Appraisal & Evaluation of a Project –

Case Study on Appraisal of Project by Power

Finance Corporation for
Amarkantak 300 MW Thermal Power Project

Rakesh Shroff
DPGD/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 - Introduction
A.1 Appraisal Vs. evaluation 9
A.2 Agencies for Appraisal 10
A.3 Basic Parameters for Appraisal 10
A.4 General & Miscellaneous Appraisal Parameters 13
A.5 Advanced Investment Appraisal Parameters 14
A.6 Need for Investment Analysis in Power Sector 16
B Power Finance Corporation
B.1 Introduction to PFC 18
B.2 Business Environment / Strategies 19
B.3 Appraisal System 22
C Project Appraisal Procedure at PFC
C.1 Profile of Project Division of PFC 26
C.2 Preliminary Appraisal 27
C.3 Detailed Appraisal 31
C.4 Appraisal Process 34
D Objective of Case Study
D.1 Entity Details 38
D.2 Project Details 39
D.3 Environnemental Analysis 44
D.4 Managerial Analysis 46
D.5 Clearances & Approvals 48
D.6 Financial & Economic Analysis 50
D.7 Project Risk 53
D.8 Sensitivity Analysis 55
D.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

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  Capital cost
 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

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

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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.
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

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  Financial
 Managerial
 Business & Marketing
 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.

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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
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

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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:
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.

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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.
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.

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  Fund based - Term Loan, Bridge Loan, Lease Finance, Supplier’s Credit, Bill
Discounting & Re-Discounting, Bonds, Debentures, Equity & Preference Shares,
Working Capital Loan.
 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.

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 - Tehri Hydro Development Corp. Ltd.
- Power Grid
- NEEPCO
 Major State Electricity Boards
- 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

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 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
 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 on- going generation projects, missing- transmission links and system improvement.
Efforts are directed towards the maximum utilization of the capacity already created

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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.

 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

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  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

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.

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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
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.

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 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
 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

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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.

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

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  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.

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.

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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.

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

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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-
 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

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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.
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.

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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.
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.’

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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 &
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.

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 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
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

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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
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;

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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
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, 2001
Name of the Promoters: ABC Group
Name of the Directors: Mr. L. Madhusudan Rao
Mr.G.Bhaskara Rao

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 Mr. K. Raja Gopal-CEO
Project Details:
Project Cost Rs.1340crore
Project Size 300MW
Equity proposed Rs.268crore

Source of Finance

Equity Share Capital

Promoter’s 268.00crore
Collaborators etc. -
Public -
Total equity 268.00 crores 20%

Debt
Foreign currency loan -
Rupee loan
PFC(senior debt A&B) 469
Other banks and FIs9yet to be tied up) 603
Total Debt 1072.00 crores80%

Promoter and their Background

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

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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 Scope
The 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)
 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:

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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:

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: 825TPH
Steam pressure at super heater outlet: 176 Kg/cm2 (g)
Steam temp at super heater outlet: 540+_50C
Turbine maximum continuous rating: 300MW
Turbine RPM: 3000

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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

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.

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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/NM 3.100% 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/NM 3 (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
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

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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
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.

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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
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/NM 3.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:

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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

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

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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
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

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 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/Remarks

1 TEC for the CEA Not Required
project from
CEA
2 State Govt GoC Not Required
Clearance
3 SEB clearance Not Required
4 Land CSIDC 200 acres of land is proposed to be
availability acquired for Unit-II. The company has
informed that it has been identified the land
required for Unit-II
5 Water State Govt of The Chhattisgarh Govt has already allotted
availability Chhattisgarh 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 Chhattisgarh Consent to establish obtained vide letter
clearance for environment with some number and date
water and air conservation
board
7 Environment Ministry of NOC obtained from Chhattisgarh
clearance environment & environment conservation board for
forests obtaining environment clearance
8 Civil aviation Airport Obtained vide letter
clearance for authority of
chimney height India
9 Registration of Registrar of the Company name changes with date
the company companies mentioned
under section
15(A)
10 Rehabilitation Ministry of Not applicable

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 & resettlement E&F
of displaced
families by land
acquisition

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 PTC The PPA for sale of entire power generated
agreement 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 project
5 FSA To be signed Signed with unit-I with SECF proposed to
be signed with SECL for unit-II
6 Fuel NA Separate agreement not required
transportation

Project Techno-Economic consideration

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

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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
ABC group, Associates & strategic partners

Term LOAN 10721.30 80

PFC 4300
Others 6421
Total 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
320.00
environmental
EPC contract 10050.00
NON-EPC balance of plant 720.00
Design, engineering & construction
125.00
supervision
Tools & plants 20.00

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 Pre operative & establishment charges 160.00
Preliminary expenses 25.00
Training of O&M staff 12.00
Startup fuel 110.00
Physical contingencies 111.00
Margin money for WC 242.21
Upfront fees 65.00
Finance charges 52.00
IDC 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 Total
1st 67 56 123
2nd 0 72 72
3rd 0 62 62
4th 0 51 51
5th 19 104 123
6th 25 100 125
7th 25 102 127
8th 26 103 129
9th 38 152 190
10th 22 89 111
11th 16 62 78
12th 16 63 79
13th 14 56 70
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%.

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  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
power from Unit-I. The key financial indicators of the project in the base model are as
follows:
INDICATOR Value Unit
1st full year tariff on CERC 2.16 Rs. per Unit
norm
Levelized tariff on CERC 2.20 Rs. per Unit
norm (13 years, 12%
discount )
Levelized tariff on CERC 2.28 Rs. per Unit
norm (25 years, 12%
discount)
Average DSCR 1.29 Ratio
Min DSCR 1.20 Ratio
Project IRR (pretax, 25 11.7% Percent
years)

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

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D.7 PROJECT RISK

LENDERS ENGINEERS
The 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 COUNSEL
ABCL 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

(1) Pre-Construction delay
Finalization of key contracts
Approval/consents/permits
Mechanism
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
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
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

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 consideration of the Ministry of
Coal, Govt of India.
(2) Construction Risk
Land 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 ABCL, EPC contractor Fixed price fixed time EPC
escalation contract is envisaged .A
contingency provision has also
been made.
Inability to perform under EPC contractor Penalties /liquidated damages for
package contract delay in completion or shortfall in
performance shall be envisaged
for unit-II on similar lines of
Unit-I
Construction of evacuation ABCL, PGCIL PGCIL will finalize the scheme
facility of transmission after conducting
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 Risk
Fuel risk: Non availability SECL, ABCL Long-term coal linkage proposed
of fuel in the right quantity, for both the projects. FSA to be
of right quality and at the signed with SECL
right time
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 EPC contractor Liquidated damages payable by
performance the EPC contractor for lower

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 installed capacity
Increase in heat Heat rate and auxiliary
rate/auxiliary consumption consumption are to be guaranteed
by the EPC contractor
O&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 A suitable condition is being

contractor 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
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%

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Sensitivity analysis has been carried out on the basis of the following assumptions

Scenario Project cost (in Tariff (in Rs/Unit) Project IRR Average
Rs crores) for 25 years DSCR
1st full Levelized (pre tax)
year tariff tariff (13
years)
Base case 1340 2.16 2.20 11.64% 1.29
Increase in 1,368 2.27 2.28 12.94% 1.25
interest rate by
10%
Increase in 1472 2.27 2.30 11.38% 1.23
capital cost by
10%
Yearly 1340 2.19 2.27 10.17% 1.22
escalation in
coal cost by 6%
from base year
(2005-06)

(*** 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

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:

- 56 -
 S.No Tariff year Capped Tariff Rate
(Rs/Unit)
1 1-12 2.25
2 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-05
Commencement of construction 1-Apr-06
Construction period project 36 months
COD of the project 31-Mar-09

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.

- 57 -
 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.

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

- 58 -
 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.

- 59 -
 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
www.indiapoweronline.com
www.crisil.com
www.tatapower.com

- 60 -
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

- 61 -
ANNEXURE-I

LIST OF ABBREVIATIONS
ABCL ABC limited
AG&SP Accelerated Generation & Supply Programme
APDRP Accelerated Power Development & Reform Programme
CEA Central Electricity Authority
CERC Central Electricity Regulatory Commission
CMD Chairman & Managing director
CS Company Secretariat
DPR Detailed Project Report
DSCR Debt Service Coverage Ratio
EAP Externally Aided Projects
EA-IPP Entity Appraisal-Independent Power Projects
ED Executive Director
EIA Environmental Impact Assessment
EIRR Economic Internal Rate of Return
EPC Engineering Procurement & Construction
F&FO Finance & Financial Operations
FI Financial Institution
FIRR Financial Internal Rate of Return
FSA Fuel Supply Agreement
FTA Fuel Transport Agreement
IAD Institutional Appraisal & Development
IDC Interest During Construction
IRR Internal Rate of Return
MoEF Ministry of Environment & Forest
MoPNG Ministry of Petroleum & Natural Gas
MW Mega Watt
NoC No Objection Certificate
OPS Operational & Policy Statements
O&M Operations & Maintenance
P&C Policy & Concurrence
PA-IPP Projects Appraisal-Independent Power Projects
PEAR Preliminary Entity Appraisal Report
PFC Power Finance Corporation
PPA Power Purchase Agreement
PPAR Preliminary Project Appraisal Report
R&M Renovation & Modernization
SEB State Electricity Board
SERC State Electricity Regulatory Commission
SPCB State Pollution Control Board
SPV Special Purpose Vehicle
XYZL XYZ Limited

- 62 -
 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

- 63 -
ANNEXURE-III

- 64 -
- 65 -
 ANNEXURE-IV

Core Processes of Projects Division and their sequence

Support Process

Core Processes of Projects Division

Annual Action Plan Marketing & Identification of Scheme

Receipt of Proposal for sanction of financial

Coordination with P&C assistance, preliminary scrutiny, In-principle IAD
CEA,MoP sanction & short-listing of Loan proposal for

Coordination with Preparation of Agenda Note-cum-Appraisal

External Funding P&C report for approval o competent Authority for IAD
Agencies sanction of Financial assistance

Sanction by Competent Authority

Training

Issue of Letter intimating financial sanction

Facili
tating
financ
ial
Tie-
Facilitating Execution of Documents
Up L&D

P&C
Project Review and Facilitating
Monitoring Disbursement LD &R
IAD

Project Completion Activities

Borrower

- 66 -
 ANNEXURE-V
Main Assumptions
FINANCIAL ASSUMPTIONS IN MILLIONS
Installed capacity 300 MW
Estimated Project cost 13400.41 Rs.Mn
Debt 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 close
commencement of construction 31-Mar-05
construction period project 1-Apr-06
COD of the project 36 months
31-Mar-09

PPA & other operational

assumptions
Term of the PPA
FUEL CHARACTERISTICS 25 years from COD of the project
Normal
Station heat rate Stabilization Operation
Auxillary Consumption Kcal/KWH 2600 2500
oil consumption % 9% 8.50%
calarofic value of coal per kg ml/KWH 4.5 2
CV of oil per kg 3500 Kcal
Delivered cost of coal per kg 10200 Kcal
Delivered cost of oil (HFO) per ltr 0.75 Rs
Delivered 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.Mn
ROE 365.1 Rs.Mn
Cost of Coal 14% %
Upfront equity 885 Rs/MT
working Capital Norms 25%
Primary fuel cost
primary fuel stock 1 month
Secondary Fuel furnace oil 0.5 month
O & M and Insurance Expenses 2 months
Debtors 1 month
Spares 2 months
Working Capital Interest 1% % 6% from 2nd year
13% %

Operational Details %
Exchange rate at COD
Rupee Depreciation against US $ per 46 Rs / $

- 67 -
annum
Secondary fuel 3% % from 2nd year
Coal Escalation 5% % from 2nd year
O & M Escalation 3% %
Spares escalation 4% % from 2nd year
6% %
Long Term Loan Repayment
Schedule
Rupee Loan repayment
Moratorium 48 quarters
Dollar loan repayment 2 quarters
Moratorium 48 quarters
Installments per year 2 quarters
Repayment period 4 quarters
12 years
Interest on Term Loans
Rupee Loan Interest
Forex Loan Interest 8.50%
Upfront fees for Rupee Loan 7.00%
Upfront Fee for USD Loan 1%
1%
Electricity Duties,cess, Royalty etc
Electricity Duty on Export of units
Cess on Export of units 0.02 Rs
0.01 Rs
Duty on Auxillary consumption
HT unit rate 8%
Duty on Auxillary consumption 3.5 Rs
0.28 Rs
Depreciation Rates
Equipment (WDV)
Buildings(WDV) 25%
land & site development 10%
4.00%
Income tax rate
Basic rate
Surcharge 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%

- 68 -
CAPACITY 300 MW Cost Escalation 0% ANNEXURE VI
Capital Cost 11653 Rs.Mn Financing Charges
Working Capital 242.21 Rs.Mn Arranger fee 4500 0.90% 40.5
Margin
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 0 0 0 0 0 0 0 0 0 0 0 0 0
Equity

Page 69 of 75
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 70 of 75
S.N 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
O
A Sources of Funds
Equity 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 0
Profit Before Taxes 383.34 844.71 871.11 903.94 903.9 903.96 903.94 903.95 903.94 903.95 903.94 903.94 416.17 249.8 260.7 269.2 276.0 281.3 285.6 289.1 291.9 294.3 295.8 306.8 299.1
5 3 2 7 2 8 8 4 8 0 0 6 6
Book Depreciation 470.90 470.90 470.90 470.90 470.9 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.9 470.9 470.9 470.9 470.9 470.9 470.9 470.9 470.9 470.9 470.9 470.9
0 0 0 0 0 0 0 0 0 0 0 0 0

Term Loans 10721.4 0 0 0 0 0 0 0 0 0 0

4
WorkingCapital 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
Borrowings
Total Inflow: 15056.9 1333.0 1360.4 1394.2 1395. 1396.4 1397.5 1398.7 1400.0 1401.4 1402.8 1404.4 918.23 753.5 766.2 776.6 785.4 792.8 799.3 805.1 810.4 815.3 819.6 833.5 828.8
6 6 0 3 28 0 4 8 7 4 8 0 8 5 8 2 7 8 7 6 7 0 5 9

B Application of Funds
Capital Expenditure 13400.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
1
Increase in Current 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
assets
Repayment of Term 446.73 893.44 893.44 893.44 893.4 893.44 893.44 893.44 893.44 893.44 893.44 893.44 446.72 0 0 0 0 0 0 0 0 0 0 0 0
Loans 4
Income Tax 32.26 71.08 73.3 106.14 106.1 106.14 106.14 106.14 106.14 106.14 106.14 106.14 65.09 233.7 244.6 253.2 260 265.4 269.7 273.1 275.9 278.2 280.1 281.7 283.1
4 9 9 2 4 6 8 8 2
Dividends 0 0 0 214.43 214.4 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.4 214.4 214.4 214.4 214.4 214.4 214.4 214.4 214.4 214.4 214.4 214.4
3 3 3 3 3 3 3 3 3
Total Outflow: 14892.1 980.45 983.53 1231.7 1232. 1233.7 1234.8 1235.9 1237.1 1238.3 1239.7 1241.0 754.8 478.3 490.8 501.2 509.7 517.1 523.4 529.0 534.1 538.8 543.2 547.5 551.7
1 7 6 9 4 8 1 1 3 8 5 1

C Excess/Shortfall 164.85 352.61 376.87 162.51 162.6 162.70 162.77 162.88 162.97 163.08 163.19 163.31 163.43 275.2 275.3 275.5 275.6 275.8 275.9 276.1 276.3 276.5 276.3 286.0 277.1
0 4 7 1 8 2 9 6 5 4 2 0 8

D Opening Balance 0 164.85 517.45 894.3 1056. 1219.4 1382.1 1544.8 1707.7 1870.6 2033.7 2196.8 2360.2 2523. 2798. 3074 3350 3625 3901 4177. 4453. 4729. 5006. 5283 5560
8 4 9 6 8 2 4 7 3

E Closing Balance 164.85 517.45 894.3 1056.8 1219. 1382.1 1544.8 1707.7 1870.6 2033.7 2196.9 2360.1 2523.6 2798. 3074. 3350 3625 3901 4177 4453. 4729. 5006. 5283 5560 5837.
4 9 8 2 4 7 3 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 71 of 75
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 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
power)
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 1406.31 1476.63 1550.46 1627.98 1709.38 1794.85 1884.59 1978.82 2077.76 2181.65 2290.73 2405.27 2525.53 2651.81 2784.4 2923.62 3069.8 3223.29 3384.45 3553.68 3731.36 3917.93 4113.83 4310.52 4535.49
O&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 1017.15 1068.01 1121.41 1177.48
Interest on 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
Loan
Interest on 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
Working Capital
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 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
Expenditure

Profit Before 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
Tax
Provisions for Taxes(incluidng MAT,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
saved on accountof depreciation from
other projects)

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 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
Profit

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 - - - 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
2975.19 4661.2 4320.76
CASH - - - 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
FLOWS(pre 2975.19 4661.2 4320.76
tax)
Projected 9.17%
IRR(for 13
years)
Projected 10.43%
IRR(for 25
years)
Project 12%
IRR(Pre tax,25
years)
Project 10%
IRR(Pre tax,13
years)

ANNEXURE X

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

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 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 10274.7 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
1
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: 14107.0 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
7

B ASSETS

1 Gross Block 13400.4 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 13400.4
1 1
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 12929.5 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
1
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: 14107.0 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
7

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
O&M 1 30.4 31.9 33.5 35.2 36.9 38.8 40.7 42.8 44.9 47.2 49.5 52.0 54.6 57.3 60.2 63.2 66.4 69.7 73.2 76.8 80.7 84.7 89 93.4 98.1
3 5 4 2 8 3 7 1 5 6 4 4 7 4 5 1 3 2 8 3 6 5 2
Coal Stock 1.5 166. 175. 184. 193. 202. 213. 223. 234. 246. 259. 271. 285. 299. 314. 330. 347. 364. 382. 401. 421. 442. 465. 488. 512. 538.

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 96 31 07 28 94 09 74 93 67 01 96 56 83 83 57 1 45 67 81 9 99 14 4 32 46
Secondary Fuel stock 2 11.7 12.3 12.9 13.6 14.3 15.0 15.7 16.5 17.3 18.2 19.1 20.1 21.1 22.2 23.3 24.4 25.7 26.9 28.3 29.7 31.2 32.8 34.4 36.1 37.9
7 8 8 3 1 3 8 7 9 6 8 4 4 1 8 8 3 5 4 4 6 7
Receivables 2 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717. 717.
44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44
Spares 1% 116. 123. 130. 138. 147. 155. 165. 175. 185. 196. 208. 221. 234. 248. 263. 279. 296. 313. 332. 352. 373. 396. 419. 445. 471.
53 52 93 79 12 94 3 22 73 87 69 21 48 55 46 27 03 79 62 57 73 15 92 12 82
Total WC 1043 106 1078 1098 1118 1140 1163 1186 1212 1238 1266 1296 1327 1360 1395 1431 1470 1510 1553 1598 1646 1696 1749 1804 186
.13 0.6 .96 .36 .79 .33 .03 .97 .18 .78 .83 .39 .53 .39 .02 .54 .03 .61 .42 .54 .13 .29 .2 .49 3.8

TARIFF
CAPACITY CHARGE
Depreciation 446. 869. 869. 869. 869. 869. 869. 869. 869. 869. 869. 869. 446. 111. 111. 111. 111. 111. 111. 111. 111. 111. 111. 111. 111.
73 28 28 28 28 28 28 28 28 28 28 28 73 68 68 68 68 68 68 68 68 68 68 68 68
Interest Payment on RTL 906. 844. 768. 692. 617. 541. 465. 389. 313. 237. 161. 85.4 14.2 0 0 0 0 0 0 0 0 0 0 0 0
57 87 93 99 04 09 16 21 27 32 38 4 4
Interest on Working Capital 109. 111. 113. 115. 117. 119. 122. 124. 127. 130. 133. 136. 139. 142. 146. 150. 154. 158. 163. 167. 172. 178. 183. 189. 195.
53 36 29 33 47 73 12 63 28 07 02 12 39 84 48 31 35 61 11 85 84 11 67 47 70
O&M Charges 1.22 365. 383. 402. 422. 443. 465. 489. 513. 539. 566. 594. 624. 655. 688. 722. 759. 796. 836. 878. 922. 968. 1017 1068 1121 117
1 36 52 65 78 97 27 73 42 39 71 44 67 45 87 02 97 82 66 59 72 .15 .01 .41 7.5
Tax 32.2 71.0 73.3 106. 106. 106. 106. 106. 106. 106. 106. 106. 65.0 233. 244. 253. 259. 265. 269. 273. 275. 278. 280. 281. 283.
6 8 14 14 14 14 14 14 14 14 14 9 79 69 24 98 35 65 12 94 26 18 78 12
ROE 0.14 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375. 375.
25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25

ENERGY CHARGE
Fuel Cost 895. 1335 140 1472 1546 1623 1704 1789 1879 1973 2072 2175 2284 2398 2518 2644 2776 2915 3061 3214 3375 3543 3721 3907 4102 430
47 .67 2.5 .58 .21 .52 .69 .93 .42 .39 .06 .67 .45 .67 .61 .54 .76 .6 .38 .45 .17 .93 .13 .18 .54 7.7
Secondary Fuel Cost 16.8 70.6 74.1 77.8 81.7 85.8 90.1 94.6 99.4 104. 109. 115. 120. 126. 133. 139. 2146 154. 161. 170. 178. 187. 196. 206. 216. 227.
4 7 8 8 6 6 7 37 59 07 82 86 2 86 .86 2 91 01 51 43 8 64 97 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 1.12
Energy 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 2.37
Net 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 0.06
1.7 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 2.20
Tariff (for 13 Years)
Levellised CERC 2.28
Tariff(for 25 Years)

ANNEXURE XII

Depreciation (By Company's Act)

A APPROPRIATION OF CONTINGENCIES ON FIXED ASSETS:

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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 14.03%
surcharge & cess
Cess 2%
Corporate tax with surcharge & cess 33.66%

MAT
Base rate 7.50%
MAT with surcharge & cess 8.42%

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