urea prices from time to time. Evaluate the possibility of a coal based expertise. Promote joint ventures. Finalize policy on fertilizer pricing and capacity enhancement. Eliminate distribution controls on urea and augment concession scheme to bio fertilizers.

Phase II (2002-03-2003-04)

Finalize decision on feedback. Long term strategy of increased capacity. Decide on extent of protection to local industry. Eliminate MRP and encourage productive investment. Reorganize the association between the industry and farmers. Judicious utilization of fertilizer and greater emphasis on eco friendly fertilizer. Establish Fertilizer Policy Planning Board.

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Phase III (2004-05-2006-07)

Removal of MRP Define government's role in decontrol setup and with respect to policy relating to LNG.

W T O Implications in India

The restriction on quantity of fertilizers to be imported has been eliminated from April 1, 2001.The proposed plan to establish a tariff rate quota (TRQ) for the import of urea has been deferred.

The Government has planned to impose a higher tariff of 150-200 per cent on imported urea in future. This would lead to increase in prices of imported urea and be detrimental to the demand supply gap which is likely augment in future.

Future Trends in India

India's demand for fertilizers in 2007-08 was 26 MM tons, which went up to 29 MM tons in 2008-09 against a supply of 20 MM tons in 2008-2009.

The demand for fertilizers in 2011-12 is forecasted to be around 35.5 MM tons. More fertilizer projects are in the pipeline. Gujarat is expected to play a leading role in fertilizer production. Indian companies have penetrated the overseas market, signaling a new phase for the

industry. South Asia (essentially Bangladesh, India and Pakistan) will become the world’s leading

importing region, with expanding import demand through 2014 for urea and phosphate products (DAP). It will rank as the world’s second largest potash importing region, with imports exceeding 5 Mt K2O in 2014 according to International Fertilizer Industry Association Report.

Indian fertilizer industry has reached international levels of capacity utilization by adopting various strategies for increasing the productions of fertilizers. These include the following:

Expansion and increase in efficiency through modernization and revamping of existing fertilizer units. Reviving some of the closed fertilizer plants. Using alternative sources, such as coal or liquefied natural gas for the production of fertilizers, especially urea. Establishing joint venture projects with companies in countries that abound in cheaper resources of raw materials.

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In order to meet the demand for gas, which is one of the prime requirements for the production of nitrogenous fertilizers, India has entered into joint ventures with foreign companies in a number of countries. Joint ventures have also been established for the supply of phosphoric acid. Indian fertilizer manufacturing companies has joined hands with companies in Senegal, Oman, Jordan, Morocco, Egypt, Tunisia and other countries. It is, therefore, evident that the Indian fertilizer industry has witnessed extensive growth and development in a short span of time. With such extensive growth, it is not surprising that the India ranks among the leading fertilizer manufacturing countries of the world.

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Major companies in Fertilizer Industry

The majority of the populace of India lives in rural areas and the foremost occupation in the villages is agriculture. Developments pertaining to different industries are being made on a massive scale to change the country's economy from an agrarian one to an industrial one. It is extremely important for the fertilizer industry India to have development in terms of technologically advanced manufacturing process and innovative new-age products. The first fertilizer manufacturing unit in India was set up in the year 1906 at Ranipat in ChennaiIn the present scenario, there are more than 57 large and 64 medium and small fertilizer production units under the India fertilizer industry. The main products manufactured by the fertilizer industry in India are phosphate based fertilizers, nitrogenous fertilizers, and complex fertilizers. The fertilizer industry in India with its rapid growth is all set to make a long lasting global impression.

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Fertilizer Association/Company Website Address

The Fertilizer Association of India www.fertindia.comPublic SectorNational Fertilizers Limited www.nationalfertilizers.com

Fertilizers and Chemicals Travancore Ltd. www.fact.co.in

Rashtriya Chemicals & Fertilizers Limited www.rcfltd.comMadras Fertilizers Limited www.madrasfert.com

Paradeep Phosphates Limited www.paradeepphosphates.com

Pyrites, Phosphates & Chemicals Limited www.ppclindia.com

Fertilizer Corporation of India Limited www.fertcorpindia.nic.in

Projects & Development India Limited www.pdil.nic.in

Cooperative Sector

Krishak Bharati Cooperative Limited www.KRIBHCO.net

Indian Farmers Fertilizer Cooperative Ltd. www.iffco.nic.inPrivate SectorGujarat State Fertilizer Company Limited www.gsfclimited.com

Coromondel Fertilizers Limited www.cflindia.comShriram Fertilizers & Chemicals Limited www.dscl.com

Zuari Industries Limited www.pdil.nic.inSouthern Petrochemicals Inds. Corpn. Ltd. www.spicgroup.comMangalore Chemicals & Fertilizers Limited www.mangalorechemicals.com

Gujarat Narmada Valley Fertilizers Co. Ltd. http://gnvfc.guj.nic.in

Duncans Industries Limited www.duncansfertiliser.com

Deepak Fertilizers & Petrochemicals Ltd. www.deepakgroup.com

Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. www.indogulf.co.in

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Godavari Fertilizers & Chemicals Limited www.gfcl.comNagarjuna Fertilizers & Chemicals Limited www.nagarjunagroup.comChambal Fertilizers & Chemicals Limited www.zuari-chambal.com

Tata Chemicals Limited www.tata.com

Oswal Chemicals & Fertilizers Limited www.oswal.orgSSP Units

The Dharamsi Morarji Chemical Company Limited www.dmcc.com

Growth and Trends in Fertilizer IndustryFertilizer usage around the World (Increase/Decrease)

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The diagram below shows the increase in fertilizer usage around the world where South Asia shows a considerable increase in usage of fertilizer with 54% increases in usage in India. This shows with fertilizer usage growing faster in developing countries than developed countries.

In the above given figure we can see the supply trend of fertilizer around the world for more than a decade, for the year 2009 it shows an increase in capacity to 250 MT nutrient and production coming down less than 200 Mt nutrient.

Future projection of Supply And Demand for Urea (WORLDWIDE)

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It shows the world urea supply and demand balance, in the coming four years there is an expected increase in supply as well demand though demand is much less than supply with the gap

increasing by years.

Percentage Share of Urea's Production in India

The below given data shows the share of various company in urea production with IFFCO having the highest share at 20.5% while KRIBHCO maintaining a share of 8.4% for the year 2009-10 accordind to the source FAI.

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Projected urea production in India

0

5

10

15

20

25

30

35

40

19.9

20.5

21

21.6

22.2

22.8

23.5

24.1

24.8

25.526.2

27

27.7

28.529.3

30.1

31

31.8

32.7

33.634.6

35.536.5

Production (million MT/ annum)

Pro-duc-tion (mil-lion MT/ ann...

SOURCE: Green Rating Project 2009; Centre for Science and Environment, New DelhiThe above given figure shows the expected or projected increase in urea production for next

thirty years which would also mean an opportunity for KRIBHCO to increase its market share from 8.4%.

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Energy Consumption and greenhouse gas emissions Company Production

(MT)Specific energy Consumption (GJ/MT urea)

Feedstock mix(Natural

gas-Naphtha-Fuel oil)

Energy consumption

associated with

BAT(GJ/MT)

Deviation from BAT

Specific emissions

(MT CO2/ MT urea)

Tata Chemicals 1,070,308 21.6 96-4-0 21 3 0.48Nagarjuna

Fertilizers and Chemical Ltd.

1,354,490 23.5 74-26-0 21.8 8 0.67

IFFCO 3,963,000 24.7 93-7-0 21.1 17 0.64KRIBHCO 1,714,502 24.8 100-0-0 20.9 19 0.54

RCF 1,832,334 27.4 75-25-0 21.7 26 0.74CFCL 2,000,038 22.6 100-0-0 20.9 8 0.49GNFC 670,290 24.8 29-0-71 28.3 15 1.36

NFL Vijaipur I 899,679 24.3 100-0-0 20.9 16 0.52SOURCE: Green Rating Project 2009; Centre for Science and Environment, New Delhi

Company Profile (KRIBHCO)

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Company Profile

Location: A-10, Sector-01, Noida, Uttar PradeshKRIBHCO: Krishak Bharati Cooperative Ltd is a Cooperative Society registered under Multi-

State Cooperative Society Act 2002. It has more than 6500 cooperative societies as its members.

KRIBHCO has setup a Fertilizer Complex to manufacture Urea, Ammonia & Bio-

fertilizers at Hazira in the State of Gujarat, on the bank of river Tapti, 15 Kms from Surat

city on Surat – Hazira State Highway.

Late Smt. Indira Gandhi, former Prime

Minister of India laid the Foundation

Stone on February 5, 1982.

Hazira Fertilizer Complex has 2 Streams

of Ammonia Plant and 4 Streams of Urea

Plant. Annual re-assessed capacity for

Urea and Ammonia is 1.729 million MT

and 1.003 million MT respectively, the

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total Project cost was Rs. 890 crores as against the estimated cost of Rs. 957 crores. This shows

a saving of Rs. 67 crores (approximately 7%) in Capital Cost of the Project.

The trial production commenced from November, 1985 and within a very short time of 3

months, the commercial production commenced from March 01, 1986. Since then, it has

excelled in performance in all areas of its operations.

Bio-fertilizer plant of 100 MT per year capacity was commissioned at Hazira in August, 1995.

KRIBHCO has also completed the installation of an expansion of the Bio-Fertilizer plant with

an additional capacity of 150 MT and the same was commissioned in December, 1998.

Ten Seed Processing Plants are also in operation in various states.

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Kribhco

State Marketing Offices (14)

Area Offices (36)

Port Offices (2)

Seed production unit (12)

Service Centres (60)

Organization Chart

Mission

To act as a catalyst to agricultural and rural development by selecting, financing and managing

projects that are both socially desirable and commercially profitable.

Vision

We want to be a world class organization that represents the farmer community and

maximizes returns to them through specialization in agricultural inputs and products and

other diversified businesses that maximize stakeholder value.

OBJECTIVES

To increase the urea installed capacity, maintaining its market share.

To ensure optimum utilisation of existing plant and machinery.

To diversify into other core sectors like power, LNG terminal / port, chemicals etc.

Market share of different sectors in the company

market share

COOPERATIVE 2886807500

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Shri B.D.SINHA (Managing Director)

Shri S.Jaggia (Operations

Director)

Shri R. Kamra

(Finance Director)

Shri N. Sambasiva

Rao (Marketing Director)

Shri A.K.GUPTA

(Chief Vigilance Officer)

Shri C.P. Singh

(Executive Director

Technical)

Shri Amar Prasad

(Executive Director HR)

Govt. of India 1015000000NCDC 50000000

73%

26%1%

market share

COOPERATIVEGovt. of IndiaNCDC

In the above figure, it shows the share of different societies and sector in the KRIBHCO with decrease Government share to 26% and increase in cooperative societies share to 73%, these societies belongs from different states and region in country. The decrease in government share is 26% from 48% before

Growth Trend and Financial Performance

Paid up capital: Rs. 390.66 Crore

Gross earning: Rs. 2863.66 Crore

SalesYear Sales (Rs. In

Crore)2000-2001 686.232001-2002 766.082002-2003 800.052003-2004 979.312004-2005 924.222005-2006 1,257.30

2006-2007 1,343.972007-2008 1,385.622008-2009 1,512.402009-2010 1,637.39

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2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

0200400600800

10001200140016001800

686.23766.08 800.05

979.31924.22

1257.3

1343.971385.62

1512.4 1637.39

Sales(Rs. In Crore)

Sales(Rs. In Cro...

According to the 30th annual report (2009-10) the sales has increased significantly from 686.23 Crore in 2000-2001 to 1,637.39 Crore in 2009-2010. This sale includes urea, ammonia, DAP and MOP etc.

ProfitYear PBT(Profit

Before Tax)PAT(Profit After Tax)

2000-2001 210.1 138.12001-2002 248.33 187.332002-2003 40.01 34.012003-2004 219.51 152.72004-2005 185.83 140.592005-2006 280.2 192.452006-2007 231.53 193.242007-2008 272.14 209.22008-2009 269.34 250.132009-2010 252.77 228.17

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2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

0

50

100

150

200

250

300

210.1248.33

40.01

219.51185.83

280.2

231.53

272.14 269.34252.77

138.1

187.33

34.01

152.7 140.59192.45 193.24

209.2250.13 228.17

PBT(Profit Before Tax)PAT(Profit After Tax)

The Profit before Tax & Profit after Tax reflects the profit performance of the company before and after the relevant taxes is paid. The main product urea is a controlled commodity by the government. Thus, sometimes the subsidy availed does not meet with company’s cost of production inclusive of profit margin, company earns most of its profit from sale of other commodities such as DAP & MOP.

Net WorthNet worth is the amount by which assets exceed liabilities. Through the years the reserves in the company has increased with decrease in equity of the company. The reserves are used to finance the revamp project as well as investing in bank deposits etc.

YEAR Equity Reserves Net Worth31.03.2007

396.11 1891.41 2287.52

31.03.2008

396.08 1982.43 2378.51

31.03.2009

390.74 2158.68 2549.42

31.03.2010

390.67 2306.46 2697.13

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31.03.2007 31.03.2008 31.03.2009 31.03.2010

Equity 396.11 396.08 390.74 390.67

Reserves 1891.41 1982.43 2158.68 2306.46

Net Worth 2287.52 2378.51 2549.42 2697.13

250

750

1250

1750

2250

2750

Net Worth

Sources of IncomeSources Of Income Rs. In Crore

Sales 1,637.38Concession/Remuneration from Govt. of

India959.69

Other Revenue 266.59

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57%34%

9%

Rs. In Crore

SalesConcession/Remu-neration from Govt. of IndiaOther Revenue

Projected Production and Sales of Ammonia and Urea (in KRIBHCO)

Production (Rs. In lakhs)

Sales (Rs. In lakhs)

YEARAmmonia Urea

Ammonia Urea

1110053

1780105 83901

1800242

2009-10(actual)

1068400

1753000 55400

1753000

2010-11

1197300

2015000 32600

2015000

2011-12

1297000

2195000 28000

2195000

2012-13

1361850

2304750 29415

2304750

2013-14

In the above given table, we can see that ammonia and urea production and sales in Rupees.

The ammonia production is increasing with sales decreasing, this is because the ammonia is used

to also produce urea and through table we can see the urea sales is increasing with increase in it’s

production. Thus, the additional ammonia produced is used in production of urea which leads to

decrease in sale of ammonia

Production Performance

UREA & AMMONIA:

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During the year 2008-09 KRIBHCO produced 17.43 lakh MT of Urea (8.02 lakh MT in terms of

nitrogen “N”) achieving capacity utilization of 100.8 % and 10.85 lakh MT of Ammonia

achieving capacity utilization of 108.1%.During the year 2009-10 up to November 2009, the

Society has produced 13.36 LMT of Urea (6.14 lakh MT in terms of nitrogen “N”) achieving

capacity utilization of 103 %. The expected production for the year 2009- 10 would be 17.82

lakh MT of Urea (8.20 lakh Mt in terms of nutrient “N”) of capacity utilization of 103%.

ARGON GAS:

During the year 2008-09 KRIBHCO produced 4245 thousand NM3 of Argon gas. During the

year 2009-10 up to November 2009, Society has produced 1726 thousand NM3 of Argon.

BIO-FERTILIZERS:

During the year 2008-09 KRIBHCO produced 865 MT of Bio-fertilizers. During the year 2009-

10 up to November 2009, Society has produced 679 MT of Bio-fertilizer.

Sales Performance:

TOTAL UREA :

In the year 2008-09, the Society sold 37.76 lakh MT of total Urea. This is the highest total

annual sales of Urea achieved by KRIBHCO since inception. During the year 2009-10 upto

November 2009, Society sold 23.59 lakh MT of total Urea.

OWN UREA :

In the year 2008-09 the Society has sold 18.11 lakh MT of own Urea. During the year 2009-10

upto November 2009, Society has sold 11.23 lakh MT of own Urea.

OMIFCO GRANULAR UREA:

During the year 2008-09 Society sold 10.77 lakh MT OMIFCO Granular Urea. During the year

2009-10 upto November 2009, Society has sold 6.27 lakh MT of OMIFCO Granular Urea.

KSFL UREA:

During the year 2008-09 Society has sold 8.88 lakh MT of KSFL Urea. During the year 2009-10

upto November 2009, Society has sold 6.09 lakh MT of KSFL Urea.

AMMONIA SALE :

During the year 2008-09 the Society has sold 0.79 lakh MT of surplus Ammonia.

During the year 2009-10 upto November 2009, Society has sold 0.57 lakh MT of Ammonia.

ARGON SALE:

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During the year 2008-09 the Society has sold 4215 thousand NM3 of Argon. During the year

2009-10 up to November 2009, Society has sold 1692 thousand NM3 of Argon.

BIO-FERTILIZERS SALE:

During the year 2008-09 the sale of Bio-fertilizer was 867MT. KRIBHCO has conducted several

promotional programmes on use and benefits of Bio-fertilizers.

During the year 2009-10 up to November 2009, Society has sold 655 MT of Bio-fertilizer.

SWOT ANALYSIS OF KRIBHCO

SWOT Analysis is a method for analyzing a business, its resources and its environment.

SWOT is commonly used as part of strategic planning and looks at:

Internal Strengths

Internal Weakness

Opportunities in external environment

Threats in the external environment

STRENGTH-:

Manpower that is experienced, professionally qualified.

Harmonizes industrial relation.

Proven technology and good product quality.

Consistently good performance and the availability of substantial reserve.

Wide spread marketing infrastructure.

A good corporate image.

WEAKNESSES-:

Delay in Diversification.

OPPORTUNITIES-:

Growth prospect bright for the immediate future.

Liberal economic policies.

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Scope for joint venture in abroad.

Prospects for diversifications.

Decontrol may lead to an increase in profits.

THREATS-:

Inadequate availability of raw material like natural gas.

Development of substitute product.

Environment and pollution control standard may become more stringent

Captive Power Plant

Electric power generation is a state controlled subject. Of late, however, government has

liberalized captive power generation for the user industry for bridging the demand-supply gap.

The fact that private industries use captive power answers the question of financial viability.

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With the ‘opening access’ policy has also made third party power sale quite lucrative. The

CERC amended Section-9 letting the Captive power plants using 25% of its power to sell

electricity through open access system (without requiring license). Earlier CPP consumed 75%

power and sell residual power to grid only after obtaining special clearance from the

government.

KRIBHCO is a National level Cooperative- Society which is engaged in manufacturing and

marketing of urea since 1986. The company operates a mega fertilizer complex at Hazira in

Gujarat, India. The fertilizer complex comprised of two streams of Ammonia plants of

1520MT/day capacity each and four Urea streams of 1310 MT/day each. The complex also

comprised of related offsite facilities, captive Steam and power generation (SGPG) plant, silos

for storing urea, Railway siding etc. and is self sufficient in terms of power and other utilities.

The captive power plant is a power plant set up by any person to generate electricity primarily

for his own use and includes a power plant set up by any co-operative society or association of

persons for generating electricity primarily for use of members of such cooperative society or

association (Electricity Act, 2003).The captive power and steam generation plant (SGPG) of

Hazira complex comprised of three high pressure boilers and two Steam turbo Generators

installed with plant producing 24MW and 260 MT/h (65MW equivalent) HP steam for utilizing

0.7 MMSCMD gas.

Captive SGPG plant comprises of

3 HP Boilers of 275MT/h MCR capacity each

2 steam Turbo Generators of 15 MW each

Requirement in Fertilizer Complex

HP steam requirement (by Urea Plant) = 260 MT/h

Complex power requirement (including argon) = 24 MW

The requirement was met by running 2 boilers at part loads to produce HP steam of about

390MT/h which were divided about 260 MT/h for urea plant for process use and 130 MT/h to

produce 24MW of power to meet power plant internal consumption.

The company decided for the Revamp of Ammonia and Urea plant to enhance the production

capacity, which is to be completed by Oct 2011. During the review meeting with MD on subject

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matter GM (P), Sh. S. Jaggia put forward 2 scenarios on completion the revamp Project of

Ammonia and Urea Plant, which are as following:

A. Surplus steam of 70 MT/h will be produced in ammonia plant, leading steam production

requirement from SGPG plant to 190 MT/h from present 260 MT/h. Thus SGPG plant

shall be configured to provide 190 MT/h steam and 27 MW power to be utilized by the

fertilizer complex after revamp.

B. Alternatively, if a total power of 42 MW is made available to the fertilizer complex after

revamp( by April 2011 which was later extended to Oct 2011) a total of 150 MT/h steam

can be made available from ammonia plant by changing some of the complex from

present scheme of steam driven to motor drive system. In this case the HP steam

generation requirement from SGPG plant shall become only to 110 MT/h. thus, after

revamp project implementation requirement of power and steam to be generated from

SGPG plant including 3 MW requirement for Jetty, ICD’s, Argon plant etc. shall be

HP steam= 11 MT/h

Complex power requirement = 45 MW

The MD decided that alternative (B) shall be more feasible and adopted with work starting

immediately to meet the deadline of the Revamp of Ammonia & Urea plant so that enhanced

power requirement is met for the fertilizer complex of 45 MW along with most optimum

configuration of power and steam generation to produce maximum power for third party sale.

Thus, the Revamp of Captive Power plant was decided.

In order to meet the enhanced power requirement and to optimize the use of present available gas

for generation of surplus power for third party sale, it was proposed to revamp the power plants

by installing new Gas Turbines and HRSG as being used in modern power plants for

considerable enhancement of efficiency

According to recent data, the Ammonia and Urea Plant shall be completed by Oct 2011. On

completion of this revamp project, the requirement of high pressure steam and power of the

complex shall be changed to 174 MT/h and 37 MW respectively.

Consultant’s Work

It was found prudent to divide the project into two phases for the consultancy work.

Phase -1.Accordingly, ITB was floated for selection of Engineering Consultant to carry

out the configuration study, recommend the most optimum configuration and carry out

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Techno- Economic Study for augmentation the Captive Power Plant, power evacuation &

Grid connectivity and to work out options for sale of power for maximum returns keeping

in view of various policies of third party power sale from Captive power plants..

Phase-2.The next phase shall be appoint a Consultant for providing services of an

“Owner’s Engineer” with responsible of preparation of DPR, specifications and tender

document for various EPC packages, issue of tenders, Bid evaluation and

recommendations for placing orders. In the last phase, a project Management Consultant

(PMC) shall be appointed who will provide services related to all aspects of project

Execution. This phase shall highest commercial implication.

For the phase-1 limited tender was issued and bids were called. The plant configuration

suggested by the consultant is based on two scenarios.

The Case-I is based under regulatory compliance by a CPP which permits a CPP to sell

power to third party only up to 49% of total generation will be limited to 72 MW with 37

MW in-house use and 35 MW for third party sale. The gas required in this case will be

about 0.7 MMSCMD. In this case one of the existing Service Boiler shall also be utilized

for generating steam to augment the steam generation from new HRSG for meeting the

shortfall for in-house requirement.

In Case-II, the maximum potential of power generation for third party sale has been

considered, utilizing total available gas of 1.0 MMSCMD. In this case the total power

generation shall be about 142MW with surplus available for sale of 105 MW. In case

total in-house steam shall be generated in new HRSG(S) to be installed. The existing

boiler shall become redundant in this case.

Case POLICY TOTAL POWER MW

CAPTIVE Requirement MW

Sale of surplus power

Case -I @49% of capacity of CPP

72 37 35

Case-II @75% OF Capacity of CPP

123-142 37 86-105

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Care has been taken to ensure compatibility of selected models in such a way that

augmentation from case 1 to case 2 is ensured smoothly

In this project we are going to study and analyze the Case-I. This case was divided into three

cases with two alternative each from which the analysis takes place. These three cases were

differentiated on the basis of sale of surplus power.

The CASE- 1 defined on the Standalone Absolute Basis i.e. total 101 MW power is produced,

with 1% internal consumption and rest being exported/ transferred to the KRIBHCO.

The CASE-2 was defined on the Net Increment Basis i.e. the increment over what KRIBHCO is

presently producing (24 MW power and 260 MT//h steam)and what is to be produced (72 MW

power and 174 MT/h) which comes out to be 26.5 MW, out of which 50% is sold to KRIBHCO

itself.

The CASE-3 was defined on the Net Export Basis total power generated is 72 MW out of which

37 MW is for internal consumption and rest 35 MW is to be sold with nil variable cost. This case

was preferred by the company and consultant as the best option because of its technical

feasibility and as later analyzed physical feasibility providing the firm optimum solution. Thus,

it is further analyzed with two alternative available 5 and 6 in the Analysis chapter.

Cost Analysis of Alternatives

KRIBHCO has undertaken a major revamp project of Ammonia & Urea plants for capacity

enhancement. The project is under implementation and shall be completed by Oct 2011.

KRIBHCO commissioned a consultant to carry out the configuration study, recommend the most

optimum configuration and carry out the configuration study, recommend the most optimum

configuration and carry out the PMC services for the Captive Power Plant. On completion of this

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revamp project, 150MT/h surplus HP Steam shall be generated in the Ammonia plant, which will

be exported to Urea plants. Under this scenario HP steam requirement from the SGPG plant shall

reduce to 125MT/hr from present value of 260 MT/hr. The power requirement of the complex

however shall increase to 45MW from present requirement of 24MW.Thus the SGPG plant, after

revamp of fertilizer plant needs to produce 125MT/h HP steam and 45MW power in-house

consumption.

It has been understood this project is a capacity augmentation of existing Power plant. EIL has

undertaken configuration study for Captive Power Plant for Case-1 and Case-2 under which

alternate scenarios has been considered for each case. Cost estimates for all scenarios have been

worked out.

The basic assumptions made for working out the cost estimate are as under:

- Cost estimate is based on present day price level as of April-2010. No provision has been

made for any future exchange rate variation.

- It has been assumed that the project would be implemented on ‘HYBRID’ mode of

execution

BASIS OF COST ESTIMATE

The basis of cost estimate is as under:-

- Cost estimate has been prepared based on best option among various options/

configuration available. These have been supplemented with in-house engineering inputs

for cost estimation.

- Cost estimate is based on cost information available from in-house cost database which is

a repository for storing cost data from ongoing jobs. In—house cost data has been has

been analyzed and adopted for estimation after incorporating specific project conditions.

Cost data has been updated to prevailing price level using relevant economic values.

Plant & Machinery

Supply cost

The cost estimates have been prepared based on specification and in-house cost data for similar

type of equipment. Sourcing of equipment and material from foreign or indigenous suppliers has

been made as per in-house information on previous executed projects.

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Cost estimate for Gas Turbine Generator (GTG) is based on budgetary quote from various

vendors and HRSG has been estimated based on in-house awarded cost data for similar items,

updated for required specifications and time escalations. Some of the major equipment like

Utility Boiler, STG, De-aerator, and BFW Pumps etc. already exist in the plant. No provision for

capacity augmentation for these equipments has been provided

Cost for supply of Piping & Electrical items are provided based on in-house generated MTO.

Cost for supply of Instrumentation (including DCS) has been made on factor basis. Cost

provision for spares has been made on factor basis as per in-house norms.

Lump sum cost provisions have been made for Chemicals.

Construction Costs

Costs provision towards erection of equipment, piping, electrical, and instruments, Civil &

structural works including Piling works, insulation & painting work have been made on fator

basis.

Statutory & Indirect Costs

Statutory & Indirect CostsOcean Freight 4.0% of FOB cost of imported equipmentCustom Duty 20.94% of CIF cost of imported equipment(5% Basic Customs Duty

+ 10.30% CVD+ 3% Education Cess + 4% Additional duty)Port Handling 0.5% of FOB cost of imported equipmentInland freight 2.0% of FOB cost of imported equipment and ex-works cost of

indigenously sourced equipmentExcise Duty 10.30% of ex-works cost of indigenously sourced equipment Central Sales tax 2% of ex-works cost of indigenously sourced equipment including

excise duty Work Contract Tax 4% on subcontracted worksService Tax 4.12% on subcontracted worksOctroi / State Entry Tax

Not Considered

Insurance 0.5% of total cost

Design and Engineer Fees

Cost provision for Design & Engineering is based on factor basis.

Contingency

Provision for contingency has been made @ 3%.

EPCC Mark-UP

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EPCC mark-up has been excluded from the cost estimate.

Exclusions

Following costs have been excluded from the cost estimate:-

- Exchange rate variations

- Road & buildings

- Construction Site Requirement

- Start-Up and Commissioning Expenses

- Forward Escalation

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Reflections on what has been learned during the training experience

Reflections on what has been learned during the training experience

Finance Department

The finance department is divided into different section:-

MIS/BUDGET/FICC

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Book/ Taxation Section

Cash Section

Investments/Trusts

Oman Section/ Finance Concurrence

Marketing Accounts

As a trainee we had to follow a schedule in which we had spend a considerable time in each

section learning about different areas in finance department of the company. It was full of

wonderful learning experience. The employees were knowledgeable about their field as well

patient and considerate towards the trainees. In this chapter the given section of the company will

be discussed of what they do, why they do and when they do.

I. MIS/Budget/FICC

I studied capital budget and revenue budget first in this section. While reading these files I was

asked to follow certain guidelines such as

- The file has to be read from back to front.

- The files had photocopy of each of its documents as well some of it in hindi.

The capital budget is a plan for raising large and long term sums for investments in plant &

machinery, over a period greater than the period considered under an operating budget.

Capital budget is the most crucial financial decision of firm. It relates to the section of assets

or investment proposal or course of action whose benefits are likely to be available in future

over the lifetime of the project. There is no income or loss in this budget.

There are 4 types of scheme for which capital budget is made under 3 head- Head office,

CMO AND Plant . These are as follows:-

New Scheme

On -going Scheme

Dropped Scheme

Complete Scheme

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Revenue budget is related to production cost related to the Hazira Plant situated at Surat,

Gujarat. The expenses of Head Office like remuneration, wages, salary, day to day expense

and similar expenses of market division.

a) procurement budget : Naphtha, Bags, Chemicals, Catalyst, Steel & cement

b) revenue budget: raw material, packing/bagging cost, power, water, salaries & wages,

freight, handling & transportation etc

c) advance budget : conveyance, house building, and computer advances

Management Information System (MIS) involve three primary resources: technology,

information, and people. The information gathers information through various sources and

uses the information for different purposes. MIS provides information support to decision

making in the organization. The collection of information is done through various sources

such as Central Marketing offices, Head offices, & other sites are processed and sent further

to the entire needy destinations. The MIS reports are prepared on the following basis

Monthly

quarterly

annually

MIS performs following function for F&A department

To generate reports (financial statements or inventory status reports).

To answer what-if questions asked by management.

To support decision making.

FICC- FERTILIZER INDUSTRY COORDINATION COMMITTEE

• In this I learned about different schemes by and subsidies provided by the FICC to the

company for the production urea. The urea is a main product and basic need for the

farmers; it is controlled commodity i.e. the price is regulated by the government. It is

important to know that cost of production including the profit margin is higher than

regulated price. Thus, the government provides the subsidy to the company according to

40 | P a g e

the classification of the group company belongs to. The urea is a controlled product by

Govt. of India. Suppose,

Selling Price = Rs. 5,310

Cost of production= Rs. 8, 200 (inclusive 12% profit)

Subsidy (Rs. 2890)

Government Policy for Urea manufacturing Units:-

New Pricing Scheme (NPS)- Policy of stage III was effective from 1-10-2006 to 31-03-2010 but

this policy is still continuing and the new policy is under pipeline.

In NPS III policy there are six groups classified on the basis of input. There are thirty

Urea manufacturing units which is divided into six groups for calculate average cost.

Groups are classified on the basis of utilization level.

The Transportation cost of gas will be calculate and paid separately.

FICC department calculate quarterly cost of production which include comprise variable

cost and fixed cost. Cost of production change due to change in variable cost and fixed

cost. Both cost change on the basis of change in policy from time to time. This report has

to be calculated on quarterly basis which is called escalation claim. Escalation claim is

submitted quarterly basis for approval to government.

Government approved only those cost which they feel justified.

Difference between the approved cost and selling price is paid by government to

KRIBHCO which is known as subsidy.

The KRIBHCO suffer heavy losses on urea production because of under recoveries in

various account. But overall KRIBHCO is earning profits from other activities.

Policy related to Surplus Ammonia-

Ammonia used as raw material to produce urea. KRIBHCO is generating surplus ammonia due

to technical reasons and this surplus ammonia is used for sale purpose. In this respect

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government has notified a policy where the profit on sale of surplus ammonia is shared by the

government with the unit in the relation of 35:65 respectively.

II. Cash Section

In the cash section first I studied the file containing bank transaction of the cash available in the

company. In this I learned how the company operates on daily basis and handles general or

operating expenses. I also learned how the online banking made it easier for employees to carry

out the business transactions overseas or region from the comfortable office atmosphere. As

some of the transactions included payment and receipt of cash, the buyer’s credit and the

overdraft, I learned how the company dealt with them with such efficiency of employee and the

comfort of online transactions.

In this department the administration expenses are also dealt with, I read around three work order

contracts. One of them about the staffing of security guards containing work compensation plan,

provident fund and pension plan available from them, other contract was M/s Otis about the lifts

to be installed in the head office. In the latter contact the labors working for the installation were

required to be compensated as well other plans such as pension funds to be taken care by the

company responsible for the installation, this clause is in most of the work order contracts with

an exception of security guards contract. I also studied the agreement for the installation of SAP

which be there for employees use by next year.

The department also handles the payroll of employees. This is carried out with the assistance of

existing information system which contains the entire general and job information of employees.

The company has divided the employees in different grades with different compensation plan

enjoying different kinds of benefits such as medi-claim, loans and advances. The salary is

calculated on basic salary+ Dearness Allowances where kind of tax is levied.

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III. Book/ Taxation Section

In this section of the finance department the annual report is prepared and taxes are taken care

off. Here, I learned that how taxes is a cost to company and how the company deals with this

cost.

The taxes incurred both in head office and plant site are calculated here.

Taxes

Direct Tax Indirect Tax

(Income Tax) (VAT, Sales Tax, Excise

Duty Tax etc.)

KRIBHCO pays 30% corporate tax in addition with 3% education cess which in total works out

to be 30.9% with no surcharge included as the KRIBHCO is a cooperative society. The company

no longer pays Fringe Benefit Tax which came up in year 2003 & was abolished by the year

2010.

The difference between KRIBHCO’s calculated tax liability and the amount calculated by

Income Tax Department as tax liability is adjusted as ‘Deferred Tax Liability’.

In KRIBHCO, there is software called “Asset Expert Management System” developed by

Senesys technologies with help of which we calculate depreciation of all the fixed assets of

KRIBHCO. The company uses straight line method of depreciation for all assets below Rs. 5000

the 100% depreciation is calculated, keeping the value of asset as Re.1 in first year only. While

for assets above Rs.5000, regulation related to depreciation as per companies act is levied on.

In the section, the insurance of all fixed asset of the value above Rs. 5000 is done. Insurance o f

every employee and cash in hand in F&A of Rs.1, 50,000 is also being done. The insurance of

lift is also done and there are other kinds of contract being handled by HR department.

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IV. Investments/Trusts

In KRIBHCO the investment can be done by on the basis of CRISIL rating agency. KRIBHCO

did the investment with three types of bank

Cooperative Banks,

Private Banks

Public Banks.

In case company has surplus of money the company always give preference to the cooperative

banks because interest is exempted from the tax in cooperatives banks. KRIBHCO also make a

QCS (Quotation Comparative statement) on daily basis.

KRIBHCO takes 43 banks for comparative statement.

Main role to play by the investment section is to maintain the records of short term investment.

In case any investment is mature as on date they think that which bank is good for reinvestment

to increase interest income.

In any case company suffers from any deficit they apply for loan.

Selection criteria of bank- 1. Physical location (nearby) 2. Facilities

KRIBHCO use RTGS (real time gross statement) to transfer big fund, to save the time.

There are three types of trust under KRIBHCO as follows:-

KRIBHCO Employee provident fund Trust.

KRIBHCO Employee Benevolent Fund Trust.

KRIBHCO Employee Gratuity Fund Trust.

Benevolent fund trust is two types-

Death Insurance.

After Retirement Medical Insurance.

Constitution of Fund-

The trust can be created without executing any registered trust deed and shall be irrevocable with

the constant of all the beneficiaries and no money belongs to the fund is hand off to the Board of

trustees shall recoverable by the KRIBHCO.

Control of the Fund-

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The Board of trustees shall have control of the fund and shall delegated power of trustees or

official of KRIBHCO for performance of various functions on its behalf under the rule. The

Board shall be also decided all disputes which may arise under the rule. The obligation of

KRIBHCO and the decision of the majority for the trustees shall be binding on all the parties

concerned.

Membership of Fund-

Every employee in KRIBHCO and other excluded employee shall be entitled and required to

become a member of the fund from the date joining.

Every Employee and becoming a member of KRIBHCO shall remain and continued to be a

member. He shall be drawing his Provident Fund.

Contribution of Provident Fund-

Every member is entitled and required to contribute 12% of his Basic Pay &DA .Such

Contribution of each member will be deducted by KRIBHCO for the member pay and will be

paid to the fund within 15 days of making such deduction. The collected fund of the Provident

Fund, KRIBHCO has to invest this fund to earn interest income. The interest income is exempted

from the tax.

Employees’ Pension Scheme 1995

Eligibility- All the subscribers of Provident Fund contributing to “the employee family pension”

and all new entrants to the EPF scheme 1985 from 16/11/1995 onwards automatically become

eligible to join the pension scheme.

Contribution by the members-

Every member shall subscribe to one fund every month, a sum equal to 12% of his basic

pay.

KRIBHCO shall be entitled to deduct from the emolument of the member.

No subscription shall be recovered from employee when he will absent from the duty.

Employer contribution to the fund -

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The contribution shall be calculate don the basis of basic pay and dearness allowance and

retaining allowance it actually drawn on the whole month basis whether paid on weekly,

fortnightly or monthly basis.

Objective of the Scheme-

The main objective is to provide social welfare medical assistance to the employees.

The employees who minimum five year continuous service in KRIBHCO are eligible for this

scheme.

Contribution-

KRIBHCO employees shall be required to pay contribution of Rs.50/- per month up to the

date of retirement.

KRIBHCO will contribute Rs.50/- per month to the employees for the Medical claim

scheme.

Gratuity-

Calculations of Gratuity are as follows-Wages* No. of years of services*15 days/26

V. Oman Section

Omifco Fertilizers Complex, Sur Industrial Estate, Oman

Project Completion 2005

Production Capacity Urea-1.65mt/yr, Ammoina-250000t/yr

Project Cost $968m

Lump Sum Turnkey Snamprogetti/Technip-Coflexip

Contract Equipment Supply Larson & Toubro

Process Automation Yokogawa Blue Star

Oman Indian Fertilizers Company (Omifco), an India-Oman Joint venture company, invested

$968m to build 1.65mt/yr of urea and 35,0000t/yr of surplus ammonia capacity. The facilities are

located at The Sur Industrial Estates, 150 Km South of Muscat, Oman. The foundation stone-

laying ceremony took place on 1 October 2003.The entire complex was commissioned and

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production started in may 2005. The fertiliser’s complex was officially inaugurated in January

2006.

OMIFCO financing -

Shareholders in Omifco are Oman Oil Company-50%, Krishak Bharati Cooperative Limited

(KRIBHCO)-25%, and Indian Farmers Fertilisers Cooperative (IFFCO)-25%. The plant is

operated and maintained by Omifco.

The funding requirements were met with $320m of equity and $648m of debt. The project

financing was also supplemented by Italian and French credit export agencies. The lenders

included BNP Paribas, ANZ Investment Bank and Arab Banking Corporation.

Technology-

The ammonia output is based on Haldor Topsoe technology. The unit also includes a CO2

removal technology licensed by Giammarco Vetrocoke. The urea units use Snamprogetti

technology.

Critical equipment -

Fabrication and supply of all critical equipment such as ammonia converters, reformed gas waste

heat boiler systems, secondary reformers, ammonia separators and CO2 absorbers and

regenerators.

Off take agreements-

A urea off-take agreement was established between the Government of India and Omifco. At the

same time an ammonia off-take agreement was set up between Omifco , Indian Farmers

Fertilizers Cooperative (IFFCO)and KRIBHCO. The project location is at Muscat. India's

Government believes that the urea off take agreement will provide the country with a reliable

and long term source of urea. The KRIBHCO and IFFCO maintain a 50-50% share of production

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with GOI in Oman Project. The sales fee of US $3.5 per MT is still maintained by GOI even if

the share of production is not available.

Supply of feedstock-

A gas supply agreement was established between the Government of the Sultanate of Oman and

Omifco. Under the terms of the agreement the Government of Oman will supply gas to the

project for 15 years at a fixed price for the first ten years and then at a pre-agreed escalation for

the remaining years. The gas is sourced from the Oman LNG plant located in Sur, Oman.

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ANALYSIS

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ANALYSIS

Capital Budgeting DecisionsAlternative’s Cost of

Project(in Rs. Million Lakhs )

Sale Of Surplus

Auxiliary consumption

Alternative-5 3950 35Mw 0%Alternative-6 4300 35Mw 0%

Case Alternative’s Cost of Project(in Rs. Million Lakhs )

NPV* Equity IRR*

PBP* IRR* Sale of SURPLUS

Case 3 Alternative-5 3950 7125.13 81% 3.4 43.87%35MwAlternative-6 4300 7070.57 75% 3.8 39.95%

Case Alternative’s Sale of Surplus Power

Minimum DSCR

Maximum DSCR

Average DSCR

Case 3 Alternative-5 35Mw 2.63 3.97 3.15Alternative-6 2.46 3.66 2.92

*(Check Annexure-1 for the calculation)

Net Present ValueThe difference between the present value of cash inflows and the present value of cash outflows.

NPV is used in capital budgeting to analyze the profitability of an investment or project.

NPV analysis is sensitive to the reliability of future cash inflows that an investment or project

will yield.

Formula:

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In this project Ms Excel is used as a tool for calculating NPV for all six alternatives at 12%

interest. Following are the cases and calculated NPV.

Case Alternative’

s

Cost of

Project

NPV

Case 3 Alternative-5 3950 7125.13

Alternative-6 4300 7070.57

If the NPV of a prospective project is positive, it should be accepted. However, if NPV is

negative, the project should probably be rejected because cash flows will also be negative.

Net Present Value of case is most favorable at Rs.7125.13 (alternatrive-5). Thus, the company

should go for Case-3. It is calculated for 25 years

Internal Rate of Return

The discount rate often used in capital budgeting that makes the net present value of all cash

flows from a particular project equal to zero. Generally speaking, the higher a project's internal

rate of return, the more desirable it is to undertake the project.

As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all

other factors are equal among the various projects, the project with the highest IRR would

probably be considered the best and undertaken first.

Case Alternative’s IRR

Case 3 Alternative-5 43.87%

Alternative-6 39.95%

I have used Ms- Excel to calculate Internal Rate of Interest (IRR) at 10%. Assuming all other

factors are equal among the various cases, the case with the highest IRR would probably be

considered the best and undertaken first. In this case at alternative-5 with 43.87% this is quite

higher than other alternatives. It is calculated for 25 years.

Equity IRR

Equity IRR assumes the use debt for the project, so the inflows are the cash flows required minus

any debt that was raised for the project. The outflows are cash flows from the project minus any

51 | P a g e

interest and debt repayments. Hence, equity IRR is essentially the "leveraged" version of project

IRR.

Case Alternative’s Equity IRR

Case 3 Alternative-5 81%

Alternative-6 75%

I have calculated Equity IRR with help of Ms-Excel at 10%. Equity IRR is the cash flow return

to equity shareholders after debt repayments. In the given cases, the case at alternative-5 with

81% equity IRR. It is calculated for over 25 years.

Payback Period

The length of time required to recover the cost of an investment.

Calculated as:

Case Alternative’s PBP (in

years)

Case3 Alternative-5 3.4

Alternative-6 3.8

The short length of time is preferable. In this I calculated payback period within. As we can see

the case (alternate-5) at 3.4 years is the shortest time in which initial investment can be

recovered.

Debt-Service Coverage Ratio

In corporate finance, it is the amount of cash flow available to meet annual interest and principal

payments on debt, including sinking fund payments.

In general, it is calculated by:

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Case Alternative’s Sale of Surplus

Minimum DSCR

Maximum DSCR

Average DSCR

Case Alternative-5 35Mw 2.63 3.97 3.15Alternative-6 2.46 3.66 2.92

A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. According to the calculated DSCR with help of Ms- Excel Case-3 alternative 5 provides the highest DSCR at minimum DSCR at 2.63 and maximum DSCR at 3.97. It is calculated for around 25 years.Sensitivity AnalysisA technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bond's price.Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key prediction(s).


NPV Equity IRR

PBP IRR

Case 3 Alternative-5 3950 7125.13 81% 3.4 43.87%Alternative-6 4300 7070.57 75% 3.8 39.95%

Sensitivity analysis- 10% increase in cost of projectAlternatives NPV IRR PBPAlternate-5 7,063.56 39.49% 3.8 yrsAlternate-6 7,003.54 35.86% 4.2 yrs

Sensitivity analysis- 10% decrease in cost of projectAlternatives NPV IRR PBPAlternate-5 7,186.70 49.16% 3.1 yrsAlternate-6 7,137.60 44.86% 3.4 yrs

53 | P a g e

“The analysis is done for Case-I for which EIL is responsible to prepare feasibility report as well provide with necessary solution.” The Captive Power Plant has been installed for KRIBHCO Fertilizer complex. In other words, the consistent fertilizer production needs uninterrupted, reliable Electrical Power & High Pressure Steam for running the different equipments/ Exchangers/ vessels of the Fertilizer complex. So, it basically a co-generation Thermal Captive Power Plant.KRIBHCO commissioned Engineers India Limited, New Delhi vide their LOI dated 25 th Feb 2010 to carry out the configuration study, recommend the most optimum configuration and to prepare a Techno- Economic for Feasibility Report for augmenting the existing Captive Power plant.According to financial statements prepared and investment appraisal done by the company itself. The company is taking three cases with different capacity of plant divided into standalone absolute basis, net increment of power basis, and net export of power basis. In these cases, two alternatives are provided to each with different cost of project.Through the assistance of capital budgeting decisions and its tools the company prepares its investment decision as we look through different cases. All the three cases were analyzed, with later selecting Case-3 for analysis to get the optimum solution.


Capacity of Plant

Case-Net export basis

Alternative-5 3950 35MwAlternative-6 4300

If you look up at the write-up provided by company in annexure-2 as well as at the capital

budgeting decisions you’ll understand the company chose the Case- Net export basis at Case-I

of the project which is to be completed by Oct-2011. In the net export basis comprises of concept

where we look at it from only power point of view. Total power generated is 72 MW out of

which 37 is our own internal requirement. Thus 35 MW is being sold with nil variable cost. The

projected IRR, NPV and payback period is quite impressive. The annexure- 3 contains all the

financial statements related to alternative 5 which seems optimum solution.


NPV Equity IRR

PBP IRR Sale of surplus power

Case 3 Alternative-5 3950 7125.13 81% 3.4 43.87% 35MwAlternative-6 4300 7070.57 75% 3.8 39.95%

54 | P a g e

As well due the technical configuration where in Case-1(standalone absolute basis) utilizes it

1% for internal consumption and rest being exported/ transferred to KRIBHCO, whereas in

Case-2 (Net Increment basis) in which 50% of differential will be transferred to KRIBHCO

and balance 50% being sold outside with nil variable cost and in Case-3 from total power

generated 72MW, the 35MW is sold with nil variable cost after meeting internal requirement

of 37 MW. This is also one of the factors contributing in such vast difference in the NPV,

IRR as well other tools.

55 | P a g e

Conclusion & Recommendation’s

56 | P a g e

Conclusion

KRIBHCO is a National level Cooperative- Society which is engaged in manufacturing and

marketing of urea since 1986. The company operates a mega fertilizer complex at Hazira in

Gujarat, India. It includes two of two streams of Ammonia plants of 1520MT/day capacity each

and four Urea streams of 1310 MT/day each. The company decided on major revamp of the

Ammonia and urea plant to enhance the production. Due to enhancement of the production it was

found out extra power would be needed. Hence, the company decided the revamp of captive

power plant. Captive power plants are those power plants which use power generated for its own

consumption or that of the owner of plant to maintain a continuous supply.

The company has divided the whole Captive Power Plant (CPP) Revamp project in two phases.

This report was study of the first phase which is yet not completed. The Phase –I includes

Engineers India Ltd which had to carry out the configuration study, recommend the most

optimum configuration and carry out Techno- Economic Study for augmentation the Captive

Power Plant, power evacuation & Grid connectivity and to work out options for sale of power for

maximum returns keeping in view of various policies of third party power sale from Captive

power plants. EIL has carried out financial feasibility study with techno feasibility through

investment appraisal and capital budgeting decisions. According to investment appraisal, the

case-3 (NET EXPORT Basis) alternat-5 is the most feasible solution with surplus power of 35

MW for sale and 37 MW for internal Consumption.

Also the electricity board has liberalized captive power generation for the user industry for

bridging the demand-supply gap. With the ‘opening access’ policy it has also made third party

power sale quite lucrative. The CERC amended Section-9 letting the Captive power plants using

25% of its power to sell electricity through open access system (without requiring license). This

benefits the company in long way as according to analysis the chosen case-3 and alternate-5

follows the net export basis approach which allows company to sell surplus power.

57 | P a g e

Recommendation Through the years company’s reserves have increased in comparison of decrease in

equity. This increase can be due to the investment in the revamp of urea & ammonia plant to enhance production. The company is also investing in bank deposits at which its earning certain rate of return. - The company can also give a thought to Solar PV Power plants as through the years

the efficiency in cost reduction and power generation has increased also such project shows the company in great light over social responsibility.

The company with changing global environment is stepping up the global ladder. In Oman, the company is in joint venture (OMIFCO) for urea production. The company also attended the BRICS which recognizes cooperative societies among the member countries Brazil, Russian Federation, India, China and South Africa which benefits company in sharing knowledge, technology and information. The company can use this opportunity to invest in different economies and utilize resources of said economies.

The company can use Modified Internal Rate of Return. The modified internal rate of return takes into account the rate of investment of the cash flows that are not negative. It makes precise assumptions about these when functioning in the context of corporate finance.

The profitability index is a technique of capital budgeting. This holds the relationship between the investment and a proposed project's payoff. The profitability index is also sometimes called as value investment ratio or profit investment ratio. Profitability index is used to rank various projects. With other capital budgeting techniques it can help in guiding the decision making process.

58 | P a g e

Bibliography

Financial Management I.M. Pandey

http://www.faidelhi.org/

30th Annual report KRIBHCO

Annual Report (2009-2010) Ministry of Chemical and Fertilizers

Feasibility Report for Revamping Of Captive Power & Steam Generation Plant (SGPG)

At Hazira – Engineers India Ltd.

59 | P a g e

http://www.faidelhi.org/

Annexure

60 | P a g e

Annexure-1

Alternate-5 ANNEXURE-1-IDescription Cash flow for IRR and

NPV0 -

1 -

2 -1,185.00

Year-1 902.6

Year-2 947.6

Year-3 996.7

Year-4 1,049.30

Year-5 1,104.90

Year-6 1,163.20

Year-7 1,223.80

Year-8 1,286.50

Year-9 1,350.90

Year-10 1,417.00

Year-11 1,761.00

Year-12 2,088.10

Year-13 2,277.80

Year-14 2,307.10

Year-15 2,323.90

Year-16 2,348.60

Year-17 2,381.00

Year-18 2,413.30

Year-19 2,445.50

Year-20 2,477.60

Year-21 2,509.60

Year-22 2,541.40

Year-23 2,573.10

Year-24 2,604.70

Year-25 2,636.20

Year-26 395

Equity IRR Equity NPV

48% 4,190.45

MiINR

61 | P a g e

Alternate-6 ANNEXURE-1-IIDescription

Cashflow for IRR and NPV

0 -

1 -

2 -1,290.00

Year-1 879.7

Year-2 925.7

Year-3 976.2

Year-4 1,030.40

Year-5 1,088.00

Year-6 1,148.50

Year-7 1,211.50

Year-8 1,276.70

Year-9 1,344.00

Year-10 1,413.00

Year-11 1,784.50

Year-12 2,137.60

Year-13 2,341.30

Year-14 2,370.30

Year-15 2,385.30

Year-16 2,409.70

Year-17 2,442.10

Year-18 2,474.40

Year-19 2,506.60

Year-20 2,538.70

Year-21 2,570.70

Year-22 2,602.50

Year-23 2,634.20

Year-24 2,665.80

Year-25 2,697.30

Year-26 430

Equity IRR

Equity NPV

74% 7,070.57 MiINR

62 | P a g e

Annexure-2Financial Analysis on “Incremental Basis” (over Present operating conditions)

Case-1

On Standalone absolute basis (101 MW)

(72MW + 116/4 MW)

Total in terms of Power =101 MW

This 101 MW is generated through new setup of GT and HRSG

Case-2

Net increment of power Basis (26.5 MW)

Present case i) Power = 24 Mw

ii) Steam = 260 MT/h

Proposed i) Power =72 Mw

ii) Steam = 174MT/h

Differentials Power = 72-24 = 48 Mw

Steam = 174-260 = 86 MT/h (equivalent to 21.5 MW Power)

Net in terms of Power (48-21.5): 26.5 MW

Out of this 50% will be transferred to KRIBHCO @ Rs. 5.80/Unit and balance 50%

exported to grid @ Rs.4.50/unit

Case-3

Net Export of Power Basis (35MW)

Total Generated: 72MW

Internal Consumption: 37MW

Net Power Available: 35 MW

Power export after meeting internal requirement

Going in for Captive Power Plant (CPP) project makes complete sense from whatever point of

view, whether we look at it from:-

a) Standalone absolute basis i.e. total 101MW power is produced, with 1% internal

consumption and rest being exported/transferred to KRIBHCO. The project IRR of __%

and payback period of __years with capital cost of Rs____ Crore. The project IRR of ___

% and payback period of ___years with capital cost of Rs____ Crore.

63 | P a g e

b) Net increment of power basis i.e. the increment over what we were presently producing

(24 MW power and 260 MT/h steam) and what we are proposed to produce (72 MW

power and 174 MT/h) which comes out to be 26.5 MW, out of which 50 % is sold to

KRIBHCO and rest being sold outside and with nil variable cost. The project IRR of __%

and Payback period __years with capital cost of Rs___ Crore. The Project IRR of __%

and payback period of __years with capital cost of Rs____ Crore.

c) Net export of power basis i.e. we look at it from only power point of view. Total power

generated is 72 MW out of which 37 is our own internal requirement. Thus 35 MW is

being sold with nil variable cost. The Project IRR OF __% and payback period of __years

with capital cost of Rs___ Crore.

64 | P a g e

Annexure-3 (Case 5)

ANNEXURE-3-I

Profitability Analysis ALTERNATIVE-I (incremental)Description Unit Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10 2012-13 2012-14 2012-15 2012-16 2012-17 2012-18 2012-19 2012-20 2012-21 2012-22 Plant Capacity MW 35 35 35 35 35 35 35 35 35 35No. Of Hours in Year Hours 8760 8760 8760 8760 8760 8760 8760 8760 8760 8760Plant Load Factor % 91% 91% 91% 91% 91% 91% 91% 91% 91% 91%Total Generation Mi Units 279.006 279.006 279.006 279.006 279.006 279.006 279.006 279.006 279.006 279.006Auxiliary Consumption (of Generation) % 0 0 0 0 0 0 0 0 0 0Auxiliary Consumption Mi.Units 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Net Delivered Energy Mi. Units 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01

Cost Of ElectricityINR/kWhr 2.39 2.29 2.20 2.11 2.02 1.92 1.83 1.74 1.65 1.56

Sale Price (export) INR 6.60 6.60 6.60 6.60 6.60 6.60 6.60 6.60 6.60 6.60Revenue From Generation Net Revenue From Sale of Electricity Mi. INR

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

1,841.44

Cost Of Generation Operating Expenses

Fuel Cost (Gas) Mi. INR -

-

-

-

-

-

-

-

-

-

Operation & Maintenance Expenses Mi. INR 57.89

59.63

61.42

63.26

65.16

67.11

69.12

71.20

73.33

75.53

Gross Profit (PBDIT) Mi. INR 1,783.55

1,781.81

1,780.02

1,778.18

1,776.28

1,774.33

1,772.32

1,770.24

1,768.11

1,765.91

Depreciation Mi. INR 308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

Profit Before Interest & Tax(PBIT) Mi. INR 1,475.45

1,473.71

1,471.92

1,470.08

1,468.18

1,466.23

1,464.22

1,462.14

1,460.01

1,457.81

Interest Interest On Indian Debt Mi. INR

65 | P a g e

Profitability Analysis ALTERNATIVE-I (incremental)Description Unit Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10

276.50 248.85 221.20 193.55 165.90 138.25 110.60 82.95 55.30 27.65

Interest On working Capital Mi. INR 23.38

23.39

23.40

23.41

23.43

23.44

23.45

23.46

23.48

23.49

PBT Mi. INR 1,175.57

1,201.47

1,227.32

1,253.12

1,278.86

1,304.54

1,330.17

1,355.73

1,381.23

1,406.67

Tax Mi. INR 304.61

343.20

377.32

407.63

434.71

459.03

481.01

500.98

519.25

536.07

Profit After Tax Mi.INR 870.96

858.28

850.01

845.49

844.15

845.51

849.16

854.75

861.98

870.60

Cummulative Profit After Tax MiINR 870.96

1,729.24

2,579.24

3,424.73

4,268.88

5,114.39

5,963.54

6,818.29

7,680.27

8,550.87

Cash Profit Mi. INR 1,179.06

1,166.38

1,158.11

1,153.59

1,152.25

1,153.61

1,157.26

1,162.85

1,170.08

1,178.70

Commulative Cash Profit 3950 1,179.06

2,345.44

3,503.54

4,657.13

5,809.38

6,962.99

8,120.24

9,283.09

10,453.17

PROJECT IRR (10 YEARS) 43.9%

PAYBACK PERIOD 3.5 Tax Calculation

PBT MiINR 1,175.57

1,201.47

1,227.32

1,253.12

1,278.86

1,304.54

1,330.17

1,355.73

1,381.23

1,406.67

Previous Loss MiINR -

-

-

-

-

-

-

-

-

-

Net Taxable Income MiINR 1,175.57

1,201.47

1,227.32

1,253.12

1,278.86

1,304.54

1,330.17

1,355.73

1,381.23

1,406.67

MAT MiINR 239.75

245.03

250.30

255.56

260.81

266.05

271.27

276.49

281.69

286.88

Corporate Tax Computation

Book DepreciationMiINR

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

Cumulative DepreciationMiINR

308.10

616.20

924.30

1,232.40

1,540.50

1,848.60

2,156.70

2,464.80

2,772.90

3,081.00

Profit Before TaxMiINR

1,175.57

1,201.47

1,227.32

1,253.12

1,278.86

1,304.54

1,330.17

1,355.73

1,381.23

1,406.67

66 | P a g e

Profitability Analysis ALTERNATIVE-I (incremental)Description Unit Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10

Depreciatin as per Companies ActMiINR

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

Profit Before Tax & DepreciationMiINR

1,483.67

1,509.57

1,535.42

1,561.22

1,586.96

1,612.64

1,638.27

1,663.83

1,689.33

1,714.77

Depreciation as per IT ActMiINR

587.50

499.88

425.34

361.95

308.02

262.14

223.12

189.92

161.67

137.63

Profit/Loss as per ITMiINR

896.17

1,009.70

1,110.08

1,199.27

1,278.94

1,350.50

1,415.15

1,473.91

1,527.66

1,577.13

Cumulative Profit/ LossMiINR

896.17

1,905.87

3,015.95

4,215.22

5,494.16

6,844.65

8,259.80

9,733.71

11,261.38

12,838.51

TAX Applicability as per Tax Holidays MiINR 100.00%

100.00% 100.00%

100.00%

100.00% 100.00%

100.00% 100.00% 100.00% 100.00%

Applicable taxMiINR

304.61

343.20

377.32

407.63

434.71

459.03

481.01

500.98

519.25

536.07

Applicable Tax LiabilityMiINR

304.61

343.20

377.32

407.63

434.71

459.03

481.01

500.98

519.25

536.07

67 | P a g e

Balance Sheet ANNEXURE-3-II

DescriptionEnd of Construction Period Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10

Liabilities

Promoters Equity 1,185.00

1,185.00

1,185.00

1,185.00

1,185.00

1,185.00

1,185.00

1,185.00

1,185.00

1,185.00

1,185.00

Reserve & Surplus 26.13

51.88

77.38

102.74

128.07

153.43

178.91

204.55

230.41

256.53

Term Loan

-Indian 2,765.00

2,488.50

2,212.00

1,935.50

1,659.00

1,382.50

1,106.00

829.50

553.00

276.50

-

-Foreign - -

-

-

-

-

-

-

-

-

-

Bank Borrwing for Working Capital -

233.80

233.91

234.02

234.13

234.25

234.37

234.50

234.63

234.76

234.90

Dividend 722.11

711.59

704.74

700.99

699.88

701.01

704.03

708.67

714.66

721.81

Dividend Tax 122.72

120.94

119.77

119.13

118.94

119.14

119.65

120.44

121.46

122.67

Total Liabilities 3,950.00

4,778.26

4,515.31

4,256.40

4,001.00

3,748.64

3,498.95

3,251.59

3,006.28

2,762.79

2,520.91

Assets

Gross Block 3,950.00

3,950.00

3,641.90

3,333.80

3,025.70

2,717.60

2,409.50

2,101.40

1,793.30

1,485.20

1,177.10

Less: Depreciation - 308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

Net Block 3,950.00

3,641.90

3,333.80

3,025.70

2,717.60

2,409.50

2,101.40

1,793.30

1,485.20

1,177.10

869.00

Curent Assets - 233.80

233.91

234.02

234.13

234.25

234.37

234.50

234.63

234.76

234.90

Cash & Bank Balance - 902.56

947.60

996.68

1,049.2

1,104.8

1,163.17

1,223.79

1,286.45

1,350.93

1,417.01

68 | P a g e

6 9

Preliminary Expenses - -

-

-

-

-

-

-

-

-

-

Total Assets 3,950.00

4,778.26

4,515.31

4,256.40

4,001.00

3,748.64

3,498.95

3,251.59

3,006.28

2,762.79

2,520.91

Working Capital CalculationANNEXURE-3-III

Description Unit Value Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9Year-

10

ReceivableMi. INR

2 months

306.91

306.91

306.91

306.91

306.91

306.91

306.91

306.91

306.91

306.91

Gas StockMi. INR

1 month

-

-

-

-

-

-

-

-

-

-

O & M ExpensesMi. INR

1 month

4.82

4.97

5.12

5.27

5.43

5.59

5.76

5.93

6.11

6.29

Total Working CapitalMi. INR

311.7

311.9

312.0

312.2

312.3

312.5

312.7

312.8

313.0

313.2

Margin Money Required MiINR 77.93

77.97

78.01

78.04

78.08

78.12

78.17

78.21

78.25

78.30

Increase/(Decrease) in Margin Money MiINR 77.93

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.05

Working Capital LoanMi. INR

233.80

233.91

234.02

234.13

234.25

234.37

234.50

234.63

234.76

234.90

Increase/(Decrease) in working capital loanMi. INR

233.80

0.11

0.11

0.12

0.12

0.12

0.13

0.13

0.13

0.14

Interest On working capital Mi. INR

23.38

23.39

23.40

23.41

23.43

23.44

23.45

23.46

23.48

23.49

69 | P a g e

Plant DataANNEXURE-3-IV

Description Unit Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9Year-

10

2012-13 2012-14 2012-15 2012-162012-

172012-

18 2012-192012-

202012-

212012-

22

Hours in Year Hours 8760 8760 8760 8760 8760 8760 8760 8760 8760 8760

Cost of INR per US$ INR 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00 45.00

Plant Capacity MW 35 35 35 35 35 35 35 35 35 35

Auxiliary Consumptions % 0 0 0 0 0 0 0 0 0 0

PLF % 91% 91% 91% 91% 91% 91% 91% 91% 91% 91%

Station Heat Rate Kcal/Kwhr 0 0 0 0 0 0 0 0 0 0

Specific Consumption NM3/Kwhr 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Electricity GeneratedMi Unit/Annum 279.006 279.006 279.006 279.006 279.006 279.006 279.006 279.006 279.006 279.006

Auxiliary ConsumptionsMi Unit/Annum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Net Delivered EnergyMi Unit/Annum 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01

Tariff INR/unit 2.39 2.29 2.20 2.11 2.02 1.92 1.83 1.74 1.65 1.56

Fuel Cost INR/mKCal 2765.59 2765.59 2765.59 2765.59 2765.59 2765.59 2765.59 2765.59 2765.59 2765.59Fuel Consumption - Natural Gas Mi. NM3 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

70 | P a g e

ANNEXURE-3-V

Tariff Calculation Description Unit Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10 Plant Capacity MW 35 35 35 35 35 35 35 35 35 35Auxiliary Consumptions % 0 0 0 0 0 0 0 0 0 0PLF % 91.32 91.32 91.32 91.32 91.32 91.32 91.32 91.32 91.32 91.32

Total Electricity GeneratedMi Unit/Annum 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01

Auxiliary ConsumptionsMi Unit/Annum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Net Delivered EnergyMi Unit/Annum 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01 279.01

Fixed Cost

O&M Expenses Mi INR 57.89

59.63

61.42

63.26

65.16

67.11

69.12

71.20

73.33

75.53

Interest on Indian Debt Mi.INR 276.50

248.85

221.20

193.55

165.90

138.25

110.60

82.95

55.30

27.65

Depreciation Mi INR 308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

308.10

Interest on Working Capital Mi INR 23.38

23.39

23.40

23.41

23.43

23.44

23.45

23.46

23.48

23.49

Return on Equity Mi INR -

-

-

-

-

-

-

-

-

-

Taxes MiINR -

-

-

-

-

-

-

-

-

-

Total Fixed Cost Mi INR 665.87

639.97

614.12

588.32

562.58

536.90

511.27

485.71

460.21

434.77

Fixed Charges Rs./kWhr

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Tariff Calculation Description Unit Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10

2.39 2.29 2.20 2.11 2.02 1.92 1.83 1.74 1.65 1.56

Variable Cost

Fuel Cost - Natural Gas Mi. INR -

-

-

-

-

-

-

-

-

-

Total Fuel(Variable) Cost Mi INR -

-

-

-

-

-

-

-

-

-

Variable Charges Rs. / Kwhr -

-

-

-

-

-

-

-

-

-

Total Cost MiINR 665.9

640.0

614.1

588.3

562.6

536.9

511.3

485.7

460.2

434.8

Total Tariff Rs. / kWhr 2.39

2.29

2.20

2.11

2.02

1.92

1.83

1.74

1.65

1.56

Levelised Total Tariff for 25 Years

Rs/ kWh 1.66

Levelised Total Tariff for 12 Years

Rs/ kWh 1.98

Levelised Fuel Cost for 25 years Rs/ kWh -

Leveised Fuel Cost for 12 Years Rs/ kWh -

Levelised Fixed Cost for 25 years Rs/ kWh 1.66

Levelised Fixed Cost for 12 years Rs/ kWh 1.98

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CASE STUDY

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Case-study- Solar Photovoltaic Power plant

The captive power plant is a power plant set up by any person to generate electricity

primarily for his own use and includes a power plant set up by any co-operative society or

association of persons for generating electricity primarily for use of members of such

cooperative society or association (Electricity Act, 2003).

Industrial sector is one of the largest consumers of electrical energy in India. However, a

number of industries are now increasingly relying on their own generation (captive and

cogeneration) rather than on grid supply, primarily for the following reasons:

Non-availability of adequate grid supply

Poor quality and reliability of grid supply

High tariff as a result of heavy cross-subsidization

Frequent unavailability of power from the grid is a critical problem faced by Indian industries, and with the Indian industry growing at a hectic pace, this deficit is even more harmful.According to a recent study carried out by the Manufacturers' Association for Information Technology (MAIT) and US-based power distribution solutions provider Emerson Network Power, India Inc lost Rs 43,205 crores (about $10 billion) in 2008-09 due to power outages. The revenue loss due to power failure grew at an average of 11.9% in the past five years.Many large companies have resorted to having their own captive power plants. At present, there are about 2,759 industrial units using captive generation power plants (both renewable and non-renewable) with a capacity of 1 MW and above. Many smaller businesses and commercial institutions rely to a large extent on diesel for backup power. To the latter and to some extent to the former, solar PV based power production could be an attractive option. This report will help you set up a captive solar PV power plant for your business or company

SWOT Analysis for the Indian Solar PV Industry

Strengths

A high growth industry with significant future potential.

Sunlight is available in sufficient quantities in many regions.

Technology proven, with low operation and maintenance costs, and scalable.

Availability of soft loans and government incentives for growth and expansion

Weakness

Solar PV systems have high capital costs.

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Owing to high capital costs, the business needs external incentives to be economically

feasible, thus increasing dependence on governmental policies.

The capital intensive nature of the business might favor larger businesses over smaller

ones.

The distributed and intermittent nature of solar energy makes it difficult for utilities to

rely on solar PV for their base load.

Threats

Technology innovation is high, so there are risks of obsolescence.

Off-peak seasons reduce cash flow.

Industry is new, so finding skilled workforce could be a problem.

Opportunities

Opportunities exist all along the solar PV business value chain, not just for power plants.

Entirely new opportunities could open up as the there is high innovation in technology

and the technology could prove to be a disruptive business, especially with reductions in

costs in future.

Status of Solar PV Technology in India

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About 40 companies are actively engaged in manufacturing solar cells and panels, and many

more companies produce end products such as solar lanterns, street lamps etc. The production in

the country during 2009-10 is estimated to be about 230 MWp of solar cells and 325 MWp of PV

modules.3 Nearly 90% of the solar modules manufactured in India use crystalline silicon C-Si

technology, while only 10% of the solar modules are manufactured using thin film technology.

Trends in Production of Solar PV Cells and Modules (MWp) in India

As of end 2009, the cumulative production of solar PV cells in India has been about 800 MW. Ofthis total, only a small portion has been used in applications within India, while the rest havebeen exported. Of the total amount of solar cells cumulatively used in India, the following arethe areas in which they have been applied

Application of Solar PV Cells (MW) in India – Sector wise

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Future Potential

Most experts agree that the solar PV market worldwide as well as in India will continue

accelerating significantly for the foreseeable future. The global PV market is estimated to be 2.5

times its current size by 2014, based on a slowest growth scenario, while a ‘production led’ fast

growth scenario would see annual industry revenues approach $100 billion by 2014.

Currently, the Indian Solar PV manufacturing sector is export-led, and is much larger than the

country's total installed capacity. The manufacturing capacity of solar PV modules is further

expected to grow at a rate of 20 to 25 percent up to 2015 from about 1000 MWp as of 2009,

according to Frost & Sullivan.

In addition, the National Solar Mission’s target to achieve 20 GW by 2022, of which 50% will be

solar PV, and its plan to produce modules and cells domestically increases the need for

significant increases in module production capacity. Many states in India are also devising their

own, ambitious policies for solar PV power generation, with Gujarat being the most prominent

among the states.

Thus, there exists a huge manufacturing opportunity not only for the export market but also to

fulfill the NSM and state targets.

Similarly, India’s off-grid market has huge potential, especially in the areas such as rural

electrification, power irrigation pump sets, back-up power generation for the expanding network

of cellular towers across the country, captive power generation, urban applications and highway

lighting etc.

In addition to the government's initiatives such as Feed-in-Tariffs/Generation Based Incentive

(GBI) as part of the NSM, the incentives under the semiconductor policy, and other expected

incentives for the industry make the long-term prospects for this industry much brighter.

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These targets and plans have potential to attract a variety of businesses in India, belonging to

diverse segments - manufacturing, installation, operation and maintenance, training engineering,

procurement & construction (EPC) businesses, and more. The rest of this report provides more

insights on the opportunities for these diverse segments.

Capital Cost

Solar PV has one of the highest capital costs of all renewable energy sources, but it has relatively

low operational costs, owing to the low maintenance and repair needs.

For a solar PV power plant, the approximate capital cost per MW is approximately Rs. 16 crores

– the precise cost depends on scale. This includes the cost of panels, the balance of systems, the

cost of land and other support infrastructures.

Break-Up for the Capital Expenses per MW

Component Amount

(in Rs crores)

% of Total

Solar panel arrays 8 50

Inverter 2 12.5

Balance of System 2 12.5

Installation 1.6 10

Others

(Infrastructure,

Margins)

2.4 15

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Capital Costs for Solar Photovoltaic Systems by Scale

The following table provides the approximate capital costs for solar PV power (2010)

Capital Cost for Solar PV in 2010

Capacity (MW) Capex (Rs Crores/MW)

1-5 16

5-10 15

10-50 14.5

50-100 14

Investment in Solar PV in India

Until the end of 2009, Wind energy had held the attention of investors in India because it was

considered a proven investment. This segment is now considered comparatively mature and

many have started looking at other areas. Many investors see India’s potential in tapping solar

energy as even greater than wind, given that its sunny days are around 93% of the year and can

be more easily distributed.

According to a UNEP report, total investment in clean energy excluding large hydro power in

India grew 12% to $4.1 billion in 2008.

The largest portion of new investment in India went to the wind sector, growing 17% --

from $2.2 billion to $2.6.

Thanks to a supportive policy environment, solar investment grew from $18 million in

2007 to $347 million in 2008, most of which went to setting up module and cell

manufacturing facilities.

Both equity-based and debt-based investments into solar PV power plants in India are expected

to accelerate dramatically in 2010 owing to the National Solar Mission and similar thrusts

provided by the state governments for solar PV investments.

Some prominent examples of investments into solar PV that have taken place until Mar 2010 are

provided below

1. Azure Power

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2. Moser Baer Photovoltaic (for solar PV cell production)

3. Titan Solar

4. KPCL

5. Clover Solar

Financial Institutions That Fund Renewable Energy Projects in India

Some of the financial institutions that fund renewable energy projects in India are given below:

ADB IFC Proparco

DBS IL&FS Rabobank

DEG IREDA SBI

ICICI Bank PFC SBI Caps

IDFC Yes Bank

VC/PE Investment in India in Solar PV

Equity-based finance infusions are increasingly becoming common in renewable energy, though

in terms of overall amounts invested, project financing investments are significantly higher than

equity-based investments.

There are two primary equity-based investment possibilities:

Venture Capital

Private Equity

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For medium and large capital requirements (upwards of $100 million), private equity is the most

optimal route, as venture capital companies try to invest relatively smaller amounts.

On the other hand, private equity companies consider investments only where the capital

requirements are medium or large; as a result, for smaller capital requirements (especially for

those that are less than Rs. 25 crores), venture capital is the most optimal option.

Private equity companies look for growth opportunities in relatively established companies with

steady revenue streams, and usually are more hesitant to invest in completely new technologies

and potentially high-risk ventures. Investing in solar PV power plants could fit in their portfolio

owing to the fact a long power purchase agreement with a government-backed entity assures

them of a stable revenue flow.

Venture capital companies look for innovative (and hence more risky) but high return investment

opportunities. As a result, few, if any venture capital companies invest in solar PV power plants,

where the potential upside is limited. Venture capital companies could be more interested in

financing innovative products and/or technologies in the solar PV value chain that have a high

“upside” potential.

Incentives Available

The following guidelines were issued in mid-June, 2010. The guidelines are for both solar PV

and solar thermal based energy.

Summary of JNNSM Guidelines for off-grid (captive, Rooftop etc.) solar systems:

The National Solar Mission aims to provide an enabling environment for solar

technology penetration in India.

For financial assistance, the government has declared that in projects availing this

scheme, in the debt and equity mixture, the promoters’ equity contribution must be at

least 20%.

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Incentives announced:

Regional Potential for Solar Power

This section provides irradiation in various districts of the top 3 states for solar energy in India,

namely Gujarat, Rajasthan and Madhya Pradesh.

Gujarat

The top 5 districts with the best solar irradiation in Gujarat are given below.

Sl. No District Average annual radiation (kWh/m2/day)

1 Patan 5.44 2 Mehsana 5.41 3 Banaskantha 5.38 4 Porbandar 5.32 5 Amreli 5.31

Current PV Solar Energy Scenario

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PV constitutes a miniscule part in India’s installed power generation capacity with grid

connected solar PV generation at a mere 17.82 MW as of Dec 2010. PV installations in India

today almost entirely comprise small capacity applications. They are most visibly seen in

lighting applications (street lighting, and home lightning systems) in the cities and towns, and in

small electrification systems and solar lanterns in rural areas. PV is also being deployed to a

small degree in powering water pump sets.

No. Sources / Systems Cumulative Achievements (31.10.2010) in MW

I. Power From Renewable A. Grid-interactive renewable power 1 Wind Power 12906.73 2 Small Hydro Power 2850.25 3 Biomass Power (Agro-

wastes/Residues). 979.1

4 Bagasse Cogeneration 1494.53 5 Waste to Power 72.46 6 Solar Power 17.82 Sub Total (A) 18320.89 B. Off-grid/Distributed Renewable power(including Captive/CHP plants) 7 Biomass Power/Cogen.

(Non-Bagasse) 267.08

8 Biomass Gasifiers 128.16 9 U&I Waste-to-Energy 60.78 10 Rural Waste-to-Energy 0.45 11 Solar PV Power Plants

and Street Lights(>1kW)

2.39

12 Aero-generators/Hybrid systems

1.07

Sub Total (B) 459.93 Total (A+B) 18780.82 II Remote Village

Electrification (Villages/Hamlets provided with electricity/lighting system

5329/1538

III Decentralized Energy Systems 13 Family Type Biogas

Plants (in lakh) 42.77

14 SPV Street Lighting System (in nos.)

1,21,634

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15 SPV Home Lighting System (in nos.)

6,19,428

16 SPV Lanterns (in nos.) 8,13,380 17 SPV Pumps (in nos.) 7495 18 SPV Water Heating-

collector area (in million.sq.m)

3.53

19 Solar Cookers (in lakh) 6.64 20 Wind Pumps (in nos.). 1352

MW = Megawatt; kWp = Kilowatt peak; Sq.m = Square metre Source: MNRE (as on Dec 2010)

Conclusion

Solar PV power production represents the most prominent opportunity segment. But while the

grid connected power production is in the limelight most times, attractive opportunities are

emerging for entrepreneurs in the off-grid segment as well

Some emerging models in solar power production could considerably reduce the risk of

adoption and be a win-win for all parties involved.

Significant opportunities exist beyond power production, in which companies in all

sectors – manufacturing, trading and services – could play a role.

Opportunities along the solar PV value chain exist for all sizes of businesses – small,

medium and large.

Specific industries that could benefit from these diverse opportunities include electrical,

chemical, software, construction/EPC service providers with equipment installation and

maintenance capabilities, and engineering and design firms.

It is imperative that the Indian entrepreneur analyzes these opportunities before making an

investment into the fast growing solar PV industry in India and with the decreasing capital cost

and low operational cost due to low repair and maintenance charges the Solar Photovoltaic

power plant seems a feasible solution in future especially with National Solar Incentives.

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Synopsis

KRIBHCO

” Feasibility Report for Revamping Of Captive Power & Steam Generation Plant (SGPG) At Hazira”Student’s Name: Anshul MangalIndustry Guide: Mr. K.C. GuptaFaculty Guide: Ms. Deepmala Soni

The objective was to study the financial and investment viability of different alternatives for the revamp according to capital budgeting decisions.The company decided on major revamp of the Ammonia and urea plant to enhance the production. Due to enhancement of the production it was found out extra power would be needed. The electricity board has liberalized captive power generation for the user industry for bridging the demand-supply gap. With the ‘opening access’ policy it has also made third party power sale quite lucrative. Thus company is going for revamp of Captive power plantAccording to investment appraisal, the case-3 (NET EXPORT Basis) alternat-5 is the most feasible solution with surplus power of 35 MW for sale and 37 MW for internal Consumption.The industry guide Mr. K.C. Gupta and his subordinate Mr. S.K. Dewan were quite helpful and supportive to the study. They provided us all the necessary information and helped us to be comfortable and understand the workings of the project as well the department

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.

Anshul Mangal Kribhco A 1802010147 MBA-IB

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