SUMMER TRAINING PROJECT

POWER FINANCE CORPORATION

DVC THERMAL POWER PLANT

BOKARO

Presented by,

Ashwani kumar

(1205436)

BBA-5th

PROJECT ON THE TOPIC

‘’PROJECT APPRAISIAL AND FINANCIAL MODELLING

OF A THERMAL POWER PLANT’’

TABLE OF CONTENTS

INTRODUCTION

COMPANY PROFILE

OBJECTIVE AND SCOPE

PROJECT APPRAISAL & FINANCIAL

MODELLING

CASE STUDY

SWOT ANALYSIS

CONCLUSION & RECOMMENDATION

CHAPTER 1: INTRODUCTION

INDIAN POWER SECTOR

Electricity is one of the most vital infrastructure inputs

for economic development of a country.

At the time of independence in 1947, the country had

a power generating capacity of 1,362 MW. Prior to

independence the power sector was regulated by

“The Indian Electricity Act, 1910”

POWER SECTOR

REFORMS1. THE ELECTRICITY ACT 2003:

A REVOLUTION

2. NATIONAL ELECTRICITY POLICY

3. NATIONAL TARIFF POLICY

4. RURAL ELECTRIFICATION POLICY

CHAPTER 2: COMPANY PROFILE

1. BACKGROUND

PFC was established in July 1986 as a Development

Public Financial Institution (PFI) under Section 4A of the

Companies Act, 1956. It is dedicated to the Power Sector.

It is a wholly owned by Government of India

2. MISSION

PFC's mission is to excel as a pivotal developmental

financial institution in the power sector committed to the

integrated development of the power and associated

sectors by channelling the resources and providing

financial, technological and managerial services for

ensuring the development of economic, reliable and

efficient systems and institutions

OBJECTIVE OF PFC

To rise the resources from international and domestic

sources at the competitive rates and terms and

conditions and on-ward lend these funds on optimum

basis to the power projects in India.

To act as catalyst to bring institutional, managerial,

operational and financial improvement in the functioning

of the state power utilities

To assist state power sector in carrying out reforms and

to support the state power sector during transitional

period of reforms

CLIENTS OF PFC

State Electricity Boards

State Power Utilities

State Electricity/Power Departments

Other State Departments (like irrigation

Department) engaged in the development of the

power project

Central Power Utilities

Joint Sector Power Utilities and Co-operative

Societies

Municipal Bodies

Private Sector Power Utilities

FINANCIAL HIGHLIGHTS FOR THE YEAR 2011-12

Profit after Tax

Rs 3032 Crore

Loans and Grants Sanctioned

Rs 69024 Crore

Loans and Grants Disbursed

Rs 41418 Crore

Net Worth

Rs 19493 Crore

Reserves and Surplus

Rs 19388 Crore

No. of Employees

379

SWOT ANALYSIS

Strengths

Govt. of India’s undertaking.

Good quality management

Well established, long standing relations in the power industry Implementing agency for Mop’s schemes including AG &SP and APDRP Highest credit rating (due to government ownership)

Weaknesses

Poor asset quality with most of the lending to SEBs, whose loan repayment capabilities in the long run is doubtful.

Concentration risk attributed to lending in single sector

Opportunities

Power sector presents significant investment opportunities.

Providing investment gateways & consultancy for domestic and external financial agencies.

Having new business opportunities to cover the entire range of activities in the Power sector.

Threats

PFC has significant exposures entities which are loss making, financially weakan dare defaulting to most of their creditors. Delinquencies by these entities to PFC could impair the currently sound Balance Sheet of PFC.

With increasing exposure to SEB’s, their weak balance sheet may affect PFC’s creditworthiness.

OBJECTIVE AND SCOPE

OBJECTIVE OF THE PROJECT

The objective of the Project Report is:

1. Finding out the factors affecting a project’s capital

and operational expenditure which in turn have an

impact on the cash outlay and revenue flow of the

project and their study. Thus, performing Project

Appraisal of a 660 MW Coal Based Super-critical

Thermal Power Project.

2. A financial model of a 660 MW Coal Based Super-

critical Thermal Power Project so as to study the

effect of above factors on tariff and revenue flows.

SCOPE

Scope of project covers installation, commissioning,

operation and maintenance of 660 MW coal fired

Thermal Power Plant and associated systems.

Indian power sector wants to ramp up the installed

capacity to meet the growing demand. Large Power

Projects enjoy economics of scale and help in

lowering the tariff of supply.

APPRAISAL & FINANCIAL MODELLING

GUIDING PRINCIPAL FOR PROJECT APPRAISAL

AT PFC

1. ENTITY ELIGIBILITY CRITERIA

2. STATUTORY CLEARANCES

3. COST ESTIMATE

4. PROJECT COST-BENEFIT ANALYSIS

5. PROJECT ANALYSIS

FINANCIAL MODELING: A TOOL FOR

PROJECT APPRAISAL

1. STEPS TAKEN FOR DESIGNING A MODEL

Determining the scope of the project and the related EPC cost.

Determining other expenditure such as Development expense, Preliminary & Preoperative expenses, financial costs, etc.

Determine the total Cost of the project with interest during construction.

Assessment of tariff in order to determine revenue potential for the project.

Financial analysis to determine the most efficient means of financing.

2. PURPOSE AND USES OF FINANCIAL MODEL

Basic Project IRR

Debt service Coverage Ratios and other debt

ratios.

Establishing a financial structure that is sustainable

by the project.

An indication of tariff levels required for achieving

appropriate returns.

Preparation of sensitivity analysis

CASE STUDY

1 PROJECT PURPOSE AND SCOPE

PURPOSE

To bridge the nation’s energy deficit, both average

and peak load, by capacity addition of 660 MW by

setting-up Coal fired Thermal Power Project based on

super critical technology at Tamil Nadu, India.

SCOPE

Scope of this project covers installation, commissioning, operation and maintenance of 660 MW with Super critical & Pulverised Coal fired boiler and associated systems.

The Scope shall broadly cover:

660 MW power plant and associated systems.

Construction and commissioning of the Balance of Plants (BoP) required for efficient reliable and safe operation of the plant.

Construction of water intake system for the project site.

Transportation Arrangement for Coal to the Project site.

Power evacuation system including transmission lines.

Construction of facilitation infrastructure such as administration building.

2 PROJECT DETAILS

SNo

Geographic Items

Details

1

Location

Tamil Nadu State

2

Nearest Railway Station

Thoothukkudi

3

Road Approach

Madurai –Tiruchendur- Manapad

4

Altitude

+12 m above MSL

5

Nearest Airport

Thoothukkudi

6

Nearest Port

Thoothukkudi

7

Rainfall (Annual)

600 mm

8

Climatic Conditions

Tropical Climate

9

Latitude / Longitude

8o48’N / 78o10’E

10

Soil bearing capacity

25 T/M²

LAND

Specifications

Land area(Acres)

Plant area

260

Ash disposal

130

Colony

10

Green belt others

100

Others

100

Total

600

TECHNOLOGY

Thermodynamic cycle

Technical and performance parameters

Boiler Feed Pump

Condensate extraction pumps

Supercritical Boilers

Super critical steam turbine

TRANSPORTATION

Coal will be transported from the Indian Coal fields to the Paradeep Port by Rail and from the port to the Manappadu Port located near to the project site by ship. Coal unloaded from ship will be stored in a separate coal yard to be set up by prospective Coal sellers at Manappadu port and coal will be supplied at the plant boundary by conveyors. Calorific value of Indian F grade coal will be in the range of 3400 kcal/kg. Rail route already exists upto Tiruchendur. About 12 km of rail route from Tiruchendur to project site is under approval. For transportation of coal, the Company would enter into Coal Transportation Arrangement (CTA) with the Indian Railways.

INFRASTRUCTURAL REQUIREMENTS

Construction Power

The company has received approval for drawl of

construction power from nearby substation of Tamil Nadu

Power Distribution Company Ltd. (TNPDCL).

Construction Water

The total water requirement for the project is 2000 m3/day.

This water will be sourced from nearby desalination plant.

The requirement of construction water for potable and

service purposes will be met by the nearby desalination

plant located within the allotted land for the Project. The

Company has taken over the desalination plant along with

the auxiliary and paid about Rs. 50 Crore for the same.

PROJECT COST

COMPONENTS OF PROJECT COST

The Project is estimated to be set up at an aggregate

cost of Rs. 4251 Crore comprising of expenditure

towards Land, EPC Cost, Transmission Line, Coal

Transportation Arrangement, Water

Arrangement, Preliminary &

Preoperative Expenditure, Contingencies,

Interest During Construction Period and Margin

Money for Working Capital.

DEMAND AND SUPPLY

Inspite of 18,382 MW of installed capacity the state

of Tamil Nadu is struggling to fulfil its electricity

demand. The electricity demand in the State had

increased but the capacity of the generating

facilities had dropped due to inefficiencies resulting

in shortfall. Most of the districts in Tamil Nadu face

power cuts lasting over six hours. Between April

2012 and February 2013, the energy and peak

shortage of power in Tamil Nadu were 17.4 % and

12.3 % respectively of the demand.

COST BENEFIT ANALYSISNo. of units

1

Capacity per unit

660

MW

Total project capacity

660

MW

Without IDC

3595

Rs Crore

IDC

656

Rs Crore

With IDC

4251

Rs Crore

Equity (25%)

1062.80

Rs Crore

Debt (75%)

3188.40

Rs Crore

Upfront Equity (51.5%)

547.34

Rs Crore

Interest Rate pre COD

13.25%

p.a.

Interest rate post COD

13.25%

p.a.

Working Capital

13%

p.a.

Repayment Period

12

Years

Moratorium Period

6

Months

Principle Repayment Start Date

01-Jul-14

Date

Principle Repayment End Date

01-Jan-26

Date

Interest Repayment Start Date

01-Jan-14

Date

Interest Repayment End Date

01-Jan-26

Date

MOU with PTC (including all units)

% of total capacity

70%

PPA Tariff

As per CERC

based tariff

Rs/unit

No. of years

25

years

Selling through Merchant Basis (including all

units)

% of total capacity

30%

PPA Tariff

3.5

Rs/unit

No. of years

25

years

Escalation per year

5%

Corporate Tax

33.99%

MAT

20.96%

GSHR

2392

kCal/kwh

Auxiliary Consumption

7%

%

Plant Load Factor

85%

%

O&M Escalation

5.72%

%

O&M Expense

0.155

crore/MW

Fuel Price

900

Rs/tonne Price Escalation

5%

p.a.

Gross Calorific Value

3400

kCal/kg

Secondary Fuel Price

50

Rs/kg

Gross Calorific Value

10280

kCal/kg

Secondary Fuel Consumption

1

ml/kwh

Specific Gravity value of Secondary Fuel

0.95

Price Escalation

4%

p.a.

Transportation & Handling Charges

Escalation

Coal Stock

2

Months

Secondary Fuel

2

Months

O&M Expenses

1

Month

Maintenance Spares (20% of O&M Expense)

1

Year

Receivables from Energy Sales

2

Months

Rate For Tariff Calculation

5.28%

Land

0%

Civil Works & Building

3.34%

Plant & Machinery

5.28%

Max Depreciable Value

90%

Machinery

15%

Building

10%

Discount Rate

13.10%

% Return on Equity

15.50%

%

Return on Equity pre tax (first 12 years)

19.38%

%

Return on Equity pre tax (last 13 years)

22.95%

%

Project Life

25

years

Total units generated

4914.36

MU

SWOT ANALYSIS

STRENGTH

The Project has long term fuel supply agreement

with Coal India Limited of Coal for use in the

Project.

The Project is located in severe power shortage

region. State itself has been facing severe power

shortage and the power deficit is likely to continue

in short and medium term.

The Company has already acquired 600 Ha land

which is adequate for the main power plant block.

The work on site may start immediately without any

delay.

WEAKNESS

Company shall be selling 30% of power on Merchant

Basis and may get lower return than the levelised

cost of generation.

Environment and Forest Clearances still to be

obtained.

OPPORTUNITY

The Electricity Act 2003 and subsequent National Electricity Policy and Tariff Policy have opened up several opportunities for the power sector. The Act allows the IPPs and captive power producers open access to transmission system

With the advent of the era of competitive bidding for tariff for procurement of power, the new capacities would not be subject to regulated tariff and regulated return of equity and thus provide investment opportunities to Developers in the power sector where returns would be market determined.

THREATS

A part of power generated will be sold on Merchant

basis and may get lower return than the levelised

cost of generation.

Fuel supply agreement with Coal India Limited may

result in delay

CONCLUSION

Company has proposed to set-up 660 MW Coal

fired Thermal Power Project based on Super

Critical Technology. State Government has

supported this Project and has issued letter of

support to provide all kind of administrative support

required.

The Proposed Project will be implemented by way

of a turnkey Engineering, Procurement and

Construction (EPC) contract to be awarded on

Competitive Bidding Process

RECOMMENDATIONS

To minimize the risk, the extent of financing to a

single project should be proportionate; it will also

affect the exposure limit for borrower or utilities and

chance to fund in more projects rather in some.

With the deficit of electricity in our country, there is

need of many projects and the exposure limit

should be increased to effectively assist the new

projects. The exposure limit of some utility is going

to reached, which resist PFC to fund