Appraisal & Evaluation of a Project Case Study on Appraisal of Project by Power Finance Corporation for Amarkantak 300 MW Thermal

l 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 projects 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 background of the project and the promoters tells us about the ability to handle project efficiently.

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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 %.

This projects which are finally selected for funding should have the following attributes. The benefits from the project should be realizable and deliverable.

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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.

A.1 A.2 A.3 A.4 A.5 A.6

Description Title Page Acknowledgement Executive Summary Table of Contents Objective of the Project Project Appraisal - Introduction Appraisal Vs. evaluation Agencies for Appraisal Basic Parameters for Appraisal General & Miscellaneous Appraisal Parameters Advanced Investment Appraisal Parameters Need for Investment Analysis in Power Sector Power Finance Corporation Introduction to PFC Business Environment / Strategies Appraisal System Project Appraisal Procedure at PFC Profile of Project Division of PFC Preliminary Appraisal Detailed Appraisal Appraisal Process Objective of Case Study Entity Details Project Details Environnemental Analysis Managerial Analysis Clearances & Approvals Financial & Economic Analysis Project Risk Sensitivity Analysis Marketing & Selling Agreement Conclusion Recommendations Limitations ANNEXURES

Page No. 1 2 3 6 7 9 10 10 13 14 16 18 19 22 26 27 31 34 38 39 44 46 48 50 53 55 56 58 58 59 61

B
B.1 B.2 B.3 C C.1 C.2 C.3 C.4 D D.1 D.2 D.3 D.4 D.5 D.6 D.7 D.8 D.9

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OBJECTIVE OF THE PROJECT To analyze and perform a Project Appraisal of the proposed Project and to check 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. whether the proposal is worth investing.

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, The EIRR is calculated by applying a economic conversion factor and the

Levelised Tariff and the Project Cost 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

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performed on these elements, a thorough analysis of changes in interest rate was also considered. 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 Books and journals from PFCs data bank Thermal power projects Internet National daily

SECONDARY DATA: Secondary data consists of

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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 projects 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 reject. Appraisal is a first and starting examination while evaluation is the second stage in the total process of appraisal & evaluation. -9Appraisal is an independent examination of facts whereas evaluation is a In the appraisal, facts are bought out in the process of examination, while comparative study and thereafter a conclusion. these facts are further compared with the alternatives available for either to accept or

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Appraisal gives the fact, evaluation gives conclusion.

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: A.3 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 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 knowhow 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 decisionmaking 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 ones 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.

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Some projects like, rail, road, infrastructure are of essential nature and need not be analyzed on cost-benefit analysis.

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 customers 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. A.5 Tax impact due to financing mix of project i.e. more equity or more debt. 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 - 14 -

improvement, capacity addition, replacements as well as statuary requirements including pollution control. While there is compulsion for capital investments in various projects for the survival of the organization, availability of fund is at the same time very scarce. 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:

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Organisational 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

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investment analysis is done at the state level, involves calculation of long range marginal cost, which in turn is us3ed in the calculation of economic internal rate of return. Long-range marginal cost is the incremental cost incurred for supply of an additional unit of power to the consumer at system peak and has been derived from the principles of marginal cost. It represents the additional resources-fixed and variable, required to be 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 B.1

POWER FINANCE CORPORATION 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 - 18 -

its financial, technical and managerial services. PFC also has a role in guiding and encouraging balanced, economical and efficient growth of power sector by contributing to the power sector reforms, policy and regulatory framework. The main objectives of PFC as specified in its Memorandum of Association are: 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 interestrestructuring 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, Suppliers 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, Lenders 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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 B.3

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. Appraisal System

Over the years, PFC has developed its core competence in appraisal and financing of various types of power projects. The Project Appraisal System of the Corporation has been accredited with ISO 9001: 2000 certification. B.3.1 Credible Security Mechanism Guarantees and Security: State/Central Govt. guarantee/Bank Guarantee/Charge on Assets; Escrow Account/Letter of Credit; In case of state power utilities, the Corporation will require from State Governments an undertaking that PFC will have priority claim on the State Utility's surplus revenue over - 22 -

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 Establishing trust and retention mechanism so that all the proceeds of the project Charge on revenues Any other guarantee acceptable to the corporation.

Corporation are utilized in a manner decided by PFC

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 corporations policy. The utilities should have achieved a minimum Rate of Return on net fixed assets Should not be in default to PFC. State Power Utilities not meeting the parameters as given above may also be

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

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 19992000 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 Technically sound and feasible and provide optimal cost solutions for the selected Compatible with integrated power development and expansion plans of the Comply with environmental guidelines, standards and conditions. Obtained the required clearances. All inputs required for the implementation and operation of the projects are tied In case of environmental up gradation, meter installation, load dispatch, less than 12% (as may be applicable). alternative. State/Region/Country.

up and proper procurement and implementation plans have been drawn up. 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 Pacs 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 divisionsProjects- 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. - 26 -

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.

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5) Copy of PPAR & PEAR is forwarded to P&C unit and PPAR to EA-IPP. P&C Unit examines various aspects of the proposals from the policy angle. 6) Task Force Meeting is convened by Unit Head: Projects-IPP and nominated officer from PA-IPP, EA-IPP and P&C Unit participate in the meeting. 7) The proposal of the borrower is discussed in the Task Force Meeting and based on the strength and weakness of the proposal; a considered view is taken on the proposal to give recommendations to Screening Committee of Directors of PFC. 8) Record notes of Task Force Meeting is prepared by Project Appraisal Officer and is countersigned by all the participants of the meeting clearly mentioning the decision of the Task Force Meeting on the proposal of the borrower. 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.

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In cases, where Screening Committee has approved PFC to act as Lead FI, the in-principle consent to act as Lead FI for the project is issued to the Borrower along with the intimation of short-listing of the proposal for detailed appraisal. Before issuance of such letter, the Borrower is asked to submit the requisite Lead FI fee, as per policy of PFC. Detailed appraisal of the project starts after short-listing the loan proposal by the Screening Committee. C.3 DETAILED APPRAISAL (FOR STATE AND PRIVATE SECTOR

GENERATION PROJECTS) Before start of the detailed appraisal of the project, the following information (if not made available by the borrower at the time of preliminary scrutiny) is sought from the borrower: 1) Detailed scope of the project (detailed lay out, identified works & activities). 2) Need and Justification, as necessary broadly covering the following aspects in respect to the following 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

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Fuel requirement and its linkage / Geological survey report Nearest rail & road linkage Construction water and power requirement & its linkage

6) Proposed arrangements for Operation & Maintenance or copy of final/draft O&M contract envisaged, if any for ensuring sustained benefit from the project on long-term basis. The final / draft O&M contract submitted by the borrower is reviewed with reference to the relevant checklist as applicable from time to time. 7) Copies of all statutory & non-statutory clearances obtained and status of the clearances yet to be obtained. Proposed action/action being taken on specific observations/ comments made by the statutory authorities on the clearances obtained. The statutory / non-statutory clearance submitted by the borrower is reviewed with reference to the relevant checklist as applicable from time to time. 8) DemandSupply 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 - 32 -

the schedule. If the project is already under implementation, the progress of major work areas vis--vis the schedule to be indicated with likely dates of completion/commissioning. 15) Detailed cost break-up including cost of the project, package wise cost details, miscellaneous assets, preoperative expenses, administrative and financial expenses, margin money for working capital, IDC & its calculation, provision for contingency in case of physical variation in estimates, price escalation in local & foreign components and affect of foreign exchange variation etc. wherever applicable. Basis of cost estimates & price level. 16) Proposed financing plan both in terms of equity & debt, their sources and yearwise/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 demandsupply position in the state as well as the incremental cost of power from the project vis--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)

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 Information regarding approval of power evacuation plan by Transco/any other agency involved for Power Evacuation. Application status of various Statutory Clearances like Pollution Control Board, Environment Clearance from MoEF, NoC from Airport Authority In case of syndication/consortium financing where PFC is not the Lead FI, the appraisal is generally finalized after review of appraisal report of the Lead Bank/FI. C.4 APPRAISAL PROCESS 1) Detailed analysis of project documents/information furnished by the borrower is carried out to assess the overall technical, financial and economic viability of the project. 2) Site visit by PFC team comprising of Appraising Officer and other Officers as necessary, is undertaken during this period for on the spot assessment of the status & preparedness for implementation of the project, review of various inputs like fuel, water, type of land etc. and outputs like evacuation of power, disposal of ash etc., infrastructure facilities at site like approach roads, villages, habitation and industries in the vicinity, environmentally sensitive locations etc., wherever considered necessary. The assessment of the appraisal team during the site visit is included as part of the appraisal report. 3) Fulfillment of eligibility criteria and extent of financing permissible for the project as per Operational Policy Statement of PFC (OPS) are checked and the financial & 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

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thermal and hydro projects as applicable from time to time serve as guide to appraisal officers for undertaking environment appraisal. 6) Review of implementation plan for assessment of the realistic time frame for completion taking into account the status of investigation, infrastructure, clearances, procurement, financial tie-up and progress at site. 7) The following additional aspects in case the borrower has requested for financial assistance for a project in the form of lease in accordance with the notified policy of PFC on lease finance; Extent of lease finance to be offered. Eligibility of equipments to be funded under lease. Means of transfer of ownership of such equipments to PFC. Availability of clear title deed of land of the project so as to assess the mortgagability of the same in favor of PFC. The depreciation rate available on these equipments (to be confirmed by Policy Unit in Finance as per IT law). Return to PFC on the basis of notified Lease rental by P&C unit considering type of borrower, type of project, and type of assets. 8) The financial analysis based on phasing of fund flow to the project, all the relevant costs, prices, tariffs and other core specific assumptions. Project IRR, Equity IRR and year-wise DSCR (last two in case of private sector projects only) is estimated to 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.

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Risk factors are analyzed and measures are proposed to mitigate the same. Equity IRR and DSCR analysis is generally carried out for private sector borrowers only. Only Project IRR is calculated in case of state sector generation projects. For state sector projects, the entities (Borrowers) are generally multi-project entities. For those entities, the escrow ability assessment is carried out and the escrow inflow is suitably enhanced before disbursement to ensure sustained debt-servicing capacity throughout the repayment period of the debt To have uniformity in appraisal process, a standardized set of assumptions would be used. Preparation of AGENDA NOTE a) For private sector projects, EA-IPP Unit in IAD Division submits the Entity Appraisal report comprising promoter/entity details, eligibility criteria as per OPS, security proposed, and entity related conditions along with relaxations proposed if any, for incorporation of the same in Agenda Note cum Appraisal report. In case of state sector generation projects, entity report obtained from the concerned Unit of IAD Division (as and when necessary) is updated on the basis of various circulars issued from time to time. The Appraisal Unit of IAD Division revises Entity Appraisal report whenever there are any changes in the SEB/Utility organizational structure / financial or 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, predisbursement 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

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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, predisbursement & other special conditions of sanction; Conclusion; Recommendations and Resolution, for approval of Competent Authority (as per Circular on Delegation of Power). b) Before putting up the Draft Agenda Note to Directors, the Agenda Note cum Appraisal Report is circulated to Concerned Unit in IAD Division for confirmation and then to P&C unit for concurrence and in case there are any queries/changes suggested by the respective units; the same are clarified/incorporated in the appraisal report cum agenda note. The modified agenda note is then sent to ED, CS, Directors and CMD for approval and the final Agenda Note is put up to the Competent Authority for approval as per the Circular on Delegation of Power.

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D.

OBJECTIVE Of Case Study

To understand the working procedure of PFC while under taking a project appraisal and to determine the financial and economic viability of the project AMARKANTAK THERMAL POWER PROJECT-2nd 300MW Unit. TITLE: Loan Proposal for ABC AMARKANTAK Power Private Ltd for setting up 300MW Unit-II of the coal based Thermal Power Plant in Chhattisgarh State, scheduled for completion by 2009 at an estimated cost of Rs.1340Crore. INTRODUCTION: ABC Ltd., an independent power producer incorporated under the companies Act 1956, is in the process of establishing a 4 * 300 MW Coal based Mega Power Plant near Korba in Chhattisgarh. The project is proposed to be implemented in four stages. ABC Ltd is presently implementing the Unit-I of 300 MW capacity at an estimated completion cost of Rs. 12,916 million wherein PFC has executed the Common Loan Agreement in the capacity of the Lead FI with an financial assistance of Rupee Term Loan (RTL) amounting 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.

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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 Mr. K. Raja Gopal-CEO Project Details: Project Cost Rs.1340crore Project Size 300MW Equity proposed Rs.268crore Source of Finance Equity Share Capital Promoters Collaborators etc. Public Total equity Debt Foreign currency loan Rupee loan PFC(senior debt A&B) Other banks and FIs9yet to be tied up) Total Debt 268.00crore 268.00 crores 20%

469 603 1072.00 crores 80%

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.

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The directors of the ABCL Company are highly experienced and have prior record of project implementation knowledge and experience. They have worked in top capacity in central organizations like NHPC, BHEL, and NTPC etc D.2 PROJECT DETAILS: - (TECHNICAL ANALYSIS) FEATURES OF THE PROJECT TITLE of the PROJECT: ABC AMARKANTAK THERMAL POWER PROJECT, near KORBA, CHATTISGARH STATE D.2.1 Project Profile & Technology:Project Purpose The 600MW integrated power project on completion envisages serving the following purposes 600MW capacity addition to the power sector at a competitive tariff Annual generation of 3784 MU (available at Ex-bus) at 80% PLF Supply of entire power generated form the 300MW Unit-I of the project to the state Madhya Pradesh through PTC Catalyze further growth and development of the socio-economic status of the local population through employment and availability of reliable power supply Project 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 - 40 -

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, ESPs, fuel Oil System, Cooling water System including Water Treatment Plant and other associated auxiliaries required for continuous, safe and reliable operation of the Units (both in Unit-I and Unit-II). Location & Site The location of the proposed power project is as follows: PLACE: CAPACITY: Nearest railway Station: Nearest highway: Pathadi village, District Korba, Chhattisgarh State 600MW Urga and Saragbundia, 3Kms each 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.

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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 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

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ready standby while the other will be in maintenance. It has also been ensured to make available the spare mill in normal condition when firing worst coal. All the mill auxiliaries like greaser pumps, lube oil pump, seal air fans will be provided with 2*100% capacity features with 1 available as standby. Electrostatic Precipitators (EP) EP would be of efficiently no less than 99.8% and will comply with the particulate emission restrictions of 100mg/Nm3imposed by the Chhattisgarh pollution control board. The plant is being designed for 100-mg/NM3 emissions with one field in each path out of operation and at BMCR unit operation while firing the worst coal. This compares favorably with MOEF limit of 150 mg/NM3.100% leak proof isolating gates will be provided at the inlet of outlet of each pass to facilitate to take about 60% of BMCR load with half the ESP working while the other half being in maintenance. Providing specially designed burners controls NOx emission from the steam generator. The maximum NOx emission from the unit will be not more than 750 mg/NM3 (365 ppm). Two 220m single flue chimneys are envisaged for dispersion of effluents Control & instrumentation A comprehensive distributed control system (DCS) which would be an integrated control and data acquisition system providing for control and monitoring of power plant equipment, except auxiliary control systems like coal handling plant, waste water treatment, chlorination and AC and ventilation, from a central control room allowing a high level of automatic operation and diagnostic facilities would be installed. The DCS will 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 owners engineer for the Unit-II project. The scope of service of the lenders engineer has been divided into 3 separate modules as follows: Module 1

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To prepare the EPC tender document for ABC Ltd for further issuance of the same to bidders through ICB route To attend pre bid conference for furnishing of clarifications to the queries of the bidders on the tender document Issue of corrigendum to the EPC tender Document (IF any) Technical evaluation of the EPC bids and submission of a report Recommendation of the best bid to ABC ltd., Any other services as required by ABC Ltd in this regard

Module 2 Providing owners engineer services for review of engineering documents and drawings for the subject project Module 3 D.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. 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.

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Proposed site for project The proposed site for the main plant having an area of 511 acres is already acquired and an area of about 64 acres is being acquired by ABCL under Unit-I of the project. An additional area of about 200 acres is proposed to be acquired by ABCL under Unit-II of the project. The colony is proposed near the project site. Land allocated to ash disposal area by the project is about 125 acres. the balance land of 650 acres would be used for the main plant, auxiliaries, railway siding, intake pump house & raw water pipe line corridor, green belt, colony etc. River Hasdeo flows about 5.7 km from the plant site; ash disposal area is planned towards the south of the power plant. Environmental Stipulations: Ash The state PCB has stipulated that non point sources E.S.P with all boiler and suitable air pollution control equipment should be installed for the control of fugitive emission for the control of pollution during the transportation of raw material and fly ash. The concentration limit for pollutants is as follows: Particulate matter 100 mg/NM3 This requirement would be satisfied by the selected boiler turbine generator (BTG) package and the electrostatic precipitators installed for Unit-II would ensure that state pollution board requirement will be maintained throughout the life of the power plant Air Two stacks of height 220m and internal diameter 4.75m with continuous monitoring system is proposed to be installed ID fans will be used to maintain an exit velocity of 25 m/s for adequate disposal of gaseous pollutants and a continuous record of exit velocity will be maintained. Continuous monitoring analyzers like opacity meter NOx, Sox, CO analyzers are envisaged in the BTG package. The ESP having efficiency not less than 99.8% is envisaged as per the BTG contract. The particulate emission would not exceed the prescribed limit of 100 mg/NM3.Noise level will be limited to 85 dBA. All effluents generated in the plant activities will be collected in the central effluent treatment plant and treated to ensure adherence to specified standards of discharge. The ambient air quality shall not exceed the following standards prescribed by the state pollution control board: - 45 -

 Water:

Suspended particulate matter 500 Microgram/m3 Oxides of nitrogen 120 Microgram/m3 Sulphur dioxides 120 Microgram/m3 Carbon monoxides 5000 Microgram/m3

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 doesnt 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 months 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)

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The operation of the plant is proposed to be taken up in-house with the expertise available with ABC in running and managing a number of power stations. The top-level managers of the first unit can handle the O&M requirements of the second unit. Engineers for operation and maintenance at the lower level and technicians will be recruited additionally. In order to ensure a high level of performance of the power station, it is proposed to impart training to the staff on simulators and through periodical refresher courses. The basic structure and broad functional area within the O&M organization would be as follows: O&M contractors general manager would have primary responsibility for the operation & maintenance of the power station. O&M contractors 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 systems 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.

- 47 -

General Manager (operations) would represent the promoters interest in the operation and maintenance of the power station and would oversee the functioning of O&M contractor. A team covering the following functional areas would assist him. i) Technical: for monitoring overall plant performance, purchase of spare parts, consumables, etc., metering energy sent to the PTC and any other technical aspects required to be resolved ii) Finance & Accounts: for monitoring the O&M contractors 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. 1 2 3 4 ITEM TEC for the project from CEA State Govt Clearance SEB clearance Land availability Agency CEA GoC CSIDC Status/Remarks Not Required Not Required

7 8

Not Required 200 acres of land is proposed to be acquired for Unit-II. The company has informed that it has been identified the land required for Unit-II 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 UnitII Pollution Chhattisgarh Consent to establish obtained vide letter clearance for environment with some number and date water and air conservation board Environment Ministry of NOC obtained from Chhattisgarh clearance environment & environment conservation board for forests obtaining environment clearance Civil aviation Airport Obtained vide letter - 48 -

10

clearance for chimney height Registration of the company under section 15(A) Rehabilitation & resettlement of displaced families by land acquisition

authority of India Registrar of the Company name companies mentioned Ministry of E&F Not applicable

changes

with

date

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 The PPA for sale of entire power generated from the 300MW Unit-II has been signed with PTC India Ltd. 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 In house team will operate the project Signed with unit-I with SECF proposed to be signed with SECL for unit-II Separate agreement not required

2 3

Power purchase PTC agreement EPC contracts To be placed

4 5 6

O&M contract FSA Fuel transportation

Not applicable To be signed NA

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

- 49 -

eastern region, it seems to be competitive as compared to the newer liquid fuel plants of NTPC as well as from the other sources (private sector generation and PTC) The availability of cheaper reliable power will help improve the productivity and profitability of the industrial consumers in the region. Thus the establishment of the project will result in industrial development of the region and generate employment opportunities for the people in the region. Procurement procedures and competitiveness Award of EPC contracts: The company was planning to award the EPC contract for UNIT_II to XYZ Ltd on similar lines of the EPC contract of unit-I. The ICB process for EPC for Unit-II was initiated to meet the requirements of approvals such as capital cost/tariff by the electricity regulators of the purchasing utility and is expected to be completed shortly as per the guidelines. The specifications for the Non-EPC works for unit-II are under preparation. The company is proposing to finalize these contracts before financial closure and accordingly a suitable condition seeking finalization stipulated of contracts for Non-EPC work before debt breakdown has been stipulated. D.6 FINANCIAL AND ECONOMIC ANALYSIS :

Financial plan The power plant is proposed to be financed at a debt equity ratio of 4:1.the proposed means of finance for the power plant will be as under: Particulars Total (Rs in Million) EQUITY 2680.10 ABC group, Associates & strategic partners Term LOAN PFC Others Total debt Project cost The cost of the 300MW captive power project as estimated by M/s ABCL is Rs.13400.41 million. The details of the cost break up of the TPP are as follows: Cost Head Total (Rs.in millions) Land and land development incl environmental 320.00 10721.30 4300 6421 13400.40 Percentage (%) 20 80 100

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EPC contract NON-EPC balance of plant Design, engineering & construction supervision Tools & plants Pre operative & establishment charges Preliminary expenses Training of O&M staff Startup fuel Physical contingencies Margin money for WC Upfront fees Finance charges IDC Total Cost Phasing of expenditure

10050.00 720.00 125.00 20.00 160.00 25.00 12.00 110.00 111.00 242.21 65.00 52.00 1388.20 13400.41

The yearly draw down schedule for unit-II project is as follows: Quarter 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th Total Equity 67 0 0 0 19 25 25 26 38 22 16 16 14 268 Debt 56 72 62 51 104 100 102 103 152 89 62 63 56 1072

(Rs in Crore) Total 123 72 62 51 123 125 127 129 190 111 78 79 70 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.

- 51 -

The capacity of the unit-II project has been taken to be 300MW, assume to be operating at 80%PLF annualized. Auxiliary consumption has been taken as 9%. Interest on rupee term loan-8.5%. Moratorium-6 months after commissioning. Rate of depreciation of assets is taken at 3.6% PA.SLM and assets are depreciated till 90% of their cost price. The coal and oil price in the first year of operation has been taken at Rs.895.47 MT and Rs.16800Kl respectively. An escalation of 5% P.A has been assumed. Calorific value of coal taken at 3500 Kcal/MT and heat rate at 2500Kcal/Kwh. Working capital norms are taken as O&M expenses for 1month,receivables of 2 months, fuel stock of 1 month, spares @1% of project cost. Income tax exemption under section 80IA has been assumed to be availed in for the first 10 years of operation. MAT @ 7.5% plus 10% surcharge plus 2% education cess on the same has been assumed as applicable base tax rate @ 12.5% plus surcharge plus 2% education cess on the same.

Interest on working capital-10.50% Other techno economic parameters have been taken as per CERC norm. Dividend payment of 8% on equity in a year from 4th year of operation. Dividend payment tax @12.5% plus 10% surcharge plus 2% education cess on the same.

The main assumptions are shown in the Annexure-VI Projects Cash Flow Statements and Cost Benefit Analysis The financial analysis of the project has been done considering entire sale of power at the tariff structure, which has been finalized in the PPA signed with PTC Ltd for the sale of power from Unit-I. The key financial indicators of the project in the base model are as follows: INDICATOR 1st full year tariff on CERC norm Levelized tariff on CERC norm (13 years, 12% discount ) Levelized tariff on CERC norm (25 years, 12% discount) Average DSCR Value 2.16 2.20 2.28 1.29 - 52 Unit Rs. per Unit Rs. per Unit Rs. per Unit Ratio

Min DSCR Project IRR (pretax, 25 years)

1.20 11.7%

Ratio Percent

The detailed calculation on above referred base case are placed at Annexure(VII,VIII,IX,X,XI,XII) 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 lenders 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 lenders engineer/ legal counsel for unit-II project on similar lines of Unit-I project RISK ANALYSIS Risk Factor (1) Pre-Construction delay Finalization of key contracts Risk carrier ABCL Proposed Mitigation Mechanism 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 Major statutory clearances including PCB clearance, MoEF clearance and stack height clearance have been obtained for both the units. Allocation of additional 14 cusecs

Approval/consents/permits

ABCL

- 53 -

has been applied for to meet the requirement of unit-II. Coal linkage of 1.5MTPA of coal has been allocated for unit-I. The coal linkage for the Unit-II project is under active consideration of the Ministry of Coal, Govt of India. (2) Construction 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 UnitII. 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. Fixed price fixed time EPC contract is envisaged .A contingency provision has also been made. Penalties /liquidated damages for delay in completion or shortfall in performance shall be envisaged for unit-II on similar lines of UnitI PGCIL will finalize the scheme of transmission after conducting load flow studies, a suitable condition is proposed Comprehensive insurance package to be taken by ABCL and EPC contractor during construction. Long-term coal linkage proposed for both the projects. FSA to be signed with SECL Fixed firm price FSA at price notified by GoI/CIL/SECL is envisaged. Alternate arrangements made for

Increase in cost & price ABCL, EPC contractor escalation Inability to perform under EPC contractor package contract

Construction of evacuation ABCL, PGCIL facility Insurance risk ABCL, EPC contractor

(3) Operational Risk Fuel risk: Non availability of SECL, ABCL fuel in the right quantity, of right quality and at the right time Increase in fuel cost SECL Fuel transportation risks ABCL

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Equipment performance

under EPC contractor

Increase in heat rate/auxiliary consumption Environmental requirements

Insurance risks

rail and road based transportation of project essentials. to be borne by the company Liquidated damages payable by the EPC contractor for lower installed capacity Heat rate and auxiliary consumption are to be guaranteed by the EPC contractor O&M will be done in house EPC contract provides for guarantees to conform to emission norms as per Govt/pollution control board stipulated For construction, EPOC contractor will be responsible. Adequate insurance would be provided during operation. Insurance counsel for lenders will be appointed.

Evacuation risk Escalation in O&M costs

Tariff risk

Payment risk

ABCL, Non EPC contractor A suitable condition is being proposed 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 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 PTCs 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: - 55 -

Increase in the design energy by 10% Increase in the interest rate by 10% Increase in the cost of the project by 10%

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

(*** DSCR in the 10th, 11th & 12th year of repayment become less than 1) Changes in interest rate under varying circumstances like keeping PFC rate constant and change in rate of other financial institutions and vice versa further collective change in both cases has been considered. ANALYSIS from sensitivity analysis:The average FIRR arrives around 12% The average EIRR arrives around 21% The DSCR arrives around in the range of 1.33 CONLCUSIONS FROM SENSITIVITY ANLAYSIS Overall, the project seems to be viable from the economic point of view since its is expected to give EIRR OF more than 20%, which is more than the minimum stipulated return. Its 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 -

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 Commencement of construction Construction period project COD of the project 31-Mar-05 1-Apr-06 36 months 31-Mar-09

S.No

Tariff year

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 The promoter has already successfully commissioned the other projects in which PFC 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 PTC India Ltd., has expressed interest to purchase the entire power generated by the clearance from AAI have been obtained for the combined 2*300 MW power plant. had taken exposure, all the projects are operating successfully.

lines of the contract already signed for Unit-I. 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.

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BIBLIOGRAPHY Detailed Project Report (DPR) of AMARKANTAK Thermal Power Project 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 ImplementationManual to Project Appraisal and Financing G.B.Rao /Atul Gupta Guide to Project Financing Project Appraisal Manual FOR Power Generation Projects submitted by ABC Private limited

Tata McGraw Hill Publication 2002, New Delhi

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

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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 -

ANNEXURE-IV Core Processes of Projects Division and their sequence Support Process Annual Action Plan Core Processes of Projects Division Marketing & Identification of Scheme Receipt of Proposal for sanction of financial assistance, preliminary scrutiny, In-principle sanction & short-listing of Loan proposal for Preparation of Agenda Note-cum-Appraisal report for approval o competent Authority for sanction of Financial assistance Sanction by Competent Authority Training

Coordination with CEA,MoP Coordination with External Funding Agencies

P&C

IAD

P&C

IAD

Facilit ating financ ial TieUp

Issue of Letter intimating financial sanction

Facilitating Execution of Documents

L&D

P&C IAD

Project Review and Monitoring

Facilitating Disbursement

LD &R

Project Completion Activities

Borrower

- 65 -

ANNEXURE-V Main Assumptions FINANCIAL ASSUMPTIONS Installed capacity Estimated Project cost Debt Equity Rupee debt Rupee Equity Forex Equity Upfront equity Financial close commencement of construction construction period project COD of the project PPA & other operational assumptions Term of the PPA FUEL CHARACTERISTICS Station heat rate Auxillary Consumption oil consumption calarofic value of coal per kg CV of oil per kg Delivered cost of coal per kg Delivered cost of oil (HFO) per ltr Delivered cost of oil (HSD) per ltr PLF O & M expenses per MW O & M expenses for installed capacity ROE Cost of Coal Upfront equity working Capital Norms Primary fuel cost primary fuel stock Secondary Fuel furnace oil O & M and Insurance Expenses Debtors Spares Working Capital Interest IN MILLIONS 300 MW 13400.41 Rs.Mn 10720.33 80% 2680.08 20% 10720.33 100% 1608.05 60% 1072.03 40%
25%

31-Mar-05 1-Apr-06 36 31-Mar-09

months

25

years

3500 10200 0.75 14.9 24.4 1.217 365.1 14% 885 25% 1 0.5 2 1 2 1% 13%

Kcal/KWH % ml/KWH Kcal Kcal Rs Rs 80% Rs 20% Rs.Mn Rs.Mn % Rs/MT

from COD of the project Normal Stabilization Operation 2600 2500 9% 8.50% 4.5 2

80%

80%

month month months month months % %

6%

from 2nd year

Operational Details Exchange rate at COD Rupee Depreciation against US $ per

46 - 66 -

Rs / $

annum Secondary fuel Coal Escalation O & M Escalation Spares escalation Long Term Loan Repayment Schedule Rupee Loan repayment Moratorium Dollar loan repayment Moratorium Installments per year Repayment period Interest on Term Loans Rupee Loan Interest Forex Loan Interest Upfront fees for Rupee Loan Upfront Fee for USD Loan Electricity Duties,cess, Royalty etc Electricity Duty on Export of units Cess on Export of units

3% 5% 3% 4% 6%

% % % % %

from 2nd year from 2nd year from 2nd year

48 2 48 2 4 12 8.50% 7.00% 1% 1%

quarters quarters quarters quarters quarters years

0.01 Duty on Auxillary consumption HT unit rate Duty on Auxillary consumption Depreciation Rates Equipment (WDV) Buildings(WDV) land & site development Income tax rate Basic rate Surcharge Corporate Tax with surcharge Cess Corporate Tax with surcharge & cess Minimum Alternate Tax(MAT) MAT with surcharge CASs MAT with surcharge & cess Dividend Distribution Tax Dividend Distribution Tax with Surcharge Dividend Distribution Tax with Surcharge 8% 3.5 0.28 25% 10% 4.00% 30% 10% 37.5% 2% 39.50% 7.50% 8.25% 2% 8.42% 12.50% 13.75% 14.03%

0.02 Rs Rs

Rs Rs

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CAPACITY Capital Cost Working Capital Margin IDC Financing Charges Project Cost D/E Ratio Equity Debt Upfront Equity Upfront Expenditure Total Interest Dividend Payment Financial Year Expenditure Capital Expenditure Actual Expenditure Interest Working Capital Margin Financing Charges Capital Expenditure Total Expenditure Equity Debt Net Debt Interest Net Expenditure Balance Upfront Equity

300 MW 11653 Rs.Mn 242.21 Rs.Mn 1444.64 Rs.Mn 61.94 Rs.Mn 13401.8 Rs.Mn 4 2680.36 10721.44 25% 670.09 2680.36 3350.45 8.50% 8% from 4th year onwards 1 9.20% 10.00% 1165.3 5.98 61.94 1227.24 1233.22 670.09 563.14 281.57 5.98 1233.22 0 699.18 718.78 0 718.78 922.53 19.6 1952.00 0 582.65 616.44 0 616.44 1590.14 33.79 2568.44 0 466.12 511.90 0 511.90 2154.31 45.78 3080.34 0 2 5.36% 6.00% 699.18 19.6 3 4.60% 5.00% 582.65 33.79 4 3.82% 4.00% 466.12 45.78 1

Cost Escalation Financing Charges Arranger fee Processing Fees Upfront Fees Total

0% 4500 10721.4 10721.4 0.90% 0.10% 0.10% 40.5 10.72 10.72 61.94 Rs.Mn

ANNEXURE VI

0.8 0.2

5 9.16% 10.00% 1165.3 62.23

6 9.32% 10.00% 1165.3 83.85

7 9.48% 10.00% 1165.3 105.27

8 9.64% 10.00% 1165.3 127.05

9 14.19% 15.00% 1747.95 154.21

10 8.30% 8.00% 932.24 179.83

11 5.81% 5.00% 582.65 195.9

12 5.91% 5.00% 582.65 209.25

13 5.20% 2.00% 233.06 221.9 242.21

1165.3 1227.53 191.49 1036.04 2928.28 62.23 4307.87 0

1165.3 1249.15 249.83 999.32 3945.96 83.85 5557.02 0

1165.3 1270.57 254.11 1016.46 4953.85 105.27 6827.59 0

1165.3 1292.35 258.47 1033.88 5979.02 127.05 8119.94 0

1747.95 1902.16 380.43 1521.73 7256.82 154.21 10022.10 0

932.24 1112.07 222.41 889.66 8462.51 179.83 11134.17 0

582.65 778.55 155.71 622.84 9218.76 195.9 11912.72 0

582.65 791.90 158.38 633.52 9846.94 209.25 12704.6 0

475.27 697.17 139.43 557.74 10442.57 221.9 13401.79 0

Page 68 of 74

ANNEXURE VII
Repayment Schedule No.of Quarterly instalments Quartrey principal Repayments 48 223.36 Total Debt Total Equity Total Cost 10721 2680.4 13402

Financial year Outstanding Principal Quarter II Principal Repayment Interest Quarter II Principal Repayment Interest Quarter III Principal Repayment Interest Quarter IV Principal Repayment Interest

1 10721

2 10275

3 9381.26

4 8487.8

5 7594.4

6 6700.9

7 5807.5

8 4914

9 4020.5

10 3127.1

11 2233.6

12 1340.2

13 446.73

0 227.83

223.36 218.34

223.36 199.35

223.36 180.37

223.36 161.38

223.36 142.39

223.36 123.41

223.36 104.42

223.36 85.44

223.36 66.45

223.36 47.46

223.36 28.48

223.36 9.49

0 227.83

223.36 213.59

223.36 194.61

223.36 175.62

223.36 156.63

223.36 137.65

223.36 118.66

223.36 99.68

223.36 80.69

223.36 61.7

223.36 42.72

223.36 23.73

223.36 4.75

223.36 227.83

223.36 208.84

223.36 189.86

223.36 170.87

223.36 151.89

223.36 132.9

223.36 113.92

223.36 94.93

223.36 75.94

223.36 56.96

223.36 37.97

223.36 18.99

0 0

223.36 223.08

223.36 204.1

223.36 185.11

223.36 166.13

223.36 147.14

223.36 128.15

223.36 109.17

223.36 90.18

223.36 71.2

223.36 52.21

223.36 33.23

223.36 14.24

0 0

Principal Repayment Interest Payment

446.72 906.57

893.44 844.87

893.44 768.93

893.44 692.99

893.44 617.04

893.44 541.09

893.44 465.16

893.44 389.21

893.44 313.27

893.44 237.32

893.44 161.38

893.44 85.44

446.72 14.24

Total Debt Servicing

1353.3

1738.3

1662.37

1586.4

1510.5

1434.5

1358.6

1282.7

1206.7

1130.8

1054.8

978.88

460.96

ANNEXURE VIII Page 69 of 74

S.N PARTICULARS O A Sources of Funds Equity Contribution Profit Before Taxes Book Depreciation Term Loans WorkingCapital Borrowings Total Inflow: B Application of Funds Capital Expenditure Increase in Current assets Repayment of Term Loans Income Tax Dividends Total Outflow: C D E Excess/Shortfall Opening Balance Closing Balance

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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 0 383.34 844.71 871.11 903.94 903.95 903.96 903.94 903.95 903.94 903.95 903.94 903.94 416.17 249.8 260.7 269.2 276.0 281.3 285.6 289.1 291.98 294.3 295.8 306.8 299.16 3 2 7 2 8 8 4 0 0 6 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.9 470.9 470.9 470.9 470.9 470.9 470.9 470.90 470.9 470.9 470.9 470.90 0 0 0 0 0 0 0 0 0 0 10721.44 800.92 0 17.45 0 0 0 0 18.39 19.39 20.43 21.54 0 22.7 0 23.93 0 25.23 0 0 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

15056.96 1333.0 1360.4 1394.2 1395.2 1396.4 1397.5 1398.7 1400.0 1401.4 1402.8 1404.4 918.23 753.5 766.2 776.6 785.4 792.8 799.3 805.1 810.46 815.3 819.6 833.5 828.89 6 0 3 8 0 4 8 7 4 8 0 8 5 8 2 7 8 7 7 0 5 13400.41 1012.71 0 15.93 0 0 0 0 0 16.79 17.71 18.67 19.69 20.76 0 21.89 0 23.09 0 0 24.35 25.68 0 0 0 0 27.08 28.56 30.12 31.76 0 0 0 0 0 0 0 0 0 0 0 0 33.5 35.33 37.27 39.31 41.46 43.74 46.14 48.67 51.34 54.16 0 0 0 0 0 0 0 0 0 0

446.73 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 893.44 446.72 32.26 71.08

73.3 106.14 106.14 106.14 106.14 106.14 106.14 106.14 106.14 106.14 65.09 233.7 244.6 253.2 260 265.4 269.7 273.1 275.94 278.2 280.1 281.7 283.12 9 9 2 6 8 8 0 0 0 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.43 214.4 214.4 214.4 214.4 214.4 214.4 214.4 214.43 214.4 214.4 214.4 214.43 3 3 3 3 3 3 14892.11 980.45 983.53 1231.7 1232.7 1233.7 1234.8 1235.9 1237.1 1238.3 1239.7 1241.0 754.8 478.3 490.8 501.2 509.7 517.1 523.4 529.0 534.11 538.8 543.2 547.5 551.71 6 9 4 8 1 3 8 5 164.85 352.61 376.87 162.51 162.60 162.70 162.77 162.88 162.97 163.08 163.19 163.31 163.43 275.2 275.3 275.5 275.6 275.8 275.9 276.1 276.35 276.5 276.3 286.0 277.18 4 7 1 8 2 9 6 4 2 0 0 164.85 517.45 894.3 1056.8 1219.4 1382.1 1544.8 1707.7 1870.6 2033.7 2196.8 2360.2 2523. 2798. 3074 3350 3625 3901 4177. 4453.4 4729. 5006. 4 9 6 8 2 7 3 164.85 517.45 894.3 1056.8 1219.4 1382.1 1544.8 1707.7 1870.6 2033.7 2196.9 2360.1 2523.6 2798. 3074. 3350 3625 3901 4177 4453. 4729.7 5006. 5283 9 8 2 4 3 5283 5560

5560 5837.1

ANNEXURE IX
PARTICULAR S Revenues(Rs in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Page 70 of 74

Millions) Tariff Receipts(sale of power) Total Revenue 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 3641.7 4131.8 4177.2 4233.7 4262.5 4296.5 4335.9 4381.2 4432.5 4490.2 4554.6 4626.1 4221.9 4203.8 4385.3 4573.1 4768.0 5 3 1 9 2 8 4 7 8 8 1 3 7 2 4 3641.8 4131.8 4177.2 4233.8 4262.5 4296.5 4335.9 4381.2 4432.6 4490.3 4554.7 4626.1 4221.9 4203.8 4385.4 4573.1 4768 1 8 4971 5182.8 5404.1 5635.8 5878.3 6132.2 6399.1 6678.73 6 9 1 6 4971 5182.8 5404.1 5635.8 5878.4 6132.2 6399.2 6678.7 6

Expenses(Rs in Millions) Fuel cost O&M cost Interest on Loan Interest on Working Capital Depreciation Total Expenditure Profit Before Tax Provisions for Taxes(incluidng MAT,Tax saved on accountof depreciation from other projects) Net Profit Cumulative Net Profit CASH INFOW: DSCR CASH FLOWS

1406.3 1476.6 1550.4 1627.9 1709.3 1794.8 1884.5 1978.8 2077.7 2181.6 2290.7 2405.2 2525.5 2651.8 2784.4 2923.6 3069.8 3223.2 3384.4 3553.6 3731.3 3917.9 4113.8 4310.5 4535.49 1 3 6 8 8 5 9 2 6 5 3 7 3 1 2 9 5 8 6 3 3 2 365.1 383.36 402.52 422.65 443.78 465.97 489.27 513.73 539.42 566.39 594.71 624.44 655.67 688.45 722.87 759.02 796.97 836.82 878.66 922.59 968.72 1017.1 1068.0 1121.4 1177.48 5 1 1 906.57 844.87 768.93 692.99 617.04 541.09 465.16 389.21 313.27 237.32 161.38 85.44 14.24 0 0 0 0 0 0 0 0 0 0 0 0 109.53 111.36 113.29 115.33 117.47 119.73 122.12 124.63 127.28 130.07 133.02 136.12 139.39 142.84 146.48 150.31 154.35 158.61 163.11 167.85 172.84 178.11 183.67 189.47 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 470.90 195.70 470.90

3258.4 3287.1 3306.1 3329.8 3358.5 3392.5 3432.0 3477.2 3528.6 3586.3 3650.7 3722.1 3805.7 3954.0 4124.6 4303.8 4492.0 4689.6 4897.1 5115.0 5343.8 5584.0 5836.4 6092.3 6379.57 1 2 0 5 7 4 4 9 3 3 4 7 3 0 5 5 2 2 2 2 2 9 1 0 383.34 844.71 871.11 903.94 903.95 903.96 903.94 903.95 903.94 903.95 903.94 903.94 416.17 249.83 260.72 269.27 276.02 281.38 285.68 289.14 291.98 294.30 295.80 306.86 32.26 71.08 73.3 106.14 106.14 106.14 106.14 106.14 106.14 106.14 106.14 106.14 65.09 233.79 244.69 253.24 259.98 265.35 269.65 273.12 275.94 278.26 280.18 281.78 299.16 283.12

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

351.08 1124.7 1922.5 2720.3 3518.1 4315.9 5113.7 5911.5 6709.3 7507.1 8304.9 9102.7 9453.8 9469.8 9485.9 9501.9 9517.9 9534.0 9550.0 9566.0 9582.1 9598.1 9613.7 9638.8 9654.88 1 2 2 3 4 4 5 5 6 6 6 4 8 1 4 8 1 4 6 0 4 6 4 1728.5 2089.4 2037.6 1961.6 1885.7 1809.8 1733.8 1657.9 1581.9 1506.0 1430.0 1354.1 836.22 486.94 486.93 486.93 486.94 486.93 486.93 486.92 486.94 486.94 486.52 495.98 5 0 4 9 5 1 6 2 7 3 8 4 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 - 1728.5 2089.4 2037.6 1961.6 1885.7 1809.8 1733.8 1657.9 1581.9 1506.0 1430.0 1354.1 836.22 486.94 486.93 486.93 486.94 486.93 486.93 486.92 486.94 486.94 486.52 495.98 2975.1 4661. 4320.7 5 0 4 9 5 1 6 2 7 3 8 4 9 2 6 - 1760.8 2160.4 2110.9 2067.8 1991.8 1915.9 1840.0 1764.0 1688.1 1612.1 1536.2 1460.2 901.31 720.73 731.62 740.17 746.92 752.28 756.58 760.04 762.88 765.20 766.70 777.76 2975.1 4661. 4320.7 1 8 4 3 9 5 0 6 1 7 2 8 9 2 6 9.17% 486.94

486.94 770.06

CASH FLOWS(pre tax) Projected 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

Page 71 of 74

S.NO A

PARTICULARS LIABILITIES

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

1 Equity Contribution 2 Reserves & Surplus 3 Secured Loans: Term Loans Working Capital Loans

2680.36 351.08

2680.36 1124.71

2680.36 1922.51

2680.36 2505.89

2680.36 3089.26

2680.36 3672.63

2680.36 4256.01

2680.36 4839.38

2680.36 5422.76

2680.36 6006.13

2680.36 6589.51

2680.36 7172.88

2680.36 7309.53

2680.36 7111.13

2680.36 6912.74

2680.36 6714.34

2680.36 6515.94

2680.36 6317.55

2680.36 6119.15

2680.36 5920.75

2680.36 5722.36

2680.36 5523.96

2680.36 5325.56

2680.36 5127.17

2680.36 4928.77

10274.71 800.92 TOTAL: 14107.07

9381.26 818.37

8487.8 836.76

7594.35 856.15

6700.9 876.58

5807.45 898.12

4913.99 920.82

4020.54 944.76

3127.09 969.99 12200.2

2233.63 996.58

1340.18 1024.58

446.73 1054.17

0 1085.33

0 1118.18

0 1152.81

0 1189.33

0 1227.83

0 1268.42

0 1311.21

0 1356.34 9957.45

0 1403.92 9806.64

0 1454.09 9658.41

0 1506.99 9512.91

0 1562.78 9370.31

0 1621.61 9230.74

14004.7 13927.43 13636.75

13347.1 13058.56 12771.18 12485.04

11916.7 11634.63 11354.14 11075.22 10909.67 10745.91 10584.03 10424.13 10266.33 10110.72

ASSETS 1 Gross Block Less:Depreciation Net Block 2 Net current Asseyts 3 Cash & Bank Balancces TOTAL: 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 13400.41 470.9 941.8 1412.7 1883.6 2354.5 2825.4 3296.3 3767.2 9633.21 1144.16 1707.67 4238.1 9162.31 1167.24 1870.64 4709 8691.41 1191.59 2033.7 5179.9 8220.51 1217.27 2196.89 5650.8 7749.61 1244.35 2360.19 6121.7 7278.71 1272.9 2523.61 6592.6 6807.81 1303.02 2798.84 7063.5 6336.91 1334.78 3074.22 7534.4 5866.01 1368.29 3349.73 8005.3 5395.11 1403.62 3625.4 8476.2 4924.21 1440.89 3901.22 8947.1 4453.31 1480.2 4177.21 9418 3982.41 1521.66 4453.38 9957.45 9888.9 3511.51 1565.4 4729.72 9806.63 10359.8 3040.61 1611.54 5006.26 9658.41 10830.7 2569.71 1660.2 5283 9512.91 11301.6 2098.81 1711.54 5559.96 9370.31 11772.5 1627.91 1765.7 5837.13 9230.74

12929.51 12458.61 11987.71 11516.81 11045.91 10575.01 10104.11 1012.71 164.85 1028.63 517.45 1045.43 894.3 1063.14 1056.8 1081.81 1219.38 1101.5 1382.05 1122.26 1544.81

14107.07 14004.69 13927.44 13636.75

13347.1 13058.56 12771.18 12485.04 12200.19

11916.7 11634.67 11354.15 11075.22 10909.67 10745.91 10584.03 10424.13 10266.32 10110.72

Reserves &Surplus: Opening Balance Net Profit for theyear Total: Less:Dividend Paid Closing Balance 0 351.08 351.08 0 351.08 351.08 773.63 1124.71 0 1124.71 1124.71 797.8 1922.51 0 1922.51 1922.51 797.8 2720.31 214.43 2505.88 2505.89 797.8 3303.69 214.43 3089.26 3089.26 797.8 3887.06 214.43 3672.63 3672.63 797.8 4470.43 214.43 4256 4256.01 797.8 5053.81 214.43 4839.38 4839.38 797.8 5637.18 214.43 5422.75 5422.76 797.8 6220.56 214.43 6006.13 6006.13 797.8 6803.93 214.43 6589.5 6589.51 797.8 7387.31 214.43 7172.88 7172.88 351.08 7523.96 214.43 7309.53 7309.53 16.03 7325.56 214.43 7111.13 7111.13 16.03 7127.16 214.43 6912.73 6912.74 16.03 6928.77 214.43 6714.34 6714.34 16.03 6730.37 214.43 6515.94 6515.94 16.03 6531.97 214.43 6317.54 6317.55 16.03 6333.58 214.43 6119.15 6119.15 16.03 6135.18 214.43 5920.75 5920.75 16.03 5936.78 214.43 5722.35 5722.36 16.03 5738.39 214.43 5523.96 5523.96 16.03 5539.99 214.43 5325.56 5325.56 16.03 5341.59 214.43 5127.16 5127.17 16.03 5143.2 214.43 4928.77

ANNEXURE X1
Years O&M 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 1 30.4 31.9 33.54 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 23 24 25 89 93.4 98.1

Page 72 of 74

Coal Stock Secondary Fuel stock Receivables Spares Total WC TARIFF CAPACITY CHARGE Depreciation

3 1.5 166. 96 2 11.7 7 2 717. 44 1% 116. 53 1043 .13

5 175. 31 12.3 8 717. 44 123. 52 1060 .6

2 8 184.0 193. 202. 7 28 94 12.98 13.6 14.3 3 1 717.4 717. 717. 4 44 44 130.9 138. 147. 3 79 12 1078. 1098 1118 96 .36 .79

3 213. 09 15.0 3 717. 44 155. 94 1140 .33

7 223. 74 15.7 8 717. 44 165. 3 1163 .03

1 234. 93 16.5 7 717. 44 175. 22 1186 .97

5 246. 67 17.3 9 717. 44 185. 73 1212 .18

259. 01 18.2 6 717. 44 196. 87 1238 .78

6 271. 96 19.1 8 717. 44 208. 69 1266 .83

4 285. 56 20.1 4 717. 44 221. 21 1296 .39

4 299. 83 21.1 4 717. 44 234. 48 1327 .53

7 4 5 314. 330. 347. 83 57 1 22.2 23.3 24.4 1 8 717. 717. 717. 44 44 44 248. 263. 279. 55 46 27 1360 1395 1431 .39 .02 .54

1 3 2 364. 382. 401. 45 67 81 25.7 26.9 28.3 8 3 717. 717. 717. 44 44 44 296. 313. 332. 03 79 62 1470 1510 1553 .03 .61 .42

8 421. 9 29.7 5 717. 44 352. 57 1598 .54

3 442. 99 31.2 4 717. 44 373. 73 1646 .13

6 5 465. 488. 512. 14 4 32 32.8 34.4 36.1 4 6 717. 717. 717. 44 44 44 396. 419. 445. 15 92 12 1696 1749 1804 .29 .2 .49

2 538. 46 37.9 7 717. 44 471. 82 1863 .8

446. 73 Interest Payment on RTL 906. 57 Interest on Working Capital 109. 53 O&M Charges 1.22 365. 1 Tax 32.2 6 ROE 0.14 375. 25 ENERGY CHARGE Fuel Cost Secondary Fuel Cost Capacity Charge Energy Charge Net CERC Tariff Levellised Tarif Levellised CERC Tariff (for 13 Years) Levellised CERC Tariff(for 25 Years) ANNEXURE XII

869. 28 844. 87 111. 36 383. 36 71.0 8 375. 25

869.2 8 768.9 3 113.2 9 402.5 2 73.3

869. 28 692. 99 115. 33 422. 65 106. 14 375.2 375. 5 25

869. 28 617. 04 117. 47 443. 78 106. 14 375. 25

869. 28 541. 09 119. 73 465. 97 106. 14 375. 25

869. 28 465. 16 122. 12 489. 27 106. 14 375. 25

869. 28 389. 21 124. 63 513. 73 106. 14 375. 25

869. 28 313. 27 127. 28 539. 42 106. 14 375. 25

869. 28 237. 32 130. 07 566. 39 106. 14 375. 25

869. 28 161. 38 133. 02 594. 71 106. 14 375. 25

869. 28 85.4 4 136. 12 624. 44 106. 14 375. 25

446. 73 14.2 4 139. 39 655. 67 65.0 9 375. 25

111. 111. 111. 111. 111. 111. 111. 111. 111. 111. 111. 111. 68 68 68 68 68 68 68 68 68 68 68 68 0 0 0 0 0 0 0 0 0 0 0 0 142. 84 688. 45 233. 79 375. 25 146. 48 722. 87 244. 69 375. 25 150. 31 759. 02 253. 24 375. 25 154. 35 796. 97 259. 98 375. 25 158. 61 836. 82 265. 35 375. 25 163. 11 878. 66 269. 65 375. 25 167. 85 922. 59 273. 12 375. 25 172. 84 968. 72 275. 94 375. 25 178. 11 1017 .15 278. 26 375. 25 183. 67 1068 .01 280. 18 375. 25 189. 47 1121 .41 281. 78 375. 25 195. 70 1177 .5 283. 12 375. 25

895. 1335 1402 1472. 1546 1623 1704 1789 1879 1973 2072 2175 2284 2398 2518 2644 2776 2915 3061 3214 3375 3543 3721 3907 4102 4307 47 .67 .5 58 .21 .52 .69 .93 .42 .39 .06 .67 .45 .67 .61 .54 .76 .6 .38 .45 .17 .93 .13 .18 .54 .7 16.8 70.6 74.1 77.88 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 6 6 7 37 59 07 82 86 2 86 .86 2 91 01 51 43 8 64 97 82 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 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 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 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 2.20 2.28

Depreciation (By Company's Act)

Page 73 of 74

A S.N

APPROPRIATION OF CONTINGENCIES ON FIXED ASSETS: PARTICULARS AMOUNT (RS. in Million) 1 Land 320.00 10897.20 1830.00 242.21 TOTAL: 13289.41 0.00 0.00 111.00 0.00 111.00 CONTINGENCIES COST (RS. in Million) 320.00 10897.20 1941.00 242.21 13400.41

2 3 4

Plant and Machinery Balance of Plant Working Capital

B S.N

COMPUTATION OF DEPRECIATION UNDER STRAIGHT LINE METHOD: PARTICULARS Plant and Machinery & Building TOTAL: COST 13080.41 13080.41 RATE 3.60% AMOUNT (Rs. in Crores) 470.90 470.90

Income Tax Base Rate Surcharge Cess Corporate tax with surcharge & cess MAT Base rate MAT with surcharge & cess 7.50% 8.42%

Dividend Tax 30% Base Rate 10% Dividend distribution tax with surcharge & cess 2% 33.66% 12.50% 14.03%

Page 74 of 74