MBA Project - Appraisal & Evaluation of Project

Appraisal & Evaluation of a Project – Case Study on Appraisal of Project by Power

Finance Corporation for Amarkantak 300 MW Thermal Power Project

Rakesh ShroffDPGD/JL09/0803

Finance

WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT & RESEARCH

Year of Submission: June, 2011

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ACKNOWLEDGEMENT

With immense pleasure, I would like to present this report on “Case Study – Appraisal &

Evaluation of a Project”.

I would like to thank Welingkar Institute of Management for providing me the opportunity

to present this project.

Acknowledgements are due to my parents, family members, friends and all those people

who have helped me directly or indirectly in the successful completion of the project.

RAKESH SHROFF

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EXECUTIVE SUMMARY

PFC has a wide and comprehensive role for promoting least cost technically sound,

efficient and reliable power sector in India including generation, transmission and

distribution systems, through its financial, technical and managerial services. Several

entities, such as the State Electricity Boards, NTPC, IPPs etc. approach PFC for providing

financial assistance for their projects. These entities provide a Detailed Project Report

(DPR) along with their request for loan, which furnishes the necessary details about the

project to the PFC. Besides that; the IAD of PFC evaluates the entity details and eligibility

for loan sanction.

The Project Appraisal Division does Project Appraisal - the process of assessing and

questioning proposals, before resources are committed. The parameter under which the

project appraisal is done depends on the project and its purpose. The various types of

power projects have different appraisal formats, depending on the specific features of the

project. Broadly speaking, appraising a project involves examining the Sector viability and

the Govt. policies in this regard and also the project’s financial & economic viability. For

example, for any company that provides loan for the project, parameters such as Financial

Internal Rate of Return (FIRR), Debt-Service Coverage Ratio (DSCR) etc would be the

most important factors on the basis of which they decide whether or not to provide

financial assistance. Since PFC is committed to the economic betterment of the country, the

economic returns/ benefits are also evaluated. For certain projects, even if the financial

returns are not very attractive but the economic benefits that will accrue to the society are

substantial, the loans are sanctioned. The need and necessity of the project is established

before appraising it.

Project appraisal is an essential part of project finance; it involves a thorough analysis of

the ability of the project to fulfill the desired objectives. Lending to power sector involves

long gestation period, it is necessary for the lending institution to study the financial,

technical & related credibility of the project as well as the entity. The study of financial

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background of the project and the promoters tells us about the ability to handle project

efficiently.

The purpose of this study is to understand the project appraisal procedure adopted at PFC

and to do an appraisal of proposed project “AMARKANTAK 300 MW Thermal Project”

by ABC Ltd and to analyze the economic and financial viability of the scheme, which

would be set up in the state of Chhattisgarh.

The project is usually examined under the following heads:

Credit Worthiness of the borrower

Project Eligibility and Preference

Moratorium & Repayment Period

Security and guarantees provided

Agencies for Appraisal & Evaluation are normally

Owner of the Project

Banks, who do the financing

Financial institutions who do the financing

Government appraising agencies

In our case, it is Financial Institution, Power Finance Corporation (PFC)

For Financial and Economic Appraisal, the Financial Internal Rate of Return and Economic

Internal Rate of Return were calculated. The Profit & Loss calculations were done and the

Debt Service capability was calculated. Besides this, Sensitivity analysis was also done to

evaluate the effect of various factors on the generation of electricity and hence the revenue

realization.

The project was undertaken with the following objectives in mind:

To Evaluate the Financial and Economic returns of the proposed projects

To calculate the future Cash Flows and the DSCR of the IPP

Following were the findings of the Appraisal of the projects:

The Project requires a loan amount of Rs. 1340 Crores and has a FIRR of 12 %.

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This projects which are finally selected for funding should have the following attributes.

The benefits from the project should be realizable and deliverable.

It should involve local people and compensate adequately those displaced taking

into account their needs.

The project should be sustainable in the long run and care should be taken so that it

does not run into financial or technical problems

The entities involved should ensure that projects would be properly managed, by

ensuring appropriate financial and monitoring systems are in place, that there are

contingency plans to deal with risks.

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Table of Contents

S. No. Description Page No.

Title Page 1 Acknowledgement 2 Executive Summary 3 Table of Contents 6 Objective of the Project 7

A Project Appraisal - IntroductionA.1 Appraisal Vs. evaluation 9A.2 Agencies for Appraisal 10A.3 Basic Parameters for Appraisal 10A.4 General & Miscellaneous Appraisal Parameters 13A.5 Advanced Investment Appraisal Parameters 14A.6 Need for Investment Analysis in Power Sector 16

B Power Finance CorporationB.1 Introduction to PFC 18B.2 Business Environment / Strategies 19B.3 Appraisal System 22

C Project Appraisal Procedure at PFCC.1 Profile of Project Division of PFC 26C.2 Preliminary Appraisal 27C.3 Detailed Appraisal 31C.4 Appraisal Process 34

D Objective of Case StudyD.1 Entity Details 38D.2 Project Details 39D.3 Environnemental Analysis 44D.4 Managerial Analysis 46D.5 Clearances & Approvals 48D.6 Financial & Economic Analysis 50D.7 Project Risk 53D.8 Sensitivity Analysis 55D.9 Marketing & Selling Agreement 56

Conclusion 58 Recommendations 58 Limitations 59 ANNEXURES 61

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OBJECTIVE OF THE PROJECT

To analyze and perform a Project Appraisal of the proposed Project and to check

whether the proposal is worth investing.

To understand the working methodology adopted by PFC to perform appraisal.

To prepare a financial model for the similar type of projects.

To give possible recommendation for a better assessment of the schemes.

RESEARCH METHODOLOGY

The Financial and Economic Appraisal of this project has been carried out in following

stages:

Initial stage involved study about PFC and its operational procedure particularly with

reference to the projects division and analysis of power sector in India.

The next stage involved the calculation of Tariff. This was undertaken as per the

guidelines laid down by CERC.

Tariff structure is of two parts

1. Annual Capacity Charges (fixed component)

2. Annual Energy Charges

The Tariff has been calculated using the formula:

Total annual cost of generation + return of equity/energy available for selling.

The calculation of FIRR and EIRR was the next step

The FIRR is calculated after taking into account the saleable energy, Levelised Tariff

and the Project Cost

The EIRR is calculated by applying a economic conversion factor and the data for long

range marginal cost had been arrived at by extrapolating the data of the ninth five year

plan at an inflation rate of 6% since the data for the tenth five year plan was not

available.

The identification of the critical elements, which will affect materially the viability of

the project, and performing sensitivity analysis on such elements, was the next stage. In

this project, the design energy, the tariff rate and the cost of the project have been

identified as the critical elements and consequently, Sensitivity analysis was performed

on these elements, a thorough analysis of changes in interest rate was also considered.

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Finally a thorough analysis of various technical aspects involved and the market

demand analysis of the project was under taken.

Based upon the above analysis, various factors were identified and the inputs received from

the experienced individuals involved in the appraisal, an attempt has been made to make a

user friendly, financial model, which would be helpful for thermal projects.

SOURCES OF DATA

PRIMARY DATA: The primary data for the project was mainly

- Detailed Project Report

- Interview and Consultation with PFC officials

- Operational policy of PFC

SECONDARY DATA: Secondary data consists of

- Books and journals from PFC’s data bank

- Thermal power projects

- Internet

- National daily

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(A) PROJECT APPRAISAL:

Project appraisal is the process of examining the various dimensions of a project be it

Technical, financial, social, Environment etc and providing an assessment of the projects

likelihood for success and its viability. It is the process of assessing and questioning

proposals before resources are committed. It evaluates a project’s ability to meet its stated

objectives and to provide long term Economic growth in the larger framework of local and

National needs.

The project appraisal process is an essential tool in regeneration and neighbourhood

renewal. An effective project appraisal offers significant benefits to partnerships and, most

importantly, to local communities. A good appraisal justifies spending money on a project.

It is an important tool in decision making and lays the foundation for delivery and

evaluation. Getting the design and operation of appraisal systems right is important. The

proper consideration of each of the components of project appraisal is essential

Project appraisal is not a mere assessment of the financial strength of promoters/project

instead it is a holistic study involving study of state or region where the project is located

which involves the assessment of demand for electricity in the particular state. Analysis of

projects as a whole involving the technology used, justification for the choice of same

terms and conditions of the PPA, EPC, O&M, FSA (if any) contracts. Risk involved and

their mitigations FIRR, EIRR, Sensitivity analysis etc., as a part of financial modeling.

Analysis of financial strength and study of past performance of power purchaser,

promoters, and various contractors involved.

A.1 Appraisal Vs Evaluation

Appraisal is an independent examination of facts whereas evaluation is a

comparative study and thereafter a conclusion.

In the appraisal, facts are bought out in the process of examination, while these

facts are further compared with the alternatives available for either to accept or

reject.

Appraisal is a first and starting examination while evaluation is the second stage in

the total process of appraisal & evaluation.

Appraisal gives the fact, evaluation gives conclusion.

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A.2 Agencies for Appraisal & Evaluation

A.2.1 Appraisal & Evaluation by the Owner of the Project

Appraisal and evaluation of project is done by the owner directly by its own managers of

the project department or by its authorized consultant / expert. The objective is to invest

and implement a very viable project.

A.2.2 Appraisal & Evaluation by Banks & Financial Institutions

Banks and Financial institutions provide funds to the project. There objective is to ensure

that

- The project is most viable

- Organization, who is doing a project is too a reputed and sound organization

- The main objective is to ensure the repayment of advances including interest timely,

thus avoiding NPAs.

A.2.3 Appraisal & evaluation by Government Agencies

The investment proposals of a public sector companies and organizations including big

projects in private sectors are appraised and evaluated by Government agencies. These are:

- Project Appraisal Division (PAD) in planning commission.

- Project control department of Ministry of Forest & Environment

- Ministry of Finance – plan finance division

- Department of Public Enterprise

A.3 Basic Parameters for Appraisal & Evaluation

A.3.1 Technical Appraisal

Analysis of

Technology used with reason for choosing a particular technology from the available

alternatives

EPC and O&M contract analysis

Selection of plant & Equipment

Evaluation of existing transport & other facilities

Construction schedule

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The Technical appraisal of the project is concerned primarily with the fixation of the

technological and cost element of the project, the various elements and Components of the

cost of the project are to be identified, evaluated for the suitableness of the project and

finally, the cost element of each is considered as the estimate for the purpose of fixing the

cost of the project. Besides this, technological aspects of the project like the supply of

know-how and the related provisions, in case the technology is to be imported. Technology

refers to such modes of production as are not only technically sound and economically

viable but are also suitable to local, social and cultural conditions and are in line with

national goals and objectives.

With special reference to the power sector, it also includes other salient technological

features of the project such as type and design of equipments, characteristics of fuel, water

and other inputs such as wind velocity, solar radiation etc., and their relevance in selecting

systems, equipments and plants to be used. It should also include the various alternatives

considered and the basis of selecting the project. This should also cover the key

environment related issues, which form the conditionality of environmental clearance for

the project by MOE&F and the state pollution control board.

A.3.2 Commercial Appraisal

A proposal should be commercially sound. Thus, before a proposal is recommended

following aspects are examined to test the commercial viability of the proposal.

Demand and availability of the product on global basis

Site selection

Requirement & Sources of raw materials

Banking facilities etc.

A.3.3 Economic Aspects

This deals with the overall benefit accrued by the project to the community.

It involves the calculation of consumer surplus.

Analyzing the techno economic consideration

Identifying the consumer surplus from investment analysis

A.3.4 Financial Aspects

While examining the financial aspects of proposal, following points are considered

Capital cost

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Financing of the project

Production cost

Profitability analysis.

Profitability indices such as payback period, internal rate of return, and rate of return on

investment should be very much on the acceptable line. A proposal with a least payback

period and high rate of return on investment shall only be accepted. Some indices are:

Payback Period

Rate of return on Investment

Discounted / Non discounted Cash flow method

Net Present Value

Social Costs and Benefit Analysis

Economic rate of Return

Benefit Cost Ratio

A.3.5 Organizational Appraisal

One is the study of organizational strength for the project execution and another is from the

angle of financial assistance being considered by the financial institutions or banks.

A.3.6 Appraisal & Evaluation of Managerial Strength

This appraisal is usually concerned with finding out whether the company concerned has

the required skilled manpower in order to successfully implement the project. This is

carried out by checking and verifying the track record of the promoters, from all possible

knowledgeable sources. These sources may include the other financial institutions, banks

an governmental agencies with whom the promoters might already have had dealings. The

income tax and wealth tax assessments of individual promoters are reviewed to establish

their financial worth. The professional and educational qualification of the other

managerial personnel who will be closely involved in the implementation of the project

should also be checked and verified.

A.3.7 Appraisal of Environmental Management & control

Appraisal of environmental management and control would be to know the level of arising

of pollution due to proposed project and need to manage and control the same as well as

measures taken, facilities provided in the project under consideration for controlling the

pollution.

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A.4 General & Miscellaneous Appraisal Parameters

A.4.1 Project Evaluation Under Risk & Uncertainty

Different kinds of risks and uncertainties associated to the project are:

Time Over-run

Cost Over-run

Increase in production costs

Increase in payback period

Reduction in rate of return on investment

Impact of all these factors causing risk to the project is evaluated by sensitivity analysis to

know whether the project is still viable or not before going ahead for investment decision-

making approval.

Sensitivity analysis:

Sensitivity analysis identifies the critical or sensitive elements affecting the viability of the

project taking into account different sets of assumptions. This helps in determining the

performance of the project, its ability to survive the trade cycles and its ability to compete

in the market. The issue of sensitivity analysis in project appraisal eliminates the need for

restricting one’s judgment to a single set of parameters and provides the basis for a multiple

value sensitivity analysis .its not sufficient to measure the effect by one single change (in a

factor) but often the changes are assessed on the basis of various permutations and

combinations. Though in a real situation, all factors are subject to fluctuations. For the sake

of simplicity in relation to the profitability projections, the analysis is done taking into

consideration the changes in at least sales and revenues and costs. This analysis is helpful

to both the new projects as well as the ongoing projects.

A.4.2 Examination & Review of Non Financial Aspects

Non Financial justification of projects may be as under :

Increase in employment in the surrounding area

Some projects like schools, hospitals, power plans create the benefits or facilities

for the people of the area of surrounding on long term basis.

Some projects like, rail, road, infrastructure are of essential nature and need not be

analyzed on cost-benefit analysis.

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A.4.3 Market & Demand Analysis together with Analysis of firm and Market Risk

This study is very important. Any error /omission in market demand and supply study

would be very costly to the organization. This would affect very adversely the profitability

position of the project. Similarly, the study and examination of probable market risks is

also very important and the backbone of the investment decision making process.

A.4.4 Qualitative analysis

Various parameters to be examined and evaluated involve quantitative as well qualitative

improvements. Quantitative improvements may be towards increase in the volume of

production, increase in efficiency, reduction in operating costs, etc. whereas, qualitative

improvements may result in improvements in quality of product or services benefiting the

organization indirectly, improving the safety conditions, improving the working conditions,

improving the customer’s satisfaction, etc. thus, all these aspects are reviewed and report

given to the management for finalizing the investment decision.

A.4.5 Tax burden and appraisal of project

Tax burden may be in the form of excise duty, customs duty, sales tax entry tax, works

contract tax and income tax. Tax burden may be affected by the following factors.

Place /state where project is being set up. There may be various concessions,

besides the differential rates in various states.

Certain projects carry concessional duties and taxes such as infrastructural projects,

hundred percent export oriented projects, projects being set up in hill areas and

backward areas.

Tax impact due to financing mix of project i.e. more equity or more debt.

A.5 Advanced Investment Appraisal Parameters

A.5.1 Capital Investment Real Options

In the current economic scenario of competition, globalization threats and opportunities,

quality thrusts, customer satisfaction, cost control and value addition, there is compulsion

for regular investment in projects for modernization, technological upgradation, quality

improvement, capacity addition, replacements as well as statuary requirements including

pollution control. While there is compulsion for capital investments in various projects for

the survival of the organization, availability of fund is at the same time very scarce.

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Hence, it becomes essential to make capital rationing and at the same time selecting a real

option for investment.

A.5.2 Weighted Average Cost of Capital including an Adjustment in the Mix of

Financing resources and its usage in Appraisal & Evaluation of Investment Proposals

Weighted average cost of capital has become more important in the current economic

scenario, when the new sources of financing have developed due to globalization of

economy.

It would be very important to examine the impact of change in the mix of sources of

financing and its impact on investment decision.

A.5.3 Economic Variable in Business Planning Vs. Project Appraisal

Following are the economic variables, which influence the business activities:

National GDP growth rate – actual & targeted

Sector wise analysis of progress. These sectors are:

o Agricultural & allied sectors

o Industrial sector

o Services sector

Economic recessionary trends

Globalisation

Competition

Economic reforms & Liberalisation

A.5.4 Impact of National Budgets on Business & Project Viability

National budget brings out every year on its budget proposals many new taxes, rebates,

new schemes, investment proposals, increase or decrease in the railway freight etc.

These influence the investment proposals for its cost & benefits, thus affecting its viability.

A.5.5 Structural & Strategic Analysis Vs. Appraisal & Escalation of Project

An organization is made of the various structures like:

Organisational

Financial

Managerial

Business & Marketing

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Personnel, etc

Similarly, it works out various strategies in these structures and carries various strategic

analysis to arrive at a most successful combination of business structures & business

strategies. These should be duly considered while doing the appraisal and evaluation of a

new investment proposal.

A.6 NEED for investment analysis in the power sector:-

In the classic equilibrium model of a market, for every commodity there will be a price at

which supply and demand will be balanced. However, this is only for commodities, which

are freely tradable. This is not the case in the power sector where the commodity to be

traded is electricity, for which there are generally many limitations /restrictions.

The electricity generated cannot be stored; it has to be consumed at the same instant

in most of the cases.

The demand for electricity is also instantaneous and has to be supplies at the same

instant and normally cannot be deferred

An IPP, whether it is a generation, transmission or distribution project, is a small

part of the power system that can be at regional or state level. Therefore, there is no

rationality in considering a IPP in isolation

Investment in only one component of power sector may not result in the expected

benefit, unless matching investments are made in other components of the power

sector

Investment in the generation, transmission, distribution sectors are in discrete large

units, which may cover several time periods. a way has to be found for spreading

the investment costs of the utility over all consumers and over the life of the project.

This means that the cost of supplying power must be based on a program rather than

on a project approach basis. That is to say tat the expansion investment program

must be considered rather than the cost involved in a single project.

The objective of the investment analysis is to work out the incremental cost involve on per

unit of power generated taking into view the future investment plan in the power sector.

This investment analysis is done at the state level, involves calculation of long range

marginal cost, which in turn is us3ed in the calculation of economic internal rate of return.

Long-range marginal cost is the incremental cost incurred for supply of an additional unit

of power to the consumer at system peak and has been derived from the principles of

marginal cost. It represents the additional resources-fixed and variable, required to be

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invested in the system in totality to meet any increase in the demand in future. It is thus,

forward looking and take into account load forecast and future investment. The LRMC

gives us an idea of the cots to be incurred for supplying additional unit of electricity to the

consumers in the different components of the power sector. This can then be used for both

financial and economical analysis of a project.

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B POWER FINANCE CORPORATION

B.1 INTRODUCTION TO PFC

Govt. of India (GoI) established Power Finance Corporation (PFC) in July 1986 as a

developmental financial institution for the Power Sector. It is committed to the integrated

development of Power and its associated sectors by channelling resources and providing

financial, technological and managerial services for ensuring development of economic,

reliable and efficient systems and institutions.

MISSION:

The mission of Power Finance (PFC) is to endure as

a pivotal development financial institution in the

power sector committed to the integrated

development of power sector and its associated

sectors by channeling resources and providing

financial, technological and managerial services for

ensuring development of economic, reliable and

efficient systems and institutions.

OBJECTIVES OF THE COMPANY:

PFC has a wide and comprehensive role for promoting least cost, technically sound,

efficient, and reliable power sector including generation, transmission and distribution

systems through its financial, technical and managerial services. PFC also has a role in

guiding and encouraging balanced, economical and efficient growth of power sector by

contributing to the power sector reforms, policy and regulatory framework.

The main objectives of PFC as specified in its Memorandum of Association are:

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a) To finance:

Power generation projects, particularly thermal and hydro-electric projects;

Power transmission and distribution works;

Renovation and modernization of power plants aimed at improving availability and

performance of such plants;

System improvement and energy conservation schemes;

Survey and investigation of power projects;

Maintenance and repair of capital equipment including facilities for repair of such

equipment, training of engineers and operating and other personnel employed in

generation, transmission and distribution of power;

Studies, schemes, experiments and research activities associated with various

aspects of technology in power development and supply in Power Sector;

viii) Promotion and development of other energy sources including alternate and

renewable energy sources; and

(b) To promote, organize or carry on Consultancy Services in the related activities of

PFC.

B.2 BUSINESS ENVIRONMENT /STRATEGIES

PFC endeavors to operate as a commercial entity, earning an adequate return on equity on

its employed capital (positive in real terms), maintaining a healthy portfolio of loans and

build a strong financial base to enable the company to borrow from domestic as well as

foreign markets on attractive terms. In order to achieve these objectives, the Corporation

ensures that

Funds are fully and efficiently deployed when not needed for loan demand.

There is adequate liquidity to meet potential withdrawals or increased loan demand.

Interest Rate risk differential is maximum in order to offer competitively priced

project loans.

Maturity Structure is in conformance to the corporations risk guidelines.

Maximum income within reasonable limits of risk consistent with liquidity and

quality objectives.

B.2.1 Lending Rates

The Lending Rates offered by the Corporation depends on the credit worthiness of the

borrower and the type of project.

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The borrowers of PFC include:

State Utilities and State government departments engaged in development of power

projects

Municipal Run Power Utilities

Central Sector Power Utilities with or without State Participation

Joint Sector Organizations

Private Sector Organizations

Co-operatives & other Societies in Power Sector

Central sector Utilities/Entities engaged in development of power projects.

The structure of interest rates charged by PFC is dependent on the cost of raising resources

and the state of financial markets. The lending rates are decided by the Corporation so as to

ensure that they are in line with market trends and that the clients get the full advantage of

the favorable market conditions. The year gone by had witnessed a steep fall in interest

rates. So, in order to ensure competitiveness, the Corporation's lending rates were revised

on 4 occasions during the financial year. Keeping in view the rapid changes in the interest

rate market, the Corporation has moved from largely fixed interest rates towards floating

interest rates to bring our lending as close as possible to the borrowing cost. The

Corporation has significantly reduced its interest margins and taken steps to

correspondingly increase the volumes in order to maintain its profitability. The Corporation

has also attempted to pass on the benefits of the falling interest rates to its clients by

introducing an attractive interest-restructuring package in respect of its older loans.

B.2.2 Instruments of Financing

PFC provides long term as well as short-term financial assistance, which are both fund

based and non-fund based under separately designed schemes. It may also take up equity

participation to meet the divergent requirements of different category of borrowers and

emerging competitive market.

Thus, PFC offers its borrowers the following types Of Debt Instruments in financing their

activities.

Fund based - Term Loan, Bridge Loan, Lease Finance, Supplier’s Credit, Bill

Discounting & Re-Discounting, Bonds, Debentures, Equity & Preference Shares,

Working Capital Loan.

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Non fund based – Guarantees, Exchange Risk Management, Consultancy Services,

Lenders' Engineer Services.

Other services -Besides providing financial assistance to entities, PFC also

provides to its clients a range of other services such as: Project Counseling,

Consultancy and advisory services, Foreign Exchange Management Service,

Lender’s Engineer, Any Other Services

B.2.3 Optimum Cost of Borrowing

The Corporation continues to explore all possibilities of reducing its cost of borrowings, so

that it is able to lend to the power utilities in the country at most competitive rates and

hence facilitate supply of power at rates which can enable the Indian industry to effectively

compete in the global market. To optimize the cost of borrowing, the Corporation has done

restructuring of the borrowed funds from various lenders so that the Corporation's lending

rates offered to the clients are competitive in the market. The Corporation is evaluating the

possible borrowing strategies, ranging from retail to institutional borrowing in the domestic

market as well as various instruments available to access cheaper global funds. Other

initiatives to tap cheap sources of finance could include increase of equity base through

Initial Public Offer and also a probable entry into the banking and insurance business.

Type of Borrowers

State Utilities and State govt. depts. Engaged in development of power projects

Municipal Run Power Utilities,

Central Sector Power Utilities with or without State Participation

Joint Sector Organization

Private Sector Organization

Central Sector Utilities/ Entities engaged in development of power projects.

B.2.4 Major Clients of PFC

Central Power Sector Utilities

- National Thermal Power Corp. Ltd.

- Tehri Hydro Development Corp. Ltd.

- Power Grid

- NEEPCO

Major State Electricity Boards

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- Assam SEB

- Maharashtra SEB

- West Bengal SEB

- Gujarat SEB

- Himachal Pradesh SEB

State Limited Utilities

- HVPNL

- Karnataka Power Corp. Ltd.

- Karnataka Power Transmission Co. Ltd.

- Rajasthan Vidyut Utpadan Ltd.

- Andhra Pradesh Corp. Ltd.

Independent Power Producers

- Jayprakash Hydro Power Corp. Ltd.

- Sanghi Industries Ltd.

- BSES Kerala Ltd.

- Madurai Power Corp. Ltd.

B.3 Appraisal System

Over the years, PFC has developed its core competence in appraisal and financing of

various types of power projects. The Project Appraisal System of the Corporation has been

accredited with ISO 9001: 2000 certification.

B.3.1 Credible Security Mechanism

Guarantees and Security:

State/Central Govt. guarantee/Bank Guarantee/Charge on Assets;

Escrow Account/Letter of Credit;

In case of state power utilities, the Corporation will require from State Governments

an undertaking that PFC will have priority claim on the State Utility's surplus revenue

over the obligations in respect of the loans granted by the State Governments to the

State Utilities.

PFC may insist on one or more of the following additional securities from private sector

entities:

Corporate guarantee

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Personal guarantee of promoters

Pledge of shares of promoters

Charge on assets of group/other companies

Assignment of all project contracts, documents, insurance policies in favour of

Corporation

Establishing trust and retention mechanism so that all the proceeds of the project are

utilized in a manner decided by PFC

Charge on revenues

Any other guarantee acceptable to the corporation.

B.3.2 Types of Projects & Priority Order

The priority areas of funding for power and associated sectors would be as follows:

Studies, Consultancy and Training

Research & Development(R&D)

Capacitors, Energy Meters, Computerization, Communication and Load dispatch

Environment Up-gradation

R&M/R&U of Generation and Transmission

Urban Distribution Systems

Transmission

Micro, Mini and Small Hydro Generation

Captive & Co-generation Plants

Non-Conventional Energy Sources

Medium & Large Hydro Generation

Thermal Generation

In selection of the projects, emphasis is given to projects having smaller gestation periods

and ongoing generation projects, missing- transmission links and system improvement.

Efforts are directed towards the maximum utilization of the capacity already created

Implementation of ongoing projects, and correcting imbalances in generation, transmission

and distribution of power.

B.3.4 Eligibility Criteria

Eligibility criteria for state power utilities

Availability of Exposure limit as per corporation’s policy.

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The utilities should have achieved a minimum Rate of Return on net fixed assets

(ROR) of 5% or Return on Equity (ROE) of 12% for the Relevant Financial Year.

Should not be in default to PFC.

State Power Utilities not meeting the parameters as given above may also be given

financial assistance provided they have an Operational and Financial Action Plan

(OFAP) acceptable to PFC and agreed upon by the concerned State government and

achieve the ROR as specified in the Electricity Supply Act 1948 (presently 3%) in the

Relevant Financial Year. In respect of utilities preparing OFAP for the first time,

they would have to commit themselves under the agreed OFAP for improvement in

the performance level for achieving the said ROR in a time bound manner spread

over a period of three years. In case of non-achievement of ROR as agreed, the State

Government would provide required subsidy for meeting the shortfall for achieving

the same.

Relevant Financial Year would mean the financial year previous to the immediately

preceding financial year. (For example: For loan application during 1999-2000 the

Relevant Financial Year will be 1997-98).

Eligibility criteria for private companies

Private sector entities seeking financial assistance from PFC would be required to meet the

minimum eligibility criteria as laid down by PFC, broadly covering interalia the following

parameters

Return on net worth

Net worth

Debt/Equity Ratio

Track record with FIs/Banks and credit standing

DSCR

Cash flow

Performance of the Promoter Companies and background in power sector

Business conditions in existing operations

Commitment of foreign promoters

Capacity to bring in equity

Ability to raise debts

Selling arrangement

The promoters should not have current default with Financial Institutions and Banks

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Project/scheme related criteria

Financial assistance will normally be provided for the projects/schemes, which meet the following criteria:

Techno economically sound with Financial or Economic Rate of Return of not less

than 12% (as may be applicable).

Technically sound and feasible and provide optimal cost solutions for the selected

alternative.

Compatible with integrated power development and expansion plans of the

State/Region/Country.

Comply with environmental guidelines, standards and conditions.

Obtained the required clearances.

All inputs required for the implementation and operation of the projects are tied up

and proper procurement and implementation plans have been drawn up.

In case of environmental up gradation, meter installation, load dispatch,

computerization and communication, R&D and non-conventional energy projects the

Rate of Return of 12% i.e. (Economic or financial) may not be insisted upon.

C. PROJECT APPRAISAL PROCEDURE AT PFC

PFC is a developmental financial institution solely dedicated to the power sector. PFC

provides financial assistance to all types of power projects like, Generation, R&M,

Transmission, Distribution, System improvement etc. PFC encourages optimal growth and

balanced development of all segments of power sector through assigning priorities for

financing different categories of projects. The state sector utilities are the main beneficiary

- 25 -

of Pac’s financial assistance. PFC has also been funding private sector power projects for

last 5-6 years.

The organizational functions of PFC are handled by three divisions-

Projects- Projects Division is mainly responsible for appraisal of different kinds of power

projects. Thorough analysis f the proposed project on various aspects like technical,

managerial, financial, economic viability etc base upon the operational parameters lay

down by the company.

Institutional Appraisal & Development (IAD)- IAD carries out the entity appraisal, that

is entity as a whole, their dependability, financial strength, ability to raise funds, to carry

project to completion.

Finance & Financial Operations (F&FO) - The F&FO unit provides financial

concurrence to all the sanction proposals. Checks the combined reports of IAD and projects

department. Check the economic and legal viability of security arrangement put forth by

other departments. Implementation with respect to opening escrow account, getting various

guarantees.

The Organogram of the PFC is shown in Annexure-III

The procedure of project appraisal followed in PFC had been explained below.

C.1 Profile of Projects Division of PFC

Projects Division of PFC undertakes following activities in order to provide speedy and

requisite financial assistance:-

Facilitate borrowers in formulation of viable and bankable project proposals.

Appraisal of loan proposal and sanction of financial assistance using standardized

procedures.

Facilitate execution of loan/grant documents by coordination within PFC as well

borrowers.

Projects Division of PFC provides Financial Assistance through the following type of

assistance

Term loan for projects and studies /consultancies

Concessional /Interest Free Loan and/or Grants for Studies / consultancies.

Lease Financing, Bridge Loan

- 26 -

Guarantee for projects financed by others.

The Projects Divisions Organograph of PFC is in Annexure-IV

Objective

To have a set of consistent criteria and procedure, for appraisal of Power Generation

Projects, so as to attain a reasonable degree of objectivity.

C.2 PRELIMINARY APPRAISAL

State Sector Generation Projects

The Borrower to the Concerned Unit Head submits the loan request. During Preliminary

scrutiny the Concerned Unit in Projects Division reviews following aspects:

Whether the borrower is a new entity / existing borrower

Structure of new entity & projected financials in case of SPVs

Whether the borrower is /is not declared a defaulter

Availability of exposure as per OPS and Prudential Norms of PFC

Eligibility to avail loan under normal term lending, AG&SP, APDRP, soft loan, lease

or grant.

Whether the borrower is a reforming entity.

Security to be provided by the Borrower

Extent of financial assistance that can be provided for the proposal

The information submitted by the borrower is reviewed for assessing its completeness with

reference to the relevant checklist as applicable from time to time.

If the borrower is prima facie found to be eligible, the proposal is taken up for detailed

appraisal for consideration for loan sanction

Private Sector Generation Projects

The Borrower to Unit Head (PA-IPP) submits the loan application duly filled in PFC

application format as per requirement laid therein for respective category of scheme in

triplicate along with a covering letter.

Application forms for borrowers for different categories of project are available on PFC

website – www.pfcindia.com. One Copy of application form along with relevant

documents forwarded to EA-IPP Group for carrying out entity appraisal. Another copy of

the proposal is forwarded to P&C Unit. The application is scrutinized by PA-IPP Unit and

EA-IPP Unit in respect of project and entity related information / parameters respectively.

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http://www.pfcindia.com/

1) Scrutiny of proposal is carried out with special emphasis on the following:

a. Whether complete information is submitted as per PFC format (for the respective

category of scheme)

b. Copy of DPR

c. Statutory/non statutory clearances

d. Backward and forward linkages

e. Relevant agreements and contract documents as applicable viz.

PPA / arrangement for sale of energy

EPC / Package contracts of the project

O&M Contract

FSA & FTA

Land acquisition status

EIA report

Shareholders Agreement

Appointment of Consultant, if any

2) The following is the list of documents / agreements / activities required for starting up

Preliminary Appraisal of the project-

Loan Application

Copy of DPR

Identification of land

Cost estimates

Information regarding availability of infrastructure (rail & road linkage)

Identification of source of Construction Power

Identification of water availability & its source

Identification of fuel availability & its source

Identification of technology

Plan for Power Evacuation

Information regarding status of application for Statutory Clearances like

Pollution Control Board, Environment Clearance from MoEF, NOC from

Airport Authority etc.

The DPR submitted by the borrower is reviewed for assessing its completeness with

reference to the relevant checklist as applicable from time to time.

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3) If required further information / details / documents are sought from the Borrower.

Based on preliminary scrutiny, Preliminary Project Appraisal Report (PPAR) is prepared

by the Appraisal Officer, which generally consists of the following –

Brief introduction about the proposal

Brief of the promoter Company

Details about the project

Cost of the project & Means of financing

Preparedness of the Borrower

Status of statutory and non-statutory clearances for the project

Implementation Schedule

Brief about various contracts required like FSA, FTA, EPC etc

Marketing & Selling arrangement – PPA

Power Evacuation facilities

Financial parameters like Debt to Equity Ratio, cost of generation, DSCR, IRR of

the project etc as indicated by the Project Company/ Borrower.

Strengths and Weaknesses of the Project

4) Preliminary Entity Appraisal Report (PEAR) is received from EA-IPP Unit.

5) Copy of PPAR & PEAR is forwarded to P&C unit and PPAR to EA-IPP. P&C Unit

examines various aspects of the proposals from the policy angle.

6) Task Force Meeting is convened by Unit Head: Projects-IPP and nominated officer from

PA-IPP, EA-IPP and P&C Unit participate in the meeting.

7) The proposal of the borrower is discussed in the Task Force Meeting and based on the

strength and weakness of the proposal; a considered view is taken on the proposal to give

recommendations to Screening Committee of Directors of PFC.

8) Record notes of Task Force Meeting is prepared by Project Appraisal Officer and is

countersigned by all the participants of the meeting clearly mentioning the decision of the

Task Force Meeting on the proposal of the borrower.

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9) Preliminary Appraisal Note for consideration in the meeting of Screening Committee of

Directors is prepared by Unit Head: PA-IPP Unit (convener of the Task Force Meeting)

incorporating the Preliminary Project Appraisal Report (PPAR) and Preliminary Entity

Appraisal Report (PEAR) of Projects-IPP and EA-IPP Units respectively along with the

recommendations of Task Force. If the Borrower has requested PFC to act as Lead FI for

the project, then the same is considered in the Task Force and is included in the Preliminary

Appraisal Note for consideration of Screening Committee of Directors.

10) Preliminary Appraisal Note initiated by PA-IPP, after obtaining the approval of

Director (Projects), is forwarded to Company Secretary for putting it up for consideration

of Screening Committee of Directors, PFC.

11) The proposal is discussed in the meeting of Screening Committee for taking a decision

regarding the short-listing of the project for detailed appraisal and other related aspects.

12) Minutes of Screening Committee of Directors are received from Company Secretary.

Based on the minutes of meeting of Screening Committee of Directors, a letter (as per

standard format) is sent by the designated Officer (Appraisal Officer) to the borrower

indicating short-listing of the project for detailed appraisal or for clarification / sorting out

certain issues or rejection as the case may be.

In cases, where Screening Committee has approved PFC to act as Lead FI, the in-principle

consent to act as Lead FI for the project is issued to the Borrower along with the intimation

of short-listing of the proposal for detailed appraisal. Before issuance of such letter, the

Borrower is asked to submit the requisite Lead FI fee, as per policy of PFC.

Detailed appraisal of the project starts after short-listing the loan proposal by the Screening

Committee.

C.3 DETAILED APPRAISAL (FOR STATE AND PRIVATE SECTOR

GENERATION PROJECTS)

Before start of the detailed appraisal of the project, the following information (if not made

available by the borrower at the time of preliminary scrutiny) is sought from the borrower:

1) Detailed scope of the project (detailed lay out, identified works & activities).

2) Need and Justification, as necessary broadly covering the following aspects in respect to

the following-

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Location of site and its advantages

Size of the plant

Technology

Hydrology investigation in case of hydro-electric plant

Infrastructure availability

Demand-supply position

Study of wind regime to establish generation in case of wind power

3) Contractual arrangements for implementation of the project (procurement of equipments,

their supply and erection at site) and EPC contract, if any/applicable. The project

execution documents/agreements submitted by the borrower is reviewed with reference to

the relevant checklist from time to time.

4) Present status of the project in terms of both physical (Engineering, procurement, site

work, readiness of infrastructure) and financial (tie-up of equity and debt). Preparedness of

the borrower for implementing the project and expenditure already incurred, if any.

5) Tying up of Project inputs and their status as per their applicability to specific project,

viz.:

Land requirement & its acquisition status.

Water requirement and its linkage

Fuel requirement and its linkage / Geological survey report

Nearest rail & road linkage

Construction water and power requirement & its linkage

6) Proposed arrangements for Operation & Maintenance or copy of final/draft O&M

contract envisaged, if any for ensuring sustained benefit from the project on long-term

basis. The final / draft O&M contract submitted by the borrower is reviewed with reference

to the relevant checklist as applicable from time to time.

7) Copies of all statutory & non-statutory clearances obtained and status of the clearances

yet to be obtained. Proposed action/action being taken on specific observations/ comments

made by the statutory authorities on the clearances obtained. The statutory / non-statutory

clearance submitted by the borrower is reviewed with reference to the relevant checklist as

applicable from time to time.

8) Demand–Supply position in the state or outside wherever the sale of power is proposed,

the average cost of supply, average rate of purchase (from central public/private power

utilities), average revenue realization in that state in order to compare with the benefits of

the project to establish techno-economic viability of the project, wherever necessary.

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9) Comments/directives of regulatory authorities like CERC/SERC on the project, if any on

the cost & the expected benefit from the project and status of compliance to these

directives.

10) Proposed evacuation arrangement for the power generated. The compatibility of

implementation of evacuation facility with the project completion schedule.

11) Fuel supply agreement & water supply arrangement/agreement, if any. Sources of fuel

and water, Fuel cost, characteristics of fuel, alternate fuels, if any, survey of fuel (in case of

biomass based projects). Impact on project due to alternate usage of fuel. Fuel

transportation arrangements. (Wherever required). The FSA submitted by the borrower is

reviewed with reference to the relevant checklist as applicable from time to time.

12) In case of state sector generation projects, fuel linkage for the project as per Govt.

Order (Standing Linkage Committee for coal / MoPNG order for gas) is reviewed for

adequacy of fuel supply for the rated capacity of the project.

13) Procurement procedures adopted/to be adopted for procurement of supplies & services.

14) Proposed implementation plan in the form of a bar chart for each of the activity

starting from zero date to the completion date of project indicating the requirement of

shutdown of the equipment/s, if any. Likely dates of achievement of major milestones for

implementing the project. Measures proposed to be taken to ensure adherence to the

schedule. If the project is already under implementation, the progress of major work areas

vis-à-vis the schedule to be indicated with likely dates of completion/commissioning.

15) Detailed cost break-up including cost of the project, package wise cost details,

miscellaneous assets, preoperative expenses, administrative and financial expenses, margin

money for working capital, IDC & its calculation, provision for contingency in case of

physical variation in estimates, price escalation in local & foreign components and affect of

foreign exchange variation etc. wherever applicable. Basis of cost estimates & price level.

16) Proposed financing plan both in terms of equity & debt, their sources and

year-wise/quarter-wise phasing of expenditure and justification for the same.

17) Proposed marketing & selling arrangements of power generated including Power

Purchase agreements, Wheeling agreements, if any. The PPA submitted by the borrower is

reviewed with reference to the relevant checklist as applicable from time to time.

In case of state sector generation projects of integrated Utilities, PPA as such would not be

applicable however sale ability of power from the project is assessed based on the demand-

supply position in the state as well as the incremental cost of power from the project vis-à-

vis average purchase cost for that Utility.

- 32 -

18) Financial projections of the project (in terms of cost of generation, IRR, year-wise

DSCR etc.).

The following documents / agreements / information are generally required for taking

up Detailed Appraisal of the project-

DPR / detailed Feasibility Report

Land acquisition status

Total cost with break-up

Infrastructure (rail & road) linkages

Construction Power & water linkages

Status of permission of drawal/linkage for Water

Details regarding prospective suppliers / contractors for main equipment.

Details regarding prospective contractors for undertaking O&M (generally

for private sector borrowers)

Information regarding approval of power evacuation plan by Transco/any

other agency involved for Power Evacuation.

Application status of various Statutory Clearances like Pollution Control

Board, Environment Clearance from MoEF, NoC from Airport Authority

In case of syndication/consortium financing where PFC is not the Lead FI, the appraisal is

generally finalized after review of appraisal report of the Lead Bank/FI.’

C.4 APPRAISAL PROCESS

1) Detailed analysis of project documents/information furnished by the borrower is

carried out to assess the overall technical, financial and economic viability of the

project.

2) Site visit by PFC team comprising of Appraising Officer and other Officers as

necessary, is undertaken during this period for on the spot assessment of the status

& preparedness for implementation of the project, review of various inputs like

fuel, water, type of land etc. and outputs like evacuation of power, disposal of ash

etc., infrastructure facilities at site like approach roads, villages, habitation and

industries in the vicinity, environmentally sensitive locations etc., wherever

considered necessary. The assessment of the appraisal team during the site visit is

included as part of the appraisal report.

3) Fulfillment of eligibility criteria and extent of financing permissible for the project

as per Operational Policy Statement of PFC (OPS) are checked and the financial &

- 33 -

technical inputs related to the project as furnished by the borrower are analyzed by

the appraising officer in detail to assess the technical & financial viability of the

project taking into account the following:

Review of technology and cost of the project.

Review of Procurement Procedures (generally for private sector borrowers).

4) Detailed analysis and comments on the appropriateness of contractual arrangements

(for backward and forward linkages) involved in the project taking into account the

salient features of the contracts including technical & commercial terms (generally

for private sector borrowers).

5) The environment appraisal for the project by broadly looking into the clearances

given by statutory authorities such as Ministry of Environment & Forest (MOEF),

State Pollution Control Board (SPCB) etc. The Project involving critical

environment issues is referred to EAP Unit for review. The relevant environment

checklists for thermal and hydro projects as applicable from time to time serve as

guide to appraisal officers for undertaking environment appraisal.

6) Review of implementation plan for assessment of the realistic time frame for

completion taking into account the status of investigation, infrastructure, clearances,

procurement, financial tie-up and progress at site.

7) The following additional aspects in case the borrower has requested for financial

assistance for a project in the form of lease in accordance with the notified policy of

PFC on lease finance;

Extent of lease finance to be offered.

Eligibility of equipments to be funded under lease.

Means of transfer of ownership of such equipments to PFC.

Availability of clear title deed of land of the project so as to assess the

mortgagability of the same in favor of PFC.

The depreciation rate available on these equipments (to be confirmed by Policy

Unit in Finance as per IT law).

Return to PFC on the basis of notified Lease rental by P&C unit considering type

of borrower, type of project, and type of assets.

8) The financial analysis based on phasing of fund flow to the project, all the relevant

costs, prices, tariffs and other core specific assumptions. Project IRR, Equity IRR

and year-wise DSCR (last two in case of private sector projects only) is estimated to

- 34 -

ensure sustained debt servicing capacity throughout the repayment period of the

debt.

9) In case of Lease Financing, Project IRR and return on investment for the lessee is

estimated on the basis of applicable lease rental notified by P&C Unit.

10) An insurance plan (in case of private sector projects only) submitted by the

borrower is reviewed with reference to the relevant checklist as applicable from

time to time.

Assumptions for Financial Analysis

All the relevant costs, tariff, technical, operational & financial parameters and other related

assumptions become the inputs to the financial analysis.

Cash flow analysis is carried out. Yearly DSCR, Project IRR & Equity IRR are calculated

to assess sustained debt servicing capacity throughout the repayment period of the debt in

case of private sector projects. Sensitivity analysis is carried out by identifying the key

factors which are liable to cause risk in project viability including Project / Equity IRR &

DSCR. Risk factors are analyzed and measures are proposed to mitigate the same. Equity

IRR and DSCR analysis is generally carried out for private sector borrowers only.

Only Project IRR is calculated in case of state sector generation projects. For state sector

projects, the entities (Borrowers) are generally multi-project entities. For those entities, the

escrow ability assessment is carried out and the escrow inflow is suitably enhanced before

disbursement to ensure sustained debt-servicing capacity throughout the repayment period

of the debt

To have uniformity in appraisal process, a standardized set of assumptions would be used.

Preparation of AGENDA NOTE

a) For private sector projects, EA-IPP Unit in IAD Division submits the Entity Appraisal

report comprising promoter/entity details, eligibility criteria as per OPS, security proposed,

and entity related conditions along with relaxations proposed if any, for incorporation of

the same in Agenda Note cum Appraisal report.

In case of state sector generation projects, entity report obtained from the concerned Unit of

IAD Division (as and when necessary) is updated on the basis of various circulars issued

from time to time. The Appraisal Unit of IAD Division revises Entity Appraisal report

whenever there are any changes in the SEB/Utility organizational structure / financial or

- 35 -

operational performance. If any modifications / corrections are carried out by the concerned

Unit of IAD Division, the same is incorporated in the agenda note.

b) After the detailed analysis of technical and financial information, the overall viability of

the project and entity is assessed. Deviations from the OPS, relevant policy related

circulars and guidelines are checked and accordingly relaxations are proposed to be sought

from the competent authority with proper justification in regard to the same. Various

conditions in the form of pre-commitment, pre-disbursement and other conditions are

proposed to be stipulated on the basis of Project, Entity & Environment appraisal (if

required) so as to ensure tying up of funds (debt & equity both), all physical inputs,

appropriateness of all the contracts, compliance of conditions precedent in agreements /

contracts / statutory & non-statutory clearances related to the project etc. and in general to

ensure bankabilty of the project and to protect the interest of PFC as a lender.

Output:

a) A draft Agenda Note cum Appraisal report is prepared by the Appraisal Officer on the

basis of the above appraisal compiling the project, entity and environmental details

(wherever involved) as detailed in “Outline & Guiding Principles for Project – Loan

Appraisal Report” incorporating the relaxations sought for the deviation/s from OPS if any;

proposed pre-commitment, pre-disbursement & other special conditions of sanction;

Conclusion; Recommendations and Resolution, for approval of Competent Authority (as

per Circular on Delegation of Power).

b) Before putting up the Draft Agenda Note to Directors, the Agenda Note cum Appraisal

Report is circulated to Concerned Unit in IAD Division for confirmation and then to P&C

unit for concurrence and in case there are any queries/changes suggested by the respective

units; the same are clarified/incorporated in the appraisal report cum agenda note. The

modified agenda note is then sent to ED, CS, Directors and CMD for approval and the final

Agenda Note is put up to the Competent Authority for approval as per the Circular on

Delegation of Power.

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D. OBJECTIVE Of Case Study

To understand the working procedure of PFC while under taking a project appraisal and to

determine the financial and economic viability of the project “AMARKANTAK

THERMAL POWER PROJECT”-2nd 300MW Unit.

TITLE:Loan Proposal for ABC AMARKANTAK Power Private Ltd for setting up 300MW Unit-II

of the coal based Thermal Power Plant in Chhattisgarh State, scheduled for completion by

2009 at an estimated cost of Rs.1340Crore.

INTRODUCTION:ABC Ltd., an independent power producer incorporated under the companies Act 1956, is

in the process of establishing a 4 * 300 MW Coal based Mega Power Plant near Korba in

Chhattisgarh. The project is proposed to be implemented in four stages. ABC Ltd is

presently implementing the Unit-I of 300 MW capacity at an estimated completion cost of

Rs. 12,916 million wherein PFC has executed the Common Loan Agreement in the

capacity of the Lead FI with an financial assistance of Rupee Term Loan (RTL) amounting

- 37 -

to Rs.380 crore, consisiting of Senior Debt-A of Rs.332.50 crores and Senior Debt-B of

Rs.47.5 crores, and disbursements for implementation of the project have also commenced.

ABC Ltd is now proposing to add the 300MW Unit-II of the Coal based Thermal Power

Plant adjacent to Unit-I at an estimated cost of Rs.1340 crores, hence, the combined project

capacity will be 600MW consisting of two units of 300MW each. The total project cost of

the 600MW Power Project works out to Rs.2631.6crore, which includes Rs 38.4 crore and

Rs.35.0 crores for separate 400 KV transmission lines for Unit-I and Unit-II from the

project site to the central grid.

The cost of the Unit-II project has been estimated to be Rs.1340 crores which works out to

a cost of Rs.4.5 crores per MW. The Unit-II is proposed to be financed at a D/E ratio of

4:1, similar to the funding pattern of Unit-I and PFC is the lead financial institution for both

the Unit-I and Unit-II

D.1 ENTITY DETAILS :-

(GENERAL ENTITY ANALYSIS AS DONE BY IAD DEPARTMENT)Name of the Company: ABC Amarkantak Power Pvt Ltd.Date of incorporation: 22nd February, 2001Name of the Promoters: ABC GroupName of the Directors: Mr. L. Madhusudan Rao

Mr.G.Bhaskara RaoMr. K. Raja Gopal-CEO

Project Details: Project Cost Rs.1340croreProject Size 300MWEquity proposed Rs.268crore

Source of Finance

Equity Share CapitalPromoter’s 268.00croreCollaborators etc. -Public -Total equity 268.00 crores 20%

DebtForeign currency loan -Rupee loan

PFC(senior debt A&B) 469Other banks and FIs9yet to be tied up) 603

Total Debt 1072.00 crores80%

Promoter and their Background

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ABCL is implementing 300MW (Unit-I) coal based thermal power plant in the state of

Chhattisgarh PFC vide its letter dated 3 January 2005, sanctioned a loan of Rs.517crore,

which was later reduced to Rs.380 crore (Rs332.50crore being senior debt A and

Rs.47.50crore being senior debt B). Unit-I achieved financial closure on 20 September

2005, with PFC acting as the Lead Lender. Now ABCL has approached PFC for financial

assistance for setting up 300MW Unit-II.

The directors of the ABCL Company are highly experienced and have prior record of

project implementation knowledge and experience. They have worked in top capacity in

central organizations like NHPC, BHEL, and NTPC etc

D.2 PROJECT DETAILS : - ( TECHNICAL ANALYSIS )

FEATURES OF THE PROJECT

TITLE of the PROJECT: ABC AMARKANTAK THERMAL POWER PROJECT, near KORBA, CHATTISGARH STATE

D.2.1 Project Profile & Technology:-

Project Purpose

The 600MW integrated power project on completion envisages serving the following

purposes

600MW capacity addition to the power sector at a competitive tariff

Annual generation of 3784 MU (available at Ex-bus) at 80% PLF

Supply of entire power generated form the 300MW Unit-I of the project to the state

Madhya Pradesh through PTC

Catalyze further growth and development of the socio-economic status of the local

population through employment and availability of reliable power supply

Project ScopeThe 2*300MW project envisages the following

Installation of coal based thermal power generating Units of 2*300MW sets and

their commissioning .the project will be implemented ion two stages of 300MW

Unit each.

Construction of river water intake system from River Hasdeo for supply of water

for the power plant (covered in Unit-I and Unit-II)

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Setting up of an interconnecting 400KV transmission line in Loop in and Loop out

(LILO) arrangement with the 400KV Korba see at line and a separate 400KV

transmission line containing the Unit-II project to the proposed pooling station near

Korba (in Unit-II)

Construction of 400KV switchyard comprising of generator transformer,

switchgears etc. at the site (in Unit-I).the 400KV bus is proposed to be provided

with double bus and transfer bus switching scheme with 6 bays under Unit-I. the

400KV switchyard would be extended by 4 more bays(including an unequipped

bay) to accommodate the generator transformer breaker for the Unit-II, station

transformer breaker and feeder breakers

Construction and commissioning of balance of plant which include Coal Handling

Plant, Ash Handling Plant, ESP’s, fuel Oil System, Cooling water System including

Water Treatment Plant and other associated auxiliaries required for continuous, safe

and reliable operation of the Units (both in Unit-I and Unit-II).

Location & Site

The location of the proposed power project is as follows:

PLACE: Pathadi village, District Korba, Chhattisgarh State

CAPACITY: 600MW

Nearest railway Station: Urga and Saragbundia, 3Kms each

Nearest highway: Korba-Champa State Highway

The proposed Unit-II is proposed to be adjacent Unit-I plant. the project is located adjacent

to Korba-Champa state highway at a distance of 16Km from Korba, the nearest railway

station are at Urga and Saragbundia on the Champa-Korba railway line of south-east

central railway situated at a distance of 3km on either side of the project site. The nearest

airport is at Raipur (at a distance of 3Km on either side of the Project site. the nearest

airport is at Raipur (at a distance of 200 Kms) and the nearest seaports are Paradeep and

Vishakapatnam.

Technology

The project proposes to use conventional coal fired boilers, which is a proven technology

for power generation. ABC Ltd is implementing the project through EPC route on the

similar lines at that of the Unit-I as informed by ABC Ltd, the specifications of main

equipments for Unit-II would be similar to Unit-I which are as follows:

- 40 -

Steam Turbine Generator/Boiler:Coal through conveyors will be transferred to coal bunkers, which will feed coal to the

Pulverisers (coal mills) located below the bunkers. After Pulverisers, coal will be

transported through coal pipes to pulverized fuel (PF) fired boiler to generate steam at

required pressure and temperature .in the boiler, the chemical energy of coal will be

converted into heat energy.

The steam generator for the proposed unit will be of two pass, pendant superheater, single

reheat, single furnace with tangential firing and balanced draft, natural circulation,

pulverized coal-fired type.

Steam will then be passed through steam turbine, which will be directly coupled with the

electrical generator. In the steam turbine, heat energy of steam will be converted into work

done and in electrical generator; this work done will be converted into electrical power.

The main parameter of boiler and TG are as indicated below:

Boiler maximum continuous rating: 825TPHSteam pressure at super heater outlet: 176 Kg/cm2 (g)Steam temp at super heater outlet: 540+_50CTurbine maximum continuous rating: 300MWTurbine RPM: 3000

The steam generator will be designed according to the latest version of IBR, ISME. The

feed water temperature at boiler inlet would be about 2750C while the steam from HP

turbine is reheated to around 537oC.the steam generator will be designed to accommodate

the nature of high ash Indian coal, to be supplied by SECL mines. Oil burners and coal

burners will be provided with each steam generator. it will be capable of start up using both

light and heavy fuel oil (LFO & HFO).the type of burners provided will meet the

requirement of low Nox /atmospheric emissions

The other major auxiliaries of the Power Plant are as follows:

Circulating water pumps Generator transformer Ash handling plant Coal handling plant Water treatment plant Switch yard Circulating water and low pressure water piping LT/HT switchgear Chimney Control & Instrumentation

- 41 -

The feed water heating system consists of 3 LP heaters 1 Deaerator and 3HP heaters. 2*

100% condensate extraction pumps through LP heaters and drain coolers well will pump

the condensate from condenser hot to the deaerator. The feed water form the Deaerator will

be pumped to the steam generators by 3*50% electricity driven feed water pumps through

HP heaters. There will be 12 oil burners (3 elevations of 4 burners with 1 in each corner)

and 24 coal burners (6 elevations of 4 burners with 1 in each corner). The oil burner will be

designed to fire either HFO or LDO. The LDO is used for initial startup from cold

conditions and HFO for flame stabilization during low load operations and for hot startups.

The coal mill systems envisages 6 vertical spindle roller type bowl mills and will be

designed with 2 mills as spare when operating at TMCR capacity, wherein 1 mill will be

available as ready standby while the other will be in maintenance. It has also been ensured

to make available the spare mill in normal condition when firing worst coal. All the mill

auxiliaries like greaser pumps, lube oil pump, seal air fans will be provided with 2*100%

capacity features with 1 available as standby.

Electrostatic Precipitators (EP)

EP would be of efficiently no less than 99.8% and will comply with the particulate

emission restrictions of 100mg/Nm3imposed by the Chhattisgarh pollution control board.

The plant is being designed for 100-mg/NM3 emissions with one field in each path out of

operation and at BMCR unit operation while firing the worst coal. This compares favorably

with MOEF limit of 150 mg/NM3.100% leak proof isolating gates will be provided at the

inlet of outlet of each pass to facilitate to take about 60% of BMCR load with half the ESP

working while the other half being in maintenance. Providing specially designed burners

controls NOx emission from the steam generator. The maximum NOx emission from the

unit will be not more than 750 mg/NM3 (365 ppm). Two 220m single flue chimneys are

envisaged for dispersion of effluents

Control & instrumentation

A comprehensive distributed control system (DCS) which would be an integrated control

and data acquisition system providing for control and monitoring of power plant

equipment, except auxiliary control systems like coal handling plant, waste water

treatment, chlorination and AC and ventilation, from a central control room allowing a high

level of automatic operation and diagnostic facilities would be installed. The DCS will

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provide a historical data storage and retrieval capability for 30 days of plant operation. the

auxiliary systems which are not necessary to be managed directly in unit control room will

be equipped with complete supervisory instrument and control equipment near the auxiliary

equipment or in a local control room. The C&I system will provide plant coordination for

startup normal load range and shut down of the plant in a coordinated sequence.

Technical Consultant for the project:

XYZ Ltd. has been appointed as owner’s engineer for the Unit-II project. The scope of

service of the lender’s engineer has been divided into 3 separate modules as follows:

Module 1

To prepare the EPC tender document for ABC Ltd for further issuance of the same

to bidders through ICB route

To attend pre bid conference for furnishing of clarifications to the queries of the

bidders on the tender document

Issue of corrigendum to the EPC tender Document (IF any)

Technical evaluation of the EPC bids and submission of a report

Recommendation of the best bid to ABC ltd.,

Any other services as required by ABC Ltd in this regard

Module 2

Providing owner’s engineer services for review of engineering documents and drawings for

the subject project

Module 3

Providing construction supervisory services and testing & commissioning services

Other miscellaneous services like inspection and expediting services etc.,

Any other services as required by ABC Ltd.

D.3 ENVIRONMENTAL ANALYSIS :

Environmental management:

The EIA for the ABC Amarkantak thermal power plant Unit 1 & 2 at pathadi village,

Korba tehsil and district, Chhattisgarh., has been carried out by M/S BS Envi-tech (P) ltd,

with the aim to access the likely Environmental impact and suggest mitigation measures for

potentially adverse environmental impact that may arise due to the proposed coal base

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power plant of 600MW i.e., considering the Unit-I & Unit-II project. The public hearing

for the project was conducted near the project site on 25-8-2004.

ABC Ltd has obtained environmental clearances from ministry of environmental and

forests (MOEF) and Chhattisgarh environmental conversation board (CECB) for both Unit-

I & II of ABC Amarkantak thermal power station at pathadi village, Korba tehsil and

district, Chhattisgarh.

Coal from Korba coalfields of SECL coalmines, 35kms away from the project site has been

allotted for the Unit-II of the project. The requirement of coal for the Unit-II of the project

is applied for. Water linkage for the Unit-I project has been allocated by the Irrigation

Department, Chhattisgarh state and water linkage for the unit-II project has been applied

for.

Proposed site for project

The proposed site for the main plant having an area of 511 acres is already acquired and an

area of about 64 acres is being acquired by ABCL under Unit-I of the project. An

additional area of about 200 acres is proposed to be acquired by ABCL under Unit-II of the

project. The colony is proposed near the project site.

Land allocated to ash disposal area by the project is about 125 acres. the balance land of

650 acres would be used for the main plant, auxiliaries, railway siding, intake pump house

& raw water pipe line corridor, green belt, colony etc.

River Hasdeo flows about 5.7 km from the plant site; ash disposal area is planned towards

the south of the power plant.

Environmental Stipulations:

Ash

The state PCB has stipulated that non point sources E.S.P with all boiler and suitable air

pollution control equipment should be installed for the control of fugitive emission for the

control of pollution during the transportation of raw material and fly ash. The concentration

limit for pollutants is as follows:

Particulate matter 100 mg/NM3

This requirement would be satisfied by the selected boiler turbine generator (BTG)

package and the electrostatic precipitators installed for Unit-II would ensure that state

pollution board requirement will be maintained throughout the life of the power plant

Air

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Two stacks of height 220m and internal diameter 4.75m with continuous monitoring

system is proposed to be installed ID fans will be used to maintain an exit velocity of 25

m/s for adequate disposal of gaseous pollutants and a continuous record of exit velocity

will be maintained. Continuous monitoring analyzers like opacity meter NOx, Sox, CO

analyzers are envisaged in the BTG package.

The ESP having efficiency not less than 99.8% is envisaged as per the BTG contract. The

particulate emission would not exceed the prescribed limit of 100 mg/NM3.Noise level will

be limited to 85 dBA. All effluents generated in the plant activities will be collected in the

central effluent treatment plant and treated to ensure adherence to specified standards of

discharge. The ambient air quality shall not exceed the following standards prescribed by

the state pollution control board:

Suspended particulate matter 500 Microgram/m3

Oxides of nitrogen 120 Microgram/m3

Sulphur dioxides 120 Microgram/m3

Carbon monoxides 5000 Microgram/m3

Water:

Closed circuit cooling devices are proposed to be used in the power plant to ensure

minimum requirement for make up water. The ground water quality will be continuously

monitored in the project impact area as per MOEF guidelines. The Effluent handling

system package will ensure that treated effluent will not be discharged into the river and

will be completely reused in the plant process

Forest clearance:

Not applicable as the project site doesn’t fall under forest limits

Clearance for Stack Height:

ABCL has obtained adequate clearances from airport authority of India (AAI) for

construction of chimney of 220 M height above the ground level

Clearance related to Rehabilitation & Re-settlement:

The project site is an uninhabited area and hence no displacement or resettlement is

necessary. The land for the site has been acquired through the Chhattisgarh Govt and the

ABCL has paid required compensation to the Govt directly further acquisition of the

additional land is being done through Chhattisgarh Govt

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Coal linkage:

Coal from Korba coalfields (Gevra Mines) of SECL coalmines, 35kms away from the

project site has been allotted for the unit-I of the project. A private railway siding is

proposed at site for receiving of coal from the coal mine. Grade E/F quality coal would be

supplied to the plant. The average ash content is 42%. A month’s stock of coal will be

maintained in the plant premise. The requirement of coal for the unit-II of the project is

applied for and is expected from the same mines.

D.4 OPERATIONS & MAINTENANCE: - (MANAGERIAL ANALYSIS)

The operation of the plant is proposed to be taken up in-house with the expertise available

with ABC in running and managing a number of power stations. The top-level managers of

the first unit can handle the O&M requirements of the second unit. Engineers for operation

and maintenance at the lower level and technicians will be recruited additionally. In order

to ensure a high level of performance of the power station, it is proposed to impart training

to the staff on simulators and through periodical refresher courses. The basic structure and

broad functional area within the O&M organization would be as follows:

O&M contractor’s general manager would have primary responsibility for the operation &

maintenance of the power station. O&M contractor’s site organization is expected to

comprise four broad functional areas Viz. operations, maintenance, engineering and

administration. The basic duties covered under each of these functional areas would be as

follows:

I) Operations:-operation of power plant, coal and ash handling systems, water

systems including water treatment system, switchyard and other auxiliary plant.

Except for the operations manager who would be overall in charge of

operations, all other operation personnel would be three-shift basis .shift

personnel manpower planning for key areas has been generally done on (3+1)

concept to take in account leave taken by shift personnel. The shift operation of

the power station will be overseen by a shift manager who will be assisted by 3

assistant managers, one in the main control room, one for coal, fuel oil and ash

handling systems and one for water system’s

II) Maintenance: maintenance of all mechanical and electrical [plant, control

systems, buildings, roads, drainages and sewage systems, etc., operation of the

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plant workshop, planning for scheduled maintenance works and deciding

requirement of spare parts.

III) Engineering: monitoring of pant performance, maintenance of documentation,

and improvements in plant systems, plant safety aspects including fire fighting,

information services and training. All personnel in this functional area would be

in the general shift.

IV) Administration: purchase of spares and other equipment/materials, stores

management, fuels supply coordination, plant security, finance & accounts,

medical services, personnel services, secretarial and clerical services.

General Manager (operations) would represent the promoter’s interest in the operation

and maintenance of the power station and would oversee the functioning of O&M

contractor. A team covering the following functional areas would assist him.

i) Technical: for monitoring overall plant performance, purchase of spare parts,

consumables, etc., metering energy sent to the PTC and any other technical

aspects required to be resolved

ii) Finance & Accounts: for monitoring the O&M contractor’s expenses in

operations & maintenance of the plant, billing PTC for energy sent into the PTC

grid, ensuring periodic repayment of loans and interest on loans, staff salaries

and expenses and arranging for renewal of insurance covered at required

intervals

iii) Administration & Personnel: for providing administration support such as

secretarial, clerical and transport services, providing personnel services and

managing the staff colony

D.5 Clearances, approvals/agreements

The status of various clearances/approvals/contracts/agreements/facilities is as follows:

STATUTORY clearances:

S.N. ITEM Agency Status/Remarks1 TEC for the

project from CEA

CEA Not Required

2 State Govt Clearance

GoC Not Required

3 SEB clearance Not Required4 Land

availabilityCSIDC 200 acres of land is proposed to be

acquired for Unit-II. The company has

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informed that it has been identified the land required for Unit-II

5 Water availability

State Govt of Chhattisgarh

The Chhattisgarh Govt has already allotted 18 cusecs of water from the Hasdeo river for the Unit-I and another 14 cusecs has been applied for to meet the requirement of Unit-II

6 Pollution clearance for water and air

Chhattisgarh environment conservation board

Consent to establish obtained vide letter with some number and date

7 Environment clearance

Ministry of environment & forests

NOC obtained from Chhattisgarh environment conservation board for obtaining environment clearance

8 Civil aviation clearance for chimney height

Airport authority of India

Obtained vide letter

9 Registration of the company under section 15(A)

Registrar of the companies

Company name changes with date mentioned

10 Rehabilitation & resettlement of displaced families by land acquisition

Ministry of E&F

Not applicable

NON STATUTORY requirements:

1 Fuel linkage Mop, MoC ABCL request for long-term coal linkage is under active consideration of the ministry of coal. Mop has already informed its no objection to MoC for the allotment of coal linkage for Unit-II vide letter

2 Power purchase agreement

PTC The PPA for sale of entire power generated from the 300MW Unit-II has been signed with PTC India Ltd.

3 EPC contracts To be placed Similar in terms as Unit-I placed with XYZ Ltd. The ICB process has been initiated and the contract is expected to be placed in near future

4 O&M contract Not applicable In house team will operate the project5 FSA To be signed Signed with unit-I with SECF proposed to

be signed with SECL for unit-II6 Fuel

transportationNA Separate agreement not required

Project Techno-Economic consideration

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Since the proposed unit-II project has come up in the aftermath of Electricity Act 2003, the

techno –economic clearance (TEC) for the project from CEA is not required. ABCL

proposes to sell the power generated from the project at a rate of Rs.2.34 per unit (at

Levelised cap for 25 years; Levelised cap for 12 years is rs.2.25 per unit) to PTC INDIA

Ltd, which is marginally higher than unit-I to accommodate increase in capital cost. the

company had already signed the PPA with PTC for sale of entire power generated from the

unit-I project with a ;provision for levelised tariff for 25 years owing to annual escalation

of more than 5% in coal prices subject to a cap of rs.2.25 per unit until coal is sourced for

the project from captive coal mines. While this cost is higher as compared to the purchase

from the older thermal plants of NTPC and power imported from the hydel plants in the

eastern/north eastern region, it seems to be competitive as compared to the newer liquid

fuel plants of NTPC as well as from the other sources (private sector generation and PTC)

The availability of cheaper reliable power will help improve the productivity and

profitability of the industrial consumers in the region. Thus the establishment of the project

will result in industrial development of the region and generate employment opportunities

for the people in the region.

Procurement procedures and competitiveness

Award of EPC contracts:

The company was planning to award the EPC contract for UNIT_II to XYZ Ltd on similar

lines of the EPC contract of unit-I. The ICB process for EPC for Unit-II was initiated to

meet the requirements of approvals such as capital cost/tariff by the electricity regulators of

the purchasing utility and is expected to be completed shortly as per the guidelines.

The specifications for the Non-EPC works for unit-II are under preparation. The company

is proposing to finalize these contracts before financial closure and accordingly a suitable

condition seeking finalization stipulated of contracts for Non-EPC work before debt

breakdown has been stipulated.

D.6 FINANCIAL AND ECONOMIC ANALYSIS :

Financial plan

The power plant is proposed to be financed at a debt equity ratio of 4:1.the proposed means

of finance for the power plant will be as under:

Particulars Total (Rs in Million) Percentage (%)EQUITY 2680.10 20

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ABC group, Associates & strategic partners

Term LOAN 10721.30 80PFC 4300Others 6421Total debt 13400.40 100

Project cost

The cost of the 300MW captive power project as estimated by M/s ABCL is Rs.13400.41

million. The details of the cost break up of the TPP are as follows:

Cost Head Total (Rs.in millions)Land and land development incl environmental

320.00

EPC contract 10050.00NON-EPC balance of plant 720.00Design, engineering & construction supervision

125.00

Tools & plants 20.00Pre operative & establishment charges 160.00Preliminary expenses 25.00Training of O&M staff 12.00Startup fuel 110.00Physical contingencies 111.00Margin money for WC 242.21Upfront fees 65.00Finance charges 52.00IDC 1388.20

Total Cost 13400.41

Phasing of expenditure

The yearly draw down schedule for unit-II project is as follows: (Rs in Crore)

Quarter Equity Debt Total1st 67 56 1232nd 0 72 723rd 0 62 624th 0 51 515th 19 104 1236th 25 100 1257th 25 102 1278th 26 103 1299th 38 152 19010th 22 89 11111th 16 62 7812th 16 63 7913th 14 56 70

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Total 268 1072 1340

OPERATIONAL Costs, Prices and Assumptions

The following has been assumed for the financial analysis of the project Financial closure: 1st October 2006.the COD is assumed to occur at 36 months

from the financial closure date and is assumed as 30th September 2009.

The quarterly phasing for different project expenditure has been taken as per

company.

D/E ratio is assumed at 80:20.

Upfront equity infusion has been taken as 25% of the equity contribution.

The capacity of the unit-II project has been taken to be 300MW, assume to be

operating at 80%PLF annualized.

Auxiliary consumption has been taken as 9%.

Interest on rupee term loan-8.5%.

Moratorium-6 months after commissioning.

Rate of depreciation of assets is taken at 3.6% PA.SLM and assets are depreciated

till 90% of their cost price.

The coal and oil price in the first year of operation has been taken at Rs.895.47 MT

and Rs.16800Kl respectively. An escalation of 5% P.A has been assumed.

Calorific value of coal taken at 3500 Kcal/MT and heat rate at 2500Kcal/Kwh.

Working capital norms are taken as O&M expenses for 1month,receivables of 2

months, fuel stock of 1 month, spares @1% of project cost.

Income tax exemption under section 80IA has been assumed to be availed in for the

first 10 years of operation. MAT @ 7.5% plus 10% surcharge plus 2% education

cess on the same has been assumed as applicable base tax rate @ 12.5% plus

surcharge plus 2% education cess on the same.

Interest on working capital-10.50%

Other techno economic parameters have been taken as per CERC norm.

Dividend payment of 8% on equity in a year from 4th year of operation. Dividend

payment tax @12.5% plus 10% surcharge plus 2% education cess on the same.

The main assumptions are shown in the Annexure-VI

Projects Cash Flow Statements and Cost Benefit Analysis

The financial analysis of the project has been done considering entire sale of power at the

tariff structure, which has been finalized in the PPA signed with PTC Ltd for the sale of

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power from Unit-I. The key financial indicators of the project in the base model are as

follows:

INDICATOR Value Unit1st full year tariff on CERC norm

2.16 Rs. per Unit

Levelized tariff on CERC norm (13 years, 12% discount )

2.20 Rs. per Unit

Levelized tariff on CERC norm (25 years, 12% discount)

2.28 Rs. per Unit

Average DSCR 1.29 RatioMin DSCR 1.20 RatioProject IRR (pretax, 25 years)

11.7% Percent

The detailed calculation on above referred base case are placed at Annexure-(VII,VIII,IX,X,XI,XII)D.7 PROJECT RISK

LENDERS ENGINEERSThe Lead FI will appoint Lenders’ engineers on behalf of all the lenders to review the

project design, engineering, implementation and infrastructure availability and all the

contracts and recommend corrective actions so that the possibility of delays/under –

performance, if any, is minimized. ABCL will be required to be abide by the

recommendations of the lenders engineers and take suitable remedial/corrective action

LENDERS COUNSELABCL would also be required to appoint lender’s legal counsel to review the project

contracts/agreements, various documents etc., and recommend any change/modifications

required for the further strengthening the project structure. Hence, a condition is being

proposed that the lead FI, PFC shall have the right to appoint lender’s engineer/ legal

counsel for unit-II project on similar lines of Unit-I project

RISK ANALYSIS

Risk Factor Risk carrier Proposed Mitigation Mechanism

(1) Pre-Construction delayFinalization of key contracts ABCL ICB for EPC has been initiated

and is expected to be completed shortly as per the guidelines. Based on the cost of EPC for first unit the cost estimate for EPC for

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second unit has been estimated to be within Rs.1005 crore taking the service tax and forex fluctuation into account.Non EPC packages are proposed to be arranged by ABCL, hence a suitable condition has been stipulated

Approval/consents/permits ABCL Major statutory clearances including PCB clearance, MoEF clearance and stack height clearance have been obtained for both the units.Allocation of additional 14 cusecs has been applied for to meet the requirement of unit-II.Coal linkage of 1.5MTPA of coal has been allocated for unit-I. The coal linkage for the Unit-II project is under active consideration of the Ministry of Coal, Govt of India.

(2) Construction RiskLand availability ABCL, CSIDCL Out of the estimated land

requirement of about 775 acres for both the units, 575 acres is envisaged for acquisition under Unit-1 and 200 acres under Unit-II.Department of industries, Govt of Chhattisgarh, has acquired 511 acres of land. The company has informed that a lease agreement for a period of 99 years has been signed by the company with Chhattisgarh state industrial development corporation Ltd, for about 469 acres after making the required payment.

Increase in cost & price escalation

ABCL, EPC contractor Fixed price fixed time EPC contract is envisaged .A contingency provision has also been made.

Inability to perform under package contract

EPC contractor Penalties /liquidated damages for delay in completion or shortfall in performance shall be envisaged for unit-II on similar lines of Unit-I

Construction of evacuation facility

ABCL, PGCIL PGCIL will finalize the scheme of transmission after conducting

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load flow studies, a suitable condition is proposed

Insurance risk ABCL, EPC contractor Comprehensive insurance package to be taken by ABCL and EPC contractor during construction.

(3) Operational RiskFuel risk: Non availability of fuel in the right quantity, of right quality and at the right time

SECL, ABCL Long-term coal linkage proposed for both the projects. FSA to be signed with SECL

Increase in fuel cost SECL Fixed firm price FSA at price notified by GoI/CIL/SECL is envisaged.

Fuel transportation risks ABCL Alternate arrangements made for rail and road based transportation of project essentials. to be borne by the company

Equipment under performance

EPC contractor Liquidated damages payable by the EPC contractor for lower installed capacity

Increase in heat rate/auxiliary consumption

Heat rate and auxiliary consumption are to be guaranteed by the EPC contractorO&M will be done in house

Environmental requirements EPC contract provides for guarantees to conform to emission norms as per Govt/pollution control board stipulated

Insurance risks For construction, EPOC contractor will be responsible.Adequate insurance would be provided during operation. Insurance counsel for lenders will be appointed.

Evacuation risk ABCL, Non EPC contractor

A suitable condition is being proposed

Escalation in O&M costs ABCL O&M will be done in-house. The company has sufficient experience in running power plants. An amount of Rs.1.2 crores has been set aside for training of the O&M staff

Tariff risk The levelised tariff on CERC norm is Rs.2.20 per unit(13 years).the PPA has been signed with PTC for sale of power from the project capped to a levelised

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tariff of 2.25 Rs/Unit for 12 years which increases to Rs2.34/unit for a period of 25 years

Payment risk PTC’s credit enhancement mechanisms include provision of L/C

D.8 SENSITIVITY ANALYSIS

In this project, the main components that affect the viability of the project are the design

energy level tariff rates, the increase in the hard cost of the project and the effect of change

in interest rates. Accordingly, sensitivity analysis has been carried out on these parameters.

The following are the situations, which have been taken into consideration in analyzing the

project through sensitivity analysis:

Increase in the design energy by 10% Increase in the interest rate by 10% Increase in the cost of the project by 10%

Sensitivity analysis has been carried out on the basis of the following assumptions

Scenario Project cost (in Rs crores)

Tariff (in Rs/Unit)

Project IRR for 25 years (pre tax)

Average DSCR

1st full year tariff

Levelized tariff (13 years)

Base case 1340 2.16 2.20 11.64% 1.29Increase in interest rate by 10%

1,368 2.27 2.28 12.94% 1.25

Increase in capital cost by 10%

1472 2.27 2.30 11.38% 1.23

Yearly escalation in coal cost by 6% from base year (2005-06)

1340 2.19 2.27 10.17% 1.22

(*** DSCR in the 10th, 11th & 12th year of repayment become less than 1)Changes in interest rate under varying circumstances like keeping PFC rate constant and

change in rate of other financial institutions and vice versa further collective change in both

cases has been considered.

ANALYSIS from sensitivity analysis:-The average FIRR arrives around 12%The average EIRR arrives around 21%The DSCR arrives around in the range of 1.33

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CONLCUSIONS FROM SENSITIVITY ANLAYSIS

Overall, the project seems to be viable from the economic point of view since it’s is

expected to give EIRR OF more than 20%, which is more than the minimum stipulated

return. It’s also viable from the financial point of view, since it is expected to give an FIRR

of 12%

D.9 MARKETING AND SELLING ARRANGEMENT

Signing the PPA with PTC on Nov 2005, for sale of entire power generated from the unit-II

project to PTC for a period of 25 years. Assuming an auxiliary consumption of 9%, 273

Mw of power form the unit-II project has been contracted to PTC at the delivery point. The

PTC tariff rate levelised over the term of the agreement (at 12% discount rate) is set as

follows:

S.No Tariff year Capped Tariff Rate (Rs/Unit)

1 1-12 2.252 1-25 2.34

As can be seen from the above table, the capped rate of Rs 2.34/unit would be applicable

for the entire tariff period of 25 years for the calculation of tariff pool account. For first 12

years, the tariff pool account would be operated with a capped tariff of rs.2.25/unit

The delivery point has been defined as either the nearest 400KV sub station of PGCIL

where the power output for the project is delivered to the CTU or the 400KV bus of the

projects switchyard where loop in and loop out of the transmission line of the CTU.

The payment from the purchaser is secured by means of a monthly revolving and

irrevocable letter of credit (L/C) with a period of 12 months that shall be renewed and

maintained quarterly in favor of the company. The amount f the L/C shall be equal to

estimated average monthly bill at 80% PLF for the first year and at average of previous

year payment thereof.

Implementation plan:

The 300MW Unit-II plant is proposed to be implemented within a period of 316 months

from the date of financial closures .the EPC contract shall be completed within 36 months

from commencement date.

Financial close 31-Mar-05Commencement of construction 1-Apr-06Construction period project 36 monthsCOD of the project 31-Mar-09

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STRENGTHS: PFC has already sanctioned loan assistance to the unit-I of the proposed unit-II project

as lead institution and disbursements have commenced for the implementation of same.

All key statutory clearances like PCB clearance, MoEF clearance and stack height

clearance from AAI have been obtained for the combined 2*300 MW power plant.

The promoter has already successfully commissioned the other projects in which PFC

had taken exposure, all the projects are operating successfully.

The land required for the project has been identified.

The company is finalizing the EPC contract for unit-II with XYZ Pvt Ltd on the same

lines of the contract already signed for Unit-I.

PTC India Ltd., has expressed interest to purchase the entire power generated by the

project.

CONCLUSION

The proposed project is an addition for the already present Unit-I of ABCL, which results

in the process of establishing a 4 *300MW coal based mega power plant near Korba in

Chhattisgarh. PFC has already executed the common loan agreement for unit-I as the EAD

institution and disbursements for implementation of the project have commenced. The

Levelized tariff for 25years is Rs 2.34KWh.

The figures indicated above in the financing plan, cost estimate are with the eligibility

criteria for sanctioning of loan.

As we find that the privatization initiatives are at present not bringing in sufficient

investment to the state viz a viz the power demand, thus the onus lies on the Govt to

arrange for meeting the required power demand.

Although the internal rate of return falls below the desired 12% on considering the tax

factor, a possible way out can be to arrange for a tax break. Thus the multipurpose project

can be accepted under special conditions keeping the long term benefits and the power

requirements of the state in priority.

The result of this analysis thus confirms that the proposed project is economically viable,

but tax factor affects the financial viability, hence it is recommended that project may be

given the approval only after the consent of the Board of Directors under special

considerations.

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RECOMMENDATIONS

Suggested securities & repayments

PFC should sign an agreement to have first charge on ABCL assets till the loan

repayment.

PFC should secure itself by an unconditional & irrevocable guarantee from GoI and

GoC in proportion of their share in equity.

PFC is hereby recommended to open a separate escrow account with ABCL

equivalent to 1.25 times quarterly payment due to PFC.

Though the project is expected to yield the expected ROR, the sensitivity analysis

also shows certain situations in which the expected ROR might fall below the

stipulated Norms. it will be worthwhile for the lenders(PFC and other financial

institutions) to find out what is the Expected profitability of this situation .when the

ROR might fall below the stipulated norms and take sufficient measured to

safeguard themselves, as regards the loan, they propose to sanction for this project

Continuous monitoring of the project should be done

Care should be taken by verifying the other projects (if any), undertaken by the

promoters are progressing as scheduled.

It should also be seen that the costs as well as the revenues, as projected in the DPR

and the actual costs do not vary to a great extent. if they do vary, enquire into the

causes for such variation.

It should also be seen tat the borrower is making his payments regularly to his

lenders and that there is no default on such account

LIMITATIONS

The appraisal has been carried out based on certain set of guidelines-some of which

have been prescribed by CERC and the others, by PFC. These guidelines may be

little outdated and may fail to reflect the current trend

The project is to be implemented by ABCL and thus is backed by the state Govt.

Thus the financial position is always a doubt, which in turn, will have a major effect

on the implementation of the project

As of now the entity appraisal of an IPP has not been included in this report due to

space and time constraint.

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BIBLIOGRAPHY

Detailed Project Report (DPR) of AMARKANTAK Thermal Power Project submitted

by ABC Private limited

Operational Policy guidelines followed by PFC for Project Appraisal

Central Electricity Regulatory Commission (CERC) Guidelines for Tariff

Calculation of Thermal Power Generation

Chandra Prasanna “Project Preparation Appraisal, Budgeting and Implementation”-

Tata McGraw Hill Publication 2002, New Delhi

Manual to Project Appraisal and Financing

G.B.Rao /Atul Gupta Guide to Project Financing

Project Appraisal Manual FOR Power Generation Projects

JOURNALS

“Power Line”, from publishers of Indian infrastructure private limited, New Delhi.

“Indian Infrastructure”, Indian infrastructure private limited, New Delhi

“IEEMA journal” of Indian Electrical And Electronics Manufacturers Association,

Mumbai.

World Wide Web

www.pfcindia.com

www.angelbroking.com

www.infraline.com

www.powermin.nic.in

- 59 -

http://www.powermin.nic.in/

http://www.infraline.com/

http://www.angelbroking.com/

http://www.pfcindia.com/

www.indiapoweronline.com

www.crisil.com

www.tatapower.com

ANNEXURES

Annexure I: List of Abbreviations

Annexure II (A): Thermal Plant Load Factor

Annexure II (B): Capacity Addition in Tenth plan based on Fuel Mix

Annexure II (C): Capacity Addition in Tenth plan based on Ownership

Annexure III: Organogram of PFC

Annexure IV: Core Processes of Projects Division and their sequence

Annexure V: Technical Details & Main Financial Assumptions

Annexure VI: Project cost

Annexure VII: Base Case Analysis

Annexure VIII: Calculation of Interest on Loan

Annexure IX: Calculation of Tariff

Annexure X: Calculation of Projected Balance Sheet

Annexure XI: Calculation of Projected Cash Flow Statements

Annexure XII: Calculation of Depreciation as per Income Tax Act

- 60 -

http://www.tatapower.com/

http://www.crisil.com/

http://www.indiapoweronline.com/

ANNEXURE-I

LIST OF ABBREVIATIONSABCL ABC limitedAG&SP Accelerated Generation & Supply ProgrammeAPDRP Accelerated Power Development & Reform ProgrammeCEA Central Electricity AuthorityCERC Central Electricity Regulatory CommissionCMD Chairman & Managing directorCS Company SecretariatDPR Detailed Project ReportDSCR Debt Service Coverage RatioEAP Externally Aided ProjectsEA-IPP Entity Appraisal-Independent Power ProjectsED Executive DirectorEIA Environmental Impact AssessmentEIRR Economic Internal Rate of ReturnEPC Engineering Procurement & ConstructionF&FO Finance & Financial OperationsFI Financial InstitutionFIRR Financial Internal Rate of ReturnFSA Fuel Supply AgreementFTA Fuel Transport AgreementIAD Institutional Appraisal & DevelopmentIDC Interest During ConstructionIRR Internal Rate of ReturnMoEF Ministry of Environment & ForestMoPNG Ministry of Petroleum & Natural GasMW Mega WattNoC No Objection CertificateOPS Operational & Policy StatementsO&M Operations & MaintenanceP&C Policy & ConcurrencePA-IPP Projects Appraisal-Independent Power ProjectsPEAR Preliminary Entity Appraisal Report

- 61 -

PFC Power Finance CorporationPPA Power Purchase AgreementPPAR Preliminary Project Appraisal ReportR&M Renovation & ModernizationSEB State Electricity BoardSERC State Electricity Regulatory CommissionSPCB State Pollution Control BoardSPV Special Purpose VehicleXYZL XYZ Limited

ANNEXURE-II (A) – Thermal Plant Load Factor

ANNEXURE-II (B)

Capacity addition in Tenth Plan based on Fuel Mix

ANNEXURE-II (C)

- 62 -

Capacity addition in Tenth Plan based on Ownership

- 63 -

ANNEXURE-III

- 64 -

ANNEXURE-IV

Core Processes of Projects Division and their sequence

Support Process

- 65 -

Annual Action Plan

Coordination with CEA,MoP

Coordination with External Funding Agencies

Training

Core Processes of Projects DivisionMarketing & Identification of Scheme

Project Completion Activities

Facilitating Execution of Documents

Receipt of Proposal for sanction of financial assistance, preliminary scrutiny, In-principle sanction & short-listing of Loan proposal for

Preparation of Agenda Note-cum-Appraisal report for approval o competent Authority for sanction of Financial assistance

Issue of Letter intimating financial sanction

Project Review and Monitoring

Facilitating Disbursement

P&C

P&C

IAD

IAD

L&D

LD &R

Borrower

P&C

IAD

Facilitating financial Tie-Up

Sanction by Competent Authority

ANNEXURE-VMain Assumptions

FINANCIAL ASSUMPTIONS IN MILLIONSInstalled capacity 300 MWEstimated Project cost 13400.41 Rs.MnDebt 10720.33 80%Equity 2680.08 20%Rupee debt 10720.33 100%Rupee Equity 1608.05 60%Forex Equity 1072.03 40%Upfront equity 25%

Financial closecommencement of construction 31-Mar-05construction period project 1-Apr-06COD of the project 36 months

31-Mar-09

PPA & other operational assumptionsTerm of the PPAFUEL CHARACTERISTICS 25 years from COD of the project

Station heat rate StabilizationNormal Operation

Auxillary Consumption Kcal/KWH 2600 2500oil consumption % 9% 8.50%calarofic value of coal per kg ml/KWH 4.5 2CV of oil per kg 3500 KcalDelivered cost of coal per kg 10200 KcalDelivered cost of oil (HFO) per ltr 0.75 RsDelivered cost of oil (HSD) per ltr 14.9 Rs 80%PLF 24.4 Rs 20%O & M expenses per MW 80% 80%O & M expenses for installed capacity 1.217 Rs.MnROE 365.1 Rs.MnCost of Coal 14% %Upfront equity 885 Rs/MTworking Capital Norms 25%Primary fuel costprimary fuel stock 1 monthSecondary Fuel furnace oil 0.5 monthO & M and Insurance Expenses 2 monthsDebtors 1 monthSpares 2 monthsWorking Capital Interest 1% % 6% from 2nd year

13% %

Operational Details %Exchange rate at CODRupee Depreciation against US $ per 46 Rs / $

- 66 -

annumSecondary fuel 3% % from 2nd yearCoal Escalation 5% % from 2nd yearO & M Escalation 3% %Spares escalation 4% % from 2nd year

6% %Long Term Loan Repayment ScheduleRupee Loan repaymentMoratorium 48 quartersDollar loan repayment 2 quartersMoratorium 48 quartersInstallments per year 2 quartersRepayment period 4 quarters

12 yearsInterest on Term LoansRupee Loan InterestForex Loan Interest 8.50%Upfront fees for Rupee Loan 7.00%Upfront Fee for USD Loan 1%

1%Electricity Duties,cess, Royalty etcElectricity Duty on Export of unitsCess on Export of units 0.02 Rs

0.01 RsDuty on Auxillary consumptionHT unit rate 8%Duty on Auxillary consumption 3.5 Rs

0.28 RsDepreciation RatesEquipment (WDV)Buildings(WDV) 25%land & site development 10%

4.00%Income tax rateBasic rateSurcharge 30%Corporate Tax with surcharge 10%Cess 37.5%Corporate Tax with surcharge & cess 2%Minimum Alternate Tax(MAT) 39.50%MAT with surcharge 7.50%CASs 8.25%MAT with surcharge & cess 2%Dividend Distribution Tax 8.42%Dividend Distribution Tax with Surcharge 12.50%Dividend Distribution Tax with Surcharge 13.75%

14.03%

- 67 -

CAPACITY 300 MW Cost Escalation 0% ANNEXURE VICapital Cost 11653 Rs.Mn Financing Charges

Working Capital Margin

242.21 Rs.Mn Arranger fee 4500 0.90% 40.5

IDC 1444.64 Rs.Mn Processing Fees 10721.4 0.10% 10.72

Financing Charges 61.94 Rs.Mn Upfront Fees 10721.4 0.10% 10.72

Project Cost 13401.8 Rs.Mn Total 61.94 Rs.Mn

D/E Ratio 4 1

Equity 2680.36

Debt 10721.44 0.8

Upfront Equity 25% 670.09 0.2

Upfront Expenditure 2680.36

Total 3350.45

Interest 8.50%

Dividend Payment 8% from 4th year onwards

Financial Year 1 2 3 4 5 6 7 8 9 10 11 12 13

Expenditure 9.20% 5.36% 4.60% 3.82% 9.16% 9.32% 9.48% 9.64% 14.19% 8.30% 5.81% 5.91% 5.20%

Capital Expenditure 10.00% 6.00% 5.00% 4.00% 10.00% 10.00% 10.00% 10.00% 15.00% 8.00% 5.00% 5.00% 2.00%

Actual Expenditure 1165.3 699.18 582.65 466.12 1165.3 1165.3 1165.3 1165.3 1747.95 932.24 582.65 582.65 233.06

Interest 5.98 19.6 33.79 45.78 62.23 83.85 105.27 127.05 154.21 179.83 195.9 209.25 221.9

Working Capital Margin 242.21

Financing Charges 61.94

Capital Expenditure 1227.24 699.18 582.65 466.12 1165.3 1165.3 1165.3 1165.3 1747.95 932.24 582.65 582.65 475.27

Total Expenditure 1233.22 718.78 616.44 511.90 1227.53 1249.15 1270.57 1292.35 1902.16 1112.07 778.55 791.90 697.17

Equity 670.09 0 0 0 191.49 249.83 254.11 258.47 380.43 222.41 155.71 158.38 139.43

Debt 563.14 718.78 616.44 511.90 1036.04 999.32 1016.46 1033.88 1521.73 889.66 622.84 633.52 557.74

Net Debt 281.57 922.53 1590.14 2154.31 2928.28 3945.96 4953.85 5979.02 7256.82 8462.51 9218.76 9846.94 10442.57

Interest 5.98 19.6 33.79 45.78 62.23 83.85 105.27 127.05 154.21 179.83 195.9 209.25 221.9

Net Expenditure 1233.22 1952.00 2568.44 3080.34 4307.87 5557.02 6827.59 8119.94 10022.10 11134.17 11912.72 12704.6 13401.79

Balance Upfront Equity

0 0 0 0 0 0 0 0 0 0 0 0 0

Page 68 of 74

ANNEXURE VII

Repayment Schedule Total Debt 10721

No.of Quarterly instalments 48 Total Equity 2680.4

Quartrey principal Repayments 223.36 Total Cost 13402

Financial year 1 2 3 4 5 6 7 8 9 10 11 12 13

Outstanding Principal 10721 10275 9381.26 8487.8 7594.4 6700.9 5807.5 4914 4020.5 3127.1 2233.6 1340.2 446.73

Quarter II

Principal Repayment 0 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36

Interest 227.83 218.34 199.35 180.37 161.38 142.39 123.41 104.42 85.44 66.45 47.46 28.48 9.49

Quarter II

Principal Repayment 0 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36

Interest 227.83 213.59 194.61 175.62 156.63 137.65 118.66 99.68 80.69 61.7 42.72 23.73 4.75

Quarter III

Principal Repayment 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 0

Interest 227.83 208.84 189.86 170.87 151.89 132.9 113.92 94.93 75.94 56.96 37.97 18.99 0

Quarter IV

Principal Repayment 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 223.36 0

Interest 223.08 204.1 185.11 166.13 147.14 128.15 109.17 90.18 71.2 52.21 33.23 14.24 0

Principal Repayment 446.72 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 446.72

Interest Payment 906.57 844.87 768.93 692.99 617.04 541.09 465.16 389.21 313.27 237.32 161.38 85.44 14.24

Total Debt Servicing 1353.3 1738.3 1662.37 1586.4 1510.5 1434.5 1358.6 1282.7 1206.7 1130.8 1054.8 978.88 460.96

ANNEXURE VIII

Page 69 of 74

S.NO

PARTICULARS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A Sources of FundsEquity Contribution 2680.36 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Profit Before Taxes 383.34 844.71 871.11 903.94 903.9

5903.96 903.94 903.95 903.94 903.95 903.94 903.94 416.17 249.8

3260.7

2269.2

7276.0

2281.3

8285.6

8289.1

4291.9

8294.3

0295.8

0306.8

6299.1

6Book Depreciation 470.90 470.90 470.90 470.90 470.9

0470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.9

0470.9

0470.9

0470.9

0470.9

0470.9

0470.9

0470.9

0470.9

0470.9

0470.9

0470.9

0

Term Loans 10721.44

0 0 0 0 0 0 0 0 0 0

WorkingCapital Borrowings

800.92 17.45 18.39 19.39 20.43 21.54 22.7 23.93 25.23 26.59 28.04 29.56 31.16 32.85 34.63 36.51 38.5 40.59 42.8 45.13 47.58 50.17 52.9 55.79 58.83

Total Inflow: 15056.96

1333.06

1360.40

1394.23

1395.28

1396.40

1397.54

1398.78

1400.07

1401.44

1402.88

1404.40

918.23 753.58

766.25

776.68

785.42

792.87

799.38

805.17

810.46

815.37

819.60

833.55

828.89

B Application of FundsCapital Expenditure 13400.4

10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Increase in Current assets

1012.71 15.93 16.79 17.71 18.67 19.69 20.76 21.89 23.09 24.35 25.68 27.08 28.56 30.12 31.76 33.5 35.33 37.27 39.31 41.46 43.74 46.14 48.67 51.34 54.16

Repayment of Term Loans

446.73 893.44 893.44 893.44 893.44

893.44 893.44 893.44 893.44 893.44 893.44 893.44 446.72 0 0 0 0 0 0 0 0 0 0 0 0

Income Tax 32.26 71.08 73.3 106.14 106.14

106.14 106.14 106.14 106.14 106.14 106.14 106.14 65.09 233.79

244.69

253.2 260 265.4 269.7 273.12

275.94

278.26

280.18

281.78

283.12

Dividends 0 0 0 214.43 214.43

214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43

214.43

214.4 214.4 214.4 214.4 214.43

214.43

214.43

214.43

214.43

214.43

Total Outflow: 14892.11

980.45 983.53 1231.7 1232.7

1233.7 1234.8 1235.9 1237.1 1238.36

1239.7 1241.09

754.8 478.34

490.88

501.2 509.7 517.1 523.4 529.01

534.11

538.83

543.28

547.55

551.71

C Excess/Shortfall 164.85 352.61 376.87 162.51 162.60

162.70 162.77 162.88 162.97 163.08 163.19 163.31 163.43 275.24

275.37

275.51

275.68

275.82

275.99

276.16

276.35

276.54

276.32

286.00

277.18

D Opening Balance 0 164.85 517.45 894.3 1056.8

1219.4 1382.1 1544.8 1707.7 1870.64

2033.7 2196.89

2360.2 2523.6

2798.8

3074 3350 3625 3901 4177.2

4453.4

4729.7

5006.3

5283 5560

E Closing Balance 164.85 517.45 894.3 1056.8 1219.4

1382.1 1544.8 1707.7 1870.6 2033.7 2196.9 2360.19

2523.6 2798.8

3074.2

3350 3625 3901 4177 4453.4

4729.7

5006.3

5283 5560 5837.1

ANNEXURE IX

PARTICULARS

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Revenues(Rs in

Page 70 of 74

Millions)Tariff 1.9 2.16 2.18 2.21 2.23 2.25 2.27 2.29 2.32 2.35 2.38 2.42 2.21 2.2 2.29 2.39 2.49 2.6 2.71 2.82 2.95 3.07 3.21 3.34 3.49

Receipts(sale of power)

3641.75

4131.83

4177.21

4233.79

4262.52

4296.5 4335.98

4381.24

4432.57

4490.28

4554.68

4626.11

4221.9 4203.83

4385.37

4573.12

4768.04

4971 5182.8 5404.16

5635.8 5878.39

6132.21

6399.16

6678.73

Total Revenue 3641.8 4131.8 4177.21

4233.8 4262.5 4296.5 4335.98

4381.2 4432.6 4490.3 4554.7 4626.1 4221.9 4203.8 4385.4 4573.1 4768 4971 5182.8 5404.16

5635.8 5878.4 6132.2 6399.2 6678.7

Expenses(Rs in Millions)Fuel cost 1406.3

11476.6

31550.4

61627.9

81709.3

81794.8

51884.5

91978.8

22077.7

62181.6

52290.7

32405.2

72525.5

32651.8

12784.4 2923.6

23069.8 3223.2

93384.4

53553.6

83731.3

63917.9

34113.8

34310.5

24535.4

9O&M cost 365.1 383.36 402.52 422.65 443.78 465.97 489.27 513.73 539.42 566.39 594.71 624.44 655.67 688.45 722.87 759.02 796.97 836.82 878.66 922.59 968.72 1017.1

51068.0

11121.4

11177.4

8Interest on Loan

906.57 844.87 768.93 692.99 617.04 541.09 465.16 389.21 313.27 237.32 161.38 85.44 14.24 0 0 0 0 0 0 0 0 0 0 0 0

Interest on Working Capital

109.53 111.36 113.29 115.33 117.47 119.73 122.12 124.63 127.28 130.07 133.02 136.12 139.39 142.84 146.48 150.31 154.35 158.61 163.11 167.85 172.84 178.11 183.67 189.47 195.70

Depreciation 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90

Total Expenditure

3258.41

3287.12

3306.10

3329.85

3358.57

3392.54

3432.04

3477.29

3528.63

3586.33

3650.74

3722.17

3805.73

3954.00

4124.65

4303.85

4492.02

4689.62

4897.12

5115.02

5343.82

5584.09

5836.41

6092.30

6379.57

Profit Before Tax

383.34 844.71 871.11 903.94 903.95 903.96 903.94 903.95 903.94 903.95 903.94 903.94 416.17 249.83 260.72 269.27 276.02 281.38 285.68 289.14 291.98 294.30 295.80 306.86 299.16

Provisions for Taxes(incluidng MAT,Tax saved on accountof depreciation from other projects)

32.26 71.08 73.3 106.14 106.14 106.14 106.14 106.14 106.14 106.14 106.14 106.14 65.09 233.79 244.69 253.24 259.98 265.35 269.65 273.12 275.94 278.26 280.18 281.78 283.12

Net Profit 351.08 773.63 797.81 797.80 797.81 797.82 797.80 797.81 797.80 797.81 797.80 797.80 351.08 16.04 16.03 16.03 16.04 16.03 16.03 16.02 16.04 16.04 15.62 25.08 16.04

Cumulative Net Profit

351.08 1124.71

1922.52

2720.32

3518.13

4315.94

5113.74

5911.55

6709.35

7507.16

8304.96

9102.76

9453.84

9469.88

9485.91

9501.94

9517.98

9534.01

9550.04

9566.06

9582.10

9598.14

9613.76

9638.84

9654.88

CASH INFOW: 1728.55

2089.40

2037.64

1961.69

1885.75

1809.81

1733.86

1657.92

1581.97

1506.03

1430.08

1354.14

836.22 486.94 486.93 486.93 486.94 486.93 486.93 486.92 486.94 486.94 486.52 495.98 486.94

DSCR 1.29 1.28 1.20 1.23 1.24 1.25 1.26 1.28 1.29 1.31 1.33 1.36 1.38 1.81

CASH FLOWS -2975.1

9

-4661.

2

-4320.7

6

1728.55

2089.40

2037.64

1961.69

1885.75

1809.81

1733.86

1657.92

1581.97

1506.03

1430.08

1354.14

836.22 486.94 486.93 486.93 486.94 486.93 486.93 486.92 486.94 486.94 486.52 495.98 486.94

CASH FLOWS(pre tax)

-2975.1

9

-4661.

2

-4320.7

6

1760.81

2160.48

2110.94

2067.83

1991.89

1915.95

1840.00

1764.06

1688.11

1612.17

1536.22

1460.28

901.31 720.73 731.62 740.17 746.92 752.28 756.58 760.04 762.88 765.20 766.70 777.76 770.06

Projected IRR(for 13 years)

9.17%

Projected IRR(for 25 years)

10.43%

Project IRR(Pre tax,25 years)

12%

Project IRR(Pre tax,13 years)

10%

ANNEXURE X

Page 71 of 74

S.NO PARTICULARS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A LIABILITIES

1 Equity Contribution 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36 2680.36

2 Reserves & Surplus 351.08 1124.71 1922.51 2505.89 3089.26 3672.63 4256.01 4839.38 5422.76 6006.13 6589.51 7172.88 7309.53 7111.13 6912.74 6714.34 6515.94 6317.55 6119.15 5920.75 5722.36 5523.96 5325.56 5127.17 4928.77

3 Secured Loans:

Term Loans 10274.71

9381.26 8487.8 7594.35 6700.9 5807.45 4913.99 4020.54 3127.09 2233.63 1340.18 446.73 0 0 0 0 0 0 0 0 0 0 0 0 0

Working Capital Loans 800.92 818.37 836.76 856.15 876.58 898.12 920.82 944.76 969.99 996.58 1024.58 1054.17 1085.33 1118.18 1152.81 1189.33 1227.83 1268.42 1311.21 1356.34 1403.92 1454.09 1506.99 1562.78 1621.61

TOTAL: 14107.07

14004.7 13927.43 13636.75 13347.1 13058.56 12771.18 12485.04 12200.2 11916.7 11634.63 11354.14 11075.22 10909.67 10745.91 10584.03 10424.13 10266.33 10110.72 9957.45 9806.64 9658.41 9512.91 9370.31 9230.74

B ASSETS

1 Gross Block 13400.41

13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41

Less:Depreciation 470.9 941.8 1412.7 1883.6 2354.5 2825.4 3296.3 3767.2 4238.1 4709 5179.9 5650.8 6121.7 6592.6 7063.5 7534.4 8005.3 8476.2 8947.1 9418 9888.9 10359.8 10830.7 11301.6 11772.5

Net Block 12929.51

12458.61 11987.71 11516.81 11045.91 10575.01 10104.11 9633.21 9162.31 8691.41 8220.51 7749.61 7278.71 6807.81 6336.91 5866.01 5395.11 4924.21 4453.31 3982.41 3511.51 3040.61 2569.71 2098.81 1627.91

2 Net current Asseyts 1012.71 1028.63 1045.43 1063.14 1081.81 1101.5 1122.26 1144.16 1167.24 1191.59 1217.27 1244.35 1272.9 1303.02 1334.78 1368.29 1403.62 1440.89 1480.2 1521.66 1565.4 1611.54 1660.2 1711.54 1765.7

3 Cash & Bank Balancces 164.85 517.45 894.3 1056.8 1219.38 1382.05 1544.81 1707.67 1870.64 2033.7 2196.89 2360.19 2523.61 2798.84 3074.22 3349.73 3625.4 3901.22 4177.21 4453.38 4729.72 5006.26 5283 5559.96 5837.13

TOTAL: 14107.07

14004.69 13927.44 13636.75 13347.1 13058.56 12771.18 12485.04 12200.19 11916.7 11634.67 11354.15 11075.22 10909.67 10745.91 10584.03 10424.13 10266.32 10110.72 9957.45 9806.63 9658.41 9512.91 9370.31 9230.74

Reserves &Surplus:

Opening Balance 0 351.08 1124.71 1922.51 2505.89 3089.26 3672.63 4256.01 4839.38 5422.76 6006.13 6589.51 7172.88 7309.53 7111.13 6912.74 6714.34 6515.94 6317.55 6119.15 5920.75 5722.36 5523.96 5325.56 5127.17

Net Profit for theyear 351.08 773.63 797.8 797.8 797.8 797.8 797.8 797.8 797.8 797.8 797.8 797.8 351.08 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03

Total: 351.08 1124.71 1922.51 2720.31 3303.69 3887.06 4470.43 5053.81 5637.18 6220.56 6803.93 7387.31 7523.96 7325.56 7127.16 6928.77 6730.37 6531.97 6333.58 6135.18 5936.78 5738.39 5539.99 5341.59 5143.2

Less:Dividend Paid 0 0 0 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43

Closing Balance 351.08 1124.71 1922.51 2505.88 3089.26 3672.63 4256 4839.38 5422.75 6006.13 6589.5 7172.88 7309.53 7111.13 6912.73 6714.34 6515.94 6317.54 6119.15 5920.75 5722.35 5523.96 5325.56 5127.16 4928.77

ANNEXURE X1

Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Page 72 of 74

O&M 1 30.43

31.95

33.54

35.22

36.98

38.83

40.77

42.81

44.95

47.2 49.56

52.04

54.64

57.37

60.24

63.25

66.41

69.73

73.22

76.88

80.73

84.76

89 93.45

98.12

Coal Stock 1.5 166.96

175.31

184.07

193.28

202.94

213.09

223.74

234.93

246.67

259.01

271.96

285.56

299.83

314.83

330.57

347.1

364.45

382.67

401.81

421.9

442.99

465.14

488.4

512.32

538.46

Secondary Fuel stock 2 11.77

12.38

12.98

13.63

14.31

15.03

15.78

16.57

17.39

18.26

19.18

20.14

21.14

22.2 23.31

24.48

25.7 26.98

28.33

29.75

31.24

32.8 34.44

36.16

37.97

Receivables 2 717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

717.44

Spares 1% 116.53

123.52

130.93

138.79

147.12

155.94

165.3

175.22

185.73

196.87

208.69

221.21

234.48

248.55

263.46

279.27

296.03

313.79

332.62

352.57

373.73

396.15

419.92

445.12

471.82

Total WC 1043.13

1060.6

1078.96

1098.36

1118.79

1140.33

1163.03

1186.97

1212.18

1238.78

1266.83

1296.39

1327.53

1360.39

1395.02

1431.54

1470.03

1510.61

1553.42

1598.54

1646.13

1696.29

1749.2

1804.49

1863.8

TARIFFCAPACITY CHARGEDepreciation 446.

73869.

28869.

28869.

28869.

28869.

28869.

28869.

28869.

28869.

28869.

28869.

28446.

73111.

68111.

68111.

68111.

68111.

68111.

68111.

68111.

68111.

68111.

68111.

68111.

68Interest Payment on RTL 906.

57844.

87768.

93692.

99617.

04541.

09465.

16389.

21313.

27237.

32161.

3885.4

414.2

40 0 0 0 0 0 0 0 0 0 0 0

Interest on Working Capital 109.53

111.36

113.29

115.33

117.47

119.73

122.12

124.63

127.28

130.07

133.02

136.12

139.39

142.84

146.48

150.31

154.35

158.61

163.11

167.85

172.84

178.11

183.67

189.47

195.70

O&M Charges 1.22 365.1

383.36

402.52

422.65

443.78

465.97

489.27

513.73

539.42

566.39

594.71

624.44

655.67

688.45

722.87

759.02

796.97

836.82

878.66

922.59

968.72

1017.15

1068.01

1121.41

1177.5

Tax 32.26

71.08

73.3 106.14

106.14

106.14

106.14

106.14

106.14

106.14

106.14

106.14

65.09

233.79

244.69

253.24

259.98

265.35

269.65

273.12

275.94

278.26

280.18

281.78

283.12

ROE 0.14 375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

375.25

ENERGY CHARGEFuel Cost 895.

471335

.671402.5

1472.58

1546.21

1623.52

1704.69

1789.93

1879.42

1973.39

2072.06

2175.67

2284.45

2398.67

2518.61

2644.54

2776.76

2915.6

3061.38

3214.45

3375.17

3543.93

3721.13

3907.18

4102.54

4307.7

Secondary Fuel Cost 16.8 70.64

74.17

77.88

81.78

85.86

90.16

94.67

99.4 104.37

109.59

115.07

120.82

126.86

133.2

139.86

2146.86

154.2

161.91

170.01

178.51

187.43

196.8

206.64

216.97

227.82

Capacity Charge 1.17 1.39 1.37 1.36 1.33 1.31 1.28 1.26 1.23 1.21 1.18 1.16 0.89 0.81 0.84 0.86 0.89 0.91 0.94 0.97 1 1.02 1.06 1.09 1.12Energy Charge 0.74 0.77 0.81 0.85 0.89 0.94 0.99 1.03 1.09 1.14 1.2 1.26 1.32 1.39 1.46 1.53 1.6 1.68 1.77 1.86 1.95 2.05 2.15 2.26 2.37Net CERC Tariff 1.9 2.16 2.18 2.21 2.23 2.25 2.27 2.29 2.32 2.35 2.38 2.42 2.21 2.2 2.29 2.39 2.49 2.6 2.71 2.82 2.95 3.07 3.21 3.34 3.49

Levellised Tarif 12% 0.89 0.8 0.71 0.64 0.57 0.51 0.45 0.4 0.36 0.32 0.29 0.26 0.23 0.2 0.18 0.16 0.15 0.13 0.12 0.1 0.09 0.08 0.07 0.07 0.061.7 1.72 1.55 1.41 1.26 1.14 1.03 0.92 0.84 0.76 0.68 0.62 0.51 0.45 0.42 0.39 0.36 0.34 0.31 0.29 0.27 0.25 0.24 0.22 0.21

Levellised CERC Tariff (for 13 Years)

2.20

Levellised CERC Tariff(for 25 Years)

2.28

ANNEXURE XII

Page 73 of 74

Depreciation (By Company's Act)

A APPROPRIATION OF CONTINGENCIES ON FIXED ASSETS:

S.N PARTICULARS AMOUNT CONTINGENCIES COST

(RS. in Million) (RS. in Million)

1 Land 320.00 0.00 320.00

2 Plant and Machinery 10897.20 0.00 10897.20

3 Balance of Plant 1830.00 111.00 1941.00

4 Working Capital 242.21 0.00 242.21

TOTAL: 13289.41 111.00 13400.41

B COMPUTATION OF DEPRECIATION UNDER STRAIGHT LINE METHOD:

S.N PARTICULARS COST RATE AMOUNT

(Rs. in Crores)

Plant and Machinery & Building 13080.41 3.60% 470.90

TOTAL: 13080.41 470.90

Income Tax Dividend Tax

Base Rate 30% Base Rate 12.50%

Surcharge 10% Dividend distribution tax with surcharge & cess

14.03%

Cess 2%

Corporate tax with surcharge & cess 33.66%

MAT

Base rate 7.50%

MAT with surcharge & cess 8.42%

Page 74 of 74