SUMMER INTERNSHIP REPORT ONEVALUATING TECHNO-COMMERCIAL ASPECT OF CHINESE

EQUIPMENT IN INDIAN POWER SECTOR &

FINANCIAL MODELING OF 600MW THERMAL POWER PLANT

AT

SUMITTED BY : UNDER THE GUIDENCE OF

VINEET AWASTHI Mr. SARABJEET SINGH

MBA (Power Management) ESSAR POWER, MAHAN

National Power Training Institute

Faridabad

Affiliated To

AUGUST 2013

ACKNOWLEDGEMENT

I am having great pleasure to present this report entitled “Financial Modeling Of 600mw

Thermal Power Plant & Evaluating Techno-Commercial Aspect Of Chinese Equipment In

Indian Power Sector” I take this opportunity to express my sincere thanks to all who

contributed to make this a success.

I would like to express my sincere thanks to my guide Mr. Sarajeet Singh, Astt. V.P comercial.,

ESSAR Power Mahan for providing me the necessary resources for carrying out the study and I

would like to thank Mr. Sandeep Singh ESSAR Power Mahan for his timely and continued

support.

I feel deep sense of gratitude towards Mr.S.K. Chaudhary, Principal Director, CAMPS, Mrs.

Indu Maheshwari, Dy. Director, NPTI and Mrs. Manju Mam, Dy. Director, NPTI for arranging

my internship at ESSAR Power Mahan and being a constant source of motivation and

guidance throughout the course of my internship.

I also extend my thanks to all the faculties and my batch mates in CAMPS (NPTI), for their

support and guidance throughout the course of internship.

Thank you all for being there for me always.

Vineet Awasthi

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DECLARATION

I, Vineet Awasthi, Roll No 96, student of MBA-Power Management (2012-14) at National Power

Training Institute, Faridabad hereby declare that the Summer Training Report entitled “Financial

Modeling Of 600mw Thermal Power Plant & Evaluating Techno-Commercial Aspect Of

Chinese Equipment In Indian Power Sector” is an original work and the same has not been

submitted to any other Institute for the award of any other degree.

A Seminar presentation of the Training Report was made on August 2013 and the

suggestions as approved by the faculty were duly incorporated.

Presentation In-Charge Signature of the Candidate

(Mr. Amit Mishra )

Countersigned

Director/Principal of the Institute

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ABBREVIATION USED

BOT = Build Operate & Transfer

BTU = British thermal unit

CEA = Central Electricity Authority

CEC = China Electricity Council

CERC = Centre Electricity & Regulatory Commission

CPTIEC = China Power Technology Import and Export Company

DPR = Detailed Project Report

EPC = Engineering Procurement & Construction

FDI = Foreign Direct Investment

FIE = Foreign Invested Enterprise

FSU = Former Soviet Union

GDP = Gross Domestic Product

GNP = Gross National Product

IPR = Intellectual Property Rights

IPP = Independent Power producers

LOI = Letter of Intent

MoEP = Ministry of Electric power, China

MOU = Memoranda of Under Standing

NIE’s = National Intelligence Estimations of China

OECD = Organization for Economic Co-operation & Development

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TABLE OF CONTENT

ABOUT THE COMPANY ix

PROJECT 1: EVALUATING TECHNO-COMMERCIAL ASPECT OF CHINESE EQUIPMENT IN INDIAN POWER SECTOR

1. EXECUTIVE SUMMERY 82. INTRODUCTION 93. OBJECTIVE 104. THE POWER SECTOR – GLOBAL 115. THE CHINESE POWER SECTOR 13

5.1. OVERVIEW 135.1.1. BACKGROUND 135.1.2. THE DEMAND – SUPPLY SITUATION 135.1.3. ENERGY SUPPLY OPTIONS 13

5.1.3.1. THERMAL POWER 145.1.3.2. HYDROELECTRIC POWER 145.1.3.3. NUCLEAR POWER 15

6. CHINA AND INDIA COMPARISION (MACRO LEVEL) 167. CHINA AND INDIA REALITY BEHIND STATISTICS 188. INDIAN POWER EQUIPMENT SUPPLY PROBLEMS 21

8.1. PROBLEMS WITH BHEL 219. REASON BEHIND CHINESE SUPPLY 2210. CHINESE POWER EQUIPMENT MARKET 25

10.1. MAJOR PLAYERS OF CHINESE POWER EQUIPMENT MARKET 2510.2. EXTENDED POWER EQUIPMENT MARKET IN CHINA 28

10.2.1. STRONGER POWER CONSUMPTION GROWTH 2910.2.2. CLOSURE OF SMALL UNIT TO TRIGGER REPLACEMENT

IN CHINA 3010.3. EXPORT MARKET ENTERING ON GLOBAL STAGE 30

10.3.1. CHINA POWER EQUIPMENT: ATTRACTIVE PRICE WITH QUALITY 30

10.4. A LEAP IN TECHNOLOGY 3110.5. TECHNOLOGY PARTERS 32

10.5.1. BENEFITS FROM ENHANCED EXPORT FINANCING ANDINVESTMENT 32

10.6. RIDE ON COAL CAPACITY RENAISSANCE 3211. WHY THE CHINESE EQIPMENTS ARE CHEAPER 34

11.1. CHINESE GOVERNMENT POLICY TOWARDS EXPORT 3411.2. WHY THE PRICES ARE SO LOW IN THE FOREIGN EXPORT MARKET 35

12. PROJET IN HAND WITH CHINESE PLAYERS & ISSUES WITH CHINESEEQUIPMENT SUPPLY 37

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13. ADVANTAGES OF CHINESE SUPPLY 4014. SWOT ANALYSIS OF CHINESE EQUIPMENT 41

14.1. STRENGTHS 4114.2. WEAKNESS 4114.3. OPPORTUNITIES 4214.4. THREATS 42

15. CONCLUSION 43

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PROJECT 2: FINANCIAL MODELLING OF 600MW COAL BASED THERMAL POWER PLANT

1. EXECUTIVE SUMMERY 1.442. ROLE OF REGULATOR IN FORMING FINANCIAL MODELLING 3.463. C.E.R.C. (TERMS & CONDITION OF TARIFF) REGULATION 2004 4.474. FINACIAL MODELLING 13.56

4.1. INTRODUCTION 13.564.2. NEED FOR FINANCIAL MODEL 15.574.3. PURPOSE OF FINANCIAL MODEL 15.584.4. ADVANTAGES OF FINANCIAL MODEL 15.584.5. APPLICATIONS 15.58

5. FINANCIAL INDICATORS 16.595.1. NET PRESENT VALUE 16.595.2. INTERNAL RATE OF RETURN 17.605.3. DEBT SERVICE COVERAGE RATIO 18.615.4. WEIGHTED AVERAGE COST OF CAPITAL 19.62

6. METHOD OF TARIFF DETERMINATION 21.646.1. PROJECT COST AND IDC CALCULATION 21.646.2. ASSUMTION AND INPUT SHEET 22.656.3. FIXED COST CALCULATION 22.656.4. VARIABLE OST CALCULATION 23.666.5. CASH FLOW STSTEMENT 23.666.6. PROFIT AND LOSS ACCOUNT 23.666.7. BALANCE SHEET 24.676.8. TAX SHEET 25.68

7. LIMITATIONS 27.688. BIBLIOGRAPHY 28.69

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ABOUT THE COMPANY

Essar is a global corporation with investments in the sectors of steel, energy (oil & gas and

power), infrastructure (ports, projects & concessions) and services (shipping, telecom, realty and

outsourcing and technology solutions). With operations in more than 25 countries across five

continents, Essar employs over 73,000 people and has revenues of $39 Billion Essar began as a

construction company in 1969 and diversified into manufacturing, services and retail.

Essar is managed by Shashi Ruia – Chairman, and Ravi Ruia – Vice Chairman Over the last

four decades, it has grown through strategic global acquisitions and partnerships, or through

Greenfield and Brownfield development projects, capturing new markets and discovering new

raw material sources. Today, the company has expanded its global footprint, focusing on markets

in Asia, Africa, Europe and the Americas. Essar invests significantly in the latest technology to

drive forward and backward integration in its businesses, and on leveraging synergies between

these businesses. It also focuses on in house research and innovation to be a low-cost

manufacturer with high quality products and innovative customer offerings. Alongside its

ambitious business pursuits, Essar has been committed to its social responsibility. It runs

community outreach initiatives in all its plant locations, with a focus on education, healthcare,

environmental and agricultural development, and self-employment.

Essar is committed to sustainable business practices. Our HSE (Health, Safety and Environment)

management system is at par with global standards. Essar is also taking climate change

initiatives to reduce its carbon footprint. This includes several CDM (Clean Development

Mechanism) projects that can earn the company CER (Certified Emission Reduction) credits. A

growing number of Essar's businesses are certified to international environment standards, like

ISO 9001 /14001, and health and safety standards, like OHSAS 18001

Essar is widely regarded as a responsible and conscientious global employer. It has experience in

managing businesses in different geographies with a culturally diverse workforce.

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ESSAR POWER

Essar Energy, a first mover among the private-sector players in the Indian power industry,

currently has a total installed generation capacity of 3,910 MW.

Essar Energy is one of India's leading private power producers with a 15-year operating track

record. The company's power business currently has seven operational power plants in India and

one operational power plant in Algoma, Canada, with a total installed generation capacity of

3,910 MW.

This capacity is increasing to 6,700 MW by the end of March 2014. Essar Energy also has access

to approximately 500 mmt of coal resources across seven coal blocks in India and overseas.

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ESSAR

POWER Oil Project Steel other

OPERATING

Essar Power - Hazira (515 MW)

Commissioned in October 1997, the Essar Power-Hazira power plant is a multi-fuel (naphtha,

high-speed diesel, natural gasoline liquid and/or natural gas) combined-cycle power plant located

near the Essar Steel facility in Hazira, Gujarat. Essar Steel and GUVNL, the Gujarat State power

utility, purchase 215 MW and 300 MW of the power, respectively. They are responsible for

providing the fuel required at the power plant to generate the power.

Vadinar Power - Jamnagar (120 MW)

The Vadinar Power power plant, located at the Vadinar refinery complex, is one of the Vadinar

refinery's captive power and steam co-generation plant. The plant is a 120 MW refinery residue-

based multi-fuel, captive, co-generation plant, with capacity to generate 77 MW of power and

230 tph of steam. Essar Oil provides the fuel required at the power plant to generate the power

and steam for the power plant's operations.

Bhander Power - Hazira (500 MW)

The Bhander Power-Hazira plant, located in Hazira, Gujarat, is a natural gas-fired combined-

cycle captive power plant. The plant The Bhander Power-Hazira plant, located in Hazira,

Gujarat, is a natural gas-fired combined-cycle captive power plant. The plant was commissioned

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in 2006 and commenced full commercial operations in October 2008. Essar Steel and other Essar

Affiliated Companies are responsible for providing the natural gas required by the Bhander

Power- Hazira plant, and in turn take the power generated pursuant to their PPAs with Bhander

Power

Algoma Power Plant - Canada (85 MW)

Essar Power (Canada) (formerly Algoma Energy LLP) owns and operates the Algoma Power

Plant in Ontario, Canada. This 85 MW co-generation plant was commissioned on June 13, 2009.

The plant's facilities include two 375,000 pound/hour boilers and a 105 MW turbine. The power

plant converts waste gases from Essar Steel, Algoma, in to electricity and steam for the

steelworks. 63 MW of the power produced is sold to the Ontario Power Authority pursuant to a

20 year power purchase agreement which expires in 2029.

Vadinar P1- Gujarat (380 MW)

The Vadinar P1 power plant, located at the Vadinar refinery complex, is the Vadinar refinery's

second captive power plant. This plant is a 380 MW natural gas-fired combined- cycle plant.

This plant was the first to be commissioned since the Company's IPO in May 2010. Essar Oil

provides the fuel required at the power plant to generate the power and steam for the power

plant's operations.

Salaya I - Gujarat (1,200 MW)

The Salaya I power plant, located near Essar Oil's refinery complex at Vadinar, Jamnagar

district, Gujarat, is an imported coalfueled thermal power plant with two 600-MW generation

units. Salaya I Unit 1 (600 MW) starts commercial operations from April 2012. Coal for the

plant will be extracted from Essar Energy's captive coal mine in Indonesia.

Vadinar P2 - Gujarat (510 MW)

Vadinar P2 power plant consists of a multi-fuel (coal, naphtha, light cycle oil, clarified slurry oil

and furnace oil) co-generation power plant with 325 MW of power capacity and 900 tons per

hour (tph) of steam capacity. Steam from the facility will be provided to Essar Oil's Vadinar

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refinery and power supplied to Essar Oil, Essar Steel and the merchant market. Fuel for Vadinar

P2 will be provided by Essar Oil and Essar Steel in line with their purchase requirements

.Mahan I - Madhya Pradesh (Unit I - 600 Mw)

The Mahan I power plant is a 1,200 MW (2x600 MW) captive coal-fired pit-head power plant

located in Singrauli district, Madhya Pradesh. Mahan I Unit I synchronised and began

commercial operations in December 2012. Coal for the plant will be supplied from the Mahan

captive coal block located approximately 5 km from the power plant site.

UNDER CONSTRUCTION

Mahan I - Madhya Pradesh (Unit II - 600 MW)

The Mahan I Unit II is a part of Mahan I power plant which is a 1,200 MW (2x600 MW) captive

coal-fired pit-head power plant located in Singrauli district, Madhya Pradesh. Coal for the plant

will be supplied from the Mahan captive coal block.

Hazira II - Gujarat (270 MW)

The Hazira II power plant, located at Hazira, Gujarat, will be fueled predominantly by imported

coal and corex gas and fines from the adjacent Essar Steel corex plant and comprises two

generation units of 135-MW capacity. Power from the plant will be supplied back to Essar Steel.

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Paradip - Orissa (120 MW)

The Paradip power plant will be a coal-fired power plant comprising four generation units of 30

MW each located in Paradip, Orissa. Paradip is a well-equipped and serviced port, an advantage

for the supply of imported coal. Power from the plant will be supplied to Essar Steel.

Tori I - Jharkhand (1,200 MW)

The Tori I power plant will be a captive pit-head coal-fired power plant, comprising two

generation units of 600 MW capacity each, located in Latehar district, Jharkhand. Fuel for the

project will be sourced from the Chakla and Ashok Karkata captive coal blocks owned by the

company. These blocks are currently under development and proceeding through their respective

clearance processes.

Tori II - Jharkhand (600 MW)

The Tori II power plant is a 600 MW expansion of the Tori I power project. Essar Power

Jharkhand has acquired the land for the project and the single boiler, turbine, generator unit. The

Company expects to fuel the expansion project from the coal mines already allocated to it at

Chakla and Ashok Karkata.

COAL RESERVES

Mahan Coal Block

The Mahan coal block is located in Singrauli district in Madhya Pradesh. It has an estimated

reserve of 125 mt and is operated by Mahan Coal Ltd which is a 50:50 joint venture between

Essar Power and Hindalco. The off take ratio between Essar Power and Hindalco is in the ratio

of 60:40. The mine has an approved annual production of 8.5 mt. The coal extracted from this

mine will be used by the Mahan 1 power plant.

Amelia Coal Mine

In September 2011, the Company secured a second coal source for the Mahan I project when it

was allocated a share of the coal from the Amelia Coal block by the Madhya Pradesh state

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government. Essar Power and another company were jointly allocated 20% of the coal from

Amelia which will be operated by the Madhya Pradesh State Mining Corporation. Amelia is

estimated to have around 287 million tonnes of coal reserves, according to the Ministry of Coal.

The Amelia block is in the approvals stage.

Chakla Coal Block

The Chakla Coal Block is located in Jharkhand and has an estimate reserve of 71mt. The coal

from this mine will be used in the Tori I and Tori II power plants. Essar Power has a 100%

allocation of this coal block. This mine is still in the approvals stage.

Ashok Karkata Coal Block

The Chakla Coal Block is located in Jharkhand and has an estimate reserve of 100 mt. The coal

from this mine will be used in the Tori I and Tori II power plants. Essar Power has a 100%

allocation of this coal block. This mine is still in the approvals stage.

Rampia Coal Block

The Rampia Coal Block is located in Orissa and Essar Power's share of this block has an

estimate reserve of 112 mt. The coal from this mine will be used in the Navabharat power plant.

This mine is still in the approvals stage.

Aries Coal Mine

The Aries Coal Mine is situated in Indonesia. It was acquired in April 2010 for US$ 118 Mn. It

is a JORC resource with a 2P reserves of 72 mt with a potential production of 4 million tonnes

per annum. This mine is currently under development and has received 'in principal' Panjam

Pakai forest approval. The coal extracted from this mine will be used in Salaya I power plant.

Mozambique Coal Mine

The Mozambique coal mine is located in the Tete district in Mozambique. It has an estimated

mineable reserves of 35 mt. This mine is under development. The coal extracted from this mine

will be used in the Salaya I power plant.

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