ACKOWLEDGEMENT

It is with a sense of gratitude, I acknowledge the efforts of entire hosts of well

wisherswhohaveinsomewayorothercontributedintheirownspecialwaystothesuccess
andcompletionofthisproject.
Firstofall,IexpressmysagesenseofgratitudeandindebtednessstaffofNTPCSAIL
Power Company (P) Ltd (NSPCL), Bhilai from the bottom of my heart, for their immense
actions,support,andfaith.
I sincerely thank my project guide Shri J.R Sikidar, Sr.Manager (F&A), NSPCL
CorporateCenter,NewDelhiforhisvaluablesuggestions,motivationandencouragement
through out thisproject. Also,Ialso express my sincere thankfulness to NSPCL Finance&
accountingteam,HRTrainingandDevelopmentcellforextendingtheirtimelysupport.
.

B.SatyaGopi
MP072453801

Contents

Pageno.

Certificateoforiginality

ii

Proformaforapprovalofprojectproposal

iii

Executivesummary&Synopsis

vi

1.0 Introduction

2.0 PowerSectorEmergingScenario

Acknowledgements

2.1PowerIndustrystructureinIndia

3.0 RoleofNTPC/NSPCL(AJvofNTPC&SAIL)inIndianPowersector 7
4.0 Powersector&issues

4.1Generation

11

4.2Transmission

12

4.3Distribution

13

4.4DemandSupplyPosition

14

4.5FinancingRequirements

15

5.0 PowerProjectLifeCycle

17

5.1ProjectFinance

17

5.2OperationalAgreements

18

5.3ProjectDevelopment

19

6.0 ProjectEconomics

22

6.1FuelsSupply

22

6.2Capitalcosts

23

6.3WholesaleTariffStructure

24

26

7.1TypesandSourcesofFinance

26

7.2TrendsinPowerSectorFinancing

31

7.3MajorFinanciersinPowerSector

31

32

32

9.0 CapitalBudgetingfordummyPowerproject;

36

7.0 PowerProjectFinancing

8.0 BudgetinginPowerPlants;

8.1Typesofbudgetheadsinpowerplant;

9.1Projectionsfora500MWunit.

37

9.2Projectionsfora2x250MWunit

46

52

10.0Conclusions&Recommendations

References/Bibliography

1.0 Introduction
Poweristhecriticalinfrastructureforthegrowthofeconomy.Accelerationinthegrowthof
economywilldependsuponafinancially&commerciallyviablepowersectorthatisabletoattract
freshinvestments.EventhoughIndiaranks5thintheworldintermsoftotalinstalledcapacity;itis
oneofthelowestintermsofpercapitaconsumptionofpower.Indiahascontinuouslyexperienced
shortagesinenergyandpeakpowerrequirements.
AccordingtotheCentralElectricityAuthority's("CEA")monthlyreviewofthepowersector
("CEAMonthlyReview")publishedinApril2012,thetotalenergydeficitandpeakpowerdeficitfor
March2012wasapproximately8.5%and10.1%,respectively.Alongit,theIndianPowersectoris
among the least efficient in the world in terms of output units of electricity per unit of fuel
(coal/gas/oil).EvenifwecompareIndiawithotherdevelopingnationslikeChinaandKorea,Indiais
farbehindintermsofgenerationefficiency.
AspertherecentstatementgiventoaquestioninRajyaSabhaon07/05/2012byMinister
of State for PowerShriK.C. Venugopal, As per the 18thElectric Power Survey Report, Peak
Demandof1,99,540MWandEnergyRequirementof13,54,874BUhasbeenestimatedattheend
of TwelfthFive Year Plan i.e. 201617.At the end of 11thFive year Plani.e.201112 the country
wasfacingPeakShortageof13815MW(10.6%)&EnergyShortageof79313MU(8.5%).
TheWorkingGroup on Power constituted by the Planning Commission to formulate the
12thFiveYearPlanforthePowersectorhassubmitteditsreporttothePlanningCommission.As
per the report of this Working Group, capacity addition requirement during the 12thPlan is
75,785MW on all Indiabasis. The Sectorwise and fuelwise break up of 12thPlan capacity
1

additionprogrammeasperthereportoftheWorkingGrouponPowerisasunder:(InMW)

Hydro

Thermal

Nuclear

Total

Central

5632

11426

2800

19858

State

1456

12340

13796

Private

2116

40015

42131

Total

9204

63781

2800

75785

Source:PressinformationBureauDtd.07/05/2012
Thetargetfornewcapacityadditionshascreatedaplatformforapproximately150billion
USDofinvestmentsacrossdifferentsegmentofthegenerationsector.Although,thesystemisstill
inatransitoryphase,deepeningreformsandanewpolicyframeworkhavetocreateanoptimistic
outlook.
Therefore,therearefollowinggoalsofthisproject
AbriefStudyofPowersector&PowerIndustrystructureinIndia
Identifyingthedemand&supplygapsinGeneration.
RoleofNTPC/NSPCL(AJvofNTPC&SAIL)inIndianPowersector.
Identifyingvariousstepsinvolved&studyofProjectlifecycleofapowerproject.
Studyofvarioussourcesofpowerprojectfinancing&Investmentpatterns.
Studyofvariouscostsinvolved,longtermCapitalRequirement&capitalbudgetingforthe
PowerGenerationbytakinga500MW&250MWmodelpowerprojects.

2.0PowerSectorScenario&IndustryStructure.
Indiahasatotalinstalledcapacityof200GWasonApril2012.EventhoughIndiahasbeen
the5thlargestproducerofElectricityintheworld,itcontinuouslyfacingacuteshortagesduringthe
peakhours.ThefollowingtableshowstheprecedingyearsDemand&deficitofElectricity.

Years

PeakDeficit%

200001
13
200102
11.8
200203
12.2
200304
11.2
200405
11.7
200506
12.3
200607
13.3
200708
16.6
200809
11
200910
12.7
201011
9.8
201112
12.9

MUdenotesMillionUnit
Source:CEAReports

Energy
Deficit%
7.8
7.5
8.8
7.1
7.3
8.4
9.6
9.8
11.1
10.1
8.5
10.3

ActualPowerdemandSupplyPosition
Requirement Availability Surplus/deficit(+/)
Fiscal
year
(MU)
(MU)
(MU)

2005
591373
548115
43258
7.3
2006
631544
578819
52725
8.3
2007
690587
624495
66092
9.6
2008
737052
664660
72392
9.8
2009
777039
691038
86001
11.1
2010
830594
746644
83950
10.1
2011
861591
788355
73236
8.5
2012
933741
837374
96367
10.3

Considering the importance of development of power sector for the overall growth of
economy,planningcommissionhasgivendueimportanceintheprevious&currentfiveyearplans.
Indian Government has set ambitious target to achieve Power to all as per national electricity
plan. To revamp the Power Sector, Government of India have taken, number of path breaking
initiatives in the recent past, both in terms of policy pronouncements and programmes, ranging
from bringing increasing efficiency in generation segment through introduction of super critical
technology, penetration of commercial energy in the rural areas and consolidation of electricity

deliverysystemsIndianGovernmenthasbroughtvariousstructuralchangestoachievethetarget
throughIndianElectricityAct2003.

IndianElectricityAct2003;
The restructuring of power systems across the globe started with the redesigning of its
powermarkets.InIndia,electricityreformsstartedwiththereevaluationofIndianElectricityAct
1910 and the Electricity Supply Act1948, which led to the Electricity Act, 2003. Indian Electricity
Act2003isthebiggestmilestoneinthehistoryofIndianPowersector.TheElectricityAct2003has
been brought about to facilitate private sector participation in Indian Power Sector and to help
cashstrappedSEBstomeetelectricitydemand.TheElectricityAct2003envisagescompetitionin
electricity market, protection of consumers interests and provision of power for all. The Act
recommends the provision for National Electricity Policy, rural electrification, open access in
transmission, phased open access in distribution, mandatory SERCs, license free generation and
distribution,powertrading,mandatorymetering,andstringentpenaltiesfortheftofelectricity.
One more welcome step the Indian electricity market has seen is the implementation of
Availability Based Tariff (ABT) which brought about the effective dayahead scheduling and
frequencysensitivechargesforthedeviationfromthescheduleforefficientrealtimebalancing.
2.1IndustryStructure
Public sector institutions continue to play the dominant role in the electricity supply and
delivery chain in India, primarily through central and state level government owned utilities. The
followingfiguredepictstheinteractionsbetweenthevariousplayersintheIndianpowermarket.
4

The Ministry of Power (MoP) is the Central government institution responsible for overseeing
Indiaselectricityindustry.SeveralauthoritiesandagenciesoperateundertheMoP,amongthem
theCentralElectricityAuthority(CEA),assiststheMoPontechnicalandeconomicissues.

Figure2.2:IndianPowerMarketInstitutional/OperationalFramework
TheCentralElectricityRegulatoryCommission(CERC)isanindependentstatutorybodywith
quasijudicialpowers.TheCERChasamandatetoregulateinterstatetariffrelatedmatters,advise
thecentralgovernmentonformulationofthenationaltariffpolicyandpromotecompetitionand
efficiencyintheelectricitysector.TheCERCregulatesCentralgovernmentownedutilitiesbothin
generation and transmission. The State Electricity Regulatory Commissions (SERCs) have
5

jurisdiction over state utilities in generation, transmission and distribution. Independent Power
Producers (IPPs) are regulated by CERC / SERC depending on whether they sell power to one or
more states. Regional Load Dispatch Centers (RLDCs) are responsible for managing the central
transmission system, whereas State Load Dispatch Center (SLDCs) manages the intrastate and
some interstate systems. Central generating stations are contracted to state utilities and are
dispatched by RLDCs. State owned generating stations sell power to their own state distribution
licenseeandaredispatchedbySLDCs.Distributionlicenseescanalsobuypowerfrommegapower
projects, IPP, traders and through the power exchange. The central government, through public
companies,ownsandoperatesonethirdoftotalgenerationcapacityandinterstatetransmission
lines.Atthestatelevel,SEBsownandoperatemostoftheremainingtwothirdsofthegeneration
capacity,aswellasthemajorityofintrastatetransmissionanddistributionsystems.
To promote power trading in a free power market, Central Electricity Regulatory
Commission (CERC) approved the setting up of Indian Energy Exchange (IEX) which is the first
power exchange in India. IEX has been modeled based on the experience of one of the most
successful international power exchanges, Nordpool. The exchange has been developed as
marketbasedinstitutionforprovidingpricediscoveryandpriceriskmanagementtotheelectricity
generators,distributionlicensees,electricitytraders,consumersandotherstakeholders.

3.0RoleofNTPC/NSPCL(AJvofNTPC&SAIL)inIndianPowersector.
NTPCLimited(formerlyknownasNationalThermalPowerGenerationLimited),India'slargest
power company, was set up in 1975 with a vision A world class integrated power major,
powering Indias growth with increasing global presence" to accelerate power development in
India. It has emerged as an Integrated Power Major, with a significant presence in the entire
valuechainofpowergenerationbusiness.NTPCisaGovernmentownedentitywith89.5% ofits
paidupcapitalcontributedbytheGovernmentandthebalanceof10.5%beingheldwithforeign
institutional investors, financial institutions, banks, and the general public. NTPC is awardedwith
MAHARATNAPSUstatusbyGovernmentofIndia.NTPCisprimarilyinvolvedinconstructingand
operating power stations. It is among the worlds largest and most efficient power generation
companies.NTPChasinstalledcapacityof37514MWasonApril2012.Ithas
16coalbasedpowerstations(29,195MW),
7gasbasedpowerstations(3,955MW)and
7powerstationsinJointVentures(4,364MW).
The company has power generating facilities in all major regions of the country. It plans to be a
75,000 MW company by 2017. NTPC is pursuing expansion of its business activities into
hydroelectricgeneration,coalmining,gasexploration,andparticipationintheliquefiednaturalgas
valuechain,whichsupplementsandsupportsitscorepowergenerationactivities.

NSPCLisaJointventureoftwoMaharatnacompaniesNTPC&SAILwasincorporatedon

7th March 2011, with 50:50 equity participation of both promoter companies. Primarily it was
startedtoown,operateandmaintainthecaptivepowerplantsofSteelAuthorityofIndiaLtd(SAIL)
at Rourkela, Durgapur and Bhilai. The company hasbeenonthegrowthpathsincethen.
7

Initially it started with an installed capacity of 314MW combined of all three power plants
supplying captive power to respective SAIL Units. Going in expansion mode, it added further
capacityof500MW(2X250)atBhilaiintheyear2009,takingthetotalcapacityto814MW.Nowit
supplypowernotonlytoSAIL,butbeyondthecaptivemodeitalsosuppliespowertoChhattisgarh
DadraNagarHaveli,Daman&Diu
ExpansionprojectofBhilaifundedbyRuralElectrificationCorporation(REC)1285Cr,Union
bank444CrandIDBI200Crasadebt.
Thecompanyispoisedforfurthercapacityadditiontothetuneof1725MWasperlatest
corporateplanbesidesitisintheprocessoffinalizeditlongtermcorporateplantochartoutits
ambitious growth path up to 2022 with a view to emerge as significant contributor to countrys
economicdevelopment.
SalientFeaturesofNSPCL:

TheNetWorthoftheCompanyissteadilyincreasingoverthepast5years.

Duringthepast5years(FY06toFY10),theNetworthhasincreasedfromRs389CrtoRs1135
Cr.IntheyearFY07,outofRs.868CrofNetWorth,Rs.781CrisShareCapitalandRs.87Cris
Reserves&Surplus.DuringthisyearthepromotershadinfusedequityofRs.450CrforBhilai
ExpansionPowerProject(2x250MW).

AsonMarch31,2010,outofthetotalShareCapitalofRs.951.50Cr,Rs.117.30Crofequityis
towardsexistingplantsatDurgapurandRourkela,Rs.33.20Crpertainstoexistingplant(CPP
II)ofBhilaiandthebalanceRs.800CrofequityistowardsBhilaiExpansionPowerProject(2x
250MW).

TheoperationalperformanceofNSPCLhasimprovedconsistentlyfromFY02toFY10.Thisis
owing to the renovation & modernization initiative taken by NSPCL and better operational
8

management. NSPCL, Bhilai PP IIs are old plants with dated technology. However, with
renovation & modernization initiatives taken by NSPCL the plants are running at high
operationalparameters.

TherewasasignificantimprovementinDurgapurandBhilaiplantintermsofunitsgenerated,
PLFandavailabilityfactor.

Outages, auxiliary power consumption, specific oil consumption and heat rate have
significantlydecreasedfromthetimeoftakeovertoFY10forallthethreeUnits.

The PLF of the plant till September2010 is 89.91% as against the Normative Annual Plant
AvailabilityFactorof85%asperthetarifforder.

TheGrossStationHeatRateforthePlantis2399Kcal/kWhwhichislowerthanGrossStation
HeatRateaspertheCERCRegulations.

TheSecondaryfueloilconsumptionfortheplantisclosetohalfasagainstCERCorder.

TheAuxiliaryConsumptionforthePlantislessthanauxiliaryconsumptionprescribedinthe
CERCRegulationsfortariffcomputation.

ThereturnonequityisaspertheCERCRegulations.

OpportunityAreasforNSPCLgoingforward

AggressivegrowthplansofSAILwhichwouldneed4600MWofcaptiverequirementby2020

SAILs vision of entering the thermal power business as part of their Lakshya2020 initiative
throughNSPCL.

HugedemandforpowergenerationcapacityinIndia

TakingoverthePP1plantsofSAIL

TakingoverandturningaroundofDVCplantsinBokaro.

Potentialamendmentofclauseonminimum51%powerconsumptionbythepromoterofthe
captivepowerplant.
9

Leveraging existing land bank of SAIL for projects, which would result in lower gestation
periodsConstructingandoperatingCaptivepowerplantsforotherbulkconsumers/industrial
clusters/groups

Supplythroughopenaccess
SupplytootherSAILplantsthroughCTU
SupplytoBulkandotherindustrialconsumers

VenturingintoPowertrading

Entryintomanageddistribution(Eg:SAILtownships)

OfferingO&Mandotherconsultancyservices

InvestinginRenewableenergy

Investmentforashutilization

KeyThreatsandChallenges

Heavydependenceonasingleconsumer(SAIL).

Rapidlyevolvingtechnology

FuelSecurity

DependenceonNTPCformanpowerandtechnicalknowhow

Availabilityofskilledmanpowerinthemarket

Gradualphasingoutofcrosssubsidy(whichwouldleadtoconvergenceofIPP&CPP)

Likely cheaper power from UMPPs and super critical power plants may be a threat in a
competitivemarketscenario.

10

4.0Powersector&issues
4.1Generation
The current installed capacity is approximately 200 GW with coal being the primary fuel
source. Despite significant recent additions, there is a significant stock of aging plants that have
poor performances. The sector also suffers from, fuel shortages, inadequate transmission
evacuation system, regulatory uncertainty and payment security concerns. Concerns about the
sectorpavedthepathforreforms.Ofthisthecentralandstatesectoraccountedforapproximately
89%[MOP,2012].Thestatisticspointtohighperceptionofrisklackofenthusiasmonpartofthe
privatesectorwithregardtopowergenerationinIndia.
IntheCentralSector,NationalThermalPowerCorporation(NTPC)isaplayerofglobalscale.The
State Electricity Boards also operate generation facilities to serve their demand. Private Sector
comprises of many players like Tata Power Company, Reliance Energy, GVK, GMR etc. Despite
reformsintroducingprivateparticipationintheearly1990s,Indiaselectricitysectorhasremained
dominated by the state owned entities and has been unable to attract adequate private
investments.ElectricityAct2003introducedanotherwaveofliberationaimedatcreatealegaland
structuralframeworkforacompetitivemarket.

11

Tomaintaintheprojectedeconomicgrowth,Indianeedstoadd75GWofnewcapacityby
2017. The growth in capacity must be matched with efforts to i) optimize utilization of unevenly
distributed fuel resources with proper evacuation system; ii) diversify fuel sources with cheaper
and cleaner fuel from huge hydro and other renewable energy; iii) build raw material and
infrastructural support; iv) adopt new generation technologies; and v) renovate and modernize
programofexistingplants.

The total funds requirement for the generation segment during the 12th Plan has been
estimatedtobeapproximately`1372580Cr,ofwhichcentralsectorrequirementis49%.However,
lackoffinancingandhigherinterestratesarelikelytoimpedefundsmobilization.Butatthesame
time interest from foreign investors and the renewed interest of multilateral agencies in the
electricitysectorhasbeenstrong.TherehasbeenresurgenceofinternationalinterestintheIndian
powersector.

4.2Transmission
Transmission plan in India has always been generation based. It is therefore not going to
helpbecausethereareboundtobeimbalances.Eventoday,CTUandSTUsareveryconservative
12

in agreeing to create more than the desired transmission capacity and freely allowing
interconnectivity. Investments in the Transmission sector have been therefore been inadequate
duetotheheavyemphasisongenerationcapacity.Inmoststates,theexistingdistributionnetwork
has been formed by expanding and connecting smaller and disjointed networks. Consequently,
there are several deficiencies in the Transmission system, such as high losses and low reliability.
The major player in this sector is the government owned Power Grid Corporation of India. The
totaltransmissionsysteminIndiaat765/HVDC/400/230/220kVcorrespondingto1,32,329Mega
Watts (MW) of installed generation capacity at the end of March 2007 was 198,089 circuit
kilometersoftransmissionlines,251,439MVAofACsubstationand8,200MWofHVDCsubstation
capacity.

4.3Distribution
Indiasdistributionsectorhastraditionallybeenaleakingbucketwiththeholesdeliberately
craftedandtheleakscarefullycollectedaseconomicrentsbyvariousstakeholdersthatcontrolthe
system. The logical thing to do would be to fix the bucket rather than to persistently emphasize
shortagesofpowerandforevermakeexaggeratedestimatesoffuturedemandsforpower.Most
initiatives in the power sector (IPPs and mega power projects) are nothing but ways of pouring
more water into the bucket so that the consistency and quantity of leaks are assured. The
DistributionarmofthePowerSectorhadbeenthedomainoftheSEBsforaverylongtimewhich
gaverisetofinancialproblemsduetolackofcollectionofdues.TheSEBsfinancialdifficultiesled
to problems in the upstream for power generation. To alleviate this situation Distribution
Companiesarebeginningtobeprivatizedinsomestates,mostnotableamongthembeingDelhi.

13

RelianceEnergyandTataPowerCompanywerethefirstprivatesectorplayerstomakeaforayinto
powerdistributioninthecountry.

4.4DemandSupplyPosition
The steady increase in electricity demand is attributed to the countrys rapid economic
growth. Over and above Indias visible electricity demand growth, there is significant latent
demandthatremainsunderrepresented.ThefollowingtableshowstheprecedingyearsDemand
&deficitofElectricity.

Years

PeakDeficit%

200001
13
200102
11.8
200203
12.2
200304
11.2
200405
11.7
200506
12.3
200607
13.3
200708
16.6
200809
11
200910
12.7
201011
9.8
201112
12.9

MUdenotesMillionUnit
Source:CEAReports

Energy
Deficit%
7.8
7.5
8.8
7.1
7.3
8.4
9.6
9.8
11.1
10.1
8.5
10.3

ActualPowerdemandSupplyPosition
Requirement Availability Surplus/deficit(+/)
Fiscal
year
(MU)
(MU)
(MU)

2005
591373
548115
43258
7.3
2006
631544
578819
52725
8.3
2007
690587
624495
66092
9.6
2008
737052
664660
72392
9.8
2009
777039
691038
86001
11.1
2010
830594
746644
83950
10.1
2011
861591
788355
73236
8.5
2012
933741
837374
96367
10.3

The demand projections have discounted the Places where electricity cables have not
reached yet and industries that would come up if supply of electricity is guaranteed. Shortage is
likely to be a major driver for new capacity development in future. Energy demand deficits have
increasedfrom7percentto10percentinthepastfiveyears,indicatingthatahighlatentdemand
forelectricityexistsinIndia.Thislatentdemandincreasesthepotentialfordemandtogrowevenin
periodsofsloweconomicgrowth.
14

As the figure below shows, India has constantly been plagued with a demand supply gap in the
Powersector.SuchagapisamajorhindrancetothegrowthofadevelopingeconomylikeIndia.

4.5FinancingRequirements
The Working Group on Power has estimated that Rs. 1372580 Cr will be required by the
Power sector to meet the target of 75785 MW capacity additions and development of related
transmissionanddistributioninfrastructurebytheendofXIIplan(FY2012FY2017).
OverallInvestmentRequirementin12thplan(20122017)

Particulars

FundRequirementinCr

1
Generation
2
R&M
3
Captive
4
RenewableEnergysources
5
Transmission
6
Distribution
7
R&D
8
DSM&EE
9
HRD

TotalFundRequirement
Source:PlanningCommissionofIndia

638600
31887
65000
135100
180000
306235
4168
7482
4108
1372580

Thequestionofgeneratingthishugeamountoffundsthereforeassumesprimeimportance.
15

The planned additions in all the three sectors will be missed if significant steps are not taken to
ensureamorecongenialenvironmentinthesectortobringinmoreinvestments.Theinvestment
in generation, transmission, distribution and rural electrification should ideally be in the ratio of
4:2:1:1. This implies for each rupee invested in generation a similar investment is required in
Transmission & Distribution (T&D). Nevertheless, in practice actual investment in T&D so far has
been30percent.Asaresultthereisaseveregapintransmissioncapacityatstatelevels.Theratio
forCentralandStatesectorshasgraduallyimprovedoverthevariousplanperiods,butthePrivate
Sector remains a gaping hole. The private investment in T&D segment has not been enough and
needstoberopedinforbalanceddistributionofpoweracrosstheregions.
While this could well be the investment needed, the absorption capacity, availability of financial
resourcesandtheviabilityofutilitiesarelikelytoactasconstraintsinrealizingtheseinvestment
projections.Hencethequestionofgeneratingthishugeamountoffundsthereforeassumesprime
importance.Significantstepstoensureacongenialenvironmentinthesectorforbringinginmore
investmentshavetobetakenupaslackoffinancingandhigherinterestratesarelikelytoimpede
fundsmobilization.Butatthesametimeinterestfromforeigninvestorsandtherenewedinterest
ofmultilateralagenciesintheelectricitysectorhasbeenstrong.Therehasbeenaresurgenceof
internationalinterestinIndianPowerSector.

16

5.0PowerProjectLifeCycle
AtypicalPowerProjectStructureisawebofcontracts.ThePowerPlantPromoterssetupa
projectcompanyviatheSpecialPurposeVehicle(SPV)routei.e.theprojectcompanyisadistinct
legalentity.TheCompanyentersintotwosetsofagreementsProjectFinanceandOperational.

Table3.1:PowerProjectStructureinIndia
5.1ProjectFinance
APowerPlantisfinancedviatheProjectFinanceroute.Projectfinanceisusuallydefinedas
limited or nonrecourse financing of a new project through the establishment of a
17

separatelyincorporatedvehiclecompany.AsofnowIndianpowersectorispermittingdebt:equity
ratio of 70:30. Project financing will be arranged from different finance institutions & markets in
termsofdebt&equity.
5.2OperationalAgreements
EPCContract:

The Company then enters into an agreement with an Engineering, Procurement and

Construction(EPC)contractorforsettingupthephysicalfacilityforthePowerPlant.
FuelSupplyAgreement:
TheCompanyalsoentersintoalongtermFuelSupplyAgreement(FSA)toensurefuelavailability.
Asthepaperexplainslater,fuelisthemostimportantcomponentinensuringtheviabilityofthe
project.
PowerPurchaseAgreements:
OfftakeofthePowergeneratedbytheplantisguaranteedbyaPowerPurchaseAgreement(PPA)
withaTRANSCO.Somepowermaybeutilizedformerchantsalestoindustrialhouses.
GovernmentClearances:
TheCompanyalsohastogettherequisiteclearancesforthegovernmentwithregardtoproperty
rights,permitsandenvironmentalconcerns.ListofMajorclearancesrequiredasfollows;

18


5.3ProjectDevelopment
Fromaplanningandfinancingperspective,thereareessentiallythreestagesofindependentpower
project (IPP) development: development, construction, and operation. The sources of funds, in
general, are different for each stage. The risks associated with the completion of each stage are
alsodifferentandhence,thecostofthecapitalisdifferent.
5.3.1DevelopmentPeriod
During the development stage, one cannot be certain that a "financeable" project will
result.Theprojectmustfirstbedefinedintermsofthebuyer'sneeds,thesite,thefuelavailability
and the permitting requirements. Then the feasibility work is done. This generally consists of
engineering, cost estimation and environmental work, as well as the development of preliminary

19

project proformas. The developer must then obtain contracts, secure the site, and complete the
permittingfortheplant.Thecontractthatsetsthedirectionfortherestofaproject'sdevelopment
isthepowerpurchaseagreement.Itisduringthedevelopmentperiodthatthegreatest"value"is
beingcreatedbecauseefficientplanningandengineeringcapabilitydecideontheviabilityofthe
project and also the tariff competitiveness of the power produced is decided by the engineering
excellence of the plant. The source of funds generally used during this period is equity. The
developerandowneroftheprojectprovidethesefunds.Thesourcesoffinancingforindependent
power projects are scarce because the risks of development are high. Until the project reaches
financialclosingforconstruction,thereareamultitudeofrisksthatcouldreducethevalueofthe
projecttozero.Theserisksinclude:
Permittingrisk
Politicaloppositiontotheproject
Inabilitytosecurefuelandfueltransportationunderlongtermcontract
Inabilitytoobtainafinanceablepowerpurchaseagreement,eitherbecausethepowerprice
istooloworthetermsarenotacceptable
RegulatorydisapprovalsandChangeinlaw
5.3.2ConstructionPeriod
A project enters the construction stage when it has met all the requirements necessary to put
togetheranonrecourseprojectfinancing.Thismeansthatallofthecontractsarenegotiatedand
signed, the permits are granted, and the technology and equipment are selected. There
20

islimitedtonorecoursetothedeveloperifthereisaproblem.Thisisthenatureofnonrecourse
project finance. The majority of the construction funds are through debt. The period of greatest
risk for them is just before the plant is completed, because they have almost their entire loan
outstandingandtheplantisstillnotproducingrevenues.TheProjectCostalsoincludesprovision
for Interest during construction and a margin for working capital finance both of which are
capitalized.
5.3.3OperatingPeriod
The primary financial management issue throughout the project life cycle is to minimize the
financial and operating costs of the project. Once a project reaches commercial operation, a
developer/owner has many options in terms of additional financing. For example, institutional
buyerssuchasinsurancecompaniesandpensionfunds,aswellasthepublicmarkets(whichdonot
takeconstructionrisk),cannowparticipate.Theprojectnowhasrealoperatingandfinancialdata
thatcanbeusedtoassesstheplant'sperformanceandfinancialexpectations.Thekeyisplanning
andconstantattentiontotheprojectfinancedebtmarket

21

6.0ProjectEconomics
Thecostofpowergenerationvaries,dependingonthetypeoffuelused.Thechoiceoffuelfora
power plant is influenced by a number of factors such as the relative cost of generation,
availability, transportation constraints, and environmental hurdles. The capital costs of power
plantsalsovarysignificantly,basedonthesourceofenergy,infrastructure,plantsize,technology
andequipmentandinterestduringconstruction(IDC).

6.1FuelsSupply
Aspointedoutearlier,powerplantswiththelowestvariablecosts(Coal)shouldbeemployedto
meetthebasedemand,whilethosewithahighervariablecost(Gas)shouldbeemployedtomeet
thepeakingdemand.Thiswillresultinaminimumoverallvariablecostofpower.

22

Cost:
Thedeliveredpriceofanyfuelcanvarysignificantlydependingonthesourceofsupply(imported
orindigenous)andthedistanceoftheplantfromthesourceofsupply.Powerplantslocatednear
coalmines(pitheadplants)areabletogeneratepoweratafairlylowerratethanplantsthatneed
totransportcoaloverlongdistances.

Supply:
An interruption in the fuel supply can lower the plants PLF, resulting in a higher overall cost of
power. Given the fuel supply constraints faced by existing power plants, banks and financial
institutionsinsistonaregularfuelsupplyarrangement(FSA)beforefundingprivatesectorpower
projects, especially those proposed to be funded on a nonrecourse basis. As a result, private
powerproducerswanttohavelegallyenforceablefuelsupplyagreementswithfuelsuppliersand
fuel transporters where the power producer would pay a premium on the price of the fuel, to
ensureitsadequateandregularsupplyandwouldalsoguaranteeaminimumofftakeoffuelfrom
thefuelsupplier.

6.2Capitalcosts;
Power projects are highly capitalintensive and have a gestation period of 46 years. The fixed
componentofthepowertariffislinkedtothecapitalcostoftheproject.Hence,thecapitalcostof
apowerprojectisaveryimportantdeterminantofthetotalcostofgeneration.Thecapitalcostsof
power plants also vary significantly, based on the source of energy, infrastructure, plant size,
technologyandequipmentandinterestduringconstruction(IDC).Hence,itisnotpossibletoset
standard benchmark costs for power plants. However, the capital costs of most projects in the
private sector are assumed as shown in the tableabove
23

6.3WholesaleTariffStructure
ThetermAvailabilityTariffintheIndiancontextstandsforarationaltariffstructurefor
powersupplyfromgeneratingstationsonacontractedbasis.IntheAvailabilityTariffmechanism,
the fixed and variable cost components are treated separately. The payment of fixed cost to the
generatingcompanyislinkedtoavailabilityoftheplant,thatis,itscapabilitytodeliverMWsona
daybyday basis. The total amount payable to the generating company over a year towards the
fixedcostdependsontheaverageavailability(MWdeliveringcapability)oftheplantovertheyear.
In case the average actually achieved over the year is higher than the specified norm for plant
availability, the generating company gets a higher payment. In case the average availability
achievedislower,thepaymentisalsolower.HencethenameAvailabilityTariff(ABT).Thisisthe
firstcomponentofAvailabilityTariff,andistermedcapacitycharge.
ThesecondcomponentofAvailabilityTariffistheenergycharge,whichcomprisesofthe
variablecost(i.e.,fuelcost)ofthepowerplantforgeneratingenergyasperthegivenschedulefor
theday.Itmayspecificallybenotedthatenergycharge(atthespecifiedplantspecificrate)isnot
based on actual generation and plant output, but on scheduled generation. In case there are
deviations from the schedule (e.g., if a power plant delivers 600 MW while it was scheduled to
supplyonly500MW),theenergychargepaymentwouldstillbeforthescheduledgeneration(500
MW), and the excess generation (100 MW) would be remunerated at a rate dependent on the
systemconditionsprevailingatthetime.Ifthegridhassurpluspoweratthetimeandfrequencyis
above 50.0 cycles, the rate would be lower. If the excess generation takes place at the time of
generationshortageinthesystem(inwhichconditionthefrequencywouldbebelow50.0cycles),
thepaymentforextragenerationwouldbeata higherrate.Likewise,ifastate/customerdraws
24

morepowerfromtheregionalgridthanwhatistotallyscheduledtobesuppliedtohimfromthe
various CGSs at a particular time, it has to pay for the excess drawl at a rate dependent on the
systemconditions,theratebeinglowerifthefrequencyishigh,andbeinghigherifthefrequencyis
low. The deviation from schedule is technically termed as Unscheduled Interchange (UI) in
AvailabilityTariffterminology.Figure1.13illustrateshowandwhentheUImechanismworks.
The payment due to the generation company by the buyer in any year is computed as
follows:Totalpaymentdue=Fixedcharges+variablecharges+UIcharges,where
Fixedchargescomprise:

Interestonlongtermdebt

Depreciation

O&Mexpenses(includinginsuranceexpenses)

Returnonequity

Incentivereturnonequity

Interestonworkingcapital

Taxes

Variablechargescomprise:

Costofprimaryfuel

Costofsecondaryfuel

UIchargescomprise:

Costofsecondaryfuel

25

7.0PowerProjectFinancing
The Indian economy is poised for higher economic growth in the years to come. This will
requirelargeinvestmentintheinfrastructuresectorsincludingthepowersector.Asperthe12th
plan ` 1372580Cr required for the addition of 75GW capacity. During the 1990s, up to 80% of
power sector funding came from the public sector, followed by the private sector (1015%) and
officialdevelopmentassistance(510%).Increasingly,boththecentralandstategovernmentsare
facingtheneedtomeetcompetingbudgetingrequirementfromothersocialsectorssuchashealth
andprimaryeducation.Theneedforenhancedfiscaldisciplineandmacroeconomicstabilityisalso
placingalimitonborrowingcapacityofthegovernmentbothatcentralandstatelevel.

7.1TypesandSourcesofFinance
7.1.1Debt
Given the capitalintensive nature of power projects, mobilization of longterm debt becomes
criticaltothedevelopmentofpowerprojects.Projectfinancedebtisgenerallysecuredbyprojects
assets such that after paying operating expenses, debt and debt service is paid from cash flows.
Debttypicallyconstitutesupto70%ofthepowerprojectcostsinIndia.Thetypeofdebtusedin
powerprojectsfinancestructureshasbeenvaried.Thefollowingaresomeofthesourcesofdebt
availabletopowerprojectsdevelopers:
Government:
Traditionally,themainsourceofdebthasbeenthegovernment.Boththecentralandstate
governmentslendthemoneytoutilitiesfromtimetotimeforexpansionplansorworking
capital. They extend loans for longer tenure and at lower interest rates than commercial

26

rates.
CommercialBanksandFinancialInstitutions;
Commercial banks and Financial Institutions (FIs) have consistently increased lending to
power sector in the last 45 years. Most of the lending has been skewed towards the
generation segment. With the opening up of the T&D segment to the private sector,
commercial lending is likely to increase in future. For generation projects, the standard
tenureofloansis1314years,whichincludedconstructionperiodandrepaymentperiodof
10years.Earlierthelendingusetobeunderrecoursefinancing,butinthelast45years,
the lending institutions have become more liberal and comfortable with lending to
bankable power projects. Although, commercial banks and FIs continue to increase their
exposuretothepowersector,individualexposureofbankstothesectorremainslimited.
This is mainly because they are still constrained by financing limits as per prevalent
prudentialnormsprescribedbytheReserveBankofIndia(RBI).
NicheInstitutions;
There are also niche institutions such as Power Finance Corporation (PFC) and Rural
Electrification Corporation (REC), which provide loans specifically to power sector. While
PFCprovidesloansforallkindsofinvestments,RECfocusesmainlyonruralelectrification.
The state sectors reliance on these institutions for debt is very high mainly due to the
competitiveratesandliberaltermsandconditionsofferedbythem.Intherecentpast,due
totheirexperienceandexpertiseinthesector,theseinstitutionshavebeencompetingwith
commercialbanks.Moreover,sinceissueslikeassetliabilitymismatchandexposurelimits
arenotapplicabletoPFCandREC,itiseasierfortheseinstitutionstolendtothesector.
27

 InsuranceCompanies;
Insurance companies like the Life Insurance Corporation of India (LIC), General Insurance
Corporation of India (GIC) have extended financial support to the power sector. There are
limitsontheinvestmentsprescribedbytheInsuranceRegulatoryandDevelopmentAuthority
ofIndia(IRDA).Lifeinsuranceandgeneralinsurancecompanieshavetoinvestatleast15%
and10%ofthefundrespectivelytotheinfrastructureandsocialsectors.
ExternalCommercialBorrowings;
External commercial borrowings (ECBs) were quite a popular means to raise finances until
some time back, especially for large projects funding. These loans are raised at Liborplus
rates, which are generally lower than the interest rates in the domestic market. ECBs have
declinedoflateduetoRBIrestrictionsonforeignfundsflowsforrupeeexpenditureanddue
toanincreaseinborrowingcostsasaresultofthesubprimeeffect.
ExportCreditAgencies;
Loansfromexportcreditagenciesarecheaperthancommercialloansandaregenerallyused
when equipment needs to be imported from a particular country. These are likely to gain
importanceinthemediumtermmainlyfuelledbytherequirementofimportingsupercritical
unitsintheeleventhandTwelfthplanperiods,anduntilthisdemandismetbythedomestic
market.
Bonds;
Severalutilitiesandstatepowercorporationshaveresortedtoissuingbondstoraisefunds.
These are generally subscribed by provident and pension funds, gratuity trusts, insurance
companies,mutualfunds,individual,etc.Thesebondstypicallyhavetenureof78years.
28

7.1.2Equity
The equity in power projects, like in other projects, is driven by the rate of return that is
expectedfromtheinvestmentapartfromactingasacushiontoprojectfinance.Inthepower
sector,thereturnonequityisfixedat15.5%on30%oftheequityinvestment.Thesourcesof
equity are promoters equity, internal accruals, equity funds and strategic equity investors.
Raisingfundsfromcapitalmarketsisalsobecomingincreasinglypopular.Thefollowingaresome
ofthesourcesofequityavailabletopowerprojectdevelopers:
PromotersEquityandInternalAccruals;
Mostprojectdevelopersinvestsomeamountofthetotalprojectcostaspromotersequity
tobeabletoearntheminimumreturnonequityandraisetherequireddebt.ManyCPSUs,
including National Thermal Power Corporation (NTPC) are increasingly relying on internal
accrualsforinvestingequityinnewprojects.
Primary/CapitalMarkets;
In recent times, power sector companies have been raising funds from primary markets
throughInitialPublicOfferings(IPOs).AlmostallIPOsofpowercompaniesinthelasttwoto
three years have met with an overwhelming response from investors or have been
performingwellinthestockmarkets.SomeofthesuccessfulIPOshavebeenthoseofCPSUs
likeNTPC,andPGCIL,privatedeveloperslikeSuzlonEnergy,JPHydroandReliancePower
and infrastructure companies like GMR, GVK and Lanco. Many power companies are
expectedtolaunchtheirIPOsinthecomingyears.NTPCisalsoplanningtocomeoutwitha
followonpublicoffer.

29

 QualifiedInstitutionalPlacements;
Anothersourceofequity,whichisincreasinglybeingtappedbypowersectorcompanies,is
private placement with qualified institutional investors. For instance, GVK Power &
Infrastructure Limited (GVKIL) and Kalpataru Power Transmission raised USD 300 million
and USD 85 million respectively through this route in May 2007 and September 2006
respectively.PTCIndiaalsoraisedaroundUSD29millionthroughthisrouteinJanuary2008
byallottingsharestoinstitutionalbuyerslikeLICandMorganStanley,amongothers.
EquityFunds
Specialized equity funds such as India Development Fund by Infrastructure Development
Finance Company (IDFC) have been set up to invest in equity in private sector power
sectors. India Infrastructure Finance Company Limited (IIFCL), Citigroup, Blackstone have
also instituted a USD 5 billion India infrastructure financing initiative for investing in
infrastructure projects. The Anil Dhirubani Ambani Group and Singapores Temasek
Holdings constituted the Reliance India Power Fund with equal contributions. Others
planning to set up infrastructure funds, which would pick up equity in power projects as
well,includeaUSD2billioninfrastructurebyICICIbank,theUSD1billionMacquarieIndia
Infrastructure Opportunities Fund by Macquarie and International Finance Corporation
(IFC),aUSD1billionIndiafocusedinfrastructureprivateequityfundbyStandardChartered
andIL&FSInvestmentManagersandaUSD2billionIndiaInfrastructureFundbyJPMorgan
andChaseCompany.PTCIndiasinvestmentarmPTCFinancialServicesalsoplanstopickup
equityinpowerprojectsthroughanEnergyEquityFund.

30

7.2TrendsinPowerSectorFinancing

Increasedinvestorconfidenceresultingincommitmentanddisbursementofmorefunds

IPPrevivaltriggeredbyincreasedinvestorconfidence

Graduallyincreasinginterestratesleadingtoincreasedprojectcosts

Increasedavailabilityoflongertermdebt

Skewtowardsinvestmentingenerationcontinues

ExternalCommercialBorrowings(ECB)losessheenasRBItightensnorms

Aslocalcapitalmarketmature,morecompaniesareoptingforIPOs

Lendersnolongerdemandgovernmentguarantees,counterguarantees.

Bankableandcompetitivelypricedprojectsareabletoraisefundseasily.

Projectfinancingcriteriarelaxedbyfinanciersfornewtypesofprojects.

Promoterstrackrecordisaimportantconsideration

7.3MajorFinanciersinPowerSector
1) PowerFinanceCorporation
2) RuralElectrificationCorporation
3) WorldBank
4) InternationalFinanceCorporation
5) AsianDevelopmentBank
6) JapanBankforInternationalCooperation
7) DepartmentofInternationalDevelopment
8) IndiaInfrastructureFinanceCompanyLimited
9) InfrastructureDevelopmentFinanceCompany
10) LifeInsuranceCompany
11) Commercial banks like State Bank of India, Punjab National Bank , IDBI Bank, ICICI
Bank,SBICapitalMarkets.
31

8.0BudgetinginPowerPlants;
8.1Typesofbudgetheadsinpowerplant;
1. Directcapitaloutlay
2. CommissioningExpense
3. Constructionmaterials
4. Technicalconsultancy
5. Training&Recruitment
6. Incidentalexpenditureduringconstruction
I.

Employeecost

II.

Otherestablishmentexpenses

7. MiscellaneousbroughtoutAssets(MBOA)
8. Interestduringconstruction(IDC)
9. WorkingCapitalmargin
10. CapitalExpenditurenotrepresentedbyassets
11. Townshipandsocialoverheads.
1.

DirectlyCapitalOutlay;
This represents all cost directly identifiable with capital work and includes cost of land ,
infrastructural facilities, and mechanical, electrical works , township ,MGR and construction
facilities.Thebudgetprovisionistobemadeagainsteachbudgetheadlisted.
AsperCERCTariffRegulation2009Capitalcostforaprojectshallinclude:
a) the expenditure incurred or projected to be incurred, including interest during
constructionandfinancingcharges,anygainorlossonaccountofforeignexchangerisk
32

variationduringconstructionontheloan(i)beingequalto70%ofthefundsdeployed,
intheeventoftheactualequityinexcessof30%ofthefundsdeployed,bytreatingthe
excessequityasnormativeloan,or(ii)beingequaltotheactualamountofloaninthe
event of the actual equity less than 30% of the funds deployed, up to the date of
commercial operation of the project, as admitted by the Commission, after prudence
check;
b) CapitalizedinitialsparessubjecttotheceilingratesasspecifiedbyCERC;and
c) Additional capital expenditure determined under special circumstances like (i) Un
dischargedliabilities;(ii)Worksdeferredforexecution;(iii)Procurementofinitialcapital
spareswithintheoriginalscopeofwork,(iv)Liabilitiestomeetawardofarbitrationor
forcomplianceoftheorderordecreeofacourt;and(v)Changeinlaw:
2. Commissioning expenses
All direct expenses for running of individual units up to date of commercial operation,
includingfuelcosts,startuppowerchemicals&lubricantsconsumptionandanticipatedsale
ofenergyduringtrailrunaretobeindicated.
3. ConstructionMaterials;
Provision should be made for accretion or decretion of stock of construction of stock of
construction materials such as structural steel, reinforcement steel cement and other
materials. This consumption of materials should be valued at budget cost represented by
difference between the issue price and contract price should provide for indirect capital
outlay.

33

4. TechnicalConsultancy;
Payment to technical consultants identifiable with system such as main plant, MGR, Coal
Handling plant, & other are to be included in this head. TA, lodging expense payable to
consultants based on contractual obligations and income tax provisions in respect of tax
freeforeignconsultancypaymentsshouldalsobeprovidedunderthishead.
5. Training&RecruitmentExpenditure;
Thefirstpartofthisbudgetconsistsofexpensesfortrainingexecutives/nonexecutivesand
trainees, including stipends, facultyfee,coursematerial for trainees, rent for training hall
andexpensesformanagementdevelopmentcourses.Secondpartconsistsofexpensesfor
recruitment,interviewexpenses,TAtocandidateetc.
6. IncidentalExpensesduringConstruction
a) Employee Costs; These comprise salaries, wages, allowances, contribution to PF and
otherfunds,welfareexpenses.Anyotherprovisionforarrearsofsalary/DAorincentive
shouldbeshownseparately.
b) OtherEstablishmentExpenses:Expensesincidentaltoconstructionandcapitalworks
not traceable directly to any capital activity are chargeable to incidental expenditure
during construction repair and maintenance of buildings, construction equipment.
Vehiclerunningexpenses,officialrent,LCcharges,costofdrawing,travellingexpenses,
advertisingfortendersaremajoritemsfallinginthiscategory.
7. MiscellaneousBroughtoutAssets
Furniture and other office equipments, medical and hospital equipments, miscellaneous
assetsofTownshipandloanstoemployeesfigureinthissubjectbudget.
34

8. InterestduringConstruction;
Interesttobepaidandcapitalizedduringconstructionperiodonloanshastotobeincluded
inthisbudget.
9. WorkingCapitalMargin
Theaccretiontoworkingcapitalcomparisoninventoryoffuel,spares,consumablesetcplus
cash expenses on operation and maintenance less cash realization anticipated during
budgetperiodistobefinancedtotheextentof25%bywayofworkingcapitalmarginfrom
budgetsandthebalancefromcashcreditetc.
10. CapitalExpenditureNotRepresentedbyAssets:
This includes capital expenditure on assets belonging to their agencies for example,
construction of approach roads, canal, and lining etc. on property belonging to local
authorities/SEBs. These items should be included under respective budgets head in direct
capital outlay budget and these should also be presented separately in the format for
capital expenditure not represented by assets to facilitate identification and control such
works. The budget proposals for these should be supported by specific approval from
competentauthority.Therelevantinformationinrespectofdetailsofagreementandthe
dateoftransferetc.
11. TownshipandSocialoverheads;
This is an analysis of provision already in the IEDC budgets pertaining to the cost of
administrationandmaintenanceofPermanentTownshipandincomefromtownship.Other
social overheads comprising maintenance of schools, hospitals, subsided transport etc.
shouldalsobeindicated.
35

9.0CapitalBudgetingfordummyPowerproject;
Adummypowerprojectwasgivenwiththelifeof25yearsstartingfromApril2011.Someassumptions
for the input values were taken from NTPC/NSPCL standards (shown in the table below). Using these
assumptionsfollowingparameterswerecalculated:
a) PrimaryandSecondaryFuelCost
b) Depreciation,returnonequityandOperations&Management(O&M)Cost
c) WorkingCapitalandInterestonworkingCapital
d) TermLoanandInterest
e) Averagefixedcost
f)

Tariff

g) ProfitandLossstatement
h) CashFlowstatementandNPV,IRR

36

37

38

39

40

41

42

43

44


Since,thevalueofNPVispositivealsothevalueofIRRismorethanWACC,soNSPCLshould
acceptthisproject.

45

2x250MWProjectProfitalibilityProjections
FortheyearendedMarch31,
InstalledCapacity
PlantLoadFactor
Income
Unitsgenerated
Less:AuxiliaryConsumption
Unitssold
Tarifffortheyear
TotalSales
Expenditure
RawMaterial
O&Mexpenses
watercharges
TotalExpenditure

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2x250
80.00%

2x251
80.00%

2x252
80.00%

2x253
80.00%

2x254
80.00%

2x255
80.00%

2x256
80.00%

2x257
80.00%

2x258
80.00%

2x259
80.00%

2x260
80.00%

2x261
80.00%

2x262
80.00%

millionkWh
millionkWh
millionkWh
Rs.
Rs.Crore

2044
184
1860
2.14
398

3504
315.36
3189
2.16
687

3504
315.36
3189
2.24
713

3504
315.36
3189
2.36
752

3504
315.36
3189
2.31
736

3504
315.36
3189
2.26
720

3504
315.36
3189
2.21
704

3504
315.36
3189
2.16
688

3504
315.36
3189
2.11
673

3504
315.36
3189
2.06
657

3504
315.36
3189
2.01
642

3504
315.36
3189
1.67
533

3504
315.36
3189
1.49
476

Rs.Crore
Rs.Crore

128
31
0.00
159

219
55
0.00
274

219
58
0.00
277

219
60
0.00
279

219
63
0.00
282

219
66
0.00
285

219
68
0.00
287

219
71
0.00
290

219
74
0.00
294

219
78
0.00
297

219
81
0.00
300

219
85
0.00
304

219
88
0.00
307

239

413

437

473

454

436

417

398

379

360

341

229

169

MW

PBDIT

46

Depreciation

Rs.Crore

80

138

138

138

138

138

138

138

138

138

138

138

138

Interest
TermLoan
WorkingCapital

Rs.Crore
Rs.Crore

106
9

186
14

170
14

151
15

132
15

113
15

94
15

75
15

57
15

38
15

19
15

2
14

0
13

44

76

115

170

170

170

170

170

170

170

170

76

18

125

214

253

308

308

308

308

308

308

308

308

214

156

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

MW

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

2x257
80.00%

millionkWh
millionkWh
millionkWh
Rs.
Rs.Crore

3504
315.36
3189
1.51
480

3504
315.36
3189
1.52
484

3504
315.36
3189
1.53
489

3504
315.36
3189
1.55
493

3504
315.36
3189
1.56
498

3504
315.36
3189
1.58
503

3504
315.36
3189
1.59
509

3504
315.36
3189
1.61
514

3504
315.36
3189
1.63
520

3504
315.36
3189
1.65
526

3504
315.36
3189
1.67
532

3504
315.36
3189
1.69
538

219
92
0.00
311

219
96
0.00
315

219
100
0.00
319

219
104
0.00
323

219
109
0.00
328

219
113
0.00
332

219
118
0.00
337

219
123
0.00
342

219
128
0.00
347

219
134
0.00
353

219
139
0.00
358

219
145
0.00
364

169

169

170

170

170

171

171

172

172

173

173

174

PBT
GrossCashAccruals

Rs.Crore

FortheyearendedMarch31,
InstalledCapacity
PlantLoadFactor
Income
Unitsgenerated
Less:AuxiliaryConsumption
Unitssold
Tarifffortheyear
TotalSales
Expenditure
RawMaterial
O&Mexpenses
watercharges
TotalExpenditure

Rs.Crore
Rs.Crore

PBDIT
Depreciation

Rs.Crore

138

138

138

138

64

Interest
TermLoan
WorkingCapital

Rs.Crore
Rs.Crore

0
13

0
14

0
14

0
15

0
15

0
15

0
16

0
16

0
17

0
17

0
18

0
18

18

18

18

18

92

156

156

156

156

156

156

156

156

156

156

156

156

156

156

156

156

156

156

156

PBT
GrossCashAccruals

Rs.Crore

BalanceSheet
FortheyearendedMarch31,
Assets
GrossBlock
Less:Depreciation
NetBlock
CapitalWorkinProgress
CurrentAssets
Cashandbankbalances

2011

2012

2013

2014

2015

2016

2,645
80
2,565

116
141

2,645
218
2,427

182
244

2,645
356
2,289

188
307

2,645
494
2,151

197
425

2,645
632
2,013

196
544

2017

2018

2019

2020

2021

2022

2023

2,645 2,645 2,645 2,645 2,645 2,645 2,645 2,645

770 908 1,046 1,184 1,322 1,460 1,598 1,736
1,875 1,737 1,599 1,461 1,323 1,185 1,047 909

196 195 195 195 196 196 181 175

664 783 903 1,022 1,142 1,261 1,385 1,542

Total
Liabilities

2,821 2,853 2,784 2,772 2,753 2,734 2,716 2,697 2,679 2,660 2,642 2,613 2,626

ShareCapital
Reservesandsurplus
TermLoan
Rupeeborrowing
FCborrowing
BankBorrowings
CurrentLiabilities

807 807 807 807 807 807 807 807 807 807 807 807 807

44 120 235 405 575 744 914 1,084 1,254 1,424 1,594 1,670 1,687
1,883
0
87
0

Total

2,821 2,853 2,784 2,772 2,753 2,734 2,716 2,697 2,679 2,660 2,642 2,613 2,626

47

Difference
FortheyearendedMarch31,
Assets
GrossBlock
Less:Depreciation
NetBlock
CapitalWorkinProgress
CurrentAssets
Cashandbankbalances

1,789
0
137
0

1,601
0
141
0

1,413
0
148
0

1,224
0
147
0

1,036
0
147

848 659 471 283 94 (0)

0 0 0 0 0 0
147 146 147 147 147 136

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2,645 2,645 2,645 2,645 2,645 2,645 2,645 2,645 2,645 2,645 2,645 2,645
1,874 2,012 2,150 2,288 2,352 2,352 2,352 2,352 2,352 2,352 2,352 2,352
771 633 495 357 293 293 293 293 293 293 293 293
179 184 189 193 199 204 210 216 222 229 236 244
1,696 1,850 2,005 2,159 2,313 2,468 2,622 2,776 2,930 3,083 3,237 3,391

Total
Liabilities

2,646 2,667 2,688 2,710 2,805 2,965 3,125 3,285 3,445 3,606 3,767 3,928

ShareCapital
Reservesandsurplus
TermLoan
Rupeeborrowing
FCborrowing
BankBorrowings
CurrentLiabilities

807 807 807 807 807 807 807 807 807 807 807 807
1,705 1,722 1,740 1,757 1,849 2,005 2,160 2,316 2,471 2,627 2,782 2,938

Total

2,646 2,667 2,688 2,710 2,805 2,965 3,125 3,285 3,445 3,606 3,767 3,928

Difference

(0)

0
131

(0)
0
135

(0)
0
138

(0)
0
141

(0)
0
145

(0)
0
149

(0)
0
153

(0)
0
157

(0)
0
162

(0)
0
167

(0)
0
172

(0)
0
177

(0)
0
183

CashflowProjections
FortheyearendedMarch31,

2011
1

2012
2

2013
3

2014
4

2015
5

2016
6

2017
7

2018
8

2019
9

2020
10

2021
11

2022
12

2023
13

Inflow
GrossCashAccruals
Increaseinequity
TermLoanDrawls
Rupeeborrowing
FCborrowing
IncreaseinCurrentLiabilities
DecreaseinCurrentAssets
Increaseinbankborrowings

125
201

214
0

253
0

308
0

308

308 308

308

308

308

308

214

156

468
0

87

0
0

50

0
0

0
0

15

Total

880

263

258

314

308

308 308

308

308

308

308

228

162

669

116

94
0

66

188
0

188
0

188
0

188
0

188
0

188
0

188
0

188
0

188
0

94
0

11

Total

785

161

194

197

189

189 189

188

188

189

189

105

OpeningBalance
Surplus/(Deficit)
ClosingBalance

46
96
141

141
103
244

244
63
307

307
117
425

425
120
544

544 664
120 120
664 783

783
120
903

903
119
1,022

1,022
119
1,142

1,142
119
1,261

1,261
123
1,385

1,385
157
1,542

114 195 233 284 284 284 284 284 284 284 284 196
11 18 21 24 24 24 24 24 24 24 24 18
9%
0.92
0.84
0.78
0.71
0.65
0.60
0.55
0.51
0.47
0.43
0.39
0.36
9.66
15.60
15.93
17.11
15.70
14.41
13.22
12.13
11.13
10.21
9.36
6.52

141
15
0.33
4.88

Outflow
Capitalinvestments
Repayment
Rupeeborrowing
FCborrowing
DecreaseinCurrentLiabilities
IncreaseinCurrentAssets
Decreaseinbankborrowings

48

GrossCashAccruals
Difference
Discountingfactor
NPV

Rs.Crore

FortheyearendedMarch31,

2024
14

2025
15

2026
16

2027
17

2028
18

156

156

156

156

156

Total

159

159

159

Outflow
Capitalinvestments
Repayment
Rupeeborrowing
FCborrowing
DecreaseinCurrentLiabilities
IncreaseinCurrentAssets
Decreaseinbankborrowings

Total

OpeningBalance
Surplus/(Deficit)
ClosingBalance

1,542
154
1,696

Inflow
GrossCashAccruals
Increaseinequity
TermLoanDrawls
Rupeeborrowing
FCborrowing
IncreaseinCurrentLiabilities
DecreaseinCurrentAssets
Increaseinbankborrowings

GrossCashAccruals
Difference
Discountingfactor
NPV

Rs.Crore

2029
19

2030
20

2031
21

2032
22

2033
23

2034
24

2035
25

156 156

156

156

156

156

156

159

159

160 160

160

160

161

161

161

1,696
154
1,850

1,850
154
2,005

2,005
154
2,159

2,159
154
2,313

2,313 2,468
154 154
2,468 2,622

2,622
154
2,776

2,776
154
2,930

2,930
154
3,083

3,083
154
3,237

3,237
154
3,391

141 141 141 141 141 141 141 141 141 141 141 142
15 15 15 15 14 14 14 14 14 14 14 14
9%
0.31
0.28
0.26
0.24
0.22
0.20
0.18
0.17
0.15
0.14
0.13
0.12
4.47
4.09
3.75
3.43
3.14
2.88
2.63
2.41
2.20
2.02
1.84
1.69

DSCRandIRRCALCULATIONS
DSCRCalculations
Numerator
GrossCashAccruals
InterestonTermLoans

Denominator
InterestonTermLoans
Repayment

49

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

125
106
231

214
186
400

253
170
423

308
151
459

308
132
440

308
113
421

308
94
402

308
75
383

308
57
364

308
38
346

308
19
327

214
2
215

156
0
156

106
0
106

186
94
280

170
188
358

151
188
339

132
188
320

113
188
301

94
188
283

75
188
264

57
188
245

38
188
226

19
188
207

2
94
96

0
0
0

1.43

1.18

1.35

1.37

1.40

1.42

1.45

1.49

1.53

1.58

2.25

DSCR
DSCRCalculations
Numerator
GrossCashAccruals
InterestonTermLoans

2024

Denominator
InterestonTermLoans
Repayment

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

156
0
156

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

DSCR

MaximumDSCR
AverageDSCR
MinimumDSCR

2.25
1.46
1.18

IRRCALCULATION
2015
2016

IRRCALCULATIONS

2011

2012

2013

2014

CapitalExpenditureincl.IDC
Less:IDC
CapitalExpenditureexcl.IDC
CurrentAssetsbuildup

320.3
12.0
308

774.1
48.5
726

881.7
112.1
770

668.8
63.8
605
116

0.0
0.0
0
66

125
115

GrossCashAccruals
Interest(termloan+WC)
SalvageValue

2017

2018

2019

2020

2021

2022

2023

0.0
0.0
0
6

0.0
0.0
0
8

0.0
0.0
0
1

0.0
0.0
0

214
200

253
184

308
165

308
147

308
128

308
109

308
90

308
71

308
52

360

50

NetCashflow

308

726

770

482

347

431

465

455

436

417

398

379

IRRCALCULATIONS

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

CapitalExpenditureincl.IDC
Less:IDC
CapitalExpenditureexcl.IDC
CurrentAssetsbuildup

15

GrossCashAccruals
Interest(termloan+WC)
SalvageValue

308
34

214
15

156
13

156
13

156
14

156
14

156
15

156
15

156
15

156
16

156
16

156
17

NetCashflow

341

244

175

165

165

165

165

165

165

165

166

166

IRR

12.15%

TariffEstimates

51

FortheyearendedMarch31,
ComponentsofFixedTariff
Depreciation
InterestonTermLoan
O&Mexpenditure
Returnonequity
Interestonworkingcapital
TotalFixedCharges

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

55
106
34
66
9
270

94
186
61
113
14
468

134
170
63
113
14
494

188
151
66
113
15
533

188
132
68
113
15
517

188
113
71
113
15
501

188
94
74
113
15
485

188
75
77
113
15
469

188
57
80
113
15
453

188
38
83
113
15
438

188
19
87
113
15
422

94
2
90
113
14
314

36
0
94
113
13
257

Totalvariablecost
Incentive

128
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

FixedTariff
Variabletariff
TotalTariff
Discountingfactor
DiscountedTariff
LevelisedTariff(Rs/unit)

1.45
0.69
2.14
0.89
1.91
2.05

1.47
0.69
2.16
0.80
1.72

1.55
0.69
2.24
0.71
1.59

1.67
0.69
2.36
0.64
1.50

1.62
0.69
2.31
0.57
1.31

1.57
0.69
2.26
0.51
1.14

1.52
0.69
2.21
0.45
1.00

1.47
0.69
2.16
0.40
0.87

1.42
0.69
2.11
0.36
0.76

1.37
0.69
2.06
0.32
0.66

1.32
0.69
2.01
0.29
0.58

0.98
0.69
1.67
0.26
0.43

0.81
0.69
1.49
0.23
0.34

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

FortheyearendedMarch31,
ComponentsofFixedTariff
Depreciation
InterestonTermLoan
O&Mexpenditure
Returnonequity
Interestonworkingcapital
TotalFixedCharges

55
106
34
66
9
270

36
0
97
113
13
261

36
0
101
113
14
265

36
0
105
113
14
270

36
0
110
113
15
274

36
0
114
113
15
279

36
0
119
113
15
284

36
0
123
113
16
289

36
0
128
113
16
295

36
0
133
113
17
301

36
0
139
113
17
306

36
0
144
113
18
313

Totalvariablecost
Incentive

128
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

219
0

FixedTariff
Variabletariff
TotalTariff
Discountingfactor
DiscountedTariff
LevelisedTariff(Rs/unit)

1.45
0.69
2.14
0.89
1.91
2.05

0.82
0.69
1.51
0.20
0.31

0.83
0.69
1.52
0.18
0.28

0.85
0.69
1.53
0.16
0.25

0.86
0.69
1.55
0.15
0.23

0.88
0.69
1.56
0.13
0.20

0.89
0.69
1.58
0.12
0.18

0.91
0.69
1.59
0.10
0.17

0.92
0.69
1.61
0.09
0.15

0.94
0.69
1.63
0.08
0.13

0.96
0.69
1.65
0.07
0.12

0.98
0.69
1.67
0.07
0.11

9.0 ConclusionsandRecommendations
Fromtheabovecapitalbudgetprojectionsonadummyproject,itisobservedthattheIRR
for 500MW unit is 11.4% & for a 2x250MW unit is 12.15% and the levellized Tariff is `2.51/ &
`2.05/ per unit respectively. NPV for both the projects are found positive. By comparing two
options2x250MWunit islookingmorefeasiblecomparedtoasingle500MWunit.Ofcoursewe
cantsaythisstatementisalwaystrue.Therecertainotherfactorslikenatureofprojectwhetherit
is a Green field or Brown filed, Fuel price, distance fromcoal fields& type of transportation etc.
Installingasingleunithasalwayshasadrawbackintermsofinventory.Singleunitrequireslarge
percentage of investment in inventory like spares & other overheads compared to a multi unit
structure.
TheElectricityAct,2003aimstobringinmorecompetitioninthepowersectorinIndiato
increasetheefficiencyofthesystem.ItisevidentthatthedeficitinpoweravailabilityinIndiaisa
significantimpedimenttothesmoothdevelopmentoftheeconomy.Inthiscontext,bridgingthe
gap in demand and supply has become critical and consequently, large projects are being
undertakenindifferentsegmentsofthesector;Generation,TransmissionandDistribution.AsIndia
has not witnessed such a large scale of implementation before, there is a need to review and
enhanceprojectexecutioncapabilitiestohelpensuretargetsaremet.
Itisnecessarytoappreciatethatinspiteofalltheencouragementandreforms;thepower
sector is still riddled with many gross uncertainties. Emerging economies such as India has
thereforemuchtodoandlearnabouttheexecutionofthereformprocesses.Thereformsprocess
shouldbecarriedoutingradualstepsandthesectorshouldnotbelefttomarketforcesfromthe

52

veryoutset.GovernmentreformsshouldbeinvestorfriendlytoattractmoreinvestmentsinIndian
PowerSector.
Government should pay more attention on development of non conventional energy
sourcesratherthandependingoncoalbasedplants.TheMinistryofPowerneedstoacceleratethe
development of the National Grid because the lack of Transmission capacity is harming the cost
effectivenessofdeliveredpower.Asforfinancingthesector,theInterInstitutionalGroupneedsto
start working on the Public PrivateParticipation model wherein the Private entrepreneurial skills
are actively supported by public funds not just in the form of debt financing but also equity
participation.

@@@@@@@@@

53

References/Bibliography
LiteratureReferences
Reports&ExecutivesummaryonPowerSectorfromCentralElectricityAuthority
(CEA),CERC
PlanningCommissionreportsonIndianPowerSector(11&12thplanVolume3)
INDIAPowerSector:EmergingDevelopments&Criticalissues
IndianPowersectorPerformance,Challenges&OpportunitiesbyCRISIL

TheHinduSurveyofIndianIndustry.

BusinessreportonNSPCLbyM/sDeloitteToucheTohmatsuIndiaPrivateLimited.

PowersectorFinancingKeyIssuesinINDIAbyPowerMinsistry
Investment Opportunities in Indian Power Sector and Cooperation with International
EnergyAgencyR.V.Shahi,Secretary,MinistryofPower,GovernmentofIndia.
Various Reports of Power Finance Corporation (PFC), Central Electricity Regulatory
Commission(CERC),MinistryofPower(MoP),PowerFinanceCorporation(PFC),Power
GridCorporationofIndia(PGCIL)
Weblinks
1. MinistryofPower,Govt.ofIndia(powermin.nic.in)
2. CentralElectricityAuthority(www.cea.nic.in)
3. CentralElectricityRegulatoryCommission(cercind.gov.in)
4. Infraline(www.infraline.com)
5. TheAssociatedChambersofCommerceandIndustryinIndia(www.assocham.org)
6. ConfederationofIndianIndustries(www.ciionline.org)
7. PowerFinanceCorporation(www.pfcindia.com)