Presentation:

Study of factors affecting project cost, risk analysis and financial modeling of UMPP

Introduction Why UMPP?

Economies of scale, supercritical technology Power a key driver of growth Demand supply mismatch

Why the project?

Understanding the decision variables, financial modeling and analysis

To understand as to how costs can change with project

Factors affecting project’s cost Factors affecting capital expenditure

Factors affecting Operation expenditure

Risk Risk during construction Operational Risks

Factors affecting project’s cost- Capital Expenditure

Land Requirement (Hectares)

Use of Land Total

Plant Area 818.98

Ash disposal 329.74

Employees’ Colony 181.53

Road from colony to plant

13.73

Corridor Ash Pipe 0.73

Intake Water Pipeline

6.34

Coal Mine 2965.00

Land Requirement for Project

4,316.05

Resettlement and Rehabilitation

192.62

Total 4,508.67

Land Costs (in Rs Cr) Land R&R Total

Power Plant Area

110 136 246

MGR Land

80 34 114

Water & Ash Pipeline Corridor

1   1

Total

191 170 361

Coal Block

land costsLand

Afforestation of

Forest Land

R&

R

Geolo

gical

Repor

t

Total

Total

142 35 75 19 271

Project Capacity (MW)

Unit Size (MW)

Project Cost (Rs. crore)

Cost per MW (Rs. crore)

Sasan UMPP

(excluding apportioned Coal

Block Development cost)

3960 660×6 16,243 4.10

APL Phase-III

(Including Coal Supply

Advance)

1320 660×2 5,796 4.12

NTPC Sipat Phase I 1980 660×3 8,323 4.20

Tata UMPP 4000 800×5 17,024 4.26

NTPC Barh 1980 660×3 8,693 4.39

Cuddalore Power 1320 660×2 6,379 4.83

PFC –long term Private Sector

BORROWER

State(Category 'A+')/

CPSUs/ AAA rated Companies

State(Category

'A')/ Central/

Private(IR-1)

IR2/ E I & E II

IR-3 /E III & E IV /D-A IR-4

IR-5 / D-B/E V/Non

graded

Generation 12 12.25 12.75 1313.2

5 13.5

Factors affecting project’s cost- Capital Expenditure

Factors affecting project’s cost- Operational Expenditure

Parameters Post Tax IRR Avg. DSCR Min. DSCR

Base Case 10.37% 1.36 1.07Station Heat Rate =2175 kcal/kWh 10.72% 1.41 1.08

Increae in Aux. Consumption by 0.5% 10.28% 1.35 1.06

Decrease in PLF by 5% 9.71% 1.30 1.00

Increase in O&M cost by 5% 10.13% 1.32 1.06Increae in FI Interest Rate by 0.5% 10.38% 1.35 1.06

Source: Analysis, and British High Commission’s report

Risks 10.1 Fuel Availability and Fuel Price Risk 10.2 Demand Risk 10.3 Payment Risk 10.4 Land Acquisition & Environmental Clearances 10.5 Financial Risk 10.6 Foreign Exchange Risk 10.7 Political Risk 10.8 Regulatory/Policy Risk 10.9 Equipment Shortage 10.10 Manpower Shortage 10.11 Technology Risk 10.12 Interest Rate Risk 10.13 Performance Risk 10.14 CDM Risk

Risk Description Severity Allocation Mitigation

Fuel Availability Risk High Project Sponsor Long Term fuel supply

contracts, Vertical Integration

Fuel Price Risk High Project Sponsor or DISCOM

through escalation clause

Long Term contracts with

proper escalation clauses,

Vertical Integration

Payment Risk High Project Sponsor Escrow Mechanism for central

and state utilities; Trust and

Retention Account for others.

Foreign Exchange Risk Medium Project Sponsor  

Interest Rate Risk Medium Project Sponsor Fixed Rate loan, Refinancing

 

Cost and Time Overrun Medium EPC Contractor Penalty Clause

Regulatory Risk Medium Project Sponsor  

Demand Risk Low Project Sponsor Long Term PPAs

Land Acquisition and

Environment Clearance

High Project Sponsor Involve all the stakeholders

and negotiate directly

Political Risk Medium Project Sponsor  

Manpower Availability Medium Project Sponsor Training

Financial Risk Medium Project Sponsor  

Water Availability Medium Project Sponsor  

Technology Risk Low Project Sponsor Upgrade plant with new

technology or diversify

generation

Plant Performance Risk Low Equipment Manufacturer Suitable clause in the contract

Financial Modeling To study the effect of factors mentioned in the

report, a financial model was made taking suitable assumptions where applicable.

The model used Discounted Cash Flow method for arriving at the NPV and IRR figures.

Indicators calculated NPV IRR Equity NPV Equity IRR DSCR

*NPV = Cr INR

Project EquityNPV (Rs) 6336.741 4213.449IRR 12.47% 21%DSCR (min) 1.84

DSCR

IRR Risk analysis with Changing PLF (95 mean and 5% Std deviation)

Entire range is from 19% to 23%

Base case is 21%

NPV Risk analysis with Changing Coal price (1.8 to 3.6 Kg)

Thank You