Description
This is a presentation about Tata Mundra Power India Power Scenario , Development of UMPP , Project Tata Mundra UMPP , Assumptions in Financial Model, Financial Projections , key Risks, Recommendation.
Agenda
? India Power Scenario -1
? Development of UMPP -1
? Project Tata Mundra UMPP -2 ? Assumptions in Financial Model-1 ? Financial Projections -1 ? Key Risks -1 ? Recommendation
Indian power scenario
?
The power industry in India is divided into 3 major sectors: ? State Sector ? Central Sector ? Private Sector The major types of power generation in India consists of thermal power, hydro power and nuclear power. The power sector in India is characterized by deficits with demand outstripping the supply. Going forward, it is likely that the same situation will continue till the end of XII plan.
9000
8000 7000 6000 5000 4000 3000 2000 1000 480.5 0 2005 India 402 2000 Developed Countries 275.8 1990 8009.5 7620.6 6977.2
?
?
?
As per 'Eleventh Five Year Plan' of planning commission, India is world's 5th largest energy consumer accounting for 3.45% of global energy consumption.
However, the per capita energy consumption in India remains low.
Souce: International Energy Association
?
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The per capita consumption of electricity of 704 Kwh in India is quite low as compared to global average of 3240 Kwh
India’s Per capita power consumption is much below developed countries indicating an impending Huge demand rise and inability to meet the same would result in high power deficit
India’s generation alternatives
?
Natural Gas
?
Limited availability of indigenous gas; high price of LNG ? Gas shortages expected to persist despite new domestic production
?
Hydro
?
India has substantial hydro potential mainly in the North and Northeast ? High capital costs, long gestation periods and E&S issues ? Run-of-river hydros affected by seasonality of rainfall
?
Wind
?
Intermittent nature makes wind unsuitable for large scale base load demand ? India has a moderate wind regime with low load factors of 20-25%
?
Nuclear
?
India has ambitious plans for nuclear power but faces many challenges Domestic coal resources are abundant in Eastern India
?
Coal
? ? ? ?
Imported coal is reasonably accessible for coastal locations
Coal is a viable alternative for meeting base load demand GoI is emphasizing the use of cleaner technologies
Installed Capacity
? Total installed capacity =
147,965 MW ? State has the highest share in the total installed capacity in the country. ? It is also highest in terms of capacity addition in the year 2008-09. ? Total Capacity added = 3,454 MW
? State – 53%
Source: Central Electricity Authority
? Centre – 22%
? Private – 25%
Installed Capacity
? About 52% of nation’s
capacity is contributed by coal based stations. ? Hence coal remains a key fuel for power generation. ? Focus has been shifting to other sources of energy due to various environmental factors like CO2 emissions.
Source: Central Electricity Authority
Indian Demand – Supply Position
?
India is facing energy shortages of 11% of demand and even higher peak shortages of 14% ? Demand-supply gap is more acute in Western region (where 70% of the Project’s power will be supplied) with energy deficit at 16% and peak deficit at 21% ? Capacity additions of 160,000 MW required in the next 10 years to satisfy India’s power needs ? New capacity will need to come from a combination of coal, hydro, gas, nuclear and wind projects
Deficit (%)
16 14 12 10 8 6 4 2 0 60,000 40,000 20,000 0 9.1 80,000 12.2 14.6 13.5 12.6 140,000 120,000 108,911 100,000 88,667 80,631 98,520 84,468 92,976 109,304 94,566 116,281 101,609
Power Demand Supply Senario(MW)
2005-06
2006-07
2007-08
2008-09
2009-10
2005-06
2006-07
Demand
2007-08
2008-09
2009-10
Source: Central ElectricityDeficit (%) Authority
Availability
Role of ministry of power
? Role of MOP is to serve as a facilitator & to co-
ordinate with concerned ministry/ Agencies for ensuring:
? Coal Block Allotment/ Coal Linkage ? Environment/ Forest clearances
? Required support from State govt. Agencies
? Financial Institutions towards financial closure ? To facilitate PPA & proper payment security
mechanism with State Govt/ State utilities ? Monitoring the progress of shell companies wrt predetermined timelines
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Development of UMPP
?
GoI made a comprehensive assessment of India’s future energy needs and alternatives for energy supply
?
?
Detailed consultation process with various stakeholders
Large scale capacity additions needed to address the country’s poverty alleviation agenda Launched a program in 2005-06 to bid out 9 UMPPs of 4,000 MW each Economies of scale and competitive bidding expected to benefit consumers through lower tariffs GoI stipulated use of supercritical technology because it results in lower carbon emissions Coastal Gujarat Power Limited is the first UMPP to be awarded in December 2006; financial closure required by April 22, 2008 Since then, two more UMPPs awarded to Reliance Power
? ?
?
?
?
Development Of UMPP
? In spite of many Govt. Initiative and Reforms, No
significant Private investment in power sector
? Main reasons are:
? Lack of adequate Payment Security
? Difficulties in project formulations and tie up for
inputs & clearances like fuel linkage, environmental clearance etc. ? Ultra mega Power Project is a step to boost private investment.
Development Of Ultra Mega Power Projects
UMPPs are expected to provide cheaper power on account of :
? Large sized projects of 4000 MW capacity each
with economy of scale.
? Well developed project with tie up of inputs/
clearance will provide comfort to the bidders.
Salient features of UMPP
? UMPPs to adopt large size units of supercritical technology. ? UMPPs to be set up at Pithead and at coastal locations. ? Pithead Projects to have captive coal mines and coastal
projects to use imported coal,
? Shell companies formed for project development activities
and for carrying out bidding process.
? Clearance/ inputs to be tied up such as land, water, coal
block, public hearing, environmental clearance, forest clearance etc. before bidding
? Project Report to be ready before bidding
? Land acquisition to be completed alongwith R&R package
by Shell companies.
? Shell companies to be transferred to the successful bidder
Site selection
? CEA studied and examined number of sites for
? Pit head location with domestic coal ? Coastal location with imported coal
? 7 suitable locations have been identified :
? Three pithead locations based on domestic coal
(Sasan in MP, Akaltara in Chattisgarh & site in Orissa). ? Four coastal locations based on imported coal (Mundra in Gujarat, Girye in Maharashtra, Tadri in Karnataka and Krishnapatnam in Andhra Pradesh). ? Work on Sasan & Mundra projects at advanced stage.
Formation of Shell companies
? PFC has taken initial actions for registration of shell
companies (SPVs) and following shell companies have been incorporated:
1. Sasan Power Limited (M.P) 2. Coastal Gujarat Power Limited (Mundra Port) 3. Coastal Maharashtra Mega Power Limited 4. Coastal Karnataka Power Limted 5. Akaltara Power Limited (Chhattisgarh)
? For pit head site in Orissa and Krishnapatnam
coastal site in Andhra Pradesh SPV being incorporated
Function of Shell companies
? Preparation of project report ? Land acquisition
? Allocation of fuel linkages/ coal blocks
? Allocation of water by state government ? Appointment by consultants for EIA & project Report
? Appointment of consultants for International
competitive bidding document preparation & evaluation ? Various approvals & statutory clearances ? Off-take/ sale of power- section 63 of EA2003 provision ? Power evacuation/ transmission system
Tentative Power Allocation
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
PROJECT TATA MUNDRA UMPP
TATA’s Mundra Power Project
? ? ? ?
4,000 MW Greenfield coal-fired plant located near Mundra Port, Gujarat India’s first private sector power project using supercritical technology; most energy efficient plant in the country Awarded by Ministry of Power through tariff-based competitive bidding in December 2006 Levelized tariff of Rs 2.26 per kWh
?
? ? ? ? ?
Project cost of Rs. 17000 crore to be financed by equity (Rs 4250 crore) and debt from IFC, ADB, Korean ECAs, local banks (Rs 12750 crore)
Will sell electricity to state-owned utilities in 5 states – Gujarat, Maharashtra, Haryana, Rajasthan and Punjab First unit of 800 MW to be commissioned in July 2011 Will import coal from Indonesia and other countries through the Mundra Port Main equipment from Korea and Japan Sponsor is Tata Power, India’s largest private sector power company with operating capacity of 2,355 MW (1,838 MW in thermal, 457 MW in hydro and 62 MW in wind)
Project Description
? Facilities by CGPL:
? Power Plant ? 5 coal-fired, super critical steam electricity generating stations, 830 MW capacity each ? Cooling water system ? Once-through cooling system using sea water ? Daily requirement of 15.12 million cubic meters ? Inlet through Kotdi Creek ? Outlet through Mudhwa Creek
Project Description
? Water production system ? Daily requirement of 25,710 cubic meters of fresh water ? Desalination plant used to make fresh water ? 25,280 cu.mt. for process use including coal & ash handling ? 430 cu.mt. for domestic purposes ? Residential complex ? Access road
Land required & ownership
Project management
? CGPL responsible for overall management of
project implementation ? Staffing & recruitment to be carried out by CGPL ? Power plant require about 718 people ? Continuous monitoring to be done by CGPL officials
Need for Alternatives
? Gujarat has a deficit in peak power demand of 1,785 MW in ?
?
? ?
fiscal year (FY) 2007 and would be 3,656 MW by FY2011. For the region encompassing Gujarat, Maharashtra, Haryana, Punjab, Rajasthan, and Uttar Pradesh, the peak power demand would be 78,849 MW by FY2011. Even considering the installation of new plants, there would be a shortfall of 22,829 MW by FY2011 in the region. It is evident that the Project is desirable to close the demand-supply gaps. The alternative without the project is obviously undesirable, as the worsening power shortage would constrain economic growth.
Why coal based UMPP?
? Alternative fuel ? Coal is still the most cost-effective fuel for generating
electricity. Although coal has greater pollution potential than natural gas, importing natural gas requires a large investment in infrastructure. ? As the western region has no potential large-scale hydropower sites, the only alternatives are coal and nuclear energy. ? Between coal and nuclear, coal is the preferred alternative given its shorter gestation period, lower costs, and relative safety.
Why at Mundra?
? Alternative Project locations
? The location of a power plant is broadly determined by
demand and capacity in the transmission system. ? Locating the power plant as close as possible to regional centres of demand reduces power losses in transmission. ? The project site therefore has to be in Gujarat to meet demand in Gujarat and other western states. ? At present, there is no power plant located near the project area. ? The nearest power plants are at Sikka, about 250 km away, and Akrimota, about 210 km away. ? However, the 660 MW Adani Power Project is being developed by Adani Power Limited near the project area to supply electricity to industries to be located in MSEZ
Cooling System for Mundra UMPP
? Alternative Cooling System
? Two cooling system alternatives were considered: ? (i) a closed or recirculation system and ? (ii) an open or once-through system. ? In the closed system, warm cooling water is cooled in
cooling towers before being recycled. The system needs make-up water to compensate for evaporation loss, and needs to discharge a certain portion of its water to maintain cooling water quality. ? A closed system for the Project would require about 55,000 m /hr of make-up water and discharge about 31,000 m /hr of cooling tower blow down into the sea. ? In the once-through system, the entire volume of warm cooling water is directly discharged into a receiving water body. ? For the Project, the once-through cooling water system will discharge 550,000 m/hr of warm cooling water into
3 3
Supercritical Technology
? Alternative technologies
? The technology options for large pulverized coal-
fired power plants are subcritical and supercritical. ? Supercritical plants operate at steam pressure above 22.1 mega Pascal (about 3,200 pounds per square inch) and use once-through boilers. In the supercritical stage, water becomes gas. ? Subcritical plants operate at steam pressure below 19 mega pascals and use drum-type boilers. In the subcritical stage, the steam is a mix of liquid and gas.
Environmental impacts & Mitigation
? During Construction ? Noise pollution from various heavy equipments ? Dust & emissions from equipments & vehicles ? Possible pilferage of oil and fuels from vehicles ? Polluted water deposition in nearby water bodies ? Excavated materials found from various sites ? Human wastes would be generated as the work force
would be around 5000-6000 workers
? Mitigation of risks during construction
? Noise walls to be installed, speed of vehicles &
machines to be kept under check ? Continuous sprinkling of water to reduce dust emission & air pollution ? Maintenance of machines & equipments ? Materials found from evacuation sites to be used for filling large pits ? Solid human wastes to be disposed in pits
IFC Role & Additionality
?
IFC requested by GoI to support this first private supercritical project in the country
? IFC
participated in pre-bid consultations to improve Project’s bankability is important to boost confidence of domestic & international investors in India’s power sector
? Success
?
Project has significant risks due to size and complexity
? First
private project using supercritical coal technology in India
? Significantly
larger than any previous project by the sponsor, tripling its generation capacity played a key role in financial structuring on behalf of all lenders
? IFC
? IFC’s
presence contributes indirectly towards mitigation of political and regulatory risk
IFC Role & Additionality
?
Project requires very long maturities (20 years) to achieve a low tariff for consumers
?IFC’s
financing is critical to meet large debt financing
needs
?Local
banks are providing significant debt but are unable to meet entire debt needs due to exposure limits commercial banks have limited appetite for long maturities because of refinancing risks and poor creditworthiness of state-owned off takers
?International
?
IFC’s involvement requires CGPL to comply with more stringent E&S standards than GoI’s
Fit with IFC’s Climate Change Strategy in the Electricity Sector
?
India has few scalable alternatives to coal; IFC encourages use of more efficient coal technology which results in lower carbon emissions
?
Project will have amongst the lowest GHG emission rates globally lower by 40%, 18% and 16% compared to the average GHG emission rate of coal based plants in India, across the globe and OECD, respectively
First supercritical project sets a precedent for efficient coal usage: consumes 1.7 million tons of coal less per year than traditional subcritical plants of comparable size
?
?
IFC support for this project will have a strong demonstration effect for other developing countries that need to develop coal-fired generation
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Particulars
Phase 1 2 3 4 5 Project Size (MW) Capacity Commisioned(MW) 800 800 800 800 800 4000 Completion year Sep-11 Jan-12 May-12 Sep-12 Jan-13 Fiscal Year Completion Mar-12 Mar-12 Mar-13 Mar-13 Mar-13 Days Operational 210 90 330 210 90
Operating Assumptions
Fuel Cost Rs / ton Coal Consumption rate Kg/Kwh Coal cost Rs/unit Transportation & handling costs of coal / gas O&M Expenditures (3rd Year post COD) Annual 2250 0.36 0.81 0.22 50
Dollar Rate
46
Plant Load Factor (PLF) Auxialary Consumption
Levelized Tariff (Rs / Kwh) Annual Tariff Escalation in percentage Useful Life (years)
85% 8%
2.26 0% (for next 15 yrs.) 25
Operating Assumptions
? Savings that will be made by using this critical
technology in terms of CO2 or CER
Grid Emission Factor (GEF)
Co2 savings in 10 years in Million Tonnes
CER Rate (Euro / CER) Exchange Rate (Rs / Euro)
28.30
12 66
CER Rate (Rs / CER)
792
Working Capital Assumptions
Working Capital Assumptions Receivables (months) O&M Expenses (months) 2 1
Financial Assumptions
Financial Assumptions Debt Equity Total Project Cost (Rs Million) Total Requirement CAPEX Phasing 127500 42500 170000 75% 25% 100%
Debt Structure Korean Bank, ADB,IFC (in Billion Dollars) SBI(In $ Billion) 67734.375 59765.625
Interest rates 12.0% 13.5%
Financial Assumptions
Interest On Debt Repayment Period for SBI (yrs) Repayment Period for Foreign Dev. Bank (yrs) Moratorium period (Years) Cost of Equity 12.7% 12 20 3 18%
Depreciation SLM (% p.a.) Depreciation Accelerated Depr. (% p.a.) Estimated Salvage Value
3.60% 10% 10%
Tax Rate MAT Rate Normal 15% 34.00%
Financial Assumptions
Financing Debt Total
IFC ADB Korean ECA Local Bank Led by SBI Tata Sons Equity
(in billion $) 3.2
0.45 0.45 0.8 1.5 1.05
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
P&L Statement
(All figures in Rs million)
Projected Income Statement
1
FY12
2
FY13
3
FY14
Total Ann gen Capacity(Million Units or MUs) Net Ann Gen Tariff (Rs / unit) Revenue in Millions CER Revenues Coal Cost O & M Expenses Transportation Cost EBITDA Depreciation -1st 2 Blocks Depreciation -last 3 blocks Total Depreciation EBIT Interest On WC Borrowing Interest on Long Term Loan PBT Tax Paid PAT Gross Cash Accruals
5,760 4,504 2.26 10,180 433 3,648 1,150 991 4,823 2,448 0 2,448 2,375 362 6,479 -4,465 0 -4,465 -2,017
12,096 9,459 2.260 21,378 909 7,662 1,150 2,081 11,394 2,448 3,672 6,120 5,274 599 16,196 -11,521 0 -11,521 -5,401
35,040 27,401 2.260 61,927 2,634 22,195 1,150 6,028 35,187 2,448 3,672 6,120 29,067 1,457 16,196 11,414 1,712 9,702 15,822
Effective Tax Rate (%)
DSCR Average DSCR
0.0%
0.37 1.35
0.0%
0.33
15.0%
1.79
Projected CF & WC
Projected Cash FlowStatement Inflows: Gross Cash Accruals Deferred Tax Liability Increase in WC borrowings Total Inflows Outflows: Increase in WC Loan repayment Total cash outflows Net Cash Flow during the year Opening Cash Balance Closing Cash Balance
FY12
FY13
FY14
-2,017 0 2,847 830 2,847 0 2,847 -2,017 0 -2,017
-5,401 0 1,866 -3,535 1,866 0 1,866 -5,401 -2,017 -7,418
15,822 3,881 6,758 26,461 6,758 0 6,758 19,702 -7,418 12,284
Working Capital Calculations Receivables (2 months) O & M expenses Total WC requirement
WC borrowings Interest on WC Increase in WC borrowings
1,697 1,150 2,847
2,847 362 2,847
3,563 1,150 4,713
4,713 599 1,866
10,321 1,150 11,471
11,471 1,457 6,758
Tax and PBT DepriciationTax Rate Applicable (%) Year Calculation Tax To be Paid Tax paid
MAT Credit Left MAT Credit Availed Effective Tax Rate (%) Accelarated Depreciation Depreciation for 1st Block Accumulated Depreciation for 1st block Depreciation for 2nd Block Accumulated Depreciation for 2nd block Total Depreciation Income Tax Calculation
PBT as per Books Add Depreciation as per Books
Tax Calculations
FY12
FY13
FY14 11,414 15% 3 1,712 1,712
-4,465 -11,521 15% 15% 1 2 0 0 0 0
0.00%
0.00%
15.00%
6,800 6,800 10,200 10,200 17,000
6,120 12,920 9,180 19,380 15,300
5,508 18,428 8,262 27,642 13,770
Less Depreciation for Tax Purposes
Taxable Profit
-4,465 -11,521 2,448 6,120 17,000 15,300 -19,017 -20,701
11,414 6,120 13,770 3,764
Carry Forward Losses
FY12 0
FY13 -19017 0 0 15% 2 0 0
FY14 -39718 3764 0 15% 3 0 0
DTL Calculation
Losses Carried Forward
Carry Forward Losses Used to setoff
Profit for Taxation
0 15% 1 0 0
Tax Rate Applicable (%) Year Tax To be Paid Tax paid MAT Credit Left MAT Credit Availed Effective Tax Rate (%)
Deferred Tax Liability
Profit Before Tax Tax on Book Profit Tax actually payable with 80 IA benefit
-4,465 -11,521 0 0 0 0 0 0 0 0
11,414 3,881 0 3,881 3,881
Deferred Tax Deferred Tax Liability
Loan Repayment Schedule
FY12 FY13 FY14 FY15 FY16 FY17
(All figures in Rs million) Year Loan O/S Loan Repayment to ADB and others Loan Repayment to SBI Total Repayment Loan Cl. Bal. Interest 1 2 3 4 5 6
51,000 127,500 127,500 127,500 119,133 110,766 0 0 0 0 0 0 0 0 0 3,387 4,980 8,367 3,387 4,980 8,367 3,387 4,980 8,367
51,000 127,500 127,500 119,133 110,766 102,398 6,479 16,196 16,196 16,196 15,134 14,071
Projected Balance Sheet
Projected Balance Sheet ASSETS Gross Block Less: Depreciation (Cum) Net Block Net Current Assets Cash balance Total Assets LIABILITIES Equity Share Capital P&L Reserve Total Equity Long-term Loan WC borrowing Deferred Tax Liability Total Liabilities 17,000 -4,465 12,535 51,000 2,847 0 66382 42,500 -15,986 26,514 127,500 4,713 0 158727 42,500 -6,284 36,216 127,500 11,471 3,881 179067 42,500 2,316 44,816 119,133 12,621 7,321 183890 42,500 11,819 54,319 110,766 12,621 11,122 188828 42,500 22,226 64,726 102,398 12,621 15,285 195031 68,000 2,448 65,552 170,000 8,568 161,432 170,000 14,688 155,312 170,000 20,808 149,192 170,000 26,928 143,072 170,000 33,048 136,952
FY12 FY13 FY14 FY15 FY16 FY17
2,847
-2,017 66,382
4,713
-7,418 158,727
11,471
12,284 179,067
12,621
22,077 183,890
12,621
33,135 188,828
12,621
45,458 195,031
FCF & IRR Calculation
(All figures in Rs million)
Projected Income Statement
Free Cash Flow to firm EBITDA Tax Paid Changes in Working Capital CAPEX Interest Payment *Tax Rate Terminal Value (if any)
FY09 FY10
COE COD Post Tax COD WACC
0
FY11
18% 13% 8% 10.8%
1
FY12
Debt 75%
Equity 25%
2
FY13
3
FY14
0 0 0 17,000
0
0 0 0 17,000
0
0 17,000 18.14% 70,359 0 0 17,000 0 12,750 4,250 22.53% 11,097
0 17,000
0 0 0 17,000 0 0
17,000
4,823 0 2,847 17,000 0 0
9,330
11,394 0 1,866 102,000 0 0
88,740
35,187 1,712 6,758 0 2,648 0
42,882
FCFF
Project IRR NPV-FCFF (Rs Million) PAT Depreciation Capex Change in WC Net Borrowing FCFE Equity IRR NPV-FCFE (Rs cr)
0 0 17,000 0 12,750 4,250
0 0 17,000 0 12,750 4,250
4,465 2,448 17,000 2,847 12,750 9,114
11,521 6,120 102,000 1,866 76,500 32,768
9,702 6,120 0 6,758 0 9,064
Projected Common Income Statement
1
Projected Common Income Statement FY12
2
FY13
3
FY14
4
FY15
5
FY16
Total Revenues Revenue in Millions CER Revenues O & M Expenses Transportation Cost EBITDA Total Depreciation Interest On WC Borrowing Interest on Long Term Loan PBT Tax Paid PAT
10613 95.92% 4.08% 10.84% 9.34% 45.45% 23.07% 3.41% 61.05% -42.07% 0.00% -42.07%
22287 95.92% 4.08% 5.16% 9.34% 51.12% 27.46% 2.69% 72.67% -51.70% 0.00% -51.70%
64561 95.92% 4.08% 1.78% 9.34% 54.50% 9.48% 2.26% 25.09% 17.68% 2.65% 15.03%
64561 95.92% 4.08% 3.56% 9.34% 52.72% 9.48% 2.48% 25.09% 15.67% 2.35% 13.32%
64561 95.92% 4.08% 3.56% 9.34% 52.72% 9.48% 2.48% 23.44% 17.32% 2.60% 14.72%
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Key Risks
? Operational Risk
? Cost of Completion might get increased ? Timely availability proper port infrastructure at Mundra
? Completion Risk
? Probability of project getting delayed
? Regulatory Risk
? MAT controlled by government ? Export limits of coal set by Indonesian government
? CER Rate volatility Risk
? Prices of CER might fluctuate
? Financial Risk
? Interest Rate Risk
? Currency Risk
? Rupee depreciation
Risk Matrix
Sr No. Risk Weight (A) Impact Rating(B) Composite rating Reduction in (A*B) Profitability Comment
1 2 3 4 5
Operational Risk Completion Risk Regulatory Risk CER Rate volatility Risk Financial Risk
0.35 0.15 0.15 0.1 0.15
17.97% 25.23% 0.42% 1.02% 7.90%
6.29% 3.78% 0.06% 0.10% 1.18%
If cost of completion is increased by 10% Project delayed by 1 year MAT increased to 18% from 15% If price of CER decreases by Euro 1 Interest rate decreases by 1% If Rupee depreciates by Re 2
6
Currency Risk
0.1
0.54% Total Risk Rating
0.05% 11.477%
Risks & Mitigants
? In June 2007, Tata Power acquired a 30% stake in two coal
mines in Indonesia to hedge the fuel supply risk for its Mundra UMPP project ? The acquisition has turned out to be meaningful, since Tata Power has enjoyed returns from higher coal prices by earning dividends from the coal mines until the commissioning of the Mundra UMPP project ? The political and regulatory environment pose a threat to our assumptions, but we believe that the coal contracts of work (CCOW), under which the company operates provide a partial hedge to this risk ? Mundra Port and SEZ Ltd (MSEZ IN, not rated) are planning a 35MT per annum terminal by 2010 and any delay in its execution could lead to fuel supply concerns. However, the total demand for 12–13MT per annum of imported coal is likely to be required only in 2013, by which time, we believe the coal terminal will be ready.
Risks & Mitigants
? A delay in the execution of projects, would pose increased capital
cost risk, owing to accumulated interest during construction, which would affect earnings.
? The company has already awarded contracts for its projects under execution
and, hence, we believe delays in equipment supply would be highly unlikely. ? Since Tata Power placed orders with Toshiba and Doosan
immediately after the project was awarded, we believe timely supply is likely and cost overruns can be avoided despite the significant volatility in commodity prices over the past year, as the main equipment supplier would have been able to hedge by forward buying for this project ? To hedge against varying shipping costs, the company is planning to acquire ships for coal transportation through a wholly owned subsidiary based in Singapore [Source: Hindu Business Line, 20 December 2007] (this move could help it obtain tax incentives that are to shipping companies). In addition, shipping prices have fallen in the recent past, providing Tata Power the opportunity to charter ships for the long term at reasonable rates. We assume Tata Power’s average transportation cost to be INR750 per tonne for the project life led by both the acquisition and chartering of ships.
Risks & Mitigants
?
Largest ever power plant in India with significant implementation risks including delays and cost overruns
?
Key technology supplied by reputable contractors at fixed price; adequate contingencies and sponsor support for cost overruns and delays
?
Fuel supply risks from imported coal could expose Project to volatility in coal pricing
?
Long term coal supply contract at reasonable prices; Coastal Gujarat Power Limited plans to further diversify coal sources
?
Delays in completing the requisite transmission lines and port infrastructure
?
Transmission & port infrastructure developed by reputable companies with good track record
Risks & Mitigants
?
Off-take risks from poor creditworthiness of the state-owned utilities
?
Project’s tariff is highly competitive; ensures that state utilities are incentivized to pay; power sector reforms progressing in most Indian
states
?
Refinancing risks after 10 years of operations because of insufficiently long tenors from local banks
?
IFC and other foreign lenders providing long-term loans with 20 year tenor which will help mobilize other commercial lenders when needed
?
CER price volatility in the international markets subjects the project to the risks of fluctuating gains arising out of sale of CER’s
?
This risk mitigation mechanism is not freely available in the market and
thus it cannot be effectively mitigated
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Recommendation
? Given that fuel security is a major concern for most thermal plants in
India, Tata Power has backward integrated by acquiring a minority stake in Indonesia’s coal mines with an offtake agreement ? The Mundra UMPP project can lower the amount of coal burnt each year by 1.7MT, thus lowering emissions by 3.6MT per year, using super critical technology, which is more efficient than sub-critical technology commonly used in India. As a result, the Mundra UMPP is eligible for clean development mechanism (CDM) projects, which will allow it to claim 2.8mn carbon credits during 2011–21, this contributes around 4.5% of revenues Project IRR 18.14%
NPV-FCFF (Rs Million) Equity IRR NPV-FCFE (Rs Million) 70,359 22.53% 11,097
? Considering the IRR, the project should be financed
? We believe that Tata Power must reduce its reliance on one coal supplier
THANK YOU
doc_247962994.pptx
This is a presentation about Tata Mundra Power India Power Scenario , Development of UMPP , Project Tata Mundra UMPP , Assumptions in Financial Model, Financial Projections , key Risks, Recommendation.
Agenda
? India Power Scenario -1
? Development of UMPP -1
? Project Tata Mundra UMPP -2 ? Assumptions in Financial Model-1 ? Financial Projections -1 ? Key Risks -1 ? Recommendation
Indian power scenario
?
The power industry in India is divided into 3 major sectors: ? State Sector ? Central Sector ? Private Sector The major types of power generation in India consists of thermal power, hydro power and nuclear power. The power sector in India is characterized by deficits with demand outstripping the supply. Going forward, it is likely that the same situation will continue till the end of XII plan.
9000
8000 7000 6000 5000 4000 3000 2000 1000 480.5 0 2005 India 402 2000 Developed Countries 275.8 1990 8009.5 7620.6 6977.2
?
?
?
As per 'Eleventh Five Year Plan' of planning commission, India is world's 5th largest energy consumer accounting for 3.45% of global energy consumption.
However, the per capita energy consumption in India remains low.
Souce: International Energy Association
?
?
The per capita consumption of electricity of 704 Kwh in India is quite low as compared to global average of 3240 Kwh
India’s Per capita power consumption is much below developed countries indicating an impending Huge demand rise and inability to meet the same would result in high power deficit
India’s generation alternatives
?
Natural Gas
?
Limited availability of indigenous gas; high price of LNG ? Gas shortages expected to persist despite new domestic production
?
Hydro
?
India has substantial hydro potential mainly in the North and Northeast ? High capital costs, long gestation periods and E&S issues ? Run-of-river hydros affected by seasonality of rainfall
?
Wind
?
Intermittent nature makes wind unsuitable for large scale base load demand ? India has a moderate wind regime with low load factors of 20-25%
?
Nuclear
?
India has ambitious plans for nuclear power but faces many challenges Domestic coal resources are abundant in Eastern India
?
Coal
? ? ? ?
Imported coal is reasonably accessible for coastal locations
Coal is a viable alternative for meeting base load demand GoI is emphasizing the use of cleaner technologies
Installed Capacity
? Total installed capacity =
147,965 MW ? State has the highest share in the total installed capacity in the country. ? It is also highest in terms of capacity addition in the year 2008-09. ? Total Capacity added = 3,454 MW
? State – 53%
Source: Central Electricity Authority
? Centre – 22%
? Private – 25%
Installed Capacity
? About 52% of nation’s
capacity is contributed by coal based stations. ? Hence coal remains a key fuel for power generation. ? Focus has been shifting to other sources of energy due to various environmental factors like CO2 emissions.
Source: Central Electricity Authority
Indian Demand – Supply Position
?
India is facing energy shortages of 11% of demand and even higher peak shortages of 14% ? Demand-supply gap is more acute in Western region (where 70% of the Project’s power will be supplied) with energy deficit at 16% and peak deficit at 21% ? Capacity additions of 160,000 MW required in the next 10 years to satisfy India’s power needs ? New capacity will need to come from a combination of coal, hydro, gas, nuclear and wind projects
Deficit (%)
16 14 12 10 8 6 4 2 0 60,000 40,000 20,000 0 9.1 80,000 12.2 14.6 13.5 12.6 140,000 120,000 108,911 100,000 88,667 80,631 98,520 84,468 92,976 109,304 94,566 116,281 101,609
Power Demand Supply Senario(MW)
2005-06
2006-07
2007-08
2008-09
2009-10
2005-06
2006-07
Demand
2007-08
2008-09
2009-10
Source: Central ElectricityDeficit (%) Authority
Availability
Role of ministry of power
? Role of MOP is to serve as a facilitator & to co-
ordinate with concerned ministry/ Agencies for ensuring:
? Coal Block Allotment/ Coal Linkage ? Environment/ Forest clearances
? Required support from State govt. Agencies
? Financial Institutions towards financial closure ? To facilitate PPA & proper payment security
mechanism with State Govt/ State utilities ? Monitoring the progress of shell companies wrt predetermined timelines
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Development of UMPP
?
GoI made a comprehensive assessment of India’s future energy needs and alternatives for energy supply
?
?
Detailed consultation process with various stakeholders
Large scale capacity additions needed to address the country’s poverty alleviation agenda Launched a program in 2005-06 to bid out 9 UMPPs of 4,000 MW each Economies of scale and competitive bidding expected to benefit consumers through lower tariffs GoI stipulated use of supercritical technology because it results in lower carbon emissions Coastal Gujarat Power Limited is the first UMPP to be awarded in December 2006; financial closure required by April 22, 2008 Since then, two more UMPPs awarded to Reliance Power
? ?
?
?
?
Development Of UMPP
? In spite of many Govt. Initiative and Reforms, No
significant Private investment in power sector
? Main reasons are:
? Lack of adequate Payment Security
? Difficulties in project formulations and tie up for
inputs & clearances like fuel linkage, environmental clearance etc. ? Ultra mega Power Project is a step to boost private investment.
Development Of Ultra Mega Power Projects
UMPPs are expected to provide cheaper power on account of :
? Large sized projects of 4000 MW capacity each
with economy of scale.
? Well developed project with tie up of inputs/
clearance will provide comfort to the bidders.
Salient features of UMPP
? UMPPs to adopt large size units of supercritical technology. ? UMPPs to be set up at Pithead and at coastal locations. ? Pithead Projects to have captive coal mines and coastal
projects to use imported coal,
? Shell companies formed for project development activities
and for carrying out bidding process.
? Clearance/ inputs to be tied up such as land, water, coal
block, public hearing, environmental clearance, forest clearance etc. before bidding
? Project Report to be ready before bidding
? Land acquisition to be completed alongwith R&R package
by Shell companies.
? Shell companies to be transferred to the successful bidder
Site selection
? CEA studied and examined number of sites for
? Pit head location with domestic coal ? Coastal location with imported coal
? 7 suitable locations have been identified :
? Three pithead locations based on domestic coal
(Sasan in MP, Akaltara in Chattisgarh & site in Orissa). ? Four coastal locations based on imported coal (Mundra in Gujarat, Girye in Maharashtra, Tadri in Karnataka and Krishnapatnam in Andhra Pradesh). ? Work on Sasan & Mundra projects at advanced stage.
Formation of Shell companies
? PFC has taken initial actions for registration of shell
companies (SPVs) and following shell companies have been incorporated:
1. Sasan Power Limited (M.P) 2. Coastal Gujarat Power Limited (Mundra Port) 3. Coastal Maharashtra Mega Power Limited 4. Coastal Karnataka Power Limted 5. Akaltara Power Limited (Chhattisgarh)
? For pit head site in Orissa and Krishnapatnam
coastal site in Andhra Pradesh SPV being incorporated
Function of Shell companies
? Preparation of project report ? Land acquisition
? Allocation of fuel linkages/ coal blocks
? Allocation of water by state government ? Appointment by consultants for EIA & project Report
? Appointment of consultants for International
competitive bidding document preparation & evaluation ? Various approvals & statutory clearances ? Off-take/ sale of power- section 63 of EA2003 provision ? Power evacuation/ transmission system
Tentative Power Allocation
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
PROJECT TATA MUNDRA UMPP
TATA’s Mundra Power Project
? ? ? ?
4,000 MW Greenfield coal-fired plant located near Mundra Port, Gujarat India’s first private sector power project using supercritical technology; most energy efficient plant in the country Awarded by Ministry of Power through tariff-based competitive bidding in December 2006 Levelized tariff of Rs 2.26 per kWh
?
? ? ? ? ?
Project cost of Rs. 17000 crore to be financed by equity (Rs 4250 crore) and debt from IFC, ADB, Korean ECAs, local banks (Rs 12750 crore)
Will sell electricity to state-owned utilities in 5 states – Gujarat, Maharashtra, Haryana, Rajasthan and Punjab First unit of 800 MW to be commissioned in July 2011 Will import coal from Indonesia and other countries through the Mundra Port Main equipment from Korea and Japan Sponsor is Tata Power, India’s largest private sector power company with operating capacity of 2,355 MW (1,838 MW in thermal, 457 MW in hydro and 62 MW in wind)
Project Description
? Facilities by CGPL:
? Power Plant ? 5 coal-fired, super critical steam electricity generating stations, 830 MW capacity each ? Cooling water system ? Once-through cooling system using sea water ? Daily requirement of 15.12 million cubic meters ? Inlet through Kotdi Creek ? Outlet through Mudhwa Creek
Project Description
? Water production system ? Daily requirement of 25,710 cubic meters of fresh water ? Desalination plant used to make fresh water ? 25,280 cu.mt. for process use including coal & ash handling ? 430 cu.mt. for domestic purposes ? Residential complex ? Access road
Land required & ownership
Project management
? CGPL responsible for overall management of
project implementation ? Staffing & recruitment to be carried out by CGPL ? Power plant require about 718 people ? Continuous monitoring to be done by CGPL officials
Need for Alternatives
? Gujarat has a deficit in peak power demand of 1,785 MW in ?
?
? ?
fiscal year (FY) 2007 and would be 3,656 MW by FY2011. For the region encompassing Gujarat, Maharashtra, Haryana, Punjab, Rajasthan, and Uttar Pradesh, the peak power demand would be 78,849 MW by FY2011. Even considering the installation of new plants, there would be a shortfall of 22,829 MW by FY2011 in the region. It is evident that the Project is desirable to close the demand-supply gaps. The alternative without the project is obviously undesirable, as the worsening power shortage would constrain economic growth.
Why coal based UMPP?
? Alternative fuel ? Coal is still the most cost-effective fuel for generating
electricity. Although coal has greater pollution potential than natural gas, importing natural gas requires a large investment in infrastructure. ? As the western region has no potential large-scale hydropower sites, the only alternatives are coal and nuclear energy. ? Between coal and nuclear, coal is the preferred alternative given its shorter gestation period, lower costs, and relative safety.
Why at Mundra?
? Alternative Project locations
? The location of a power plant is broadly determined by
demand and capacity in the transmission system. ? Locating the power plant as close as possible to regional centres of demand reduces power losses in transmission. ? The project site therefore has to be in Gujarat to meet demand in Gujarat and other western states. ? At present, there is no power plant located near the project area. ? The nearest power plants are at Sikka, about 250 km away, and Akrimota, about 210 km away. ? However, the 660 MW Adani Power Project is being developed by Adani Power Limited near the project area to supply electricity to industries to be located in MSEZ
Cooling System for Mundra UMPP
? Alternative Cooling System
? Two cooling system alternatives were considered: ? (i) a closed or recirculation system and ? (ii) an open or once-through system. ? In the closed system, warm cooling water is cooled in
cooling towers before being recycled. The system needs make-up water to compensate for evaporation loss, and needs to discharge a certain portion of its water to maintain cooling water quality. ? A closed system for the Project would require about 55,000 m /hr of make-up water and discharge about 31,000 m /hr of cooling tower blow down into the sea. ? In the once-through system, the entire volume of warm cooling water is directly discharged into a receiving water body. ? For the Project, the once-through cooling water system will discharge 550,000 m/hr of warm cooling water into
3 3
Supercritical Technology
? Alternative technologies
? The technology options for large pulverized coal-
fired power plants are subcritical and supercritical. ? Supercritical plants operate at steam pressure above 22.1 mega Pascal (about 3,200 pounds per square inch) and use once-through boilers. In the supercritical stage, water becomes gas. ? Subcritical plants operate at steam pressure below 19 mega pascals and use drum-type boilers. In the subcritical stage, the steam is a mix of liquid and gas.
Environmental impacts & Mitigation
? During Construction ? Noise pollution from various heavy equipments ? Dust & emissions from equipments & vehicles ? Possible pilferage of oil and fuels from vehicles ? Polluted water deposition in nearby water bodies ? Excavated materials found from various sites ? Human wastes would be generated as the work force
would be around 5000-6000 workers
? Mitigation of risks during construction
? Noise walls to be installed, speed of vehicles &
machines to be kept under check ? Continuous sprinkling of water to reduce dust emission & air pollution ? Maintenance of machines & equipments ? Materials found from evacuation sites to be used for filling large pits ? Solid human wastes to be disposed in pits
IFC Role & Additionality
?
IFC requested by GoI to support this first private supercritical project in the country
? IFC
participated in pre-bid consultations to improve Project’s bankability is important to boost confidence of domestic & international investors in India’s power sector
? Success
?
Project has significant risks due to size and complexity
? First
private project using supercritical coal technology in India
? Significantly
larger than any previous project by the sponsor, tripling its generation capacity played a key role in financial structuring on behalf of all lenders
? IFC
? IFC’s
presence contributes indirectly towards mitigation of political and regulatory risk
IFC Role & Additionality
?
Project requires very long maturities (20 years) to achieve a low tariff for consumers
?IFC’s
financing is critical to meet large debt financing
needs
?Local
banks are providing significant debt but are unable to meet entire debt needs due to exposure limits commercial banks have limited appetite for long maturities because of refinancing risks and poor creditworthiness of state-owned off takers
?International
?
IFC’s involvement requires CGPL to comply with more stringent E&S standards than GoI’s
Fit with IFC’s Climate Change Strategy in the Electricity Sector
?
India has few scalable alternatives to coal; IFC encourages use of more efficient coal technology which results in lower carbon emissions
?
Project will have amongst the lowest GHG emission rates globally lower by 40%, 18% and 16% compared to the average GHG emission rate of coal based plants in India, across the globe and OECD, respectively
First supercritical project sets a precedent for efficient coal usage: consumes 1.7 million tons of coal less per year than traditional subcritical plants of comparable size
?
?
IFC support for this project will have a strong demonstration effect for other developing countries that need to develop coal-fired generation
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Particulars
Phase 1 2 3 4 5 Project Size (MW) Capacity Commisioned(MW) 800 800 800 800 800 4000 Completion year Sep-11 Jan-12 May-12 Sep-12 Jan-13 Fiscal Year Completion Mar-12 Mar-12 Mar-13 Mar-13 Mar-13 Days Operational 210 90 330 210 90
Operating Assumptions
Fuel Cost Rs / ton Coal Consumption rate Kg/Kwh Coal cost Rs/unit Transportation & handling costs of coal / gas O&M Expenditures (3rd Year post COD) Annual 2250 0.36 0.81 0.22 50
Dollar Rate
46
Plant Load Factor (PLF) Auxialary Consumption
Levelized Tariff (Rs / Kwh) Annual Tariff Escalation in percentage Useful Life (years)
85% 8%
2.26 0% (for next 15 yrs.) 25
Operating Assumptions
? Savings that will be made by using this critical
technology in terms of CO2 or CER
Grid Emission Factor (GEF)
Co2 savings in 10 years in Million Tonnes
CER Rate (Euro / CER) Exchange Rate (Rs / Euro)
28.30
12 66
CER Rate (Rs / CER)
792
Working Capital Assumptions
Working Capital Assumptions Receivables (months) O&M Expenses (months) 2 1
Financial Assumptions
Financial Assumptions Debt Equity Total Project Cost (Rs Million) Total Requirement CAPEX Phasing 127500 42500 170000 75% 25% 100%
Debt Structure Korean Bank, ADB,IFC (in Billion Dollars) SBI(In $ Billion) 67734.375 59765.625
Interest rates 12.0% 13.5%
Financial Assumptions
Interest On Debt Repayment Period for SBI (yrs) Repayment Period for Foreign Dev. Bank (yrs) Moratorium period (Years) Cost of Equity 12.7% 12 20 3 18%
Depreciation SLM (% p.a.) Depreciation Accelerated Depr. (% p.a.) Estimated Salvage Value
3.60% 10% 10%
Tax Rate MAT Rate Normal 15% 34.00%
Financial Assumptions
Financing Debt Total
IFC ADB Korean ECA Local Bank Led by SBI Tata Sons Equity
(in billion $) 3.2
0.45 0.45 0.8 1.5 1.05
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
P&L Statement
(All figures in Rs million)
Projected Income Statement
1
FY12
2
FY13
3
FY14
Total Ann gen Capacity(Million Units or MUs) Net Ann Gen Tariff (Rs / unit) Revenue in Millions CER Revenues Coal Cost O & M Expenses Transportation Cost EBITDA Depreciation -1st 2 Blocks Depreciation -last 3 blocks Total Depreciation EBIT Interest On WC Borrowing Interest on Long Term Loan PBT Tax Paid PAT Gross Cash Accruals
5,760 4,504 2.26 10,180 433 3,648 1,150 991 4,823 2,448 0 2,448 2,375 362 6,479 -4,465 0 -4,465 -2,017
12,096 9,459 2.260 21,378 909 7,662 1,150 2,081 11,394 2,448 3,672 6,120 5,274 599 16,196 -11,521 0 -11,521 -5,401
35,040 27,401 2.260 61,927 2,634 22,195 1,150 6,028 35,187 2,448 3,672 6,120 29,067 1,457 16,196 11,414 1,712 9,702 15,822
Effective Tax Rate (%)
DSCR Average DSCR
0.0%
0.37 1.35
0.0%
0.33
15.0%
1.79
Projected CF & WC
Projected Cash FlowStatement Inflows: Gross Cash Accruals Deferred Tax Liability Increase in WC borrowings Total Inflows Outflows: Increase in WC Loan repayment Total cash outflows Net Cash Flow during the year Opening Cash Balance Closing Cash Balance
FY12
FY13
FY14
-2,017 0 2,847 830 2,847 0 2,847 -2,017 0 -2,017
-5,401 0 1,866 -3,535 1,866 0 1,866 -5,401 -2,017 -7,418
15,822 3,881 6,758 26,461 6,758 0 6,758 19,702 -7,418 12,284
Working Capital Calculations Receivables (2 months) O & M expenses Total WC requirement
WC borrowings Interest on WC Increase in WC borrowings
1,697 1,150 2,847
2,847 362 2,847
3,563 1,150 4,713
4,713 599 1,866
10,321 1,150 11,471
11,471 1,457 6,758
Tax and PBT DepriciationTax Rate Applicable (%) Year Calculation Tax To be Paid Tax paid
MAT Credit Left MAT Credit Availed Effective Tax Rate (%) Accelarated Depreciation Depreciation for 1st Block Accumulated Depreciation for 1st block Depreciation for 2nd Block Accumulated Depreciation for 2nd block Total Depreciation Income Tax Calculation
PBT as per Books Add Depreciation as per Books
Tax Calculations
FY12
FY13
FY14 11,414 15% 3 1,712 1,712
-4,465 -11,521 15% 15% 1 2 0 0 0 0
0.00%
0.00%
15.00%
6,800 6,800 10,200 10,200 17,000
6,120 12,920 9,180 19,380 15,300
5,508 18,428 8,262 27,642 13,770
Less Depreciation for Tax Purposes
Taxable Profit
-4,465 -11,521 2,448 6,120 17,000 15,300 -19,017 -20,701
11,414 6,120 13,770 3,764
Carry Forward Losses
FY12 0
FY13 -19017 0 0 15% 2 0 0
FY14 -39718 3764 0 15% 3 0 0
DTL Calculation
Losses Carried Forward
Carry Forward Losses Used to setoff
Profit for Taxation
0 15% 1 0 0
Tax Rate Applicable (%) Year Tax To be Paid Tax paid MAT Credit Left MAT Credit Availed Effective Tax Rate (%)
Deferred Tax Liability
Profit Before Tax Tax on Book Profit Tax actually payable with 80 IA benefit
-4,465 -11,521 0 0 0 0 0 0 0 0
11,414 3,881 0 3,881 3,881
Deferred Tax Deferred Tax Liability
Loan Repayment Schedule
FY12 FY13 FY14 FY15 FY16 FY17
(All figures in Rs million) Year Loan O/S Loan Repayment to ADB and others Loan Repayment to SBI Total Repayment Loan Cl. Bal. Interest 1 2 3 4 5 6
51,000 127,500 127,500 127,500 119,133 110,766 0 0 0 0 0 0 0 0 0 3,387 4,980 8,367 3,387 4,980 8,367 3,387 4,980 8,367
51,000 127,500 127,500 119,133 110,766 102,398 6,479 16,196 16,196 16,196 15,134 14,071
Projected Balance Sheet
Projected Balance Sheet ASSETS Gross Block Less: Depreciation (Cum) Net Block Net Current Assets Cash balance Total Assets LIABILITIES Equity Share Capital P&L Reserve Total Equity Long-term Loan WC borrowing Deferred Tax Liability Total Liabilities 17,000 -4,465 12,535 51,000 2,847 0 66382 42,500 -15,986 26,514 127,500 4,713 0 158727 42,500 -6,284 36,216 127,500 11,471 3,881 179067 42,500 2,316 44,816 119,133 12,621 7,321 183890 42,500 11,819 54,319 110,766 12,621 11,122 188828 42,500 22,226 64,726 102,398 12,621 15,285 195031 68,000 2,448 65,552 170,000 8,568 161,432 170,000 14,688 155,312 170,000 20,808 149,192 170,000 26,928 143,072 170,000 33,048 136,952
FY12 FY13 FY14 FY15 FY16 FY17
2,847
-2,017 66,382
4,713
-7,418 158,727
11,471
12,284 179,067
12,621
22,077 183,890
12,621
33,135 188,828
12,621
45,458 195,031
FCF & IRR Calculation
(All figures in Rs million)
Projected Income Statement
Free Cash Flow to firm EBITDA Tax Paid Changes in Working Capital CAPEX Interest Payment *Tax Rate Terminal Value (if any)
FY09 FY10
COE COD Post Tax COD WACC
0
FY11
18% 13% 8% 10.8%
1
FY12
Debt 75%
Equity 25%
2
FY13
3
FY14
0 0 0 17,000
0
0 0 0 17,000
0
0 17,000 18.14% 70,359 0 0 17,000 0 12,750 4,250 22.53% 11,097
0 17,000
0 0 0 17,000 0 0
17,000
4,823 0 2,847 17,000 0 0
9,330
11,394 0 1,866 102,000 0 0
88,740
35,187 1,712 6,758 0 2,648 0
42,882
FCFF
Project IRR NPV-FCFF (Rs Million) PAT Depreciation Capex Change in WC Net Borrowing FCFE Equity IRR NPV-FCFE (Rs cr)
0 0 17,000 0 12,750 4,250
0 0 17,000 0 12,750 4,250
4,465 2,448 17,000 2,847 12,750 9,114
11,521 6,120 102,000 1,866 76,500 32,768
9,702 6,120 0 6,758 0 9,064
Projected Common Income Statement
1
Projected Common Income Statement FY12
2
FY13
3
FY14
4
FY15
5
FY16
Total Revenues Revenue in Millions CER Revenues O & M Expenses Transportation Cost EBITDA Total Depreciation Interest On WC Borrowing Interest on Long Term Loan PBT Tax Paid PAT
10613 95.92% 4.08% 10.84% 9.34% 45.45% 23.07% 3.41% 61.05% -42.07% 0.00% -42.07%
22287 95.92% 4.08% 5.16% 9.34% 51.12% 27.46% 2.69% 72.67% -51.70% 0.00% -51.70%
64561 95.92% 4.08% 1.78% 9.34% 54.50% 9.48% 2.26% 25.09% 17.68% 2.65% 15.03%
64561 95.92% 4.08% 3.56% 9.34% 52.72% 9.48% 2.48% 25.09% 15.67% 2.35% 13.32%
64561 95.92% 4.08% 3.56% 9.34% 52.72% 9.48% 2.48% 23.44% 17.32% 2.60% 14.72%
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Key Risks
? Operational Risk
? Cost of Completion might get increased ? Timely availability proper port infrastructure at Mundra
? Completion Risk
? Probability of project getting delayed
? Regulatory Risk
? MAT controlled by government ? Export limits of coal set by Indonesian government
? CER Rate volatility Risk
? Prices of CER might fluctuate
? Financial Risk
? Interest Rate Risk
? Currency Risk
? Rupee depreciation
Risk Matrix
Sr No. Risk Weight (A) Impact Rating(B) Composite rating Reduction in (A*B) Profitability Comment
1 2 3 4 5
Operational Risk Completion Risk Regulatory Risk CER Rate volatility Risk Financial Risk
0.35 0.15 0.15 0.1 0.15
17.97% 25.23% 0.42% 1.02% 7.90%
6.29% 3.78% 0.06% 0.10% 1.18%
If cost of completion is increased by 10% Project delayed by 1 year MAT increased to 18% from 15% If price of CER decreases by Euro 1 Interest rate decreases by 1% If Rupee depreciates by Re 2
6
Currency Risk
0.1
0.54% Total Risk Rating
0.05% 11.477%
Risks & Mitigants
? In June 2007, Tata Power acquired a 30% stake in two coal
mines in Indonesia to hedge the fuel supply risk for its Mundra UMPP project ? The acquisition has turned out to be meaningful, since Tata Power has enjoyed returns from higher coal prices by earning dividends from the coal mines until the commissioning of the Mundra UMPP project ? The political and regulatory environment pose a threat to our assumptions, but we believe that the coal contracts of work (CCOW), under which the company operates provide a partial hedge to this risk ? Mundra Port and SEZ Ltd (MSEZ IN, not rated) are planning a 35MT per annum terminal by 2010 and any delay in its execution could lead to fuel supply concerns. However, the total demand for 12–13MT per annum of imported coal is likely to be required only in 2013, by which time, we believe the coal terminal will be ready.
Risks & Mitigants
? A delay in the execution of projects, would pose increased capital
cost risk, owing to accumulated interest during construction, which would affect earnings.
? The company has already awarded contracts for its projects under execution
and, hence, we believe delays in equipment supply would be highly unlikely. ? Since Tata Power placed orders with Toshiba and Doosan
immediately after the project was awarded, we believe timely supply is likely and cost overruns can be avoided despite the significant volatility in commodity prices over the past year, as the main equipment supplier would have been able to hedge by forward buying for this project ? To hedge against varying shipping costs, the company is planning to acquire ships for coal transportation through a wholly owned subsidiary based in Singapore [Source: Hindu Business Line, 20 December 2007] (this move could help it obtain tax incentives that are to shipping companies). In addition, shipping prices have fallen in the recent past, providing Tata Power the opportunity to charter ships for the long term at reasonable rates. We assume Tata Power’s average transportation cost to be INR750 per tonne for the project life led by both the acquisition and chartering of ships.
Risks & Mitigants
?
Largest ever power plant in India with significant implementation risks including delays and cost overruns
?
Key technology supplied by reputable contractors at fixed price; adequate contingencies and sponsor support for cost overruns and delays
?
Fuel supply risks from imported coal could expose Project to volatility in coal pricing
?
Long term coal supply contract at reasonable prices; Coastal Gujarat Power Limited plans to further diversify coal sources
?
Delays in completing the requisite transmission lines and port infrastructure
?
Transmission & port infrastructure developed by reputable companies with good track record
Risks & Mitigants
?
Off-take risks from poor creditworthiness of the state-owned utilities
?
Project’s tariff is highly competitive; ensures that state utilities are incentivized to pay; power sector reforms progressing in most Indian
states
?
Refinancing risks after 10 years of operations because of insufficiently long tenors from local banks
?
IFC and other foreign lenders providing long-term loans with 20 year tenor which will help mobilize other commercial lenders when needed
?
CER price volatility in the international markets subjects the project to the risks of fluctuating gains arising out of sale of CER’s
?
This risk mitigation mechanism is not freely available in the market and
thus it cannot be effectively mitigated
Agenda
? India Power Scenario
? Development of UMPP
? Project Tata Mundra UMPP ? Assumptions in Financial Model ? Financial Projections ? Key Risks ? Recommendation
Recommendation
? Given that fuel security is a major concern for most thermal plants in
India, Tata Power has backward integrated by acquiring a minority stake in Indonesia’s coal mines with an offtake agreement ? The Mundra UMPP project can lower the amount of coal burnt each year by 1.7MT, thus lowering emissions by 3.6MT per year, using super critical technology, which is more efficient than sub-critical technology commonly used in India. As a result, the Mundra UMPP is eligible for clean development mechanism (CDM) projects, which will allow it to claim 2.8mn carbon credits during 2011–21, this contributes around 4.5% of revenues Project IRR 18.14%
NPV-FCFF (Rs Million) Equity IRR NPV-FCFE (Rs Million) 70,359 22.53% 11,097
? Considering the IRR, the project should be financed
? We believe that Tata Power must reduce its reliance on one coal supplier
THANK YOU
doc_247962994.pptx